Align Technology Inc ($ALGN) Q1 2025 Earnings Call

Good day, and thank you for standing by. Welcome to the Align Technology first quarter 2025 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw a question, please press star 11 again. Please be advised that today's conference is being recorded. I will now hand the conference over to your speaker today, Shirley Stacy, vice president of corporate communications and investor relations. Please go ahead.

Good afternoon, and thank you for joining us. Joining me on today's call is Joe Hogan, president and CEO, and John Morici, CFO. We issued first quarter 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 1 month. As a reminder, the information provided in 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 risk 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 provided historical financial statements with corresponding reconciliations, including our GAAP to non-GAAP reconciliation, if applicable, and our first quarter 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, Joe. Now for our Q1 financial results. Total revenues for the first quarter were 979.3 million dollars, down 1.6% from the prior quarter and down 1.8% from the corresponding quarter a year ago. On a constant currency basis, Q1 revenues were unfavorably impacted by approximately 21.4 million dollars, or approximately 2.1% sequentially, and were unfavorably impacted by approximately 31.1 million dollars year-over-year, or approximately 3.1%. For clear aligners, Q1 revenues of 796.8 million dollars were up 0.3% sequentially, primarily from higher volumes, partially offset by the impact of unfavorable foreign exchange. Unfavorable foreign exchange impacted Q1 clear revenues by approximately 17.9 million dollars, or approximately 2.2% sequentially. Q1 clear aligner average per case shipment price of 1,240 dollars decreased by 25 dollars on a sequential basis, primarily due to the impact of unfavorable foreign exchange. On a year-over-year basis, Q1 clear aligner revenues were down 2.5% primarily due to unfavorable foreign exchange of $25.8 million or approximately 3.1% and lower ASPs due to product mix shift to lower price products and discounts partially offset by higher volumes. Q1 clear aligner average per case shipment price of $1,240 was down $110 on a year-over-year basis primarily due to higher discounts, product mix shift to lower price products, and the impact from unfavorable foreign exchange partially offset by price increases. Clear aligner deferred revenues on the balance sheet as of March 31st, 2025 decreased $9.3 million or 0.8% sequentially and decreased $74.7 million dollars or 5.8% year-over-year and will be recognized as additional aligners are shipped under each sales contract. Q1 systems and services revenue of $182.4 million were down 9.2% sequentially primarily due to lower scanner systems revenues and unfavorable foreign exchange. This was partially offset by increased scanner wand revenues mostly due to iTero Lumina wand upgrades. Q1 systems and services revenue were up 1.2% year-over-year primarily due to higher iTero Lumina scanner wand revenues partially offset by lower scanner systems revenues and unfavorable foreign exchange. Foreign exchange negatively impacted Q1 systems and services revenues by approximately $3.5 million or approximately 1.9% sequentially. On a year-over-year basis, system and services revenues were unfavorably impacted by foreign exchange of approximately $5.3 million or approximately 2.8%. Systems and services deferred revenues decreased $11.3 million or 5.1% sequentially and decreased $37.2 million or 15.2% year-over-year primarily due to decline in deferred revenues due in part to shorter duration of service contracts applicable to initial scanner system purchases. Moving on to gross margin, first quarter overall gross margin was 69.5% down 0.6 points sequentially and down 0.5 points year-over-year. Foreign exchange negatively impacted the overall gross margin by 0.7 points sequentially and 0.9 points on a year-over-year. Clear aligner gross margin for the first quarter was 70.5% up 0.4 points sequentially due primarily to lower manufacturing costs and lower restructuring expenses partially offset by unfavorable foreign exchange of 0.6 points. Clear aligner gross margin for the first quarter was down 0.3 points year-over-year primarily due to unfavorable foreign exchange partially offset by lower manufacturing spend. Foreign exchange negatively impacted clear aligner gross margin by 0.9 points year-over-year. Systems and services gross margin for the first quarter was 64.7% down 4.7 points sequentially primarily due to lower wand ASPs and unfavorable foreign exchange partially offset by manufacturing efficiencies. Foreign exchange negatively impacted the systems and services gross margin by 0.7 points sequentially. Systems and services gross margin for the first quarter was down 1.2 points year-over-year primarily due to lower scanner and wand ASPs and unfavorable foreign exchange partially offset by manufacturing and services efficiencies. Foreign exchange negatively impacted the systems and services gross margin by 1.0 points year-over-year. Q1 operating expenses were $549 million, down 0.7% sequentially, and up 1% year-over-year. On a sequential basis, we saw $3.8 million decrease in operating expenses, primarily due to lower restructuring and other non-recurring charges in Q1, which were partially offset by consumer marketing spend. Year-over-year, operating expenses increased by $5.3 million, primarily due to our continued investments in R&D activities. On a non-GAAP basis, excluding stock-based compensation, restructuring, and other charges, and amortization of acquired intangibles related to certain acquisitions, and legal settlement loss, operating expenses were $500.7 million, up 5.5% sequentially, and down 1.1% year-over-year. Our first quarter operating income of $131.1 million resulted in an operating margin of 13.4%, down 1.1 points sequentially, and down 2.1 points year-over-year. Foreign exchange negatively impacted operating margin by approximately 1.1 points sequentially, and 1.4 points year-over-year. On a non-GAAP basis, which excludes stock-based compensation, restructuring, and other charges, amortization of intangibles related to certain acquisitions, and legal settlement loss, operating margin for the first quarter was 19.1%, down 4.1 points sequentially, and down 0.7 points year-over-year. Interest and other income expense, net for the first quarter, was an income of $9.3 million compared to an expense of $3.4 million in Q4 '24, driven by favorable foreign exchange movements, partially offset by lower interest income and gain on investments from last quarter. On a year-over-year basis, Q1 interest and other income and expense were favorable compared to income of $4.3 million in Q1 '24, primarily driven by favorable foreign exchange movements, partially offset by gain on investments in the first quarter of the prior year. The GAAP effective tax rate in the first quarter was 33.6% compared to 26.3% in the fourth quarter of last year and 33.7% in the first quarter of the prior year. The first quarter GAAP effective tax rate was higher than the fourth quarter effective tax rate, primarily due to the tax expense recognized related to stock-based compensation and the release of uncertain tax provision reserves in Q4 of '24, partially offset by a one-time tax deferred tax adjustment in foreign jurisdictions in Q4 '24. The first quarter GAAP effective tax rate was roughly in line with the first quarter effective tax rate of the prior year. Our non-GAAP effective tax rate in the first quarter was 20%, which reflects our long-term projected tax rate. First quarter net income per diluted share was $1.27, down 13 cents sequentially and down 13 cents compared to the prior year. Foreign exchange negatively impacted our EPS by 8 cents on a sequential basis and 12 cents on a year-over-year basis due to foreign exchange. On a non-GAAP basis, net income per diluted share was $2.13 for the first quarter, down 31 cents sequentially and down $0.01 year over year. Moving on to the balance sheet, as of March 31st, 2025, cash and cash equivalents were $873 million, down sequentially $170.9 million, and up $7.2 million year over year. Of our $873 million balance, $133.1 million was held in the US and $739.9 million was held by our international entities. During Q1, we repurchased the remaining $72.1 million of the $275 million open market repurchase initiated in Q4 of '24. In Q1, we initiated a new plan to repurchase the remaining $225 million of our common stock under our January 2023 approved stock repurchase program of $1 billion through open market repurchases. As of March 31st, 2025, we had repurchased $129 million. Once completed, this open market repurchase will complete our $1 billion stock repurchase program approved in January of 2023. Q1 accounts receivable balance was $1.062 billion, up sequentially. Our overall days sales outstanding was 97 days, up approximately 7 days sequentially and up approximately 11 days as compared to Q1 last year. And primarily reflects flexible payment terms we have extended as part of our ongoing efforts to support Invisalign practices. Cash flow from operations for the first quarter was $52.7 million. Capital expenditures for the first quarter were $25.3 million primarily related to investment in our manufacturing capacity and facilities. Free cash flow, defined as cash flow from operations minus capital expenditures, amounted to $27.4 million. Before I turn to our Q2 and fiscal 2025 outlook, I'd like to provide the following remarks regarding the UK VAT and US tariffs as of April 30th. As previously disclosed in our Q4 2024 earnings release and conference call, we anticipated receiving a ruling regarding the applicability of VAT to our clear aligner sales in the UK. On April 24th, 2025, we received a favorable ruling in which the tribunal determined that our clear aligners are dental prosthesis for the purposes of VAT in the UK, which is key condition to be considered exempt from VAT. This outcome reaffirms our commitment to enhancing patient access to oral health leveraging digital technology. HMRC has until June 19th to appeal the tribunal's ruling. HMRC may also attempt to challenge the applicability of VAT on a different basis. Moving on to tariffs, Align Technology has clear aligner manufacturing operations in Mexico, Poland, and China. For the US domestic market, we currently manufacture clear aligners in Mexico prior to shipment to the US. Align does not currently ship clear aligners from Poland or China to the US. We currently manufacture clear aligners for the Chinese market in China. Our clear aligners and intraoral scanners made in Mexico that are imported into the US are compliant with the United States-Mexico-Canada Agreement, USMCA. As noted in President Trump's executive order dated April 2nd, 2025, USMCA compliant goods are exempt from tariffs under the executive order. However, the US-Mexico tariff situation remains fluid and we are unable to predict whether USMCA compliant products will remain exempt, whether there will be other changes to the announced executive order, or if other tariffs will be imposed in the future. We expect an incremental tariff, if implemented, to be applied to the transfer price on goods shipped from Mexico. With respect to our clear aligners made in China, all manufacture for China takes place in China. We have assessed the potential impact of China's retaliatory tariffs and believe that we are able to mitigate most of the tariff exposure through adjustments in our supply chain. Based on the current situation, we do not expect a significant impact to our costs from these retaliatory tariffs. We have also assessed the potential direct impact of additional US tariffs on China on our business and currently do not expect to realize a significant impact from these retaliatory tariffs. Our intraoral scanner manufacture primarily occurs in Israel, with scanners shipped from there to worldwide locations. We produce a small number of scanners in China, primarily for the market. Regarding tariffs on Israel goods imported into the US, at the current 10% baseline tariff, we estimate the average monthly potential impact to be approximately $1 million, which we have considered in our guidance for Q2 and fiscal 2025. Moving on to 2025 business outlook. Assuming no circumstances occur beyond our control, such as foreign exchange, macroeconomic conditions, and changes to our currently known tariffs that could impact our business. We expect Q2 2025 worldwide revenues to be in the range of 1.05 billion to 1.07 billion, up sequentially from Q1 2025. We expect Q2 25 clear aligner volume to be up sequentially and Q2 25 clear aligner ASPs to also be up sequentially due to favorable foreign exchange at current spot rates. Partially offset by the continued product mix shift to non-comprehensive clear aligner products with lower list prices. We expect Q2 25 systems and services revenue to be up sequentially as we continue to ramp up the iTero Lumina scanner with restorative software. We expect Q2 25 worldwide gross margin to be up sequentially primarily from higher ASPs and clear aligner volume. We expect our Q2 25 GAAP operating margin and Q2 25 non-GAAP operating margin to be up sequentially by approximately three points for each GAAP and non-GAAP operating margin. For fiscal 2025, we expect 2025 clear aligner volume growth to be up approximately mid-single digits year-over-year. We expect 2025 clear aligner ASPs to be down year-over-year due to continued product mix shift to non-comprehensive clear aligner products with lower list prices and continued growth in our emerging markets where those products may carry lower list prices. We expect 2025 systems and services year-over-year revenues to grow faster than clear aligner revenues. We expect 2025 year-over-year revenue growth to be in the range of 3.5% to 5.5% at current spot rates. We expect fiscal 2025 GAAP operating margin to be approximately two points above the 2024 GAAP operating margin, and we expect 2025 non-GAAP operating margin to be approximately 22.5%. We expect our investments in capital expenditures for fiscal 2025 to be between 100 million and 150 million dollars. Capital expenditures primarily relate to technology upgrades, as well as manufacturing capacity in support of our ongoing business. With that, I'll turn it back over to Joe for final comments. Joe.

Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for name to be announced. To withdraw a question, please press star 11 again. In the interest of time, please limit yourself to one question. One moment for our first question. Our first question will come from Brandon Vasquez from William Blair. Your line is open.

Hey everyone. Thanks for taking the

Question. And then congrats on a nice start of the year here. I thought maybe just to start, you know, I was pleasantly surprised at kind of the strength in the quarter and the strength of the guide given historically we've relied a lot on and we've talked a lot about the ties of consumer sentiment and to the dental space. So again, it's kind of a nice surprise in this quarter. I was hoping you guys can just spend a little time talking about how consumer sentiment come down, but it seems like the business is doing well. So, talk a little bit about maybe why that's decoupling and what kind of confidence that gives you in the guidance on a go-forward basis even though, you know, in April we were seeing sentiment go down. Thanks, guys.

Thank you. One moment for our next question. Our next question will come from Vic Chopra from Wells Fargo. Your line is open.

Vic, are you there? Good afternoon, Alan. Yep, can you hear me? Hey guys, good afternoon. Thanks for taking the questions and congrats on a nice quarter. Maybe just two for me, you know, I appreciate all the color you provided on the tariff front, but can you just talk about plans to potentially mitigate this by moving production, you know, to different locations or putting in some price increases and then I had a quick follow-up. Thank you.

Got it. That's super helpful. And, you know, you're hosting a much anticipated investor day next week. I'm just wondering if you can just provide some insights as to what we can expect next week. Thanks so much.

One moment for our next question. Our next question will come from the line of John Block from Stifel. Your line is open.

Thanks, guys. Good afternoon. Hey, guys. The first one, John, I'll ask some sort of detailed questions on the 2025 revenue guidance. So, I think I've got it right. You raised it from low single digits to 4 and 1/2% at the midpoint. The language around ASPs didn't change. That's still expected to be down low single digits year-over-year. The clear liner language didn't change. The volume was still expected to be up mid single digits year-over-year. So, maybe this is a pretty straightforward question, but like any more color on the ASPs? Are the ASP thoughts basically, you know, call it unchanged from 3 months ago, but now we should be thinking like down one, and the prior was down three? That both fits the LSD narrative with that 200 basis point delta sort of specific to just updating for the spot rate. And let me know if that came across well.

Yeah, that is accurate the way you phrased that, John.

Okay. That was an easy one, concise. So, I've got another one. Joe, I'd love to spend time on teen. You know, I mean, this was always sort of like the holy grail and it went to the moon during COVID and then you had some tough comps and here you are with new products and, you know, the double-digit growth of 13%. It was a pretty good beat on teen versus where we were. The two-year stacked is, you know, mid-20s. It wasn't up against an easy comp. So, the 13 off the 12. Maybe just elaborate on that. Like, what are you seeing with IPE? Clearly, that's helping the ball. But, are you seeing the IPE to alignment pull through? Which I think we would still be in the early stages of that and, you know, maybe I'm getting a little bit aggressive here. But, can we think about teen as this low double-digit plus grower going forward as long as the innovation continues to step up and you got MA with occlusal blocks, you know, first hitting the market. Thanks.

Thank you. Thank you. One moment for our next question. Our next question will come from the line of Jeff Johnson from Baird. Your line is open.

Hey Jeff. Thank you. Good afternoon, guys. Hey Joe, how are you? So, let me ask I guess John's ASP question, but let me kind of dig down a little bit more if I can ask one question about ASPs this quarter and then one question about ASPs going forward. Hopefully that counts as one question, but John, I think ASPs were down 8.2% year-over-year, not sequentially, 8.2 year-over-year this quarter. Can you just remind us how much the VAT, the price discount you had to give to normalize that VAT impact the UK DAC? How much that contributed out of that 8.2% and how much FX contributed as a negative headwind? I think that was 200 basis points by my math, but just trying to confirm that.

Yeah, the FX is, you know, is that impact that we have on a year-over-year basis. So, we have unfavorable FX. I mean, on a year-over-year basis, the FX on the overall company is 3.1 points. And then, remember we started the VAT withholding the VAT a year ago in Q1. So, on a year-over-year basis, it's already in the baseline numbers from last year.

Okay. And then, on going forward, you know, currency should switch to a positive contributor to ASPs. You mentioned the 310. I thought that was the top line impact, but just is that the flow through impact ASPs as well, that's the 310 headwind in the first quarter. But going forward, FX switches to a positive tailwind. Any at spot rates, can you just kind of put us in the ballpark there? I can do my math later tonight, but would love to hear your opinion there. And then, if the HMRC doesn't appeal, can you re-raise those UK prices? Would that actually be a contributor, or do you stick at these prices? You just don't have to pay that VAT or the providers don't have to pay that VAT tax, I guess. Could that potentially switch to an ASP tailwind? And then lastly, just MAOB, the mandibular advancement blocks, I think I was hearing that that's going to be a $100 add-on charge. If we start mixing more and more MA cases, does that theoretically then drive a little bit of ASP tailwind the way IPE and DSP has created a little bit of ASP headwind right now. Thank you.

Okay. Let me try to take these three ASP questions, Jeff, on this. So, MAOB, yes, slightly higher price. That would help our overall ASP as we sell more of that premium product on our comprehensive cases and we'd add to that for the MAOB pricing on that. Regarding the UK, we have to hear back on whether HMRC will appeal and what they do. We have a lot of flexibility to that if we win either they don't appeal or win an appeal, we can always make changes to our discount and not discount as much. And if we do that, then that gives us a benefit in ASP going forward. That has not been contemplated in our forward-looking ASP. I'm just kind of taking the UK VAT impact completely out from a forecast. But it does give us flexibility depending on what HMRC decides to do or if it works its way through. And then regarding overall FX, yes, it turns into now at current spot rates a slight benefit on a year-over-year basis. And then you still have what we've talked about before, just that lower list price products, which would be comprehensive, as well as some of the other growth in certain countries at just a lower list price. But, gross margin, as you know, is in many cases favorable as a result of those lower stage products because the cost to serve for us is less, but that's how the dynamic shapes up for ASPs.

Thank you. One moment for our next question. Next question will come from the line of Michael Cherney from the Aaron Partners. Your line is open.

Afternoon, and congrats on a really nice quarter and the guidance. I just want to make sure we have all the pieces right. I'm not going to do as much mental math as Jeff. I'm still slower there, but in terms of the margin uptick that you have, expect a nice margin expansion over the year. How much of it would you accrue to kind of better revenue expectations on an organic basis for operational changes? I know we've spelled out how I talked about the ASP regarding the impact from FX there, but anything else you can allude to relative to the operating margin drive down? How much of it has been within your control versus how much is market conditions? It'd be great. Thanks so much.

I think when you look at our margin expansion and like I said in the prepared remarks, that's still net of so it's 70 basis point improvement in our margin from 2024 to 2025 with the known tariff impact that we would have now. And where we're seeing the expansion improvements is, you know, continue to improve our manufacturing efficiencies with volume, with material savings, logistical savings, things that we talk about from an innovation standpoint when we do touchless clean check, a lot of less activity for us, as well as some of the new products that we have that are at good margins. Some of them higher ASP like we talked about with MAOB and so on. So, it's really a host of initiatives that we have. It's what we continue to do in the business and with this forecast we're pleased to report that, you know, as we know tariffs now, we can still get to our margin targets that we have because we're seeing productivity in other areas.

Got it. Got it. One really quick last follow-up. Did you give the DSP number for the quarter? I apologize if I missed it in the slides or anywhere else.

No, we did not give the DSP, but as we've said in our prepared remarks and what we see is, you know, this helps grow the low stage part of our portfolio. It's rolling out in other areas and we're pleased with the performance.

Got it. Thanks so much.

Thank you. One moment for our next question. Our next question will come from the line of Jason Bednar from Piper Sandler. Your line is open.

Hi Jason. Hey. Hey there. Hey, I wanted to first start on two financing topics. Yeah, we saw higher rates, credit denials were an issue over the past year or so. You've got a new preferred financing partner in HFD. Just curious if you're seeing that help resolve any of the challenges with consumers early on in that relationship and then on the provider side, John, I think you said that you attributed the rise in DSOs to expanding financing or better favorable terms to practices. I just want to, you know, understand what's going on there. If you can double click just to be blind, it's a pretty big increase in DSOs for a policy you've had in place for multiple years. So, just wondering what's changed just in the last few months that would materially shift that line higher.

Yeah, I think, you know, really you highlighted kind of the components about how people pay in general. So, you have some patients that just pay directly and they pay the 100% of the cases that the treatment that they want. So, that happens in many markets and that continues. Maybe it's less of that because of some of the pressures that they might be facing. So, the other two ways that essentially patients will pay is some will utilize some of the doctor financing. So, they'll kind of pay as you go through the doctor. That's where really it helps to have favorable terms with those doctors so that we can provide a little bit longer time for them to pay and we continue that effort so that those doctors can take a little bit more time to pay us back so that they can use their balance sheet or their working capital to help kind of that patient financing that they provide. And then the third way is external and HFD is one of them. There's many different companies that provide this, but we're seeing a good combination of finding the right way to get the HFD, meeting the requirements that they have or others that are providing this and getting those potential patients into financing. So, we're seeing a good combination of this, but we know that how much things cost and how much they have to pay over a monthly basis is important and this is a good way to offset that.

Okay. All right, understood. And just maybe real quick on some of the tariff dynamics and not necessarily as it influences what you have to pay, but more so from a competitive standpoint, it seems like you might have some competitors that, you know, may get dislocated or may have maybe facing higher costs as they have to import or, you know, reconfigure their supply chains. It seems like this is a good opportunity to lean in with your business. But, I want to ask have you seen any dislocation with doctor customers? Is that happening where you're now, you know, relatively more favorable from a cost perspective than maybe what you were pre-tariffs.

All right. Thanks, Jeff.

One moment for our next question. Our next question will come from the line of Steve Alex from Mizuho Securities. Your line is open.

Thanks. Good afternoon, Joe and John. Yeah, thanks for taking the question here. So, yeah, one of my questions was just answered on the tariffs. I think I'll just hold off on that one. But, one of the things that you mentioned, you know, you said that you assessed the potential impact of China's retaliatory tariffs, and you believe you're able to mitigate the tariff exposure through adjustments in your supply chain. You know, I guess my high-level thought was that if you're manufacturing in China for the Chinese market, you would essentially have, you know, zero impact from tariffs. But, so I'm not sure if I'm reading too much into your wording there, but just hoping that you can provide a little more color on the dynamics on making adjustments to your supply chain. Thanks.

Got it. Okay. All right, that's it for me. Thanks.

Thank you. One moment for our next question. Next question will come from the line of Elizabeth Anderson from Evercore ISI. Your line is open.

Hi guys, good afternoon. Thanks so much for the question. So you I see what you're saying about the 2Q guidance and I understand what you've been saying in some of the math about the FX flip and thing. You know, you're talking about in the 2Q guidance, you know, clear liner volume being up sequentially. Can you sort of, but obviously a lot of the 1Q results happened sort of before tariffs. Can you sort of talk about how the demand, are you starting to see any impacts on demand? Would you characterize the demand since sort of the tariff announcements as broadly stable? Like I guess that any sort of color you could help provide on that would be helpful just as people kind of put through the puts and takes of the current macro choppiness and then I have a follow.

Yeah, Elizabeth, hi, this is John. Look, we were pleased with our volume and our performance in Q1 despite, you know, some of the choppiness that people allude to and so on. When we look at how we're guiding and what we're using, you know, it's normal process that we go through to be able to come up with guidance and we're showing that we expect that sequential improvement from Q1 to Q2. I think I would just remind everybody that, you know, it's a global business. There's a lot of different parts to our business and various products as well that, you know, I think sometimes gets a little bit lost. So, I think that you look at the global breadth of our business, the strength that we saw in EMEA and APAC and the stability that we saw in the Americas, you know, there's always something about tariffs and some of the noise around that, but, you know, we're guiding for that increase and it's based on the data that we see.

Got it. And as a follow-up, you know, obviously you launched the restorative iTero at IDS sort of late in the quarter. So, I would assume that there's almost no benefit in the first quarter from that. Can you sort of help us think through the uptake for that and sort of how you expect that based on prior launches to come across as you sort of launched a new product like the Lumina ortho version last year?

Yep, thank you so much.

One moment for our next question. Our next question will come from the line of Erin Wright from Morgan Stanley. Your line is now open.

Great. Thanks for taking my questions. I'll ask them both up front here. On teen, I guess any metrics that you have on the actual conversion rates of Invisalign versus Invisalign expander and how you're seeing that translated into growth there. I know it was asked earlier at a more higher level, but curious, you know, if we are hitting that inflection point and what some of those metrics may be and maybe it's just too early. And then the second question I have is just on direct-to-consumer and related thoughts on contributions where you're at with sort of the initiative and how that should progress and maybe we wait for investor day on that, but the potential contributions there. Thanks.

Thank you. One moment for our next question. Next question comes from Mike Riskin from Bank of America. Your line is open.

Hey, thanks for taking the question, guys. Appreciate you squeezing me in. A couple small ones just kind of following up on prior points people brought up. So I'll shoot them real quick. You know, you talked about tariffs, you talked about China. I kind of want to talk about the indirect impact of tariffs, you know, the trade war. There's a lot of thoughts of maybe, you know, indirectly China will try to punish American companies by sort of pushing people towards local brands even more, you know, there's a question how much they can really do that, but just from that perspective, you know, are you seeing anything? Obviously, you got a local competitor there. Just thoughts on that and what have you kind of assumed for rest of the year if that trade war continues to escalate?

Okay, great. And then you talked about effects on revenues and ASP. What about on margins? I mean, it's just a pretty big swing in terms of how rates have gone. Is there any impact on margins? I see that, you know, you're keeping your full year up non-GAAP op margin the same. So, just anything we should keep in mind in terms of how that flows through the P&L?

Yeah, there's a with the FX favorable FX just slight improvement in our op margin as a result of that, but, you know, we have that as well as, you know, being able to offset some of the tariffs and so on. So, that's the components to that show up in op margin, but, you know, we're pleased with the start of the year in terms of our op margin. We're showing guiding to sequential improvement into the second quarter. And, you know, if FX rates stay stable as they are now, we will end up with a good accretive op margin for 2025.

Okay. And then quick one if I can squeeze in a third just sort of a technical question. Some of the disclosures, you know, you mentioned you're not giving DSP anymore. It looks like unless I'm missing it, you're not giving Americas versus international clear liner net revenue. Is it just, you know, sort of the new disclosure going forward? Is that something we'll find in the 10-Q or just sort of what's the rationale behind that?

Well, look, we're always looking to simplify and provide information. We get a lot of feedback that we provide so much information and gets a bit confusing as to what's really driving things. So, we try to give the best information that helps you and others be able to understand and analyze the business and, you know, we look to make changes that make the most sense to help provide more clarity to the business.

All right. Thank you. I appreciate it. Thanks.

Thanks, Mike.

Thank you. One moment to our next question. Our next question comes from the line of Kevin Caliendo from UBS. Your line is open.

Thanks. Thanks for getting me and I appreciate it. I want to go back Hey guys. I want to go back to the ASP question. Yeah, it was down 8.3% FX I think is how to think about it, which would imply that between discounting and mix it was down three to five, right? And I don't think that any of your expectations are going forward that ASPs are going to decline 5% to perpetuity. So, what gets better or in your mind between either mix, either customer mix or product mix, or discounting programs, or are you anticipating and I don't know that I've contemplated this until right now, but, you know, is there used to be every July there would be price increases. Are you thinking that you have the ability to do that broadly speaking and that helps? And I guess it's a short-term question, but it's also sort of a long-term question when we think about the ASPs because if we're going to get back to sort of, you know, the kind of growth that we think the business can do, we don't want ASP to be a huge overhang on the clear aligner side.

Yeah, I think you have to look at it when you think about it, Kevin, where we're growing. Certain countries, you know, grow faster, they're just at a lower list price product that they have there or some of the product growth that we have is lower and we certainly saw some of the shift where we, you know, starting this year have introduced, you know, DSP in several markets and other new products with IPE and, you know, some of the other growth that we've had whereas we didn't have those in the past. So, I think some of it's just the products and the locations that impacts the mix. And then you see as doctors we sell to more and more doctors, record number of first quarter doctors that we sell to. Many of these doctors that come in are just they're at a product, a list price that are, you know, maybe not the comprehensive and they're lower list price type products, but that's the expectation that you have. We have things that we can be able to mitigate with some of the new products we have, some of the additional pricing like we have on MAOB and others to be able to get us to that stability in ASP. And then of course, as you work your way down the P&L, we're very mindful of making sure that gross margin is, you know, is accretive and being able to drive the gross margin and ultimately top margin. And that's what we look at as we work our way down the P&L.

Great. Thanks, guys.

Thank you. Assuming no further questions in the queue, I want to let you send the call back over to Shirley for closing remarks.

Thank you and thank you everyone for joining us today. As a reminder, we are hosting an investor day meeting next Tuesday, May 6th in New York City. If you would like more information about that or to register, you visit our website aligntech.com or you can contact investor relations. If you have any other questions, we'll look forward to hearing from you. Thanks and have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.