John Morici
Chief Financial Officer and Executive Vice President, Global Finance at Align Technology
Thanks Joe. Now for our Q3 2023 financial results. Total revenues for the third-quarter were $960.2 million, down 4.2% from the prior quarter and up 7.8% from the corresponding quarter a year ago. On a constant-currency basis Q3 revenues were impacted by unfavorable foreign-exchange of approximately $2.7 million, or approximately 0.3% sequentially and favorably impacted by approximately $4.2 million Year-over-Year, or approximately 0.4%.
For Clear aligners Q3 revenues of $794.9 million were down 4.5% sequentially, primarily from lower volumes and lower ASPs. On a Year-over-Year basis, Q3 Clear Aligner revenues were up 8.5%, primarily due to higher ASPs, higher volumes, and higher non-case revenues. For Q3, Invisalign ASPs for comprehensive treatment were down sequentially and up Year-over-Year. On a sequential basis ASPs reflect larger discounts, product shift, mix-shift to lower-priced products, and unfavorable foreign exchange, partially offset by higher additional aligners. On a Year-over-Year basis the increase in comprehensive ASPs reflect higher additional aligners and price increases partially offset by larger discounts and unfavorable product mix-shift.
For Q3, Invisalign ASPs for non comprehensive treatment were down sequentially and up Year-over-Year. On a sequential basis, the decrease in ASPs reflect larger discounts, higher sales credits, and unfavorable product mix, partially offset by higher additional liners and favorable foreign-exchange. On a Year-over-Year basis the increase in non comprehensive ASPs reflect price increases, higher additional liners, and favorable foreign-exchange partially offset by product mix-shift. In Q1 2023, we launched the Invisalign Comprehensive 3x3 product. The 3x3 configuration offers our doctor customers Invisalign comprehensive treatment with three additional aligners included within three years of the treatment end date instead of unlimited additional aligners within five years of the treatment end date at the 2022 Invisalign comprehensive product price.
Invisalign Comprehensive 3x3 product is available in North America and in certain markets in EMEA and APAC. Most recently launching in China, Korea, Hong-Kong, and Taiwan. We are pleased with the continued adoption of the Invisalign Comprehensive 3x3 product and anticipate it will continue to increase providing doctors, the flexibility they want and allowing us to recognize more revenue upfront with deferred revenue being recognized over a shorter period of time compared to our traditional Invisalign comprehensive product. As we begin to ship more additional aligners for comprehensive 3x3 products, we expect to see an ASP benefit. As revenues from subscription, retainers, and other ancillary products continue to grow globally some of the historical metrics that only focus on case shipments are expected to account for a lesser percentage of our overall growth.
In our earnings release and financial slides, you will see that we have added our total Clear Aligner revenue per case shipment, which we believe to be a more indicative measure of our overall growth strategy. Q3 2023 Clear Aligner revenues were impacted by unfavorable foreign exchange of approximately $2 million or approximately 0.3% sequentially. On a Year-over-Year basis Clear Aligner revenues were favorably impacted by foreign-exchange of approximately $3.8 billion or approximately 0.5%. Clear Aligner deferred revenues on the balance sheet increased $14.1 million or up 1.1% sequentially and up $116 million or up 9.9% Year-over-Year and will be recognized as additional liners are shipped. Q3 2023 systems and services revenues of $165.3 million were down 2.5% sequentially mostly due to unfavorable ASPs and lower revenues from our certified pre-owned program, partially offset by higher scanner volume and higher services revenues.
On a Year-over-Year basis, Q3 2023 systems and services revenue were up 4.9% due to higher scanner volume, higher services revenue from our larger base of scanners sold and higher revenues from our certified pre-owned and leasing rental programs, partially offset by unfavorable ASPs. Q3 2023 systems and services revenues were impacted by unfavorable foreign exchange of approximately $0.7 million or approximately 0.4% sequentially. On a Year-over-Year basis system and Services revenues were favorably impacted by foreign-exchange of approximately $0.4 million or approximately 0.3%. Systems and Services deferred revenues on the balance sheet was down $4.4 million or 1.6% sequentially, primarily due to the decrease in the deferral of service revenues included with the scanner purchases and essentially flat or up slightly to $0.1 million or 0.1% Year-over-Year.
Services deferred revenues will be recognized ratably over the service period. As our scanner portfolio expands and we introduce new products, we increased the opportunities for customers to upgrade, make trade-ins, and purchase certified pre-owned scanners in certain markets. Developing new capital equipment opportunities to meet the digital transformation needs of our customers and DSO partners is a natural progression for our equipment business with a large and growing base of scanners sold. Moving on to gross margin third-quarter overall gross margin was 69.1%, down 2.1 points sequentially and down 0.5 points Year-over-Year. Overall gross margin was unfavorably impacted by foreign exchange by approximately 0.1 points on a sequential basis and favorably impacted by foreign exchange by approximately 0.1 points on a Year-over-Year basis.
Clear aligner gross margin for the third-quarter was 70.7% down 1.7 points sequentially, primarily from higher manufacturing spend and a higher mix of additional aligner volume and lower ASPs. Clear aligner gross margin for the third-quarter was roughly flat Year-over-Year, primarily due to increased manufacturing spend as we continued to ramp-up operations at our new manufacturing facility in Poland, partially offset by higher ASPs. Systems and Services gross margin for the third-quarter was 61%, down 4.1 points sequentially, primarily from lower ASPs partially offset by favorable manufacturing variances, lower service and freight costs, and higher services revenues.
Systems and Services gross margin for the third-quarter was down 2.3 points Year-over-Year, primarily from lower ASPs partially offset by favorable manufacturing variances, lower service and freight costs, favorable foreign-exchange, and higher-service revenues. Q3 2023 operating expenses were $496.7 million down sequentially 8.3% and up 4.5% Year-over-Year. On a sequential basis, operating expenses were down $44.9 million, primarily from lower consumer marketing spend and lower incentive compensation. Year-over-Year operating expenses increased by $21.2 million primarily due to higher incentive compensation and our continued investments in sales and R&D activities, partially offset by controlled spending on advertising and marketing as part of our efforts to proactively manage costs.
On a non-GAAP basis, excluding stock-based compensation and amortization of acquired intangibles related to certain acquisitions operating expenses were $458.2 million, down 9.3% sequentially and up 3.3% Year-over-Year. Our third-quarter operating income of $166.3 million resulted in an operating margin of 17.3%, up 0.1 points sequentially and up 1.2 points year-over-year. Operating margin was unfavorably impacted by approximately 0.3 points sequentially primarily due to foreign -exchange. The year-over-year increase in operating margin is primarily attributable to operating leverage, partially offset by investments in our go-to-market teams and technology as well as unfavorable impact from foreign exchange by approximately 0.1 points.
On a non-GAAP basis which excludes stock-based compensation and amortization of intangibles related to certain acquisitions operating margin for the third-quarter was 21.8%, up 0.5 points sequentially and up 1.6 points year-over-year. Interest and other income expense net for the third-quarter was a loss of $4.2 million compared to a loss of $0.3 million in the second-quarter and a loss of $21 million in the third-quarter a year-ago, primarily due to foreign-exchange. The GAAP effective tax rate for the third-quarter was 25.1% lower than the second-quarter effective tax rate of 34.8% and lower than the third-quarter effective tax rate of 40.7% of the prior year.
The third-quarter GAAP effective tax-rate was lower than the second-quarter effective tax rate, primarily due to the application of newly-issued tax guidance and lower US taxes on foreign earnings in Q3. As a reminder, in Q4 2022, we changed our methodology, for the computation of our non-GAAP effective tax rate to a long-term projected tax rate and have given effect to the new methodology from January first 2022 and recast previously reported quarterly periods in 2022. Our non-GAAP effective tax rate in the third-quarter was 20%, reflecting the change in our methodology. Third-quarter net income per diluted share was $1.58 up sequentially $0.12 and up $0.65 compared to the prior year. Our EPS was unfavorably impacted by $0.08 on a sequential basis and unfavorably impacted by $0.05 on a Year-over-Year basis, due to foreign-exchange. On a non-GAAP basis, net income per diluted share was $2.14 for the third-quarter, down $0.08 sequentially and up $0.51 Year-over-Year. Note the prior -- note that the prior year 2022 non-GAAP net income in prior year 2022 non-GAAP EPS reflects the Q4 2022 change in our methodology, for the computation of the -- of our non-GAAP effective tax rate.
Moving onto the balance sheet as of September 30, 2023, cash, cash equivalents, and short and long-term marketable securities were $1301.9[phonetic] million, up sequentially to $268.1 million and up $160.9 million Year-over-Year, of our $1.3 billion balance, $381 million was held in the US and $920.6 million was held by our international entities. Q3 accounts receivable balance was $904.2 million, down sequentially. Our overall days sales outstanding was 84 days, up approximately three days sequentially and down approximately two days as compared to Q3 last year. Cash-flow from our operations for the third quarter was $287.2 million. Capital expenditures for the third-quarter were $21.6 million, primarily related to our continued investments to increase aligner manufacturing capacity and facilities.
Free-cash flow defined as cash-flow from operations, less capital expenditures amounted to $265.6 million. Now turning to our fourth-quarter outlook. For Q4 2023, assuming no circumstances occur that are beyond our control we anticipate our worldwide revenue to be in the range of $920 to $940 million, down sequentially from Q3 of 2023. We expect both Clear Aligner and Systems and Services revenues to be down sequentially, reflecting a more challenging macro-environment for doctors and patients with fewer orthodontic case starts overall, unfavorable foreign-exchange given the strengthening of the US dollar against key currencies and longer sales cycles for capital equipment purchases.
For our Clear Aligner Business, we expect Clear Aligner teen volume to be seasonally lower in Q4 of 2023 and we don't anticipate improvement in adult volumes. For Q4 2023, we also expect Clear Aligner ASPs to be down sequentially, primarily due to the strengthening US dollar. For our systems and Services business, we anticipate increasing headwinds from macro uncertainty and potential supply issues related to the war in the Middle-East. We expect our Q4 2023 GAAP operating margin to be down sequentially from Q3 of 2023, due to restructuring, primarily related to severance as we adjust headcount for this environment. We anticipate our non-GAAP operating margin to be up sequentially from Q3 of 2023. During Q1 2023, we announced that our Board of Directors authorized a new $1 billion, stock repurchase program to succeed the 2021 $1 billion program.
Currently $1 billion remains available for repurchase under the 2023 stock repurchase program. During Q4 2023, we expect to repurchase up to $250 million of our common stock through either or a combination of open-market repurchases or an accelerated stock repurchase agreement. For full-year 2023, assuming no circumstances occur that are beyond our control we anticipate our 2023 worldwide revenue to be in the range of $3.83 billion to $3.85 billion. We also expect our full-year 2023 GAAP operating margin to be roughly one point lower than 2022 and our 2023 non-GAAP operating margin to be slightly above 21%.
For 2023, we expect investments in capital expenditures to be approximately $200 million. Capital expenditures are expected to primarily relate to building construction and improvements as well as manufacturing capacity in support of our continued international expansion. With that, I will turn it back over to Joe for final comments. Joe?
