To The Moon

$Align Technology(ALGN)$ reported Q2 2024 financial results on July 24 after the bell.

Performance for the current period

Revenue: total revenue was $1,028.5 million, up 2.6% year-over-year and 3.1% sequentially.Of this, Clear Aligner (clear braces) revenue under the Invisalign brand was $831.7 million, up 1.8% year-over-year.

Profit: non-GAAP operating margin was 22.3%, up 1% year-over-year and 2.5% sequentially, with net income of $147.0 million, or $1.28 per diluted share.

In terms of operating results, sales of Clear Aligners clear braces increased 3.2% year-over-year and 6.2% sequentially.There was significant growth in adult patients and teenage patients, especially in Asia Pacific, EMEA (Europe, Middle East and Africa) and Latin America.

As for cost of services, the Imaging Systems and CAD/CAM Services segment's revenues increased by 16.1% year-on-year and 9.2% sequentially.This was mainly due to the adoption and upgrade of the new generation of iTero Lumina scanners.

However, the 3.2% year-on-year growth in sales volume resulted in a revenue growth of only 1.8%, which was mainly affected by exchange rate fluctuations, in addition to discounts on some of the older products.The strong US dollar in Q2 negatively impacted foreign exchange by about $11.6 million, which mainly affected Clear Aligner's ASP (Average Selling Price).

In addition, in terms of marketing and consumer engagement, the Company has experimented with new media, such as increasing brand awareness and consumer engagement through social media and influencer marketing (e.g., TikTok, Instagram, etc.) globally.Particularly in the youth market, the Company is working with athletes and social media platforms to increase Invisalign brand awareness.

Earnings Conference Call Discussion

Revenue guidance and FX impact

Regarding Q3 and full year revenue guidance, specifically the impact of FX.

The company expects Q3 revenue to be in the range of $980 million to $1 billion, with full-year revenue growth of 4%-6%, slightly miss. Unfavorable FX impacts are expected to continue, particularly in the yen, euro and Brazilian real.

Reasons for the decline in Clear Aligner's ASP and future expectations.

The Company believes that the decline is primarily due to higher discounts, a shift in product mix to lower ASP products, and unfavorable foreign exchange impacts.The Company is taking steps to optimize its product portfolio and pricing strategy to mitigate these effects.

Market Acceptance of New Service iTero Lumina Scanner

The iTero Lumina scanner has been well received in the marketplace, particularly in orthodontic workflows, the company says.The company plans a limited market launch in the fourth quarter and full commercialization in the first quarter of 2025.

Collaboration with DSOs (Dental Service Organizations)

The Company has established excellent relationships with several global DSOs that recognize the benefits of digital workflows.The Company will continue to explore partnership opportunities with additional DSOs to drive the adoption of digital dentistry.

Reasons for changes in legal and operating expenses

The increase in Q2 operating expenses was primarily due to legal settlement costs and an increase in employee compensation.The Company is working hard to control expenses and expects them to ease in the future.

The above analysis shows that Align Technology's performance in the second quarter of 2024 has faced some challenges, but the management has demonstrated a strategy and confidence to address these challenges by optimizing the product portfolio, strengthening marketing and expanding partnerships.