ALGN - NASDAQ

Greetings. Welcome to the Align First Quarter 2026 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 conference call is Joe Hogan, President and CEO; and John Morici, CFO. We issued first quarter 2026 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 and discussed today will include forward-looking statements, including statements about Align's future events, product outlook and financial expectations. These forward-looking statements are only predictions and involve risks and uncertainties that described in more detail in our more 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 first quarter 2026 conference call slides on our website under Quarterly Results. Please refer to these files for more detailed information. With that, I'll 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 today's call, I'll start with an overview of our first quarter 2026 results, discuss performance across our two operating segments, Clear Aligners and Systems and Services. John will then walk us through our financial results and outlook for Q2 and 2026. After that, I'll come back to highlight a few key takeaways before we open the call for questions. We're pleased to report another better-than-expected quarter in Q1. Clear Aligner volumes from both the GAAP and non-GAAP operating margins exceeded our outlook. These results reflect continued execution against our strategic priorities and the resilience across our global business. We delivered first quarter revenues of $1.04 billion, up 6.2% year-over-year driven primarily by high Clear Aligner volumes and increased ASPs. Clear Aligner shipments reached a record 686,000 cases, increasing 6.7% year-over-year, reflecting double-digit growth across our international businesses, and continued stability in North America. Growth was broad-based across customer channels with shipments to orthodontists up 7.4% and GPs up 5.6% year-over-year, along with solid momentum across adult, teen, and growing kid patient categories. Dental and orthodontic service organizations continue to be force multipliers in every region, driving global double-digit Clear Aligner volume growth during the quarter. We remain encouraged by how naturally our digital platform fits with DSO operating models and how it continues to benefit customers and patients and support both Invisalign adoption and increased iTero scanner utilization. Q1 highlights the continued strength in Invisalign demand across age groups and geographies, even amid varying macro conditions. For Q1, 449,000 adults were treated with Invisalign aligners, up 7.8% year-over-year, reflecting strong growth across both orthodontists and GP channels in all regions, led by EMEA, APAC and Latin America. Teens and growing kids continue to represent the largest orthodontic patient opportunity globally. In Q1, 237,000 teens in kids started Invisalign treatment, up 4.8% year-over-year, led by China and Latin America. Growth was supported by continued adoption of Invisalign First, the Invisalign Pal expander and mandibular advancement with occlusal blocks, reflecting broader use across growing patient indications. A clinical study by researchers at the university of in Serbia in Italy, found that Invisalign palate expander or what we call IPE, was shown to effectively widen the upper jaw by opening a natural growth seam in the palate, achieving bone and bite changes similar to traditional metal expander. IPE also delivered more controlled and predictable results in Hyrax. When further considering the greater ability to maintain hygiene and the simplicity many parents desire compared to Hyrax device, these findings supported the use of IPE as a reliable option for growing patients and highlights its role as an important step towards fully digital orthodontic care. For imaging systems and CAD/CAM services, including iTero, exocad and x-ray insights software, Q1 revenues totaled $184 million, up 1% and year-over-year and declined sequentially, reflecting expected first quarter capital equipment seasonality. Q1 Systems and Services year-over-year revenue growth reflects continued adoption of iTero Lumina Full systems, service revenues and CPO sales, along with the continued mix shift towards lower-priced scanner offerings included PC-based configurations, leasing and rental units. These offerings provide greater affordability and flexibility to doctors in certain markets and practice models. In addition, the number of scanners sold to new doctors increased double digits year-over-year. For Q1, the total installed base of active scanners exceeded 125,000 globally. In addition, during the quarter, over 12 million iTero digital scans were performed supporting Invisalign, restorative wellness and numerous other digital workflows and applications. Exocad delivered double-digit year-over-year revenue growth, reinforcing our strategy to integrate orthodontics and restorative dentistry within a customer and patient-centric digital platform. Following the success of our inaugural Invisalign Advanced restorative treatment or ART pilot in EMEA, we recently began an Invisalign ART pilot in the United States with labs and doctors beginning training in several markets. Invisalign Art integrates with exocad enabling clinicians in labs to plan tooth alignment ahead of restorative work within the exocad environment without changing the tools doctors and labs already use. We're very excited about this opportunity to enhance the goal of preserving patients' natural dentition as much as possible. ART allows us this by incorporating the prior alignment of teeth into the overall restorative treatment plan as opposed to the removal or grinding them down before minimally invasive restorative work. It allows us to further expand our reach and offer existing and new products to the large and growing restorative market through lab-based channels. Clear Aligner revenue in Q1 was $856 million, increasing 7.4% year-over-year and 2.1% sequentially. Q1 Clear Aligner volume reached a record 686,000 cases, up 6.7% year-over-year and 1.3% sequentially. On a year-over-year basis, our clear aligners revenues reflected double-digit volume growth in EMEA, APAC and Latin America, along with overall stability in North America. Importantly, growth was primarily driven by both submitter expansion and higher utilization across the orthodontists and GP channels and across adult, teen and growing kid categories. During the quarter, more than 88,000 doctors submitted Invisalign cases globally a year-over-year increase of 3% or an additional 3,000 orthodontists and GP driven primarily by increases in APAC and the Americas, led by Latin America. Doctor utilization also increased year-over-year by 3.4% led by EMEA, Latin America and APAC. These metrics illustrate the continued adoption and penetration of the Invisalign system through our strategic geographic growth efforts as well as the meaningful addition opportunities in the large untapped demand for digital orthodontics, both in gaining share in the existing 22 million annual orthodontic case starts and expanding access to care to the more than 600 million potential patients that our digital technology can serve through GP dentists globally. Our DSO channel continue to be meaningful full growth driver. In Q1, DSO Clear Aligner volumes grew double digit across all regions and represented approximately 1/4 of total global volumes. The retail channel continued to be mixed, particularly in the United States, where our doctor customers reported less patient traffic during the quarter. To drive adoption and utilization across channels, we expect to continue to expanding targeted initiatives focused on affordability, patient conversion, clinical confidence and practice efficiency. These initiatives are beginning to show traction with GP, dentists, orthodontists and DSOs, helping to drive increased engagement and directional growth and case volumes. These initiatives include the doctor subscription program, or DSP. We continue to see strong growth from our DSP program, which includes retention and touch up or relapse cases. DSP touch-up cases continue to grow double-digit year-over-year across regions. DSP was originally launched in the United States in 2023, expanded into EMEA in 2025 and is expected to launch in APAC in Q2 of this year. North America DSP is also supporting early momentum with orthodontic groups and DSOs, helping drive reengagement among competitive and historically lower utilizing doctors as pricing simplicity and bundled value resonate across accounts. Patient financing in the United States, Healthcare Financial Direct or HFD is now live in over 4,000 offices, enabling patients to prequalify for financing before their first appointment. allowing doctors to see these patients directly within our Invisalign Doctor site. We saw particularly strong adoption in Q1 among the American Academy of Clear Aligners or AACA member practices, where we expanded access to patient financing is helping improve affordability, increase patient conversion and drive meaningful directional growth in case starts. Beyond AACA, adoption continues to expand across independent practices, multisite groups and DSOs. Practices report that HFD simplifies their front office workflows and reduces complexity and payment discussions and increases staff confidence when offering financing during consultations and special patient events. -- prequalification and flexible monthly payment options are helping practices broaden access to care, in many cases, providing affordable options to patients to increase scope and types of treatment, including Invisalign clear aligners. Feedback we've received from offices highlights that the speed of approvals, clarity of options and prompt funding are shifting conversations away from price and back toward delivering treatment options that match patient needs. While also easing administrative burdens for staff and operating teams. These benefits are proving particularly impactful in multi-practice environments where consistency, simplicity and scalability are critical. Invisalign Pay, which is available in Brazil, with further expansion planned across Latin America continues to improve affordability and treatment conversion and serves as a proof point for how patient-centric embedded financing can complement our clinical and digital workflows. In Brazil, Invisalign Pay is now used in a majority of Invisalign cases, reflecting strong doctor endorsement and patient adoption. Providers report that financing helps optimize cash flow, reduce friction for patients and supports reactivation of lower utilizing providers, reinforcing financing as a meaningful lever for sustained growth across the region. Peer-to-peer mentoring, on the clinician-to-clinician mentoring programs, Connect Doctors over a structured 12-month period to build clinical confidence in drive engagement and treatment conversion. These programs are especially effective for accelerating adoption of new technologies, increasing confidence treating kids, teens and more complex cases. Peer-to-peer programs are active across all regions, and we expect to expand them over the year. These efforts complement our broader engagement strategy, particularly with GPs and competitive orthodontic accounts that benefit from hands-on clinical support and shared best practices. Treatment planning services or TPS. TPS addresses one of the largest barriers to adoption, low clinical confidence and uncertainty around treatment planning, particularly among GP dentists. TPS provides case assessment and treatment planning support through a combination of internal TPS and external TPS partners, enabling doctors to submit cases with confidence. TPS has emerged as a direct go-to-market engine with materially higher utilization among TPS users versus nonusers and strong adoption across regions in markets such as Canada, TPS adoption among participating GPs continues to increase with TPS users consistently outperforming nonusers and contributing to low double-digit year-over-year growth in case starts. From a regional standpoint, Americas Q1 Clear Aligner volumes increased year-over-year, reflecting very strong double-digit growth in Latin America, partially offset by a modest but stable year-over-year decline in North America. Latin America delivered record first quarter shipments driven by increased submitters, higher utilization across both orthodontists and GP channels, along with strength across adult teen and growing kid categories. In EMEA, Q1 Clear Aligner volumes grew double digits year-over-year, reaching record first quarter levels, led by increases in Iberia, Italy, Nordics, U.K. and also Turkey. Growth was driven primarily by utilization gains across both GP and orthodontic channels and continued strength from adult and growing kid patients. In APAC, Q1 Clear Aligner volumes also grew double digits year-over-year with record first quarter shipments for APAC led by China, India, Korea and Japan. In addition, APAC markets had record first quarters, including China, Japan, Korea, India and Taiwan. Growth was broad-based with a teen and growing kid patients growing double digits alongside continued growth among adult patients. Overall, while the operating environment remains uneven in some markets, our Q1 results illustrate the resilience of our global business and we continue to see orthodontics and oral health and digital dentistry as durable long-term growth categories. With that, I'll turn it over to John.

Thanks, Joe. Now for our Q1 financial results. Total revenues for the first quarter were $1.041 billion, up 6.2% from the corresponding quarter a year ago. On a constant currency basis, Q1 revenues were favorably impacted by approximately $44.9 million year-over-year or approximately 4.5%, in line with our Q1 expectations. Q1 Clear Aligner revenues were $856 million, up 7.4% year-over-year, primarily due to higher volume, favorable foreign exchange price increases and lower net deferrals, partially offset by higher discounts and a mix shift to lower-priced countries and products. Favorable foreign exchange impacted Q1 Clear Aligner revenues by approximately $38.2 million or approximately 4.7% year-over-year. Q1 Clear Aligner average per case shipment price of $1,250, increased 1% or $10 per case on a year-over-year basis, primarily due to favorable foreign exchange, price increases and lower net deferrals, partially offset by higher discounts and mix shift to lower-priced countries and products mentioned previously. Clear Aligner deferred revenues on the balance sheet as of March 31, 2026, decreased $77.2 million or 6.4% year-over-year and will be recognized as revenue as additional aligners, also noted as refinements are shipped. As we continue to scale our 0 additional aligner configuration and introduce other streamlined configurations with limited or no additional aligners which do not require revenue deferral because there are no future performance obligations, we expect the overall Clear Aligner deferred revenue balance to decrease over time. This reflects earlier revenue recognition and cash conversion rather than any changes in free cash flow economics. Q1 Systems and Services revenues of $184.1 million were up 0.9% year-over-year, primarily due to favorable foreign exchange, higher scanner systems and sales and nonsystem sales, partially offset by lower scanner on sales. Foreign exchange favorably impacted Q1 Systems and Services revenues by approximately $6.7 million year-over-year or approximately 3.8%. Systems and Services deferred revenues decreased $22.4 million or 10.8% 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. First quarter overall gross margin was 70.8%, up 1.4 points year-over-year primarily due to operational efficiencies and higher Clear Aligner ASP. Q1 overall gross margin was unfavorably impacted by foreign exchange of 0.4 points year-over-year. On a non-GAAP basis, which exclude stock-based compensation, amortization of intangibles related to certain acquisitions, depreciation expense on assets disposed of other than by sale, gain on assets held for sale and restructuring and other non-GAAP charges, gross margin for the first quarter was 71.8%, up 1.6 points year-over-year. Clear Aligner gross margin for the first quarter was 71.6%, up 1.1 points year-over-year primarily due to higher ASP and operational efficiencies. Q1 Clear Aligner gross margin was impacted by unfavorable foreign exchange of approximately 0.5 points year-over-year. Beyond mix and cost actions, margin expansion is increasingly driven by lower refinement rates, improved treatment predictability and higher manufacturing throughput benefits that scale with volume and data over time. Many of our lower price product configurations, such as COMP 3in3 and DSP Touch-Up include fewer or no additional aligners and require less manufacturing production which supports gross margins and improved cash conversion despite lower upfront pricing. Because of the clinical capability of the Invisalign system, we are able to offer configurations such as

Thanks, John. Stepping back, we're pleased with our Q1 performance and consistency of execution we're seeing across the business. Growth this quarter was broad-based across regions, patient segments and channels, supported by record submitters for our first quarter and a higher utilization within our existing customer base. We also continue to see strong momentum from our doctor subscription program with Invisalign Touch up and retention products growing double digits year-over-year. We continue to observe the dental needs we address such as orthodontics, restorative, diagnostics, oral health and digital dentistry and durable consumer demand, which we expect will continue to drive our long-term growth expectations. Importantly, teens and growing kids remain a central driver of Invisalign demand and long-term opportunity. In Q1, we saw continued strength in teens, kids across key international markets, supported by adoption of Invisalign First, palate expansion and mandibular advancement. These products are helping doctors treat a broader range of growing patients with Invisalign aligners and allowing us to compete more effectively against traditional wires and braces at earlier stages of treatment. We have moved forward in 2026, our focus is on maintaining discipline as we invest strategically in innovation and growth opportunities. That includes advancing digital dentistry through the Align digital platform, scaling our iTero Lumina ecosystem, expanding internationally with localized strategies and continuing to build differentiated portfolio for teens and growing kids. While macroeconomic conditions remain dynamic, we continue to benefit from long-term investments in AI-enabled treatment planning and integrated digital workflows that improve predictability, efficiency and scalability across the business. These capabilities are designed to increase planning consistency and throughput and support more predictable outcomes for doctors helping us operate more efficiently across volume environments. A key part of strategy is expanding the role Align plays in oral health and restorative dentistry. Increasingly, doctors are using our platform not just to align teeth, but to identify oral health issues earlier and integrate orthodontics into comprehensive treatment plans by connecting iTero, exocad and Invisalign through digital workflows. We're helping doctors deliver better long-term oral health care outcomes for patients, especially as they transition from orthodontic to restorative care. Our vision is to make tooth alignment using Clear Aligner therapy the standard of care. By revolutionizing traditional treatment modalities, appliances, tools, practice workflows and businesses and go-to-market models across the dental industry. By focusing on oral health and the benefits of tooth alignment as part of orthodontic restorative treatment, we're developing products and technologies that are helping doctors deliver the best treatment experiences and clinical outcomes for their patients. To date, nearly 23 million patients worldwide have been treated with the Invisalign system, including approximately 7 million teens in kids. Every case adds to our proprietary clinical data set generated within our integrated digital platform. This data set continues to fuel our innovation and ability to scale across orthodontics, oral health and change lives for our doctors, customers and their patients. Innovation remains central to our strategy, but always with a clear purpose, helping doctors deliver better outcomes, improving efficiency and enhancing the patient experience. Looking forward, that includes continued progress in direct fabrication, which we are advancing deliberately and in phases with quality and reliability as our guiding principles. While still early, direct printing unlocks new design flexibility, strengthens our long-term cost structure and allows us to operate more cost effectively. We began initial limited market releases of direct 3D printed attachments and retain our products. In Q1 and look forward to updating you further as direct printing programs progress. Our objective is as straightforward to keep earning trust through clinical leadership, thoughtful innovation and consistent execution quarter after quarter. With that, I thank you for your time today. And now I'll turn it over to the operator. Operator?

[Operator Instructions] Our first question comes from Daniel Grosslight with Citi.

Congrats on another strong quarter here. I wanted to focus on the cadence of profitability for the remainder of the year. Obviously, a very strong beat this quarter. 2Q looks about flattish sequentially, which implies a fairly significant step-up in the second half. Can you just comment on the underlying assumptions for the cadence of profitability this year, particularly I know there's a lot of uncertainty around the Middle East, but how much impact around the conflict are you assuming in 2Q? And kind of what are the assumptions around the second half?

Yes. Dan, this is John. So we're pleased with our profitability and what we saw in the first quarter. It's really a reflection of what we've been able to do is a lot of the restructuring and other changes that we made last year both from a COGS standpoint and OpEx standpoint, really starting to take hold in the first quarter. So we're pleased with that. We expect that profitability and the productivity to continue as we go through the year. And that's typically the cadence that we have as we go quarter-over-quarter, we see that profitability and especially as volume increases as well, we see that profitability come through as well. So good start to the year, and we look forward to the rest of the year playing out as expected.

Our next question comes from Daniel Grosslight with Barclays.

Just two quick ones for me. Joe, I want to touch on this Middle East situation. I know you guys don't break it out specifically, but we sort of place it in the mid- to high single-digit range with respect to revenues. Can you confirm, is that in the right

Yes, Glen, I can start with answering some of these questions. This is John. On Middle East, you're right. It's in the Middle East part of our numbers to the company is in the single digits. And so there's some impact that we saw, but it was pretty minimal in March, and our reflection is in the second quarter and kind of beyond based on that. And in terms of iTero, Joe, you want to...

On the iTero side, Glen, honestly, we haven't -- we didn't have any disruption from a production or shipment standpoint. That team is very rigorous over there. We understand when the move equipment well and whatever. And so I'm not saying that's always perfect, but the team has responded well, and we didn't have any really impact on the business in the first quarter.

And then on the share repurchase, you're right. We saw the $200 million that we just completed and now an additional $200 million. Remember, it comes down to U.S. cash, and about 20% of our cash is in the U.S. versus out of the U.S. So we have that constraint as well. But it's part of our overall plan that we have. We want to grow the business as fast as we can use our cash to be able to help do that. We have a good business model that generates a lot of cash. You saw that reflection in the first quarter. And then we do the buybacks to be able to put cash back to our shareholders. So that's been the plan that we have. And it's a disciplined approach that we've taken, and we've seen that investments made back in the business that way.

Our next question comes from Brandon Vazquez with William Blair.

Congrats on a quarter here, good quarter here in uncertain macro. I want to follow up on the Middle East question, but actually, not like the specific exposure to the Middle East, but you guys have kind of called out some prudence around the guidance just for the uncertainty around the Middle East situation. I assume you guys are talking about potential like impacts to consumers, things like that. Maybe just talk us through what are the potential risks, what is the prudence that's being baked into the guidance just so we understand if we do have a prolonged situation in Middle East, what's the wiggle room within guidance and where you guys would expect across the P&L, there could be an impact, right, because it could be in revenue? And then maybe the other one I'll ask on margins related to this is like are you guys exposed to resin costs that we keep seeing headlines about rising from the Middle East?

Yes, Brandon, this is John. So there's a minimal direct impact. Like I said, the Middle East part of our business is actually relatively small in the single digits as a result -- as a comparison to the rest of the business. It's really just the higher fuel prices that you see that every country is seeing now as a result of this and what it means for their inflation and what they have to be able to purchase other products, including ours. We've done a lot to be able to help drive that conversion. So much of what we talked about was helping potential patients with financing and helping doctors to be able to provide financing and so on, and we'll continue those efforts. But it's really more around something that's prolonged with higher inflation and higher share of wallet that goes to other places that puts us from a forecast standpoint, just trying to be as prudent as possible.

Our next question comes from Jon Block with Stifel.

Two for me. Maybe I'll break them off. But just on the first one, Joe,

John, can you speak up. Okay, that's better.

All right, sorry about that. Two questions. I'll try to break them up. So I was saying, Joe, trends are always really important, but certainly top of mind with investors with, call it, the current state of the globe and what's going on. So I'm wondering if you can give us any color just how things trended or call it closed in the first quarter, call it, more the month of March? And then any early 2Q trends to call out for the first month that you experienced in the month of April?

John, look, I mean, overall, when I look at the quarter and I look at it globally and all, it was pretty consistent across the board when we look month-to-month. Obviously, iTero is kind of back-end loaded, obviously, in the way capital equipment purchases go. But when we look at Invisalign, we felt good about Invisalign, all country and country and the consistency of what we saw. So -- and no, I would say overall pockets of weakness that was different than what we experienced in the fourth quarter. So overall, we felt good about that. And we felt good is how we entered the second quarter, too. So John, anything to add?

No. I mean there's going to be puts and takes as you go through any quarter. But on balance, we kind of take a balanced view of that from a guidance standpoint and reflect that.

Okay. And John, maybe the second one, and hopefully, you can hear me okay. Just a follow-up. So you mentioned

Yes. So when we see the

Our next question comes from Elizabeth Anderson with Evercore ISI.

Maybe a two-parter from me. One, can you go into a little bit more detail about your sort of like change in ASP view. It just seems a little bit more positive than what you're saying. So just to like parse through that in a little bit more detail in terms of like mix or FX and that kind of thing. And then two, as you think about the margin opportunities in 2026, would you see any changes in those buckets versus sort of what you were thinking about later last year? Are there any incremental opportunities? Any more details on that would also be helpful.

So Elizabeth, on the ASP, you're right. There are moving pieces certainly that we called out foreign exchange and we talk a lot about country mix and product mix. And certainly, those play through our ASPs. But on an overall basis, when we look year-over-year, it's a $10 increase, which was good. It was as expected. And even on a quarter-over-quarter basis, $10. And that's kind of how when we look forward, you're still going to have that country mix and product mix, but A lot of times things are offsetting, and we see that as a result. So ASPs stable. It is when we see some of those lower-stage products that we talked about with the NOAA or some of the moderate products, they come at a higher gross margin. And we see that coming through. And first quarter is a good example of that. As you increase your NOAA products, as you increase your moderate with NOAA, the cost of service is just less. And we end up with being able to see improvements in gross margin. So as we go through the year, we should expect to see that in terms of our product mix. Improvements in gross margin. We should continue to see productivity. We made a lot of cost actions at the end of last year. We're seeing good effects of those cost changes, whether it's getting closer to our customers, in some cases, it's just equipment that's more efficient, drives productivity. And certainly, as we have more volume, we get that leverage as we go through. So that's how we expect things to play out this year and so far in the first quarter, it was a good start.

Our next question comes from Jeff Johnson with Baird.

So Joe, I wanted to start maybe two questions, but let me start just on kind of your North American case growth. I think you mentioned it was down a little bit year-over-year. every other market, I think up double digits, although correct me if I'm wrong on the every other market comment, part of that. But what do you think the difference is in the U.S. or North America versus rest of world? Is it just all consumer? Is it competition? What is driving such a stark contract? I know that's not really different over the last several quarters or handful of quarters. But just what's your updated thought on how we get that kind of North American number back to something that can be contributing at least to the double-digit elsewhere.

Yes. That's a good question, Jeff. First of all, I'd say the competition aspect hasn't changed. And just to take off on John's question a second ago, that NOAA allows us to play offense out there, and we're playing more offense in that sense, and we feel good about it overall. I'd say broadly, I was actually anticipating this question, Jeff, is that it's broadly a macro of the way I look at it versus here in the rest of the world. And it's almost like you put the macro in Asia being the best. Secondly, in Europe, spotty. Europe is a lot of different countries. But you can see that the countries we highlighted like Iberia, U.K. and different parts of EMEA is growing pretty well. And then when you look at the Americas, which includes Latin America, did extremely well. We've seen some improvement in Canada right now and some improvement in the U.S. So overall, I feel good overall, but that variable you're looking for, Jeff, has been U.S. macro as far as I can tell.

All right. Fair enough. And then maybe just a two-parter around NOAA. One, I think last quarter, you had talked about going into 2Q being pretty complete with the rollout of

John, why do you see...

So on the NOAA, when we look at -- it's been available to many doctors. It's just a question of, do doctors want to utilize it and start to utilize it right away. So there's a roll up based on the doctor's preference in terms of how much they want to utilize and that ramps up. And in success, when doctors start to see the benefits of it, their clinical confidence that they can treat patients even on complicated cases with no refinements or maybe one refinement, then they continue to do more and more. And that's what we've seen in our data as we've gone. And now as it's been out for over a year in many markets, now you see doctors saying, okay, they need to purchase a refinement or they might be -- they might have something that they need to to add to the case to make sure it can finish properly and you start to see some of the refinements come later. So that was our expectation when we started this, that there would be an adoption, and those doctors then start to use it. They want to see what refinements they need, and now we're starting to see some refinement, but it really helps doctors be able to keep that initial case cost lower for them so that they can fit that into their practice and see those patients as they would want. So good adoption that we've seen across the globe, you're starting to see refinements come in, but it's pretty much as expected. We just want to keep rolling this out and getting doctors more and more options.

Jeff, I think just to add something what John said, I think one is, over the years, the doctors have gotten more and more confidence in our product lines. I talked about TPS in my script and different things that we do to train doctors. And I think it gives us much more confidence to go out there with NOAAs. Secondly, is it aligns doctors' economics, along with our economics, too. And so it helps to bring the two of us together in a much better way.

Our next question comes from Michael Cherny with Leerink Partners.

I know we've been talking a lot about macro. Obviously, not something you can control, but you can control some of the reaction to macro. So as we sit here, wondering what's going to happen with the Middle East. I appreciate all the color in terms of what's baked into the guidance on the top line as well as the COGS side. How are you thinking about the OpEx spend in the push and pull to make sure that the appropriate level of demand is being stimulated, and especially in a world where you do have a broader product portfolio. Is there any color you can give us in terms of the scenario analysis that could lead to ongoing margin upside?

So Michael, this is John. So we're constantly looking at understanding the macro and then our investments into that macro. And it's not one size fits all. some countries, there's maybe not as much awareness and we're at different points in the overall journey of Invisalign there. You make different investments compared to maybe the bigger markets like you see within the U.S. But we're very attuned to making changes and being able to reflect what's working and what might not be working, what macro is happening in certain markets versus not, and we'll make adjustments to that. Ultimately, wanted to get the best return on investment. And when we take that approach, we can manage that in the short term to be able to hit our -- the expectations we have. Then of course, we want to be able to drive the category and grow, and that's something that we make maybe on a more longer-term basis. But we're really looking at what's happening kind of market by market and even within the market. Whether you advertise at the high level or more at the customer level, and we're making those trade-offs and doing this active conversion that we've talked about to really help doctors.

Our next question comes from Jason Bednar with Piper Sandler.

Nice start to the year here. One to follow up, I think, on Jeff's question earlier on focusing on here in the U.S. Good to see a lot of the record quarters in the international side. The U.S. market seems like maybe it's had some green shoots at least in some of the data that we look at, maybe more focused on the orthodontic channel. Is that consistent with what you're seeing to. I'm just -- sorry if I missed it but you seeing any differences in your business when you look across that teen-focused U.S. ortho channel relative to more of the retail adult-oriented U.S. GP segment?

Just deciphering your question, Jason, I'd say when you look at like a DSO approach versus a retail approach, we obviously get a broader signal on a DSO because we're looking at a lot more patients and doctors. And the DSO traditionally they have really good skills to go out and recruit, finance in different areas. On the retail doctor side, when I talked about HFD and those different things, those are types of systems that we're bringing together to address things that we feel hurt our retail doctors at times and an ability to be able to finance or to make quick decisions and financing with patients in different areas, how we go about that as a business overall. So I'd say the macro is there, but I feel good about what we've been offering from a product standpoint, we do from a financing standpoint and delivering it from a -- we changed our organization to move to the call on both orthodontists and GPs going forward. That's given us more coverage out there to be able to deliver this kind of message and support to our doctors, too.

All right. Got it. And just as a follow-up, shifting over to different side of the globe. China to us is a bit of a surprise, a good surprise, double-digit growth, record first quarter you referenced. Are you comfortable saying demand is returning to normal across China? And can you remind us what's embedded in your full year guide for China volumes and revenue this year?

I think anybody in the business has to be careful of using the word normal in China, okay? It's just -- I think you take that business almost on a year-to-year, sometimes quarter-to-quarter basis. We have a great team there, Jason. They execute well. Jude Ho that ran that business has been moved and he runs all of Asia right now. We have a great team there that helps to drive that. It's a very dynamic marketplace. We're well positioned with our manufacturing, well positioned with what we offer over there. But I would never say it's always business as usual in China. It's the most competitive market in the world.

Our next question comes from Steven Valiquette with Mizuho Securities.

This question has been, I guess, sort of half asked so far, but just wanted to get a little more color around this 2Q guidance. It seems probably stronger than what probably most people were expecting, which is certainly positive. But as far as just kind of the geographic mix across that, should we assume generally the same trends stronger in international than maybe America is a little more -- I guess you're characterizing as stable in particular. And also, I think for just North America, in particular, last year, you talked about this ratio of patients getting scans versus patients starting treatment kind of being off a little bit. Have you been able to at least kind of close the gap on that across a lot of geographies, especially on the back of some of the patient financing programs you have in place.

Yes, Steve, when we think about Q2, I think the growth that we've seen is pretty consistent or our expectation is pretty consistent to what we've seen. We would expect international to grow faster for many of the reasons that we spoke about. We've seen that for a number of quarters now compared to North America. So that would be our expectation for Q2. And I would say just on the conversion piece of it, that dislocation we saw in the second quarter of last year. And some of that, as it played out went through the quarter, we saw that dislocation, it really has more or less returned to normal really since that second quarter. So we haven't seen some of that dislocation as we've gone through, which is good. We want to be able to drive our volume, get with more more -- sell to more and more doctors and increase the utilization, and we want that conversion to be as active as possible. We're trying to make that happen, and therefore, more as predictable as possible. And we've been able to see that and the expectation as it continues.

Our next question comes from Erin Wright with Morgan Stanley.

Another question on sort of the North America or U.S. market, but what are you seeing in terms of the Gaidg data like when it comes to the broader growth trends and then what you're seeing in terms of growth across brackets and wires versus clear aligners in the market, just more broadly? And then a follow-up on

Maybe I can start with the AA or the product

And back to your question, it's Joe, on the U.S. marketplace, particularly wires and brackets and ratios with clear aligners. I tell you, you got to be careful with the data that you gather out there today and where it's coming from. We find there's a pretty big delta in that data overall. What I'd say is I feel good about our team play overall because -- advancement with the plus blocks, Invisalign First that I referenced in my script and also IPE, we're doing better and better on that preteen area because what we're offering is so much better than what the traditional kind of appliances were to be able to do that, and we see good progress in that area. But overall, I don't -- I wouldn't say a whole lot of change over the quarters in the U.S. orthodontic market wires and brackets versus aligners, except for what we're seeing in the preteen side has been pretty substantial.

Our next question comes from Kevin Caliendo with UBS.

I have two, if I can. First one is with all the questions around resin and oil, can you just remind us what percentage of your COGS are resin? And what would be the impact on direct fab in terms of reducing those costs, like the potential opportunity there? Just trying to think about this as an overhang. And then the second question is more, I just want to make sure I understand the commentary broadly about your guidance. In essence, what you're doing is you're taking the trends that you've seen in 1Q and into April. You're sort of running those through for the full year, but then adding on some kind of undisclosed amount of prudence with regards to the macro and the war and everything else. Is that a fair way to describe it?

That's a fair way to describe it, Kevin, in terms of the guidance. It's like you got puts and takes as you go through the quarter. We net those together, put that into Q2 and total year. So that's an accurate way to view that. And then in terms of oil prices, there's really two effects that can affect our business from that standpoint on a direct basis. One is the actual material costs, say about 25% of our COGS is kind of the resin plastics. There's a lot of contracts that we have where we have fixed amounts that there's not a lot of room for negotiation in terms of inflationary effects that we take. So we feel we're pretty protected on that. The other piece might be on freight and logistics. And again, we're pretty controlled on that as well. So not to say that there's not some impact that we've seen from higher costs related to some inputs, but it's been manageable and we managed it in the first quarter and expect to be able to manage it going forward. .

Kevin, Joe, on the direct fab side, I mean you called out, I mean, there's an obvious aspect when you direct print, you don't have a 95% kind of scrap base that you used on our current vacuum forming piece. So that's always there. And our feed stream is more of a natural feed stream. There's not really a feed stream from a petrochemical standpoint, so it helps isolate you overall. But remember, I mean -- that play is a great thing about that on direct fab is it will help us significantly in a sense of efficiency in that way, but how you can make an aligner and the flexibility to make it in variable wall thickness and being able to be able to design aligners to each individual cases to an extreme. We could never do before, still a primary driver, but you do have these ancillary areas that really help in the sense of how the resin is obtained and how it's used.

Our final question comes from Michael Ryskin with Bank of America.

I'll try to be quick. One is just following up on, I think, Elizabeth's question on ASPs. In the past, I think you talked about a 1% to 2% decline in ASPs for the year. Your 1,250 in 1Q, I think you pointed to around 1,250 in 2Q implies still a little bit of a step down in 3Q, 4Q. Is that still in the guide? I think it is, but I just want to confirm you didn't call out the full year ASP dynamic.

Yes, Michael, 1% to 2% decrease on a year-over-year basis is is our expectation. You're going to have that mix that we talk about, whether it's product or country mix that plays out each quarter and throughout the year.

Okay. And then a quick follow-up, if I may. Another question earlier asked sort of about U.S. versus OUS and some of the U.S. not quite at the same level as the other as you talk about the macro. I'm going to ask it in a different way. The DSO versus retail channel, is that some of the same dynamics? I know retail has obviously been weaker DSO has been a strong point for a while. So it's nothing new. But just is that sort of the same answer of macro and just harder to push that through? Or is there anything new that it back in that channel?

Yes, no change to what we've seen, Michael. We're very pleased with the DSO growth, and it continues to be, in many places, double-digit growth. And that's a reflection of of really those groups taking a lot of the tools that we offer and bring together, whether it's the scale, the technology and the brand, and they do a great job of bringing all together and really being much more active to try to drive that conversion with their potential patients. So that plays out, and that's the force multiplier that we talk about. You just don't see that as much, at least on a consistent basis on the retail side. we're working to try to get those retail doctors to operate more like some of the DSOs. But broadly, it plays out as we've seen. And it's up to us to try to get after those retail doctors with our sales force, with the technology, with the marketing and so on to try to get them more active.

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.

Great. Thank you, everyone, for joining us today. We look forward to meeting you at upcoming conferences and industry meetings, including the AAO meeting in Orlando this Friday. If you have any follow-up questions, please contact Investor Relations. Have a great day.