Align Technology Inc ($ALGN) Q4 2025 Earnings Call

Greetings. Welcome to the Align fourth quarter and full year 2025 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. 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 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've 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 Technologies President and CEO, Joe Hogan. Joe,

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 price 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 price 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 price 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 31st, 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 wand 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 wand 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 and 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 of other than by sale. Gross margin was down 4.8 points year-over-year primarily due to higher depreciation expense on assets disposed of other 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 six 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 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, 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, 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, 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 three 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. On a non-GAAP basis, 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 50 cents compared to the prior year. Our EPS was unfavorably impacted by approximately 5 cents on a sequential basis and favorably impacted by 3 cents 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 68 cents sequentially and 85 cents year-over-year due to higher revenue and lower operating expenses. Moving on to the balance sheet. As of December 31st, 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 $162.90 for a total of $465.9 million. As of December 31st, 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 $1.018 billion, up sequentially. Our overall days sales outstanding was 94, down approximately 7 sequentially and up approximately four 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 facilities. 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 31st. 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 $1.010 billion to $1.030 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 relate 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 roadmap, 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.

Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. You will then hear an automated message advising your hand has been raised. You may press star one again if you would like to remove your question from the queue. For participants using the speaker equipment, it may be necessary to pick up your handset before pressing the keys. One moment, please. Our first question comes from the line of Elizabeth Anderson with Evercore ISI.

Hey guys, good afternoon. Congrats on a nice quarter and outlook and thanks for the question. I was wondering Joe if you could maybe parse apart and maybe conceptually, if you can 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're 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 it 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.

Got it. No, thank you for that additional color. And then maybe John, one for you as you talk about sort of the positive ASPs perhaps in the first quarter, anything you can do to help us put a little bit more of a parameter around what you would consider sort of that positive growth.

Yeah, I think when you look at the mix that we have as we grow in certain countries, and we've talked about this, you know, 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, that will help us. And then also balancing the product portfolio, you know, 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.

Great. Thanks so much.

And our next question comes from the line of Brandon Vasquez with William Blair.

Hey everyone, thanks. Hey, thanks for taking the questions. Maybe first Joe, can we spend another minute? You know, 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 and the North America side for end markets?

Challenge. 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 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 were making around DSOs are really interesting. I know this has been a strong point for you guys for a while, but 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 questions, guys.

Thank you.

And our next question comes from the line of Jeff Johnson with Baird.

Yeah. Thanks. Good evening, guys. Hey, Joe. Wanted to start maybe on your adult business. That 8% number really stands out to me. You know, 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 came against a generally tough comp of 4% last year in the fourth quarter. So is that early traction with No A/A? 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, you know, adult spending on discretionary items.

Yeah. Maybe one follow-up then. Joe, just one follow-up and 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, you know, 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 call 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 flesh that US retail business or North American retail business out in the period.

And North America was, we got better due to some of the retail wasn't as negative and the DSO's 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 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.

Helpful. Thanks, guys.

Thank you. And our next question comes from the line of John Block with Stifel.

Thanks. Hey guys. Good afternoon. John, I'm going to try to get pretty granular. I know you gave some color on 2026 ClearCorrect 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 ASPs down, you know, 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, you know, 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 intra-quarter FX, was that just geo mix, any color there, thanks.

Yeah, no, two good questions. So overall, your first question John, yeah, expect ASPs, we're kind of modeling 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 talk about, country mix as well as product mix, the non-comprehensive versus comprehensive. And when you look at it on a quarter basis, when you look at our fourth quarter, they would have been flat had we not had, you know, FX changed slightly, you know, we got a little bit worse from a quarter over quarter in FX, and but then you also had some of the country mix. We had really good growth in some of the countries, you know, 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 a 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 to follow up, Joe, I'm just curious like what you're hearing, if anything, regarding, you know, 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 admittedly sort of different question is we're sitting here in February, you know, is No A/A 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 roll out of No A/A and your thoughts there in '26? Thank you.

Great. Thanks for the call, guys.

Thank you. And our next question comes from the line of Michael Cherny with Leerink Partners.

Hi Mike. Good evening. Hey, how's it going? Thanks for the question. Congrats on a nice quarter. Maybe just on the margin side, you know, great to see the talk 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? Talk to me about the dynamics, especially the strategic nature of the dynamics in terms of the potential for growth.

Yeah, Michael, this is John. So when you think about the product portfolio that we have, you know, 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, you know, 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 that volume helps DSP and others that don't have refinements, but then driving productivity. We saw good results from a gross margin standpoint like we saw in Q4 that we haven't seen honestly 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 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 it outperforming? Anything more you can give us on the experience there would be great.

Thank you.

And our next question comes from the line of Vik Chopra with Wells Fargo.

Hey, good afternoon and congrats on a nice quarter. Maybe a couple for me here. On the guidance range, you know, 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, but do you think you can deliver above that level of growth in '26?

Yeah, Vic, this is John. So, look, we guide as we always do. You know, 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%. You know, it goes back to things that I've 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, the No A/A product, the 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 patient to decide to go into treatment. And then, of course, we want to leverage our brand to be able to make sure everybody's 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 you know, as we go quarter by quarter we'll update as needed.

Got it. And just a quick follow-up for me. You know, 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.

Yeah, DSOs for us, Vic, are about 25% of our business on a volume basis. And we want to continue to expand. 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 Lumina, 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 with what we see in DSOs.

Thanks, Vic.

Thank you.

And our next question comes from the line of Jason Bednar with Piper Sandler.

Hey guys. Good afternoon. Congrats on the results here today. I'm going to follow up on Mike Cherny's operating margin question. Tuck on that thread 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? You got a variety of scenarios that could obviously play out with product mix, geographic mix, channel mix. I get 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?

Yeah, Jason, when we think about that, we look, we have to execute. We have to help grow the business. So much of what we see and especially on 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 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 guided standpoint. Wanted to continue talking about the 100 basis point improvement and as we execute, just like our overall revenue guidance, we'll update as we go forward.

Okay. All right. Fair enough. Want to move over to China VBP real quick and I appreciate all the comments you made and your exposure more on the private side of the market, but I guess can you help us a bit more with what you're seeing competitively in advance of that VBP 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 a volume uptick opposed to VBP implementation? Just any help there on those factors would be great.

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

Thanks Jason. Next question please.

Sure. Our next question comes from the line of Michael Sarone with Jefferies.

Good afternoon and thanks for taking the questions. First one on the system sales. I think you had talked about previously you were going to end of life some of the older iTero 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?

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 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 it's like everything else. We want to work with them to make that happen.

Thanks, Michael. Next question, please.

Our next question comes from the line of Steven Valette with Mizuho Securities.

Great. Thanks. Yeah, good afternoon. 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's seemingly some positive news in relation to price increases on a few key competitors but I'm wondering maybe just if you know 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 your volume trends kind of regardless of what's going on in competitor pricing front? Thanks.

Yeah 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.

Our next question comes from the line of David Saxon with Needham and Company.

Great. Thanks for taking my questions. Good afternoon. I'll just keep it to one. So just on the direct fab, you know, as we 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 that of how that hits the P&L? Thanks so much.

Okay. But for '26 though, do you expect gross margin to be down or I mean,

The margins will be, you know, we're pretty much projecting the margins that we average. But we've got, you know, on the 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.

Okay, great. Thanks.

Thank you. Our next question comes from the line of Michael Ryskin with Bank of America.

Great. Thanks. I'll keep it going as well. Just a follow-up on the scanners and services segment for '26. You know, 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 points. I was just thinking that in '25, you know, you guys had a really tough comp from prior year of 16%. And so that was, you know, it did a little bit slower, but since you're still on the Lumina 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.

Yeah. Michael, this is John. So on in total, you're right and 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 ClearCorrect grows.

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

Our next question comes from the line of Kevin Caliendo with UBS.

Thank you. This is Dylan Finley for Kevin. I'll keep it to one. Going back to John's commentary on the question on the No A/A and kind of where that stands today, you know, 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?

Yeah, Dylan, I could take that. So, we expect to, in success as we pilot things, we expect to roll things out from a no refinement type product, a No A/A product. So, we're seeing good uptake on the comprehensive with No A/As. 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'll be mostly fully rolled out into Q2. 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 up front. The refinements will come over time as doctors need to provide those refinements and we just get that over time 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.

Final question comes from the line of Aaron Wright with 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 gauge 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 palatal expander standpoint and how that's tracking, is that moving the needle? Thanks.

Thanks, Aaron.

Hey, thanks.

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 Midwinter in the next couple 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.