愛齊科技 (ALGN) 2025 Q4 法說會逐字稿

Greetings. Welcome to the Align fourth quarter and full year 2025 earnings call. (Operator Instructions) Please note, this conference is being recorded. I will now turn the conference over to your host, Shirley Stacy, with Align Technology. You may begin.

Good afternoon, and thank you for joining us. I'm Shirley Stacy, Vice President of Corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO; and John Morici, CFO. We issued fourth quarter and full year 2025 financial results today via Business Wire, which is available on our website at investor.aligntech.com. Today's conference call is being audio webcast and will be archived on our website for approximately one month.

As a reminder, the information provided and discussed today will include forward-looking statements, including statements about Align's future events and product outlook. These forward-looking statements are only predictions and involve risks and uncertainties that are described in more detail in our most recent periodic reports filed with the Securities and Exchange Commission available on our website and at sec.gov.

Actual results may vary significantly, and Align expressly assumes no obligation to update any forward-looking statement. We have posted historical financial statements with corresponding reconciliations, including our GAAP to non-GAAP reconciliation, if applicable, and our fourth quarter and full year 2025 conference call slides on our website under quarterly results. Please refer to these files for more detailed information.

With that, I'd like to turn the call over to Align Technology's President and CEO, Joe Hogan. Joe?

Thanks, Shirley. Good afternoon, and thanks for joining us today. On our call today, I'll provide an overview of our fourth quarter and full year 2025 results and discuss performance of our two operating segments: System and Services and Clear Aligners. John will provide more detail on our Q4 financial performance and comment on our views for 2026. Following that, I'll come back and summarize a few key points and open the call to questions.

I'm pleased to report fourth quarter results with better-than-expected revenues and Clear Aligner volumes as well as non-GAAP gross margin and non-GAAP operating margin, both above our outlook and the highest non-GAAP operating margin since 2021. Q4 revenues were a record $1.048 billion, up 5.3% year over year and 5.2% sequentially. For the full year, 2025, total revenues were a record $4 billion, up 1% year over year. Systems and Services revenues were $790 million, up 2.7% year over year. Fiscal 2025 Clear Aligner revenues were $3.2 billion, up 0.5% year over year on a record Clear Aligner volumes of 2.6 million cases, which were 4.7% year over year.

For the year, a record 936,000 teens and kids started treatment with Invisalign Clear Aligners, up 7.8% year over year. For fiscal 2025, total DSP Touch Up cases shipped were over 136,000, up 36% compared to 2024. We also delivered fiscal 2025 non-GAAP operating margin of 22.7% above our 2025 outlook. In terms of major milestones, as of December 31, 2025, over 296,000 active Invisalign-trained doctors have treated over 22 million people worldwide, including over 6.5 million teens and growing kids with Invisalign Clear Aligners and Invisalign Palatal Expanders. For Clear Aligners, Q4 revenues of $838 million were up 5.5% year over year and up 4% sequentially.

Q4 Clear Aligner volume was also a record 677,000 cases up 7.7% year over year and up 4.5% sequentially. On a year over year basis, Q4 Aligner volume growth was driven by strength in EMEA, Latin America and APAC, with stability in North America. Q4 Clear Aligner volume growth reflects strength from adults and teens and growing kids patients as well as growth in both the GP and ortho channels. On a sequential basis, Q4 Clear Aligner volumes reflect strong growth from the EMEA region, driven primarily by adult patients as well as continued strength in Latin America from teens, growing kids and adult patients. For Q4, 88,000 doctors submitted Invisalign cases globally, a record high for fourth quarter, driven primarily by a record number of orthodontist submitters.

Dental service and orthodontic service organizations, DSOs or OSOs remain one of Align's most important and scalable strategic growth channels and a major catalyst to making digital dentistry the global standard of care. As DSOs continue to outpace growth rates of traditional retail practices globally, they are becoming one of the most influential forces shaping digital dentistry. In many respects, their scale, operational discipline, and need for consistent tech-enabled workflows make them ideal partners for accelerating adoption of the Invisalign system, iTero scanners and fully digital workflows across large networks of general dentists and orthodontists. This practice consolidation trend strengthens brand preference and utilization as DSOs increasingly prioritize efficiency, clinical predictability, improved patient experience and importantly, in scale. Align has proven its leadership as the world's most sophisticated treatment planning and 3D printing manufacturing operation and our ability to scale and meet the patient needs, speed and rigor of those rapidly growing DSOs is unmatched globally.

Over the past year, we continue to make strong progress with DSOs across all major regions. In the Americas, we deepened partnership with top DSOs, building on our successful Heartland and Smile Doctors relationships, our top 10 DSOs in the Americas grew double digits year over year and retention was up double digits in the Americas. These gains helped to offset broader orthodontic market softness in North America retail chain where consumer sentiment and patient inflow remain pressured. North America DSO performance remained very strong, delivering double-digit year over year growth led by strength in the adult category. In EMEA, DSO performance was equally strong with double-digit growth year over year and triple-digit growth among our top 10 DSOs in the region.

DSOs continue to drive expansion in both Invisalign Case volume and iTero scanner penetration. Across all regions, DSOs remain high-growth, digitally forward partners to amplify Align's reach and impact. Their continued adoption of Invisalign and iTero reinforces the strength of our digital platform as DSOs help move more of the industry toward a fully digital standard of care. In the Americas, Clear Aligner volumes were up year over year, representing one of the best growth rates since 2021. This was led by double-digit growth in Latin America, which delivered record quarter shipments driven by more submitters and higher utilization across both the orthodontist and GP channels, with strength across adults, teens and kids.

We also reached a major Invisalign milestone in Q4 by surpassing 1 million patients treated with Invisalign and Latin America. In North America, we focused on driving adoption of Invisalign and saw encouraging results across our portfolio. Our year over year performance reflects higher utilization across all channels. We continue to see that practices taking an active approach to conversion, scanning every patient, using chairside visualization tools and offering patient financing are performing better than those that don't. While DSOs are leading the way in North America, we're helping retail doctors adopt similar business methods through localized marketing, outside patient financing and tools that help doctors attract and convert patients.

Affordability also remains a priority. Our partnership with the health care financing platform, HFD continues to grow, and doctors and DSOs enrolled in HFD are seen as incremental lift in Invisalign treatment, with meaningful room for expansion. And by offering more portfolio flexibility, including streamlined configurations with no additional aligners, doctors have more options to meet patients' needs and drive adoption. In EMEA, Clear Aligner volumes grew double digits year over year, reaching record Q4 levels. We delivered double-digit growth year over year across almost all markets with Iberia, the Nordics and the U.K., all delivering double-digit growth.

During the quarter, we surpassed key patient milestones reaching over 1 million patients treated in both the U.K. and Iberia. In APAC, Clear Aligner volumes grew double digits year over year, achieving a record number of Q4 shipments by China, India and Korea, with strength across teens and growing kids. Growth reflected increases in both submitters and utilization in the GP channel as well as an increase in ortho submitter utilization. Invisalign First, continued to grow and adoption of the Invisalign Palate expander system began in the region during the quarter.

Retention performance remained strong year over year, supported by increased utilization across both channels. Regarding China's volume-based procurement process or VPP, there continues to be implementation delays and early phases are expected to begin within the public hospital system before expanding more broadly. As a reminder, over 85% of our business in China is in the private sector. While timing and scope remain fluid, we believe we are well positioned to navigate eventual pricing changes through our established local footprint including local manufacturing, regulatory and commercial infrastructure and a product portfolio designed specifically for China's clinical and economic environment. In Q4, over 230,000 teens and growing kids started treatment with Invisalign Clear Aligners, an increase of 7% year over year.

This growth was driven by strong performance in APAC, led by China, along with EMEA and Latin America, partially offset by continued softness in North America. Sequentially, case starts declined 9.8% as expected, following an exceptionally strong Q3 teen season. From a product standpoint, Invisalign First, the Invisalign Palate Expander and MAOB, Mandibular Advancement with Occlusal Blocks, continued to fuel year over year growth across all regions. Invisalign First is used for patients ages 6 to 10, addressing Phase 1 needs such as crowning, spacing, narrow arches and erupting teeth. Our Palate expander system, the first direct printed orthodontic appliance and the only FDA-cleared removable Palate Expander remains a strong driver of early intervention adoption globally.

Doctor engagement in the teen and early intervention category remains solid. In Q4, the number of doctors submitting cases for teens and growing kids increased 6% year over year, supported by continued strength in Invisalign First, Palate Expander and MAOB. The Invisalign system continues to demonstrate broad clinical applicability across younger patients and adults, reinforced by our global scale and exceptional product portfolio, with more than 22 million patients treated worldwide, including over 6.5 million teams. Our treatment planning platform is powered by a robust evidence-based ClinCheck live plan, which can generate initial doctor ready plans in about 15 minutes, leverages AI-driven planning tools and integrated digital workflows to reduce cycle times, enhance chairside experience and help doctors convert patients more efficiently. Our portfolio strategy, including products with lower upfront cost options is expanding access for doctors while maintaining healthy margins.

These configurations give providers more choices around refinements and pricing that continue to support adoption. We're also advancing direct fabrication, transitioning from thermal forming to 3D printing of Clear Aligner appliances. Direct fabrication will unlock new design flexibility and over time, reduce waste and lower cost although early production has some dilutive margin impact until scale. We remain on track for a limited market release of Invisalign First - Direct 3D-Printed Retainers and Invisalign Specifics - 3D-Printed Pre-Fab Attachments in 2026, with more complex products expected to follow in 2027. The Invisalign specific attachment system is a direct 3D-printed accessory indicated to bond attachments and engagement features.

Over the past year, it has advanced through technical design assessment and has been used successfully to treat over 1,000 patients. Feedback from participating doctors has been consistently positive, demonstrating strong clinical adoption and market validation. For imaging systems and CAD/CAM services, which includes iTero solutions and exocad software, Q4 revenues were $209 million, up 4.2% year over year and up 10% sequentially driven by higher volumes across all regions and continued adoption of iTero Lumina scanner. Lumina represented approximately 86% of full systems units in the quarter, and we continue to drive utilization through full systems installations. During Q4, exocad delivered sequential year over year revenue growth.

We continued piloting Exocad ART, stands for advanced restorative treatment in several European markets with broader rollout plan for this year. ART extends a digital platform deeper into restorative and lab workflows, increasing software-driven reoccurring revenue and enhancing efficiency for doctors and labs. Exocad's strong footprint in dental labs provides a critical connection point between restorative dentistry and digital orthodontics, helping integrate restorative planning more tightly with iTero scanning and Invisalign treatment. As GPs and labs, we are developing across solutions that streamline restorative workflows, improve communications and increased predictability. From single-tooth restorations to full-arch cases, these advancements support broader digital adoption and create more opportunities to incorporate iTero scanning, and were clinically appropriate Invisalign treatment as part of comprehensive care.

Our growing suite of digital diagnostic tools, including Align Oral Health Suite and Align X-ray Insights, or AXI helps doctors identify conditions earlier and deliver clearer, more informed treatment recommendations. When combined with the restorative capabilities of exocad and the visualization strength of iTero, these tools support better long-term oral health outcomes and naturally connect straightening, function and restorative care with a unified digital platform. By strengthening our capabilities across diagnostic, restorative and orthodontic workflows, we're increasing our relevance in everyday oral health care and positioning Align, iTero and exocad as essential partners across the GP and lab ecosystem. With that, I'll now turn it over to John.

Thanks, Joe. Now for our Q4 financial results. Total revenues for the fourth quarter were $1.0476 billion, up 5.2% from the prior quarter and up 5.3% from the corresponding quarter a year ago. On a constant currency basis, Q4 revenues were unfavorably impacted by approximately $3 million or approximately 0.3% sequentially and were favorably impacted by approximately $14.8 million year over year or approximately 1.4%. Q4 Clear Aligner revenues were $838.1 million, up 4% sequentially, primarily due to higher volume and mix shift to higher-priced countries and products, partially offset by higher discounts, higher net deferrals and unfavorable foreign exchange.

Unfavorable foreign exchange impacted Q4 Clear Aligner revenues by approximately $2.3 million or approximately 0.3% sequentially. Q4 Clear Aligner average per case shipment price was $1,240, a $5 decrease on a sequential basis, primarily due to higher discounts, higher net deferrals and unfavorable foreign exchange, partially offset by a mix shift to higher-priced countries and products. On a year over year basis, Q4 Clear Aligner revenues were up 5.5%, primarily from higher volume price increases, lower net deferrals and favorable foreign exchange, partially offset by higher discount and mix shift to lower-priced countries and products. Favorable foreign exchange impacted Q4 Clear Aligner revenues by approximately $12.4 million or approximately 1.5% year over year. Q4 Clear Aligner average per case shipment price was $1,240, down $25 on a year over year basis, primarily due to higher discounts, mix shift to lower-priced countries and products, partially offset by price increases, favorable foreign exchange and lower net deferrals.

Clear Aligner deferred revenues on the balance sheet as of December 31, 2025, decreased $33.9 million or 2.9% sequentially and decreased $61.4 million or 5.1% year over year and will be recognized as revenue as additional aligners are shipped. Q4 Systems and Services revenues of $209.4 million were up 10.3% sequentially primarily due to higher scanner system sales and non-system sales, partially offset by lower scanner on sales and unfavorable foreign exchange. Q4 Systems and Services revenues were up 4.2% year over year, primarily due to higher non-system sales, favorable foreign exchange and flat scanner system sales, partially offset by lower scanner on sales. Foreign exchange unfavorably impacted Q4 systems and services revenues by approximately $0.7 million sequentially or approximately 0.3% on a year over year basis. Systems and Services revenues were favorably impacted by foreign exchange of approximately $2.5 million or approximately 1.2%.

Systems & Services deferred revenues was flat sequentially and decreased $24.6 million or 11.2% year over year due in part to the shorter duration of service contracts selected by customers on initial scanner system purchases. Moving on to gross margin. Fourth quarter overall gross margin was 65.3%, up 1.1 points sequentially primarily due to operational efficiencies, impairment on assets held for sale in the third quarter, excess inventory write-off in the third quarter and lower restructuring and other charges, partially offset by higher depreciation expense on assets disposed other than by sale. Gross margin was down 4.8 points year over year primarily due to higher depreciation expense on assets disposed rather than by sale, partially offset by operational efficiencies and lower restructuring and other charges. Overall gross margin was unfavorably impacted by foreign exchange of 0.1 points sequentially and favorably impacted by foreign exchange of 0.5 points on a year over year basis.

On a non-GAAP basis, which excludes stock-based compensation, amortization of intangibles related to certain acquisitions, depreciation expense on assets disposed of other than by sale, restructuring and other non-GAAP charges, gross margin for the fourth quarter was 72%, up 1.6 points sequentially and up 1.2 points year over year. Clear Aligner gross margin for the fourth quarter was 64.2%, down 0.7 points sequentially primarily due to depreciation expense on assets disposed of other than by sale, partially offset by operational efficiencies. Foreign exchange unfavorably impacted Clear Aligner gross margin by approximately 0.1 points sequentially. Clear Aligner gross margin for the fourth quarter was down 6 points year over year, primarily due to the depreciation expense of assets disposed of, other than by sale and lower ASP partially offset by operational efficiencies. Foreign exchange favorably impacted Clear Aligner gross margin by approximately 0.5 points year over year.

Systems and Services gross margin for the fourth quarter was 69.6%, up 8.4 points sequentially primarily due to excess inventory write-off in the third quarter, partially offset by lower ASP. Foreign exchange unfavorably impacted the Systems and Service services gross margin by approximately 0.1 points sequentially. Systems and Services gross margin for the fourth quarter was up 0.2 points year over year, primarily due to operational efficiencies partially offset by lower ASP. Foreign exchange favorably impacted Systems and Services gross margin by approximately 0.4 points year over year. Q4 operating expenses were $528.3 million, down 2.7% sequentially and down 4.4% year over year.

On a sequential basis, operating expenses were $14.6 million lower, due primarily to lower restructuring costs, partially offset by slightly higher advertising and marketing and technology spend. Year over year operating expenses decreased by $24.5 million, primarily due to lower restructuring costs. On a non-GAAP basis, excluding stock-based compensation, restructuring and other charges and amortization of acquired intangibles related to certain acquisitions, depreciation expense on assets to be disposed of, other than by sale and other non-GAAP charges, operating expenses were $480.9 million, up 3.8% sequentially and up 1.3% year over year. Our fourth quarter operating income of $155.3 million resulted in an operating margin of 14.8% up approximately 5.2 points sequentially and up approximately 0.3 points year over year. Operating margin was unfavorably impacted from foreign exchange by approximately 0.3 points sequentially and favorably impacted by foreign exchange by approximately 0.2 points year over year.

On a non-GAAP basis, which excludes stock-based compensation, restructuring and other charges and amortization of intangibles related to certain acquisitions, depreciation expense on assets disposed of other than by sale and other non-GAAP charges, operating margin for the fourth quarter was 26.1%, up 2.3 points sequentially and up 3 points year over year. Interest and other income and expense net of the fourth quarter was an income of $21.3 million compared to an expense of $1.6 million in Q3 of 2025, primarily due to gain on investments. On a year over year basis, Q4 interest and other income and expense was favorable compared to an expense of $3.4 million in Q4 of '24, primarily by favorable foreign exchange movements and gain on investments. The GAAP effective tax rate in the fourth quarter was 23.1% compared to 40.1% in the third quarter and 26.3% in the fourth quarter of the prior year. The fourth quarter GAAP effective tax rate was lower than the third quarter effective tax rate, primarily due to the release of uncertain tax position reserves partially offset by deferred tax adjustments from tax rate changes in certain foreign jurisdictions and additional taxes accrued on foreign earnings.

The fourth quarter GAAP effective tax rate was lower than the fourth quarter effective tax rate of the prior year primarily due to the release of uncertain tax position reserves and lower US taxes on foreign earnings partially offset by deferred tax adjustments from tax rate changes in certain foreign jurisdictions. Additional tax accrued on foreign earnings and change in our jurisdictional mix of income. Our non-GAAP effective tax rate in the fourth quarter was 20%, which reflects our long-term projected tax rate. Fourth quarter net income per diluted share was $1.89, up $1.11 sequentially and up $0.50 compared to the prior year.

Our EPS was unfavorably impacted by approximately $0.05 on a sequential basis and favorably impacted by $0.03 on a year over year basis due to foreign exchange. On a non-GAAP basis, net income per diluted share was $3.29 for the fourth quarter, up $0.68 sequentially and $0.85 year over year due to higher revenue and lower operating expenses. Moving on to the balance sheet. As of December 31, 2025, cash and cash equivalents were $1.0949 billion up sequentially $90.3 million and up $51 million year over year. Of the $1.0949 billion balance, $166.3 million was held in the US

and $928.6 million was held by our international business. During Q4 2025, we repurchased approximately 0.7 million shares of our common stock at an average share price of $142.87. These repurchases were made pursuant to the $200 million open market repurchase plan announced in August 2025 and were completed in January of 2026. During 2025, we repurchased 2.9 million shares of our common stock at an average per share price of $162.09 for a total of $465.9 million. As of December 31, 2025, [$831.2] million remains available for repurchases of our common stock under our $1 billion stock repurchase program announced in April of 2025.

Q4 accounts receivable balance was $1.1018 billion, up sequentially. Our overall days sales outstanding was $94, down approximately $7 sequentially and up approximately 4 days as compared to Q4 of 2024 and primarily reflect flexible payment terms that are part of our ongoing efforts to support Invisalign practices. Cash flow from operations for the fourth quarter was $223.2 million, Capital expenditures for the fourth quarter were $35.9 million, primarily related to investments in our manufacturing capacity and facility. Free cash flow, defined as cash flow from operations minus capital expenditures amounted to $187.3 million. Before I turn to our outlook, I'd like to provide the following remarks regarding US

tariffs as of December 31. Currently, we do not expect a material change to our results of operations as a consequence of the latest US tariff actions, and we refer you to our Q1 of 2025 press release and earnings materials as well as our Q2 2025 webcast slides, which includes specifics regarding potential impacts on US tariffs. Now turning to our outlook.

Assuming no circumstances occur beyond our control, such as foreign exchange, macroeconomic conditions and changes to our currently applicable duties, including tariffs or other fees that could impact our business. We expect Q1 2026 worldwide revenues to be in the range of $1.01 billion to $1.03 billion, up 3% to 5% year over year. We expect Q1 '26 Clear Aligner volume to be up mid-single digits year over year. We expect Q1 2026 Clear Aligner average selling price to be up sequentially from favorable geographic mix. We expect Systems and Services revenue to be down sequentially, consistent with our typical Q1 seasonality.

We expect our Q1 2026 GAAP operating margin to be 12.4% to 12.8%, down sequentially and Q1 2026 non-GAAP operating margin to be approximately 19.5%, consistent with Q1 seasonality. For fiscal 2026, we expect 2026 worldwide revenue growth to be up 3% to 4% year over year. We expect 2026 Clear Aligner volume growth to be up mid-single digits year over year. We expect the 2026 GAAP operating margin to be slightly below 18%, approximately 400 basis points improvement over 2025 and non-GAAP operating margin to be approximately 23.7%, 100 basis point improvement year over year as communicated during our third quarter earnings call. We expect our investments in capital expenditures for fiscal 2026 to be $125 million to $150 million.

Capital expenditures primarily related to technology upgrades, additional manufacturing capacity as well as maintenance. Q4 was a good finish to the year with results that came in better than expected and reflect the continued strength of our business fundamentals. As we enter 2026, we are executing with focus and discipline, and we're encouraged by the progress we're seeing across the regions and key customer segments. Our confidence is grounded in the actions we're taking to actively manage the business and drive growth through our core strategic priorities: expanding international adoption; increasing orthodontic utilization, particularly among teens and kids; accelerating GP engagement, including restorative dentistry; and strengthening consumer demand conversion with greater emphasis on local last-mile marketing. While the macro environment remains dynamic, we are cautiously optimistic with a strong innovation road map, disciplined operational execution and a global team committed to delivering for doctors and their patients, we believe we are well positioned to deliver growth and value in 2026 and beyond.

With that, I'll turn it back over to Joe for final comments. Joe?

Thanks, John. In summary, I'm pleased with the fourth quarter results and strong finish to 2025. We delivered sequential and year over year growth in Clear Aligners, saw improved stability in North America and delivered solid performance in imaging systems and services. International markets and our DSO partners continue to show encouraging momentum and we're tailoring regional-specific strategies supported by local manufacturing and product offerings to unlock meaningful, still untapped demand. Across DSOs and GP dentists, we strengthened clinical training, expanded AI-enabled tools and broadened financial partnerships to support utilization and improve access to Invisalign treatment.

Our localized data-driven marketing programs are beginning to improve retail conversion in targeted markets and our evolving product portfolio designed around affordability, flexibility and predictability is resonating with doctors. The teens and growing kids category remain a major long-term opportunity, supported by unique solutions like Invisalign First, Invisalign Palate Expander System and MAOB. We continue to invest in innovation across AI-driven treatment planning, integrated digital workflows and direct fabrication capabilities. Key areas highlighted in Investor Day that improve predictability: increase speed, strengthen our cost structure and enhance margins over time. These investments support our broader priorities, consistent execution, improved operating leverage, stronger conversion and disciplined capital allocation.

At the same time, we remain grounded in the realities of the current environment. Our opportunities are significant but sustained momentum in 2026 will require disciplined execution across regions, channels and product lines, particularly strengthening North America, improving conversion throughout the funnel and scaling internationally. Looking ahead, we're cautiously optimistic. Our strategy is clear. Our competitive advantages are strong, and our innovation road map is aligned to the needs of doctors, patients and our partners globally.

Realizing the full value of these assets will require continued focus and consistent performance, we remain committed to expanding access to Invisalign treatment, accelerating conversion and advancing our next generation of digital orthodontics powered by the world's largest orthodontic data asset, real-time ClinCheck planning and the only fully integrated digital ecosystem spanning Invisalign, iTero and Exocad. Together, these capabilities position us to broaden adoption, strengthen utilization, improve efficiency and drive long-term value for customers, patients and shareholders as we move into 2026. With that, thank you for the time. I'll turn the call over to the operator. Operator?

(Operator Instructions) Elizabeth Anderson, Evercore ISI.

Hey guys, good afternoon. Congrats on a nice quarter and outlook. I was wondering, Joe, if you could maybe parse apart and maybe conceptually, if you can't do it numerically sort of how we think about this improved volume performance? Do you think it's sort of underlying market trends accelerating? I noticed you also -- there's a big emphasis, it seems like on the sales force towards higher growth channels. So I'm just trying to understand how much of you think is market-driven and how much you think is perhaps a different sales strategy or marketing strategy that you guys are adopting? Thanks so much.

I'd say stability when you look at the markets and what we've really worked through, Elizabeth recently, I'd say on top of that stability, you see us executing well in the sense of -- we talked about the DSOs all around the world and really, honestly, incredible growth they've been able to drive over the last really several quarters for the business. I think our portfolio, like we talked about with young patients, again, you think about Palate Expander, MAOB, those things, Invisalign First, are great products. There's also a strong attachment rate we're seeing with -- when you have IPE along with Invisalign First, those things, 40% of the time will evolve into Invisalign First case. So that's a nice part of that early teens marketplace that we're helping to grow that marketplace overall. And then DSP and Touch-Up cases and all are really a big growth area for us, too

Got it. And then maybe, John, one for you. As you talk about sort of the positive ASPs perhaps in the first quarter. Anything you could do to help us put a little bit more of a parameter around what you would consider sort of that positive growth?

Yes. I think when you look at the mix that we have, as we've grown in certain countries, and we've talked about this, certain countries give us more of a favorable ASP mix, and we expect that as we grow in some of these regions that have a higher list price, and that will help us.

And then also balancing the product portfolio where we have some of those products that are more comprehensive and we see some of that growth coming through. So there's a multitude of things that we see from an ASP standpoint, but manage it closely, understand what it means from an ASP all the way to gross margin, and we see a good combination there.

Brandon Vazquez, William Blair.

Hey everyone, thanks. Hey, thanks for taking the questions. Maybe first, Joe, can we spend them on another minute. It sounds like things are stable in end markets. Just talk to us a little bit about what that means. And in part, I'm asking because I think the next question then becomes like what is the assumption as you think about the 2026 guidance? What are you guys kind of assuming both on the international side or the Americas side for end markets?

Brandon, it's Joe. I'll open up with this and let John jump in as -- I'd say we're projecting what we experienced in the second half of the year, the execution we've had obviously, from a global standpoint, the good penetration and growth that we've seen there, again, leveraging the early teens, like I talked about before with Elizabeth, in those areas. And so we continue to run the plays and we've been running from an execution standpoint and a product standpoint not just globally, but in Americas and North America too. John?

And so just on that, Brandon, we're not expecting -- our forecast is saying, look, we expect the markets to behave like they are. No change in terms of what we've seen. It's about us driving that active conversion approach that we have, some of it on the products and the portfolio that we have. Some of it is in terms of how we go to market, some of the last minute or last mile efforts that we have to be able to help those customers drive that conversion. So it's just taking that mindset and building that forward.

but really not expecting the markets to be anything different, and that's what's included in the forecast.

Got it. And then -- that's helpful. Joe, the comments you're making around DSOs are really interesting. I know this has been a strong point for you guys for a while. I think this is the first time I've heard you say some of the DSOs grew triple digits.

And I guess the question is, can you just talk to us a little bit like how early you are in this adoption curve in the DSOs? I'm trying to get a sense of how many of these can continue to grow in the double digit or even some of them in the triple digits as you go through 2026? Thanks for the question, guys.

Yes, I think there's two parts to that. The answer to that question, Brandon. One is the continued DSO penetration is they move to a larger percentage of the markets that they participate in. Now behind that, we've recruited and been recruited by other DSOs to help join that. So our penetration in DSOs around the world has increased too.

As I said in my script too, we are a natural partner because we do -- we can scale on so many dimensions with them. And it's -- some of these DSOs have worked with some competitive suppliers. And when they look at us, they understand that we can scale treatment planning. We have local kind of distribution. There's just so many areas that we can help them with a broader product portfolio, all those things.

So I would say we're still good growth parameters in that business. And I'd say -- Also, you're going to see DSOs continue to expand around the globe, and we'll continue to take advantage of that, too.

Jeff Johnson, Baird.

Yeah, thanks. Good evening.

Guys. Hey, Joe, I wanted to start maybe on your adult business. That 8% number really stands out to me. Not only is it your best number since 2021, I think you said that on the call. but you guys haven't even sniffed a 5% number in the last three or four years. So that's materially higher and especially it came against a generally tough comp of 4% last year in the fourth quarter.

So is that early traction with NOAA, is it some HFD tailwinds? Is it ClinCheck live early traction? Just what's really driving that improvement on the adult side, especially given that macro doesn't seem like it's really supporting an improvement in adult spending on discretionary items?

I think you named three really good variables, Jeff, that's helping to drive that. Honestly, a lot of it comes through DSOs too, which really helps, particularly on the GP side, we see, but the OSOs grow well in that area, too. So it's those variables you just talked about ending with financial credit that really helps in these times, particularly in North America, where we know patients are challenged that way, too. So a broad portfolio scanning every patient that walks in the door, then we talk more and more about -- that's the key. If you want to go digital, you want to convert patients you normally wouldn't convert is get this thing into a digital format in a pictorial format, you can show before and after results while that patient is in that chair.

That's what the DSOs do so well and the retail accounts we work with do that well, too. John, anything you'd add to that?

Yes. Maybe one follow-up -- yes, Joe, just one follow-up. It might be a similar topic or answer from you, but I think last quarter, when we kind of backed everything out, it looked like your North American retail business or your non-DSO business, I guess, is how we think about it was probably down maybe pushing double digits year over year? I know you guys told me that was a little aggressive, but somewhere in that ballpark. You mentioned, I think, at your very end comments there of the prepared remarks that the retail business got a little better.

Just any kind of commentary or any kind of color you can provide to flush that US retail business or North American retail business out in the period?

Jeff, the word I use is more stability there. We're standing, I think, on a better platform in that sense. The team has been executing better around there. I wouldn't call the economic situation in the United States, better in any way in the sense of driving volume in that way. I'd just say the team is more focused.

Our portfolio is a little broader as we talked about. And obviously, the DSOs are helping a lot in that sense too.

In North America was -- we got better due to some of the retail wasn't as negative and the DSOs growth. That combination brought North America to be better on a year over year basis than it was in Q3. And when we talked about it on the overall Americas, when you add in Latin America, it grew at the fastest rate or one of the fastest rates since 2021. So we're encouraged by that. And it's all the things Joe talked about to help drive that conversion.

All right, helpful, thanks guys.

Thanks, Jeff.

Jon Block, Stifel.

Hey guys, good afternoon, John, I'm going to get -- try to get pretty granular. I know you gave some color on 2026 Clear Aligner volumes and overall worldwide revenues for the year. But I just want to try to drill down on price or ASP. So should we think about Invisalign ASP's down call it, 2% year-on-year. I'm thinking FX is probably a plus and that full year is probably a plus.

But maybe any detail you can give us there? And the follow-on would just be -- I think ASPs were supposed to be up a little bit, 3Q to 4Q, they were down a little. Maybe just talk to that. Was it intra-quarter FX? Was that just geo mix? Any color there? Thanks.

Yes. No, two good questions. So overall, your first question, Jon, yes, expect ASPs to kind of model maybe 1% to 2% down overall. So it's kind of in that range that you talked about on a year over year basis for 2026 for all the things that we talked about, country mix as well as product mix, kind of the non-comprehensive versus comprehensive. And when you look at it on a quarter over quarter basis, when you look at our fourth quarter, they would have been flat had we not had FX changed slightly.

We got a little bit worse from a quarter over quarter in FX. And then you also had some of the country mix. We had really, really good growth and some of the countries that are in Latin America and Turkey and India and so on that have a lower list price. So the combination of that country growth on a quarter over quarter basis plus slight impact on the FX side of things from a currency standpoint caused us to be down slightly.

Got it. Great color. And then just a follow-up. Joe, I'm just curious like what you're hearing, if anything, regarding these tax receipts or stimulus. Did you build anything into 1Q?

Just how you think that may or may not play out? And then the tack on of that and Italy sort of different question is, we're sitting here in February, is NOAA officially out there? Are you going to sort of hit the go button all at once? I know it's been with the DSOs for a while, or is this going to be more [drip drip] by geography, just really how you refine the rollout of NOAA and your thoughts there in '26?

Yes, Jon, on the taxes, again, I'd describe it as I did before. We just looked at North America as stable as we go into the first quarter. We understand some of the projections on taxes and what consumers. We look at that as a possible upside, obviously, but we didn't plan necessarily around that, we just planned on how we have to execute in the way we did in the fourth quarter and carry that over. As far as the zero AA products, they mix and match all over the world, Jon, it's kind of a different kind of a profile of what we have in the United States versus what we have in Europe and what we're doing in APAC in general.

But as John said in his comments, the customers out there like this options, especially ones that have a lot of confidence in our product line, know how to use the product, understand the perfection aspect of 5 x 5 that they think are worried about before over the years, I think they've gained more confidence in themselves through our product line and what it can do. So it's not like it all starts right now. We have some of these things that will roll out in APAC, some different variations of rollout and in Europe. But I'd say by the end of the first quarter, into the second quarter of this year, we'll have that pretty much lined out by geography.

Great, thanks for the call guys.

Yeah, John, thanks.

Michael Cherny, Leerink Partners.

Hi, good evening. Yes, hey, how's it going? Thanks for the question. Congrats on a nice quarter. Maybe just on the margin side, great to see the -- talking about the 100 basis points of opportunity. As you think about where you were in 3Q versus the guidance now, any changes in terms of how you think about getting to that margin? Any positive surprises, anything relative to the revenue drop down on the better case starts? How should we think about the dynamics, especially the strategic nature of the dynamics in terms of the potential for growth.

Yes. Michael, this is John. So when you think about the product portfolio we have, we have the mix shift that we've been talking about, it gets noted in ASP. But what that means is when we don't have refinements and we have some of this lower stage product, it's more profitable. The margin rate is higher.

And so you see some of that from a mix standpoint, it shows up in our gross margin. You're also seeing many of the effects of some of the productivity improvements that we have. We talked about some of the equipment that we had and maybe upgrading some of the equipment and seeing some of this, we're starting to see early stages of that benefit as well. So it's our products that we have and how we're going to market with those. And then it's also just driving productivity.

We want to be mindful of getting that adoption, growing our business and then volume helps, DSP and others that don't have refinement, but then driving productivity, and we saw good results from a gross margin standpoint, like we saw in Q4 that we haven't seen -- honestly, we haven't seen since close to 2021. So that's good to see, and we want to continue that as we go into 2026.

And just one follow-up, and I apologize if I missed the nuance relative to the DSO commentary. This is more tied back to the pull-through on Lumina. You're obviously now a year-plus past the launch. How is it behaving acting in terms of your conversion opportunities relative to the placements and what that's doing in terms of some of the volume dynamics. Is it hitting the targets that you want is outperforming?

Anything more you got on the experience there would be great.

We feel really good about that platform overall, Michael. It's been well accepted in the marketplace, both from a GP standpoint, who do a lot of restorative procedures as well as the orthos obviously, they are dedicated to orthodontics in that way. We know that having Lumina in those accounts and the more Luminas you have in those accounts, the better off you do. And we continue to emphasize that at accounts and the uptake seems to be good. I think to answer your question, you have to kind of go all over the world.

But in general, I think the foundation of your question is, can you keep growing Lumina? Will you keep growing that platform? We feel good about that platform. It's a multi-structured light. We'll obviously have iterations on that platform as we go forward.

So I feel really good about not just the market performance of Lumina over last year, but what we're positioned to do in the future with the technology too. Thank you.

Vik Chopra, Wells Fargo.

Hey, good afternoon and congrats on a nice quarter. Maybe a couple for me here. on the guidance range, you said 3% to 4% revenue growth for 2026. Maybe talk about some of the other variables behind that guidance range. And do you think that 3% to 4% range is conservative? Or do you think you can deliver above that level of growth in '26?

Yes, Vik, this is John. So look, we guide as we always do. We look at kind of how we see the numbers the actions that we're taking to be able to help drive performance with new products and go-to-market activities and so on. So that's the range that we give at this point to be able to grow off of 2025 at the 3% to 4%. It goes back to things that I talked about that are really strategic for us.

We want to grow internationally. We're seeing good growth. We want to continue that. We want to continue to drive orthodontic utilization, so that's products that NOAA product that comprehensive helps there. Some of the new products that we have with Invisalign First and MAOB and others, those will help us grow that utilization for those doctors.

And we're really excited about how GPs fit into this. They're doing a lot more of scanning every patient, visualizing, really tying in financing and other things to get that sometimes reluctant patients to decide to go into treatment. And then, of course, we want to leverage our brand to be able to make sure everybody is aware of our product and how we can differentiate and so on. So it's really a continuation of our strategies around those major aspects that give us the confidence to be able to guide in the way we have. And as we go quarter-by-quarter, we'll update as needed.

Got it. And just a quick follow-up for me. Given the strong growth you called out among the DSOs, maybe just remind us what percent of your sales are coming from the DSO channel and how you plan to further expand these partnerships? Thank you.

Yes. DSOs for us, Vik, about 25% of our business on a volume basis and we want to continue to expand. They share -- many of these DSOs are becoming more of a digital orthodontic mindset. We share that digital orthodontic mindset with them and they want the scanners. So they have Luminas, they're scanning every patient, they're providing a lot of visualization and growing, and we think that's a natural benefit.

When a DSO is looking to scale, we can help provide that scale through our technology and our operations, sharing and leveraging the brand as well. So it's a great partnership. We want to continue on that, but also make sure that we're also helping our retail doctors grow as well. So we're not forgetting because there's a large amount of retail doctors as well, but we're very pleased to what we see in DSOs.

Jason Bednar, Piper Sandler.

Hi, Jason.

Hey guys, good afternoon. Congrats on the results here today. I'm going to follow up on Mike Cherny's operating margin question, -- to start. And the focus of the question is, are there things that need to happen or fall into place in order to hit that 100 basis point margin expansion target. And you've got a variety of scenarios that could obviously play out with product mix, geographic mix, channel mix. I did all that, but are there scenarios where you see that 100 basis points at risk?

Or is that piece of your guidance you feel fully within your control?

Yes, Jason, when we think about that, look, we have to execute. We have to better outgrow the business so much of what we see and especially on that -- the productivity that we have is based on volume. We have to execute on our volume and get that to come through our manufacturing. We see volume benefits, volume leverage when we have that. But we've made a lot of changes kind of exiting kind of in the second half of last year to improve some of the productivity, getting closer to our customers and so on.

So we've made some of those structural changes to be able to help drive and improve that productivity. So we feel good about that from a guidance standpoint, I wanted to continue talking about the 100 basis points improvement and as we execute, just like our overall revenue guidance, we'll update as we go forward.

Okay, all right. Fair enough. I want to move over to China VPP real quick. And I appreciate all the comments you made in your exposure more on the private side of the market. I guess, can you help us a bit more with what you're seeing competitively in advance of that VPP rollout, understanding it's delayed.

But what kind of pricing assumptions are you making in that down 1% to 2% guide for your global ASPs for the year? How much is China impacting that? And then are you similarly making assumptions around the volume uptick post VPP implementation? Just any help there on those factors would be great.

Hey Jason, it's Joe. First of all, I'd say there's an uncertainty around that implementation next year. Secondly, you have to think three and four area hospitals are the biggest focus in that area. We don't really participate in that to any broad extent. And that's where it would be hit first.

And it's kind of what I covered in my comments. We're 85% private, we're primarily in one or two cities. Now we know from the medical device industry and other parts of the orthodontic industry and the dental industry that, that might change in the sense of how VPP affects it. But we've pretty much taken a status quo look at our business in China as we go into the year. Like I mentioned, I feel we're well positioned in the sense of the products that we would position there if that does go through.

And so right now, we're not expecting any major disruption for China on year-to-year based on VPP.

So our guidance, to be clear, Jason, does not include any VPP impact, whether it's on the volume side or ASP side given how Joe positioned.

Michael Sarcone, Jefferies.

Good afternoon and thanks for, hey, good afternoon and thanks for taking the questions. Just first one on the system sales. I think you had talked about previously, you were going to end of life, some of the older IOS systems. Maybe with that in mind, can you talk about how you're thinking about growth in '26 between kind of replacement cycle versus de novo placements?

Michael, I mean there are some old element iTero scanners that we have a clause on right now in the sense of what we'll service and what we weren't servicing. We're doing our best to work with doctors to get them over the line into a new product like Lumina overall. I can't give you the specifics in the sense of how we look at our overall services business next year and scanner business and tell you specifically what that is. But I don't feel that transitions a major variable in the equation of our success next year.

Yes. We're always looking to have those scanners, especially the older ones like we've seen, Element 1s and 2s to position those out of the market, offer a trade in allowance and then get that doctor to the newest scanner, Lumina. And once they see the difference, it usually kind of goes and it's an easy transition. But it's more efficient for them to use Lumina and it's better for us. It captures more images better and so on, so we want that transition.

So just like everything else, we want to work with them to make that happen.

Thanks, Michael.

Steven Valiquette, Mizuho Securities.

Hi, thanks. Yeah, good afternoon. Yeah, thanks for taking the question. I guess, just separate from the discussion on your own ASPs and your own pricing. Just curious to maybe get a little more color on your thoughts on just overall Clear Aligner pricing trends across the broader global marketplace.

There are seemingly some positive news in relation to price increases, a few key competitors. I'm wondering maybe just if tariffs or other factors are maybe just driving higher prices across the competitive landscape in a way that might help you and is that material enough to where that was like a factor in your guidance? Or do you think you would have guided for like your volume trends kind of regardless of what's going on in competitor pricing front? Thanks.

Yes, Steve, this is John. I don't think that specific what they're doing is factored into our guidance. Our guidance is based on what we can do to be able to help drive the business and drive adoption and take this active conversion approach. But it is noted, I mean, we watch things closely to see what competition does. We hear it in the field and so on.

And you're right, many competitors for various reasons. I think in terms of tariffs or maybe it's profitability or other reasons that they look at changing their pricing. And I think it stands to reason that some of the pricing that initially offered, they've had to increase and -- it's probably a good thing in the long run to do. It certainly helps us, I think, going forward, but it's not contemplated in our guidance, but I think it's the evolution of the business as it goes forward.

Thanks, Michael. Next question, please.

David Saxon, Needham & Company.

Thanks, for taking my questions. Good afternoon. I'll just keep it at one. So just on the direct fab, as you roll more products through direct fab, how should we think about the magnitude of that impact on gross margins and kind of the cadence of how that hits the P&L? Thanks so much.

Yes, David, it's Joe. Let me think -- we've been pretty clear that , that will be somewhat margin dilutive in the sense as it begins to roll out in 2026. We'll scale that. We have to scale in the millions. And so as we get into 2027, you'll see us really being able to scale out. And I think as you enter the second half of 2027 and you get into 2028, we expect we move into margin accretion in that period of time.

Okay. But for '26 do you expect gross margin to be down or?

The margins will be -- we're pretty much projecting the margins that we have.

So we've got oddly specific direct fab, direct fab that is margin dilutive. But when we talk about the 100 basis point improvement on op margin, that includes whatever impact that we might have from the direct fab. So we're contemplating that in terms of our overall guidance. But on direct fab itself, like Joe said, you need to scale that resin and drive utilization on the actual manufacturing. And until you do so, it's margin dilutive.

Michael Ryskin, Bank of America.

Great, thanks, I'll keep it to one as well, it's just a follow-up. On the Scanners and Services segment for '26. You gave us a lot of the moving pieces between volumes and you talked about ASPs earlier. It just sounds like you're guiding to Scanners and Services being roughly in line with total company revenue growth, give or take a couple of points.

I was thinking that in '25, you guys had a really tough comp from prior year of [60%]. So that was -- it did a little bit slower. But since you're still in aluminum ramp, I'm just curious why you wouldn't see some upside there and sort of what's holding you back from giving a more aggressive outlook on scanners? Thanks.

Yes, Michael, this is John. So in total, you're right. Systems and Services, when we think about kind of the company average in terms of the guidance that we gave, the 3% to 4% Systems and Services kind of falls into that on a year over year basis. So a lot of new things that we still have to be able to grow with our Systems and Services business, some of the upgrades that we talk about, some of the trade-ins, other ways to be able to grow, but we think broadly, it grows equal to or about at what Clear Aligners grow.

Thank you, Michael. Two more questions, please, operator.

Kevin Caliendo, UBS.

Thank you. This is Dylan filing on for Kevin. I'll keep it to one. Going back to John's commentary on the question on the NOAA and kind of where that stands today. How is that contemplated into the 1% to 2% ASP decline that you're forecasting for the year? And I mean, is that product going to be rolled out in a meaningful way?

And any additional aligners, whatever? Would those be incremental to what you've guided for? Or are there assumptions in place for what to get in additional aligners?

Yes, Dylan, I can take that. So we expect to -- in success, as we pilot things, we expect to roll things out from a no refinement type product, the NOAA product. So we're seeing good uptake on the comprehensive with NOAAs. We're seeing this and have tested in various markets and we're seeing success. So that continues to roll out in Q1.

And like Joe said, it'd be mostly fully rolled out into 2Q. Our guidance reflects that. So we have that. Don't think of an ASP impact with that type of product either though, because remember, we don't have to defer revenue on a no refinement type of product. So we can recognize all the revenue upfront.

The refinements will come over time as doctors need those refinements and we just get that over time. And -- but it's not an initial ASP impact when we have that. And that's what's been contemplated in the volume that we gave as well as the ASP.

Thanks, Dylan. Last question, operator, please.

Erin Wright, Morgan Stanley.

Great, thanks for squeezing me in. So in the ortho segment, how is broader Clear Aligner growth across the industry, particularly in the North American market, comparing to brackets and wires? And just based on some of the gauged data that you track on that front? And then across kind of the teen segment, any metrics on conversion rates or anything like that from an Invisalign First or Palate expansion standpoint and how that's tracking. Is that moving the needle? Thanks.

Erin, it's Joe. On the ortho segment, wires and brackets and Aligners, I would say there's -- between the fourth quarter and what we saw the rest of the year, I don't think it's a big difference in the sense of the conversion we've seen on particularly teens with wires and brackets and our product line overall. Now where we have seen a difference, obviously, in the younger patients. And that's not really a wires and brackets competition. Those are different devices that we're going about and we saw great growth in that area.

Conversion rates, again, I think conversion rates if I hit this right on your question, Erin, it has a lot to do with how these doctors convert. Do they scan upfront first? Do they show visualization? Like our Smile products and different things like that. And so workflow becomes extremely important in a sense of what those conversion rates are.

But I haven't -- when you think holistically or generically in the industry, I don't think the conversion rates in the orthodontic community have changed dramatically at all during the year.

Thank you. And we have reached the end of our question-and-answer session. I will now turn the call back over to Shirley Stacy for closing remarks.

Thanks, everyone, for joining us today. We look forward to meeting with you at upcoming investor conferences at industry events and Chicago mid-winter in the next couple of weeks. If you have any follow-up questions, please contact Investor Relations, and have a great day.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.