John F. Morici
Chief Financial Officer and Executive Vice President, Global Finance at Align Technology
Thanks, Joe. Now for our Q4 financial results. Total revenues for the fourth quarter were $956.7 million, down 0.4% from the prior quarter and up 6.1% from the corresponding quarter a year ago. On a constant currency basis, Q4 '23 revenues were impacted by unfavorable foreign exchange of approximately $12.8 million, or approximately 1.3% sequentially, and were favorably impacted by approximately $13.8 million year over year, or approximately 1.5%.
For Clear Aligners, Q4 revenues of $781.9 million were down 1.6% sequentially, primarily from lower volumes. On a year-over-year basis, Q4 Clear Aligner revenues were up 6.9%, primarily due to higher ASPs and non-case revenues, slightly offset by lower volumes. For Q4, Invisalign ASPs for comprehensive treatment were up sequentially and up year over year. On a sequential basis, ASPs reflect higher additional aligners, partially offset by the unfavorable impact from foreign exchange, higher sales credits, and higher discounts. On a year-over-year basis, the increase in comprehensive ASPs reflect higher additional aligners, price increases, and favorable impact from foreign exchange, partially offset by higher discounts and product mix shift to lower ASP products.
For Q4, ASPs for noncomprehensive treatment were down sequentially and up year over year. On a sequential basis, the decline in ASPs reflect the unfavorable impact from foreign exchange, a product mix shift to lower ASP products, and higher net revenue deferrals, partially offset by price increases and lower discounts. On a year-over-year basis, the increase in ASPs reflect price increases, the impact from favorable foreign exchange, and higher additional aligners, partially offset by a product mix shift to lower ASP products and higher discounts.
Last quarter we announced about a 5% global price increase for some Invisalign products across most markets effective January 1, 2024. Invisalign Comprehensive 3 and 3 product is available in North America and certain markets in EMEA and APEC, most recently launching in China, Korea, Hong Kong, and Taiwan. We are pleased with the continued adoption of the Invisalign Comprehensive 3 and 3 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 compared to our traditional Invisalign Comprehensive product.
Q4 '23 Clear Aligner revenues were impacted by unfavorable foreign exchange of approximately $10.7 million, or approximately 1.4% sequentially. On a year-over-year basis, Clear Aligner revenues were favorably impacted by foreign exchange of approximately $12 million, or approximately 1.6%. Clear Aligner deferred revenues on the balance sheet increased $14.9 million, or 1.2% sequentially, and $74.6 million, or up 6.1% year over year, and will be recognized as additional aligners are shipped.
Q4 '23 Systems and Services revenues of $174.8 million were up 5.8% sequentially, primarily due to higher ASPs and an increase in CAD/CAM and services revenue, partially offset by lower volumes, and were up 2.9% year over year, primarily due to higher services revenues from our larger base of scanners sold and increased non-system revenues related to our CPO and leasing rental programs, mostly offset by lower ASPs and scanner volume.
CAD/CAM and services revenues for Q4 represent approximately 50% of our Systems and Services business. Q4 '23 Systems and Services revenues were unfavorably impacted by foreign exchange of approximately $2.1 million, or approximately 1.2% sequentially. On a year-over-year basis, Systems and Services revenue were favorably impacted by foreign exchange of approximately $1.9 million, or approximately 1.1%.
Systems and Services deferred revenues on the balance sheet were down $4.3 million, or 1.6% sequentially, and down $13.1 million, or 4.8% year over year, primarily due to the recognition of services revenue, which is recognized ratably over the service period. As our scanner portfolio expands and we introduce new products, we increase 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. Fourth quarter overall gross margin was 70%, up 0.9 points sequentially and up 1.5 points year over year. Q4 non-GAAP gross margin was 70.5%, up 0.9 points sequentially and up 1.2 points year over year. Overall gross margin was unfavorably impacted by foreign exchange by approximately 0.4 points sequentially and favorably impacted by approximately 0.4 points on a year-over-year basis.
Clear Aligner gross margin for the fourth quarter was 71.1%, up 0.4 points sequentially, primarily due to lower manufacturing spend partially offset by higher freight costs. Clear Aligner gross margin for the fourth quarter was up 0.3 points year over year, primarily due to higher ASPs and favorable foreign exchange, partially offset by higher manufacturing spend and freight costs.
Systems and Services gross margin for the fourth quarter was 64.8%, up 3.8 points sequentially due to higher ASPs, partially offset by higher service and freight costs. Systems and Services gross margin for the fourth quarter was up 6 points year over year due to improved manufacturing efficiencies and favorable foreign exchange partially offset by lower ASPs. Before I go into the details, I want to note that during Q4 '23, we incurred a total of $14 million of restructuring and other charges primarily related to post-employment benefits.
Q4 operating expenses were $498 million, roughly flat sequentially and down 1.4 points year over year. On a sequential basis, operating expenses were up slightly, primarily due to restructuring and other charges offset by lower employee compensation. Year over year operating expenses decreased by $7.1 million, primarily due to controlled spend on advertising and marketing as part of our efforts to proactively manage costs, partially offset by employee-related costs and slightly higher restructuring charges. On a non-GAAP basis, excluding stock-based compensation, restructuring and other charges, and amortization of acquired intangibles related to certain acquisitions, operating expenses were $446.7 million, down 2.5% sequentially and down 2.8% year over year.
Our fourth quarter operating income of $171.5 million resulted in an operating margin of 17.9%, up 0.6 points sequentially and up 5.4 points year over year. Operating margin was unfavorably impacted by approximately 0.6 points sequentially, primarily due to foreign exchange. The year-over-year increase in operating margin is primarily attributed to operating leverage and proactively managing our costs as well as favorable impact from foreign exchange by approximately 0.6 points.
On a non-GAAP basis, which excludes stock-based compensation, restructuring and other charges, the amortization of intangibles related to certain acquisition, operating margin for the fourth quarter was 23.8%, up 2 points sequentially and up 5.5 points year over year. Interest and other income and expense net for the fourth quarter was an income of $1.3 million compared to a loss of $4.2 million in the third quarter, an income of $2.7 million in Q4 2022, primarily driven by favorable foreign exchange.
The GAAP effective tax rate for the fourth quarter was 28.3%, higher than the third quarter effective tax rate of 25.1% and lower than the fourth quarter effective tax rate of 63.8% in the prior year. The fourth quarter GAAP effective tax rate was higher than the third quarter effective tax rate, primarily due to one-time benefit related to tax guidance issued in Q3, partially offset by lower U.S. taxes on foreign earnings in Q4. 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 1, 2022. Our non-GAAP effective tax rate for the fourth quarter was 20%, reflecting the change in our methodology.
Fourth quarter net income per share was $1.64, up sequentially $0.06 and up $1.10 compared to the prior year. Our EPS was unfavorably impacted by $0.07 on a sequential basis and favorably impacted by $0.08 on a year-over-year basis due to foreign exchange. On a non-GAAP basis, net income per diluted share was $2.42 for the fourth quarter, up $0.28 sequentially and up $0.69 year over year.
Moving on to the balance sheet. As of December 31, 2023, cash, cash equivalents, and short- and long-term marketable securities were $980.8 million, down sequentially $321.2 million and down $60.8 million year over year. Of our $980.8 million balance, $196.1 million was held in the U.S. and $784.7 million was held by our international entities.
In October 2023, we purchased approximately 1 million shares of our common stock at an average price of $190.56 per share through a $250 million Accelerated Share Repurchase, and in November and December 2023, we purchased approximately 466,000 shares of our common stock at an average price of $214.81 per share through a $100 million open market purchase, both under Align's current $1 billion stock repurchase program. We have $650 million remaining available for repurchase of our common stock under this stock repurchase program.
Q4 accounts receivable balance was $903.4 million, slightly down sequentially. Our overall days sales outstanding was 85 days, flat sequentially and year over year. Cash flow from operations for the fourth quarter was $46.9 million. Capital expenditures for the fourth quarter were $33.4 million, primarily related to our continued investments to increase aligner manufacturing capacity in facilities. Free cash flow, defined as cash flow from operations less capital expenditures, amounted to $13.5 million.
Now, turning to our outlook. Assuming no circumstances occur beyond our control, we provide the following framework for Q1 and fiscal 2024. For Q1 2024, we expect our worldwide revenues to be in the range of $960 million to $980 million, up slightly from Q4 of 2023. We expect Clear Aligner volume and ASPs to be up slightly sequentially. We expect Systems and Services revenue to be down slightly sequentially, although less than the historical seasonal decline given the launch of the iTero Lumina for ortho workflows in Q1 2024. We expect our Q1 2024 GAAP operating margin and non-GAAP operating margin to be slightly above Q1 2023 GAAP operating margin and non-GAAP operating margin, respectively.
For full year, we expect fiscal 2024 total revenues to be up mid-single digits over 2023. We expect fiscal 2024 Clear Aligner and Systems and Services revenues to grow year over year in the same approximate range as our 2024 total revenues. We expect fiscal 2024 clear aligner ASPs to be up slightly year over year, primarily due to price increases and favorable foreign exchange, partially offset by a higher mix of non-comprehensive products which have lower ASPs. We expect fiscal 2024 GAAP operating margin and non-GAAP operating margin to be slightly above the 2023 GAAP operating margin and non-GAAP operating margin, respectively.
We expect our investments in capital expenditures for the fiscal 2024 to be approximately $100 million. Capital expenditures are expected to primarily relate to building construction and improvements as well as manufacturing capacity in support of our continued expansion.
In summary, I am pleased with our fourth quarter and fiscal 2023 results, and I am especially proud of our continued focused execution of our product roadmap and innovation pipeline. We are committed to delivering on our strategic growth drivers of international expansion, patient demand, orthodontist utilization, and GP dentist treatment to extend our leadership in digital orthodontics and dentistry. I believe that the next wave of innovation that we are introducing into the market will further differentiate Align and allow us to continue to increase our share of the large untapped market opportunity of 22 million annual orthodontic case starts, as well as an additional 600 million consumers who could benefit from a healthy, beautiful smile using Invisalign clear aligners.
With that, I'll turn it back to Joe for final comments. Joe?
