John F. Morici
Chief Financial Officer and Executive Vice President, Global Finance at Align Technology
Thanks, Joe. Now for our Q2 financial results. Total revenues for the second quarter were $1.285 billion, up 3.1% from the prior quarter and up 2.6% from the corresponding quarter a year ago. On a constant currency basis, Q2 '24 revenues were impacted by unfavorable foreign exchange of approximately $11.6 million or approximately 1.1% sequentially and were unfavorably impacted by approximately $18.1 million year-over-year or approximately 1.7%. For Clear Aligners, Q2 revenues of $831.7 million were up 1.8% sequentially, primarily from higher volumes, partially offset by lower ASPs.
On a year-over-year basis, Q2 Clear Aligner revenues were flat primarily due to higher discounts, a product mix shift to lower ASP products and the unfavorable impact from foreign exchange, offset by lower net revenue deferrals, higher volumes and price increases. Q2 '24 Clear Aligner revenues were unfavorably impacted by foreign exchange of approximately $9.5 million or approximately 1.1% sequentially. On a year-over-year basis, Clear Aligner revenues were unfavorably impacted by foreign exchange of approximately $14.7 million or approximately 1.7%. For Q2, Invisalign ASPs for comprehensive treatment were down sequentially and year-over-year.
On a sequential basis, the decline in ASP primarily reflects higher discounts, a product mix shift to lower ASP products and the unfavorable impact of foreign exchange. On a year-over-year basis, the decline in comprehensive ASPs primarily reflects higher discounts, a product mix shift to lower ASP products and the unfavorable impact from foreign exchange, mostly offset by lower net revenue, deferrals and price increases. For Q2, Invisalign ASPs for noncomprehensive treatment were down sequentially and year-over-year.
On a sequential basis, the decline in ASPs reflects the unfavorable impact from foreign exchange, higher net revenue deferrals and a product mix shift to lower ASP products, partially offset by price increases. On a year-over-year basis, the decrease in noncomprehensive ASPs reflects higher discounts, a product mix shift to lower ASP products, the unfavorable impact of foreign exchange and the unfavorable impact of a price adjustment in the U.K. to make the recently mandatory application of VAT to our aligners cost neutral to customers.
Our Invisalign Comprehensive Three and Three product [Phonetic] is available in North America, EMEA and in certain markets across APAC. We are pleased with the continued adoption of the Invisalign Comprehensive Three and Three product and anticipate that adoption will continue to increase. Comprehensive Three and Three 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 and benefiting us with a more favorable gross margin. Clear Aligner deferred revenues on the balance sheet decreased $7.8 million or 0.6% sequentially and decreased $5.2 million or 0.4% year-over-year and will be recognized as the additional aligners are shipped.
Q2 '24 Systems and Services revenues of $196.8 million were up 9.2% sequentially primarily due to higher volumes, higher ASPs and nonsystems revenues, mostly related to upgrades. Q2 '24 Systems and Services revenues were up 16.1% year-over-year, primarily due to higher ASPs, increased nonsystem revenues, mostly related to upgrades in our leasing rental programs and higher service revenues. We are pleased to be able to leverage our operational and financial capabilities to provide different types of go-to-market models for our customers, such as leasing and rental options. In the end, we are focused on selling the way our customers want to buy.
Q2 '24 Systems and Services revenues were unfavorably impacted by foreign exchange of approximately $2.1 million or approximately 1% sequentially. On a year-over-year basis, Systems and Services revenues were unfavorably impacted by foreign exchange of approximately $3.4 million or approximately 1.7%. Systems and Services deferred revenues on the balance sheet was down $20.4 million or 8.3% sequentially and down $43.4 million or 16.2% year-over-year, primarily due to the recognition of services revenues, which are recognized ratably 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.
As our scanner portfolio expands and we introduce new products, we are increasing the opportunities for customers to upgrade and make trade-ins in addition to our scanning, leasing and rental programs. Developing new capital equipment opportunities to meet the digital transformation needs of our customers and our DSO partners is a natural progression for our equipment business with a large and growing base of scanners sold. The structural programs we have implemented across both of our operating segment benefit our customers by providing them with more options to choose what they need, in some cases, at a reduced price that may impact our ASPs. But the cost of service for us is lower and the benefit is then reflected in our gross margins.
Moving to gross margin. Second quarter overall gross margin was 70.3%, up 0.3 points sequentially and down 0.9 points year-over-year. Overall gross margin was unfavorably impacted by foreign exchange by approximately 0.3 points sequentially and unfavorably impacted by approximately 0.5 points on a year-over-year basis. Clear Aligner gross margin for the second quarter was 70.8%, down 0.1 point sequentially due primarily to lower ASPs, partially offset by lower additional aligners and leveraged manufacturing spend. Clear Aligner gross margin for the second quarter was down 1.7 points year-over-year due primarily to lower ASPs and higher manufacturing spend as we continue to ramp up Poland manufacturing facility and the impact of unfavorable foreign exchange. Systems and Services gross margin for the second quarter was a record 68.2%, up 2.3 points sequentially, primarily due to higher ASPs and manufacturing efficiencies. Systems and Services gross margin for the second quarter was up 3 points year-over-year for the reasons stated above.
Q2 operating expenses were $575.6 million, up 5.9% sequentially and 6.3% year-over-year. On a sequential basis, operating expenses were up by $31.9 million due primarily to about $31 million in legal settlements. Year-over-year operating expenses increased by $33.9 million, primarily due to legal settlements and higher employee compensation, partially offset by lower outside services, advertising and marketing expenses. 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 $499.5 million, down 1.3% sequentially and down 1.1% year-over-year. Our second quarter operating income of $147 million resulted in an operating margin of 14.3%, down 1.2 points sequentially and down 2.9% year-over-year.
Operating margin was unfavorably impacted from foreign exchange of approximately 0.6 points sequentially and unfavorable -- impacted by 1.2 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 second quarter was 22.3%, up 2.5 points sequentially and up 1 point year-over-year. Interest and other income expense net for the second quarter was an expense of $3.2 million primarily due to unfavorable foreign exchange, compared to an income of $4.3 million in Q1 of '24 and an expense of $0.3 million in Q2 of '23. Recall that Q1 '24 included a nonrecurring gain on our equity investments.
The GAAP effective tax rate in the second quarter was 32.9% compared to 33.7% in the first quarter and 34.8% in the second quarter of the prior year. The second quarter GAAP effective tax rate was lower than the first quarter effective tax rate, primarily due to discrete tax expenses recognized in Q1 of '24 that did not reoccur in Q2 of '24. And that benefit was partially offset by an increase in nondetectable expenses. Our non-GAAP effective tax rate in the second quarter was 20%, which reflects our long-term projected tax rate.
Second quarter net income per diluted share was $1.28, down sequentially $0.11 and down $0.18 compared to the prior year. Our EPS was unfavorably impacted by $0.11 on a sequential basis and $0.17 on a year-over-year basis due to foreign exchange. On a non-GAAP basis, net income per diluted share was $2.41 for the second quarter, up $0.27 sequentially and up $0.19 year-over-year. Moving on to the balance sheet.
As of June 30, 2024, cash, cash equivalents and short- and long-term marketable securities were $782.1 million, down sequentially $120.4 million and down $251.7 million year-over-year. Of our $782.1 million balance, $140 million was held in the U.S. and $642.1 million was held by our international entities. During Q2 '24, we repurchased approximately 0.6 million shares of our common stock at an average price of $250.73 through $150 million of open market repurchases. As of June 30, 2024, $500 million remains available for repurchases of our common stock under the January 2023 repurchase program. During the quarter, we completed a $75 million equity investment in Heartland Dental, a multidisciplinary DSO with GP and ortho practices across the United States.
Q2 accounts receivable balance was [Indecipherable], up sequentially. Our overall days sales outstanding was 89 days, up approximately three days sequentially and up approximately eight days as compared to Q2 last year. Cash flow from operations for the second quarter was $159.8 million. Capital expenditures for the second quarter were $53.5 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 $106.4 million. Now turning to our outlook. Assuming no circumstances occur beyond our control, we provide the following business outlook for Q3 and fiscal 2024.
For Q3 2024, we expect our Q3 worldwide revenues to be in the range of $980 million to $1 billion. We expect Clear Aligner volume to be down sequentially as a result of Q3 seasonality and Clear Aligner ASPs to be down sequentially, primarily due to foreign exchange and product mix. We also expect Systems and Services revenues to be down sequentially because of Q3 seasonality. We expect our Q3 2024 GAAP operating margin to be below Q3 2023 GAAP operating margin and Q3 2024 non-GAAP operating margin to be flat to Q3 2023 non-GAAP operating margin. For fiscal 2024, we expect fiscal 2024 total revenue growth to be up 4% to 6% year-over-year, due in part to lower Clear Aligner ASPs year-over-year from continued unfavorable foreign exchange and product mix.
In addition, our revised revenue outlook reflects our anticipated commercial launch of iTero Lumina with restorative capabilities to occur in Q1 of 2025 instead of 2024, as previously anticipated. We expect fiscal 2024 GAAP operating margin to be slightly below 2023 GAAP operating margin and 2024 non-GAAP operating margin to be above 2023 non-GAAP operating margin. We expect investments in capital expenditures for fiscal 2024 to be approximately $100 million. Capital expenditures primarily relate to building construction and improvements as well as manufacturing capacity in support of continued expansion.
With that, I'll turn it back over to Joe for final comments. Joe?
