Hi, good morning everyone. My name is Erin Wright, the Healthcare Services Analyst at Morgan Stanley. Welcome to the second day of the Morgan Stanley Healthcare Conference. We're happy to have you here bright and early this morning. Just some more important disclosures. Please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, we are happy to have Align Technology with us this morning. Thank you so much for joining us. We have Chief Financial Officer, John Morici, as well as Shirley Stacy, who heads up the Investor Relations effort at Align Technology. Thank you so much for joining us this morning. I'll kick it off with some Q&A. Feel free to have Q&A from the audience as well. I'll talk about, I guess, 2025, the guidance that you gave in the most recent quarter and expectations for the remainder of the year. The latest guidance is calling for lowered revenue growth, flat to slightly up, and that's from 2024. I guess that's versus a prior expectation of 3 to 5% or 3.5 to 5.5% growth. Can you talk about what the cadence looks like from here, your visibility? What are some of those key drivers of that cadence with an implied step up in the fourth quarter? Yeah, as you said, when we looked at the year and really as we went through the second quarter, typically we'd see a seasonality, a step up really going from first quarter to second quarter as you start to get into more of the teen season in the Western world and Western Europe as well as North America. Even as you go through that second quarter, you'd see that step up as you go through that second quarter. What we saw is just teens and even others going to the general practice is that just the volume wasn't as much as we would have expected. You also see some timing differences where somebody goes and wants to get a scan, thinks about treatment and perhaps doesn't go into treatment right away. We saw that into the second quarter, that's what caused some of that slowdown that we saw, really into June. As we saw that, we really projected what we'd expect for the third quarter based on the closing of June and shot that into the third quarter in terms of guidance and then what it would mean for total year. It really comes down to, in many parts of the world where you don't have some of that hesitancy to go into treatment, volumes are strong. You have parts of Eastern Europe, Middle East, Southeast Asia, China, Latin America, they've been relatively strong for us. You have certain parts of the world where this plays more of a factor, and unfortunately, it's bigger parts of our market in Western Europe and North America. That's what we use to give us a view of the second half. Now it's executed on the third quarter. Third quarter to fourth quarter, kind of expectations in terms of what's implied in the guidance, I guess, what gets you to that cadence? As you look for the third quarter to the fourth quarter, typically you have a step up. It's really due to two things. China comes down, because China's big quarter is the third quarter. It's mostly a teen season, but it's overall a good ortho season for us in the third quarter. As that comes down, Europe comes back up into the fourth quarter. You have the holiday timing and vacations and so on that goes away in the fourth quarter. When we think of that third quarter to the fourth quarter step up with Europe coming back, coupled with a lot of the new products that we've introduced just came into Europe right into the second quarter and third quarter. These are that palatal expander that we have, mandibular advancement with occlusal blocks, even our subscription program that we have there that does touch-up cases. That really plays more of an effect in the fourth quarter. That's great when the volumes come back in the fourth quarter. We get that benefit there. We also have, and we talked about that, the UK VAT. We had been withholding for VAT. We changed our, after that ruling that we had from the lower courts, we changed our pricing. Now we don't have to discount down. It was a 20% discount. On an annual basis, close to $35 million just for that UK VAT that we had to withhold. We made that change midway through the third quarter. We'll get a full quarter benefit of it in the fourth quarter. That's on the clear aligner side of between the volume in Europe as well as the UK VAT. As we've introduced Lumina, we've seen a lot of upgrades and we've really been happy with the trading out from some of the older scanners that we had that can upgrade to the new Lumina. Now what we'd expect to see is a lot of full systems being upgraded, especially in the fourth quarter when you have more of a capital market benefit anyway from the scanner. We should see that. A big focus on being able to trade in old scanners that we have or competitive scanners to be able to upgrade and turn them into new scanners, new systems for Lumina in the fourth quarter. When you couple those together as well as the normal seasonality from third quarter to fourth quarter, that's what we use for our guidance. Okay. Can you help us bridge to the medium-term kind of guidance of 5 to 15% from 2026 to 2028? I guess the long-term revenue targets, I guess, also of over 15% that you've laid out at your investor day, the timeframe to get there, could you comment on that? Given the 2025 revenue guidance, is it prudent to assume that 2026 is more like low to mid-single digit growth? Is that the right way to think about it? The starting point when we think about our long-term guidance is there's just an overall, you know, starting point of the market of mainly low single digits just in terms of what the market growth and the orthodontic. It's been challenging of late, but we think of when we think of that long-term guide, there's a certain orthodontic market growth. That's just a normal population growth and maybe, you know, expanding out and capabilities of the product kind of lends itself to some lower growth within the ortho space. On top of that, things that we're doing to be able to grow above that into that 5 to 15%. Things like, you know, when we have some of the new products like mandibular advancement with occlusal blocks, being able to provide capabilities like with the palatal expander, which is a new product for us, the subscription program that lends itself to the touch-up cases as minor adjustments that are needed. You add in some of the work that we're doing on direct fabrication to be able to have, you know, products that are developed from directly fabricating an aligner, starting mainly with retention, but then that'll lead itself to a full, you know, aligner and movement that we can provide to be able to have those new products. Also, on the iTero side, we have Lumina that's come out. There'll be next generation kind of improvements on Lumina in the future to be able to help grow into having that upgrade cycle of the scanners and so on. We've got a product pipeline of various products that'll help us on that side. Further expansion, there's still areas where we've now gone from distributor to direct. There's still additional investments we can make in many markets that are growing very strong for us in the Middle East and India and Southeast Asia and other places where we have a presence, but we would try to expand that presence based on the demand in those areas. We feel that, you know, from a product standpoint, we've got that pipeline to be able to develop what we're trying to do from a go-to-market standpoint to try to, you know, train more doctors and then get those doctors to do more and more cases. We feel like we have a good balance of, you know, building off the base market with the things that we can do to be able to drive volume and ultimately revenue. Okay. Can you provide us with what you're seeing across the teen market in particular? I think that was a dynamic that was a little bit surprising in the most recent quarter. I guess, how would you characterize market penetration? How would you characterize kind of the competitive dynamics with brackets and wires? You gave some interesting gauge data on brackets and wires versus clear aligners. Any changes on that front relative to what you were seeing? I think that was June data that you were referencing. You're right. Teen is very important to our business in the orthodontic area because when you think about the orthodontic case starts that happen every year, over 20 million orthodontic case starts, just regular people going into treatment, 75% to 80% of them are teens. The vast majority of the market opportunity is within teen. When you think about how teen cases are performed by mostly orthodontists, those orthodontists predominantly use wires and brackets. When you think about that 75% of those 20 million patients are teen, maybe 85% to 90% are done with wires and brackets. Clear aligners is the majority. We're the majority of that, of the clear aligner market. The opportunity is great. It comes down to having great products to be able to give those doctors confidence to move teeth in a predictable, reliable way. That's the products that we've talked about with mandibular advancement, products that are like Invisalign First to be able to expand the arch, the palatal expander, which actually breaks the suture. A lot of these cases that we're really focused on with these orthodontists are, you know, they're preteens. These are six, seven, eight-year-olds who are going into treatment and being able to, through our doctors, be able to provide that type of early care. That's really important. That market for us is typically teen, grows faster because of the dynamics. It's an underpenetrated market, huge opportunity. It's been growing faster prior to COVID, during COVID, and after COVID. It's just a matter of how fast can we get that to be able to grow. Yeah. One of the other interesting things just to add to what John said with respect to teens and some of these new products, IPE is a great product across the board because it also helps us get after, you know, kind of expansion into the teen segment with kids on both the ortho and the GP side. The pediatric dentist, we just came from our GP summit in Las Vegas. The one palatal expander resonates really well with the pediatric dentist. It's a good, good growth opportunity for us. That's how we grow. What you do see, the last part of your question, you do see especially orthos who maybe don't have as much traffic coming to their offices. You think about they've got a certain amount of, they've got their fixed space, they've got their staff, they've got their own time that they've committed to that office. You play back to June what we saw in some cases where if that patient traffic was less, maybe there was uncertainty with either parents or the patients coming in where they didn't come as much to those ortho offices in April and May. When others come in in June, that ortho makes a decision, do I put that patient into wires and brackets or do I use Invisalign? They look at their short-term economics. If they haven't digitized fully, sometimes those orthos make decisions and they'll put that patient into wires and brackets because that upfront cost could be upwards of a $1,000 difference. We know our system, that when a doctor uses it, takes out a lot of labor and overhead, don't need as many chairs and all the benefits that we talk about, a lot of productivity that we could bring to those offices. In that short term, a lot of those costs are fixed and they make those trade-offs. We saw in some cases with gauge data in the U.S., which is a subset of orthos, you would see in some cases wires and brackets up double digit and clear aligners and us not up as high as that. You see those trade-offs that happen, but it's really up to us to work with doctors, get doctors that we do sell to to use more and more products that we have to really have Invisalign be part of what they're using to go to market and be able to provide those products. As they digitize more and more, there's less of that shifting back and forth between analog and digital. Is there anything else you can do? Is it more just about the doctor training, getting them comfortable, and also then seeing the volume to justify it too, but to ease that upfront burden, what else can you do? Is there more promotions? Is there more incentive opportunities, programs that you can do for the docs to get them? Some of it is in programs. You can do the right type of advertising, being able to explain the differences between Invisalign versus wires and brackets, faster treatment time, less office visits, less painful. There's a lot of benefit that we can bring so that both the child that comes in can ask for it and that parent is educated to know those differences. That's a plus. We also look at our product portfolio. Typically, if you went back in the past, we really had a comprehensive unlimited product, which is a five-year unlimited refinements, and it was really set up to get those doctors to start using our products and get comfortable that, okay, it might take several years to finish this treatment, but we're going to be with you along the way to provide as many refinements as needed. We've started introducing products that have less years, shorter treatment time, and fewer refinements. A product like the 3-in-3 that we had, which was three refinements over three years, came out two and a half years ago. It's now our number one selling product. Why? Because that upfront cost for those doctors is less. From our standpoint, that's a great trade-off because you have a product that the cost of service is less. It's less for the doctor upfront. As that doctor needs additional refinements, they are able to use that product and use refinements as they go. What that does, when you think of that type of product, if you have fewer refinements over a time period, that upfront cost for those doctors will be less. They'll be able to still use refinements, and that's additional revenue that we get over that time, but it's not upfront. Giving those doctors that flexibility to choose the way they want to practice, maybe just the initial product and refinements come later, or they want to buy the product with refinements upfront. Okay. I'll shift gears here, and I want to get back to innovation and some of the initiatives around the teen market. You did announce a series of actions to streamline operations more recently and reallocate resources. How are these efforts progressing now relative to your expectations? What is embedded in some of these actions, and are we on track to improve kind of operating margins by at least 100 bps in 2026? Part of what we, as we think about our changing product portfolio, we want to be able to have our cost structure that meets those needs because as you have, you could still have a great high gross margin rate product, but if it's less gross margin dollars, you want to be able to have your overall margin work from that standpoint. When we think about some of the restructuring and things that we've made, it's really designed around getting closer to our customers. In many cases, we have three manufacturing sites, but we want to be able to use those manufacturing sites that get closer to our customers. For example, in Poland, as we continue to ramp up that facility, there's still some manufacturing in other parts of the world that we want to make sure is manufactured in Poland because it significantly reduces our freight cost. In many cases, our freight cost is one of our highest input costs that we have. When you're air shipping things from one geography to another, this can help us save on that. Also, using the latest equipment. Having that equipment that you put in that's closer to your customers, but do it in a way that is as productive as possible. Some of this is changing out some of the older equipment that we have to be the next generation equipment to save on material costs and labor costs and so on. That's a big benefit for us, and that'll help us from a COG standpoint and therefore gross margin. The other part of it is just looking at our overall structure, the layers that we have in the organization, the span of control that we have. Can we increase our span of control so we're more productive from an OpEx standpoint and therefore get some of that leverage? We're really looking at it as to get closer to our customers, be as productive as possible, hopefully reduce our cost to serve so that we can be flexible as an organization and be able to not only deliver that productivity that we need, but in some cases, that productivity that we generate, perhaps there's other areas that we need to really work with our doctors to be able to grow. Our changes that we're making are all designed around trying to drive additional growth. We want to be able to grow the market. We're really the only company that actually grows the clear aligner market. We're focusing on that. You know, working with new doctors, being able to get that right messaging to those potential patients, being able to message parents so that they can understand those differences. We also talked about, through all that, being able to drive the 100 basis point improvement from this year to next year. Some productivity drops to the bottom line, but the rest of it is all about driving growth. Okay. ASP, how should we think about that going forward, just given the mixed dynamics as well as competitive dynamics? I guess FX flows through there too, to some extent. If FX stays constant from here, what we see in our mix is a continued shift to lower list price products. You have it in two ways. One of it is the product dynamic that I was talking about. We've moved from kind of the comprehensive unlimited, which is kind of the ultimate product we have, to products that have less and less refinements. If they have less refinements, it's a lower list price. You're going to see that as you look at our product portfolio. You see that also on the non-comprehensive side. Some cases just need five sets of aligners, seven sets of aligners to do the minor crowding that a patient might have, and the price is less. It's just the reality of what it is. Gross margin rate on those types of products is higher, and the rate is good, but you've got to be able to manage the fact that for those products that come through, it's just at a lower list price. You see this mix shift that continues to happen. You also see it from a geographical standpoint. You see some of the growth areas that we have in the Middle East, Turkey, India, Southeast Asia, and Latin America, and those are very, very good growth regions that we have, but in some cases, there's lower list prices. It's managing the list price and also being able to be aware of the product portfolio. Through all that, we would expect ASPs to be down slightly on a year-over-year basis through that. Gross margin rate still, those costs to serve products that we have are very favorable for us. We just have to manage what it means from a gross profit standpoint. The design that we have and how we're going to market is to expand the market. We want to be able to grow this market in this underpenetrated way. One thing to note, though, is John talks about this shift to lower list prices. It's a reflection of a couple of things. It doesn't mean that the products are not necessarily as sophisticated and not clinically effective. If you think about IPE, it's half the price, right? It's not a clear aligner. It's a different device. It just naturally carries a lower list price. Similarly, if you think about the transition that John talked about from 5 and 5 to 3-in-3 and less aligners, that's a reflection of the product capabilities, right? 5 and 5 served us really well because of its innovation, but the ability to complete cases with a product like Invisalign is a reflection of the materials and the science behind it that allows us to do that. Okay. I'm going to switch gears a little bit. I'm going to ask you about a competitor, but you did file a patent infringement lawsuit against Angelalign Technology. I guess, can you talk to speak anything you can speak to that in terms of how you're thinking about defending your positioning from an intellectual property perspective in any color or further thoughts you can share on their development? First off, you know, we spend millions of dollars a year, like any technology company spends on R&D, and that R&D turns into the intellectual property that we've established over time. It's in many jurisdictions. The one that we filed with Angelalign Technology is actually multiple jurisdictions in China and Europe and as well as the U.S. to be able to show that, you know, in many cases, I think when you spend as much as we have and develop as much intellectual property, you can expect maybe some companies to trip on some of that intellectual property. It's a shared space and you have some of that. When we look at what that competitor is doing, it's more than just tripping on things. It is a clear, we think, a very clear case of a company not only using the software, which a large amount of our technology goes into the treatment planning and how teeth move, and sequencing and all the features related to that, but also the material itself and in terms of how they've established the material and so on. Look, it'll be one where we want to make sure that the investments that we're making, we want to be able to grow this market, but we want a fair marketplace to be able to operate in. When a company is blatantly, we think, blatantly violating that space, you know, we came with this to try to establish that and make sure there's a level playing field. Can you speak a little bit more about the competitive landscape or competitors even moving the needle at this point in terms of in certain markets, and Angelalign Technology coming in at a pretty low price point? Is that even sustainable in your view? I mean, I think, you know, when you look at how the marketplace has evolved, you know, we used to be talking about the direct to consumers, the DTCs, they've come and gone. The model wasn't right. You see the challenges that you see with some of these other companies that come in where there's a certain amount of technology that they might invest in, but for this, their go-to-market strategy is to come in with a lower price. We think that that's not sustainable. In many cases, they've had to come in with a lower price to get doctors to be able to try their products. That might be a way to get in, but what you're finding and many doctors are finding is the technology isn't giving them the results that they want. You couple that with many of the competitors are realizing that they raised price because they're not able to make the margins work. You can pretty much go across all the different competitors. They've, one way or another, having to change their product offering because, you know, it's a low price, but it's not sustainable from an overall margin standpoint. From our view is we want the best products in our doctors' hands. There's a certain amount of investment in that. We're always mindful of price and what it means and promotions and other things that we're doing, but we're focused in on driving this market. In the end, it's an underpenetrated market. The vast majority of cases are done with wires and brackets, and we're going to keep doing everything we can to grow the overall marketplace of clear aligners. Competition comes and goes in varying levels of technology and pricing and so on, but we're just focused on what we can control. I want to talk a little bit about direct fabrication (DirectFab) technology. Can you talk a little bit about the timing, magnitude, how this should drive efficiency and cost savings? Can you just quantify at this point, or what can you quantify at this point? The direct fabrication that Erin references is the typical manufacturing that we have. We print the negative, and then you vacuum form the plastic on top, the SmartTrack material plastic on top, and then you laser trim it and you create the aligner. You make the negative, and then you vacuum form on top. That's a traditional manufacturing that we make over a million parts a day, unique parts a day in our operation. The direct fabrication is you don't need to make the negative. You actually just make the aligner. You make the aligner itself. What does that give you? That gives you ultimate design flexibility because you think about when you're taking a sheet of plastic and vacuum forming it, the thickness is relatively the same. You can't necessarily change thickness on that. If you want certain parts of the aligner cut open and maybe to handle mixed dentition and so on, you don't have that design flexibility. When you direct fabricate something, you design what you want. You might have buttons to make attachments for elastics. You might have things that are open because there's mixed dentition. You could have maybe thicker parts of the aligner on molars to be able to move those in a more predictable way. There's a lot of design flexibility when you have an aligner like that being manufactured. There are two parts to making that aligner. One is being able to have resin that is used in this production, and then can you actually produce this? On the resin side, we couldn't find a polymer that met the needs that we have that would be similar types of movements like a SmartTrack. We needed to have a polymer that could provide predictable, reliable results to the actual aligner itself so that they could provide the treatment. We invented that polymer. It's a certain type of polymer that matches up with the actual printer that we now manufacture. That's the company that we bought a couple of years ago, called Cubicure. Cubicure is the manufacturing company that actually makes the printers. We match that up with the actual resin that we've invented, put those two together. It makes an aligner retainer that has performance capabilities. It can be able to take and move teeth in a predictable, reliable way. It gives outcomes as good or better than the SmartTrack material, the traditional manufacturing that we have. It also brings to market the ability to have complete design flexibility. You have a performance aligner that you can manufacture through the printers that we have with Cubicure. As you scale that up, what you're going to find is you get that design capability, flexibility to be able to go to market with. You also now will have a production as that scales up where you need significantly less materials because you think about that first manufacturing I was talking about. The majority of the plastic that you're using makes the mold that ultimately gets discarded. It's not used in the final product. In our new manufacturing, you just print the aligner. You don't need the negative. You don't need anything else around it. As you scale this up, there's a significant material savings. 80+% of the plastic in your manufacturing goes away. You've got that design flexibility, which helps us at least have a price premium on those products. You also get the cost benefit from less input costs that we have. It's a scale-up. We're doing a lot of testing now. We'll see retainers first, certain types of retainers especially on the teen side to be able to hold teeth as they're going through treatment. Some of these early products that we have with IPE and Invisalign First, you need a retainer to help hold that child's dentition. As we start to scale that in retention, we'll see it also start to cross over into aligners. As we scale that up, we'll have two types of products. You'll have the traditional manufacturing that we have that will be useful for several years to come, but you'll also start to see us scaling up the direct fabrication for those doctors who want to have that flexible type of manufacturing to be able to give them the products that they're looking for. We know and we feel that we're the only company who can provide this. There's a lot of intellectual property on this, a lot of development that's gone in to be able to get these products to what we think are customers. The variable thickness that John's talking about, because we're not limited to just a piece of plastic, if you will, on the sheet, allows for, we believe, delivering a more effective treatment, faster treatment times, and a product offering that gives doctors a lot more flexibility. Should we think of that as being like two different tiers of clear aligner offerings at different price points? What would those price points look like? I assume you have to get 510(k) approval, all that kind of stuff, given that this is a totally new product. That's right. Yes, you have to get 510(k) approval and make sure that the biocompatibility and the effectiveness is all there. You have to follow that path. Think of it as two types of products. You have a premium, which would be the DirectFab, and then you have the traditional that we have. It might help us either get priced on the DirectFab or at the very least hold price. You'd have a pricing differential and ultimately give those doctors that flexibility. As that scales up, it actually becomes a lower cost product than even the traditional manufacturing pros. I want to make sure I get the capital deployment. Are you buying back a boatload of shares today, or what is the priority from a share repurchase standpoint relative to M&A or otherwise? Yeah. When we look at our model, you know, we're fortunate to have a model that generates a lot of cash. That cash generation that we have as a company with no debt and being able to deploy that cash, some of it is reinvesting back in the business. How do we grow the business through the R&D and go to market and so on? Some of that is there. Others is, okay, what's the amount of CapEx that we need? We're not, there's some CapEx that we're spending on the DirectFab, but it's minimal. We have our facilities. We have some of the big purchases that we've already made, so we don't need that. You know, we've invested with certain partners that we have to be able to help grow their business that share our same digital orthodontic mindset. That's been important for us. Then we look at where we can put capital back to our shareholders. We've been doing buybacks, and the buybacks go to buying back our shares to be able to be reflective of the cash generation that we have and the overall needs. From a free cash flow standpoint, we generate a lot of cash through our model, and we want to be able to use it to be able to give back to the shareholders in that way. One thing you talked about at the investor day and delved into a little bit more was leveraging clear aligners for more restorative cases, a potential $10 billion revenue opportunity for you. I guess, when do we hit the inflection point? What do we need to see, whether it's reimbursement, training, otherwise, to see an inflection point there? It's an important part of our business because you think about, there's many doctors, many dentists on the restorative side. Most of what they do is restorative. They're doing fillings and caps and crowns and veneers and so on. Our push to them is, look, you should also do the ortho piece first, move the teeth in a healthy way to then do restorative. If you do that, you're going to save a lot more healthy dentition. Keep the healthy dentition. Don't remove it. Move the teeth first and then do the restorative. To be able to get at a lot of these general dentists that we don't sell to, we're working through the labs. The commonality for a lab is they reach all different dentists. Every dentist has labs, sometimes multiple labs that they use to provide the caps and crowns and veneers and so on. We want to work with the labs to be able to make sure those labs can talk to the dentist and say, wait a second, before you do this implant, you could actually move the teeth in a way so that you don't have to shave as much down and remove that healthy dentition. It's educating the labs, working with the labs to be able to help provide that information back to those general dentists who might not have used ortho first. They might not know how. We have various pilots in play where we're working with those labs to be able to help their general dentists provide alternatives and in this case, move the teeth first before you provide the restorative. We're seeing really good results with this. This is just a force multiplier that we have. Those labs see those general dentists, and the more that we can work with those labs to try to find that right combination, it'll get those general dentists to be able to move teeth and make it part of their workflow, but it also helps from the patient standpoint to be able to have that. exocad acquisition, and you referred to the Invisalign and exocad Art are the products that are in pilot. Okay. Great. Thank you so much. I appreciate the time today. Great. Thank you. Thanks, Erin.