OPERATIONS OVERVIEW: UNIQUE OPERATIONAL SCALE AND ADVANTAGE

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1 OPERATIONS OVERVIEW: UNIQUE OPERATIONAL SCALE AND ADVANTAGE Emory Wright VP OPERATIONS Align Technology, Inc. 1

2 FORWARD LOOKING STATEMENT During this presentation and corresponding commentary we may make forwardlooking statements, including statements regarding Align s strategy for future growth, the anticipated impact of product innovation, consumer demand generation, geographic expansion and sales force productivity on, among other things, customer adoption, as well as statements related to Align s business outlook. Any such forward-looking statements contained in this presentation and corresponding commentary are based upon information available to Align as of the date hereof. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. As a result, actual results may differ materially and adversely from those expressed in any forward-looking statement. Factors that may cause such a difference include, but are not limited to, the factors that are discussed in more detail in Align Technology s Forms 10-K and 10-Q, as well as in other reports and documents filed from time to time with the Securities and Exchange Commission. Align undertakes no obligation to revise or update publicly any forward-looking statements for any reason Align Technology, Inc. 2

3 UNIQUE CHALLENGES REQUIRE UNIQUE SOLUTIONS Conceptually Easy to Make Made by hand for decades Basic methods needed Difficult to scale cost effectively and with consistency High labor cost required if making 100,000 per day by hand Mass Customization Required to Scale Achieve consistent quality Create cost effective system We had to pioneer & build everything from ground up Small, Light, and Unique No two are the same Unique material handling requirements few in the industry could touch Simple Yet Complex Business Model Build to order High growth -20% CAGR Seasonal demand Required sophisticated systems to manage demand The simplicity of the aligner s appearance belies the complexity of its design and manufacturability Align Technology, Inc. 3

4 SCALABILITY AND CAPACITY TODAY Manufacturing Operations 100K unique aligners/day Capacity to do 140K in current facility Plans for expansion in progress Capacity can be added in increments Juarez, Mexico Manufacturing Operations Scanner Manufacturing Operations ~ 100 units/month Capacity to 4X scanner production Or Yehuda, Israel itero R&D and Manufacturing Operations San Jose, Costa Rica Treatment Planning Operations Treat Operations > 3,700 treatment plans/day Able to scale 2X in existing facility Relatively short lead times to add capacity Align Technology, Inc. 4

5 INVISALIGN BEFORE AND AFTER Treatment Planning Time in Minutes 52% Improvement Cost Per Aligner 48% Improvement * * Aligners Per Day 3.5X Increase Time to Add Capacity (Months) 50% Improvement * * Align Technology, Inc. * 2014 data as of Q114 5

6 SEGMENTATION AUTOMATION *Video accelerated 65X *Video accelerated 65X 2 nd Gen Automation Effort* Significant improvement from manual method Still labor intensive Highly dependent on technician skill Gen 3 Automation* Algorithm understands tooth anatomy Technician managing exceptions More consistent results 60% reduction in time Align Technology, Inc. 6

7 TREATMENT PLANNING AUTOMATION *Video accelerated 65X *Video accelerated 65X Manual Treatment Planning* Complex tool (general CAD) Little understanding of clinical or biological constraints Labor intensive Highly dependent on technician skill Automated Treatment Planning* Algorithm has embedded clinical understanding and insights Algorithm accounts for biological constraints More consistent results Substantial reduction in time Align Technology, Inc. 7

8 MANUFACTURING AUTOMATION Manual Forming and Trimming 700 employees to make 5K/day High variability Process control difficult Automated Forming and Trimming Highly repeatable Significant control and accuracy 60% reduction in cycle time Align Technology, Inc. 8

9 GEN 2 FORMING Initial automation used same heating concept deployed in labs Less efficient Less control Developed smarter heating technology specific to our material & flexible to accommodate other materials in the future Decreased cycle time 20% Increase quality and consistency of forming 3X Align Technology, Inc. 9

10 NEW ALIGNER TRIMMING TECHNOLOGY Current Generation Next Generation Next Generation Aligner Trimming Improve quality & control of the aligner edge Reduces trimming cycle time by > 50% Increases capacity & reduces costs Align Technology, Inc. 10

11 ALIGNER MATERIAL REDUCTION Much of the material used to form appliances is wasted Initial automation approach drove significant cost saving in labor and provided significant improvement to quality Team able to further optimize technology design to substantially reduce waste (quality same or better) - 27% width reduction - 15% pitch reduction Old = 10 rolls/mother roll New = 14 rolls/mother roll Overall > 40% reduction in material usage Align Technology, Inc. 11

12 ENGINEERING CAPABILITY Very early on much of the automation was built to our specification with outside partners Have built capability to design and build automation and controls in-house For many projects targeted cost is reduced by 25% and lead time cut in half Enables Align to be more efficient with capital Extends our competitive advantage Align Technology, Inc. 12

13 LEVERAGING OUR OPERATIONAL EXPERTISE TO DRIVE IMPROVEMENT AND SCALE FOR SCANNERS Scanner Segment Gross Margin% 40% 35% 30% Improvement driven by: Engineering improvements to technology and supply chain Training improvements Design maturation 25% 20% 15% 10% Opportunity for further improvements: Custom nature of current design No automation High training requirements High service cost 5% 0% Q Align Technology, Inc. 13

14 FUTURE OPPORTUNITY TO SCALE SCANNERS Innovation - New technologies which add value while reducing costs - On-board training technology which enables virtual training Simplification/standardization - Reduction in opto-mechanical parts - Fewer custom parts - Design for manufacturability Support cost reduction - Production of accessories in Juarez - Modular design: Plus virtual training offers customers option for remote training Plus on-board diagnostics enables exchange of parts without in-house service call Align Technology, Inc. 14

15 INNOVATION AND EXECUTION OF CONTINUOUS IMPROVEMENT History of leverage and scalability through execution of innovation and algorithm development Continued investment in manufacturing automation and algorithm development Continuous improvement drives prolonged competitive advantage Align Technology, Inc. 15