John F. Morici
Chief Financial Officer and Executive Vice President, Global Finance at Align Technology
Thanks, Joe.
Now for our Q3 financial results. Total revenues for the third quarter were $977.9 million, down 4.9% from the prior quarter and up 1.8% from the corresponding quarter a year ago. On a constant currency basis, Q3 '24 revenues were not significantly impacted by foreign exchange sequentially and were unfavorably impacted by approximately $14.6 million year-over-year or approximately 1.5%.
For Clear Aligners, Q3 '24 revenues of $786.8 million were down 5.4% sequentially, primarily from lower volume, higher discounts, product mix shift to lower-priced products and geographic mix, partially offset by lower net revenue deferrals. Q3 Clear Aligner revenues were not significantly impacted by foreign exchange sequentially. Q3 '24 Clear Aligners per case shipment of $1,275 was lower by $20 on a sequential basis due to higher discounts, product and geographic mix, partially offset by lower net revenue deferrals.
On a year-over-year basis, Q3 Clear Aligner revenues were down 1%, primarily from lower ASPs, reflecting the impact from unfavorable foreign exchange of $11.7 million or approximately 1.5% a 20% price reduction in the U.K. to offset a 2024 ruling by the U.K. tax authorities in Q1 of '24 that requires a 20% VAT be applied to clear aligner sales in the U.K. product mix shift to lower-priced products, geographic mix and higher discounts.
This decrease was partially offset by lower net deferrals and price increases, along with higher volumes and higher non-case revenues. Q3 '24 clear Aligner per case shipment of $1,275 was down $45 on a year-over-year basis due to unfavorable foreign exchange of $18, impact of U.K. VAT of $12, product and geographic mix, higher discounts and partially offset by lower net revenue deferrals and price increases. Our Invisalign Comprehensive 3 and 3 product is available in North America, EMEA and in certain markets across APAC.
We are pleased with the continued adoption of the Invisalign Comprehensive 3 and 3 product and anticipate adoption will continue. Comprehensive 3 and 3 provides doctors the flexibility they want while allowing us to recognize more revenue upfront with deferred revenue being recognized over a shorter period compared to our traditional Invisalign comprehensive product, which in turn allows us to benefit from a more favorable gross margin.
Clear Aligner deferred revenues on the balance sheet decreased $6.2 million or 0.5% sequentially and decreased $25.8 million or 2% year-over-year and will be recognized as additional aligners are shipped under each sales contract. Q3 ' 24 Systems and Services revenue of $191 million were down 2.9% sequentially, primarily due to lower ASP and decreased non-system revenues, mostly related to fewer upgrades, partially offset by higher scanner volumes. Q3 '24 systems and services revenue were up 15.6% year-over-year, primarily due to higher ASPs, increased non-system revenues mostly related to upgrades in our leasing rental programs and higher services revenue, partially offset by lower scanner volumes.
Q3 '24 Systems and Services revenues impact by foreign exchange was approximately flat sequentially. On a year-over-year basis, Systems and Services revenues were unfavorably impacted by foreign exchange of approximately $2.9 million or approximately 1.5% Systems and Services deferred revenues on the balance sheet was down $1.5 million or 0.7% sequentially and down $40.6 million or 15.4% year-over-year, primarily due to the recognition of services revenue, which are recognized relatively over the service period.
The decline in deferred revenues both sequentially and year-over-year primarily reflects the shorter duration of service contracts applicable to initial scanner purchases. Moving on to gross margin. Third quarter overall gross margin was 69.7%, down 0.5 points sequentially and up 0.7 points year-over-year. Overall gross margin was not significantly impacted by foreign exchange sequentially and was unfavorably impacted by approximately 0.4 points on a year-over-year basis. Clear Aligner gross margin for the third quarter was 70.3%, down 0.5 points sequentially due primarily to lower ASPs and higher mix of additional aligners, partially offset by lower manufacturing spend.
Clear Aligner gross margin for the third quarter was down 0.5 points year-over-year primarily due to lower ASPs, partially offset by lower manufacturing spend. On a constant currency basis, Clear Aligner gross margin was unfavorably impacted by foreign exchange by 0.4 points year-over-year. Systems and Services gross margin for the third quarter was 67.5%, down 0.7 points sequentially due primarily to mix, partially offset by lower manufacturing spend and freight costs.
Systems and Services gross margin for the third quarter was up 6.5 points year-over-year due primarily to higher ASPs, partially offset by higher service and freight costs. On a constant currency basis, Systems and Services gross margin was unfavorably impacted by foreign exchange by 0.5 points year-over-year. Q3 operating expenses were $519.5 million, down 9.7% sequentially and up 4.6% year-over-year. On a sequential basis, operating expenses were down $56.1 million due primarily to non-recurring legal settlements, advertising and marketing and employee compensation.
Year-over-year operating expenses increased by $22.7 million, primarily due to employee compensation. On a non-GAAP basis, excluding stock-based compensation, amortization of acquired intangibles related to certain acquisitions, restructuring, legal settlements and other charges, operating expenses were $472.7 million, down 5.4% sequentially and up 3.1% year-over-year. Our third quarter operating income of $162.3 million resulted in an operating margin of 16.6%, up 2.3 points sequentially and down 0.7 points year-over-year.
Operating margin was favorably impacted from foreign exchange of approximately 0.1 points sequentially and unfavorably impacted by 0.8 points year-over-year. On a non-GAAP basis, which excludes stock-based compensation, amortization of intangibles related to certain acquisitions, restructuring, legal settlements and other charges, Operating margin for the third quarter was 22.1%, down 0.2 points sequentially and up 0.3 points year-over-year.
Interest and other income and expense net for the third quarter was an income of $3.6 million, primarily due to foreign exchange compared to an expense of $3.2 million in Q2 of '24 and an expense of $4.2 million in Q3 of '23. The GAAP effective tax rate in the third quarter was 30.1% compared to 32.9% in the second quarter and 25.1% in the third quarter of the prior year. The third quarter GAAP effective tax rate was lower than the second quarter effective tax rate, primarily due to adjustments related to tax return filings, partially offset by a small increase in uncertain tax position reserves.
The third quarter GAAP effective tax rate was higher in the third quarter than the third quarter effective tax rate in the prior year, primarily due to recognizing a onetime benefit related to the application of tax guidance issued during the third quarter of the prior year.
Our non-GAAP effective tax rate in the third quarter was 20%, which reflects our long-term projected tax rate. The third quarter net income per diluted share was $1.55, up sequentially $0.27 and down $0.03 compared to the prior year. Our EPS was favorably impacted primarily due to foreign exchange by $0.03 on a sequential basis and unfavorably impacted by $0.08 on a year-over-year basis.
On a non-GAAP basis, net income per diluted share was $2.35 for the third quarter, down $0.06 sequentially and up $0.21 year-over-year. Moving on to the balance sheet. As of September 30, 2024, cash and cash equivalents were $1.419 billion, up sequentially $280.5 million and down $197.1 million year-over-year. Of our $1,041.9 billion balance, $285 million was held in the U.S. and $756.5 million was held by our international entities. We have $500 million available for repurchase of our common stock under our January 2023 repurchase program.
Beginning in Q4 2024 and continued into Q1 '25, we expect to repurchase up to $275 million of our common stock through either a combination of open market repurchases or an accelerated stock repurchase agreement. Q3 accounts receivable balance was $1,010.6 billion, down sequentially. Our overall days sales outstanding was 93 days, up approximately 4 days sequentially and up approximately 8 days as compared to Q3 last year. Cash flow from operations for the third quarter was $263.7 million.
Capital expenditures for the third quarter were $29.8 million, primarily related to investments in our manufacturing capacity and facilities. Free cash flow, defined as cash flow from operations less capital expenditures amounted to $233.9 million. Turning to our 2024 outlook. Assuming no circumstances occur beyond our control, including foreign exchange, we expect the following business outlook for the fourth quarter.
We expect Q4 '24 worldwide revenues to be in the range of $995 million to $1.015 billion. We expect Q4 '24 Clear Aligner volume and ASPs to be slightly up sequentially. We expect Q4 '24 Systems and Services revenues to be up sequentially, consistent with typical Q4 seasonality.
We expect Q4 '24 GAAP operating margin to be slightly lower than 14%, primarily due to restructuring charges related to severance for impacted employees. We estimate these restructuring charges will impact Q4 '24 GAAP operating margin by approximately 3 points. We anticipate Q4 '24 non-GAAP operating margin to be slightly up sequentially.
For fiscal 2024, we expect investments in capital expenditures to be above $100 million. Capital expenditures primarily relate to building construction and improvements as well as manufacturing capacity in support of continued expansion. As we have said many times, we continually evaluate and evolve our business model to provide doctors with the best tools and resources that they need to help them treat their patients while managing our operations responsibly.
Today's restructuring action is designed to adjust our business to more closely align with the existing business environment. We expect the restructuring actions we announced today will give us margin accretion for full year in 2025, even as we scale up our next-generation direct 3D printing fabrication manufacturing. With that, I'll turn it back over to Joe for final comments. Joe?
