Align Technology, Inc.
Q2 2018 Earnings Call Transcript

Published: 26 Jul 2018

[Operator:]

Greetings and welcome to the Align Technology, Inc. Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now liker to turn the conference over to your host, Shirley Stacy, VP, Corporate and Investor Relations. Thank you. Please begin.

[Shirley Stacy:]

Good afternoon and thank you for joining us. I'm Shirley Stacy, Vice President of Corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO; and John Morici, CFO. We issued second quarter 2018 financial results today via GLOBE NEWSWIRE which is available on our website at investor.aligntech.com. Today's conference call is being audio webcast and will be archived on our website for approximately 12 months. A telephone replay will be available today by approximately 5

[Joseph M. Hogan:]

Thanks, Shirley. Good afternoon and thanks for joining us. On our call today, I'll provide some highlights on the quarter and then briefly discuss the performance of our two operating segments

[John F. Morici:]

Thanks, Joe. Now for our Q2 financial results. Total company revenue for the second quarter was a record $490.3 million, up 12.2% from the prior quarter and up 37.5% from the corresponding quarter a year ago. Year-over-year revenue growth was favorable in all regions. Clear Aligner revenue of $433.2 (sic) [$433.3] (16

[Joseph M. Hogan:]

Thanks, John, and thanks to those of you for joining our call today. 2018 is shaping up to be a very good year for Align, which reflects the continued execution of our four strategic goals and growth drivers that we focus on driving international expansion; increasing orthodontist utilization of Invisalign, especially with teenagers; enabling GP dentists to treat or refer more Invisalign cases; and generating consumer demand for Invisalign treatment for millions of people worldwide. We are pleased to see continued momentum across all of our regions and customer channels and believe that the investments we are making will continue to drive our growth well above the underlying industry. There is still a lot of work to be done to fully optimize the enormous market potential, but we remain steadfast in our vision to bring clear aligner orthodontics to the masses through our partnership with Invisalign doctors. I look forward to updating you on our continued progress. With that, I'll turn it over to the operator, and we'll open the call up to your questions. Operator?

[Operator:]

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question comes from the line of Jon Block with Stifel. Please proceed.

[Jonathan David Block:]

Great. Thanks, guys. Good afternoon. Two questions. Maybe the first one just on the guidance, certainly solid 3Q guidance, but curious if you can talk about at a high level what that allows for if anything from the incremental competition? In other words, you guys always seem to be a bit conservative on the guide. Are you even leaving a bit more wiggle room due to the unknown uptake around SureSmile and Clarity? And maybe just as a follow-on to that one, what if anything, Joe, have you heard about these offerings over the past few months since the ortho show? And then I've got a follow-up. Thanks.

[John F. Morici:]

Hey, Jon. This is John. I'll start with the first part of your question. We guide like we always guide taking the best information that we have. No change in terms of how we've taken this guidance. So we factor in many different factors into our forecast and this is no different from a guidance standpoint.

[Joseph M. Hogan:]

Hey, Jon. And from a competitive standpoint, there's nothing really different than what we saw from an AAO standpoint. I mean, obviously, you saw the Clarity product from Ormco that came out in Australia here recently. From what we see, there's again – it's just in line with other offerings that we see out there. And we'll take a stronger beat on that in the future. But right now I wouldn't say we have changed in any way our assessment of the competition that we saw at the AAO.

[Jonathan David Block:]

Okay. Helpful. And then the follow up, I'm going to put you a little bit on the gross margin trend. So, I know the long-term of 73% to 78% appears unchanged but the 2Q Invisalign gross margin is 76.5%. In my model, it's one of the lowest in the past handful of years. And guys maybe if we can talk about how that trends over the next 12 months. You talked about some of the deterioration being attributable to globalizing the supply chain. So do we think about, hey, as volumes start to go through those sites in coming quarters, maybe we see the GM specific to Invisalign stabilize and maybe even possibly reverse that trend? Thanks.

[John F. Morici:]

That's right, Jon. As we're investing and globalizing, we think it's a long-term strategic importance to us. We'll see some of those investments. But as we add capacity and as we add production in those facilities, we'll see some improvement. And you also have to remember too we had a lot of – from a mix standpoint a lot of iTero in Q2. So the Q2 iTero affects us from a gross margin standpoint. But, as you know, it's a part of our long-term strategy and important for us from a growth standpoint.

[Operator:]

Thank you.

[Shirley Stacy:]

Thanks, Jon.

[Joseph M. Hogan:]

Thanks, Jon.

[Shirley Stacy:]

Next question?

[Operator:]

Thank you. Our next question comes from the line of Robert Jones with Goldman Sachs. Please proceed.

[Robert Patrick Jones:]

Great. Thanks for the questions. I guess just a few on the Aspen deal and the DSO opportunity, more broadly. I guess, maybe, Joe, or John, could you share how this deal came about? And, more importantly, would you be willing to share anything around any economic structure around the arrangement, if there's any kind of commitments or targets with Aspen? And then, Joe, if I heard you correctly I think you said that Heartland expects to have 90% of their practices within iTero by the end of the year. Curious if you'd maybe be willing to share how the Invisalign growth or uptake has tracked at Heartland as we think about that as a proxy for Aspen?

[Joseph M. Hogan:]

Yeah. First, on the Aspen deal and the Heartland deal, just from a high level standpoint is I think you know we've had a really strong GP focus in this business. But it's difficult at times to have an individual just focus on accounts and to drive the kind of penetration in the marketplace that we want. We find that DSOs are great partners for us in the sense of their ability to be able to spread what we want to do with our digital workflow and with our aligners across their base. And so, Heartland and Aspen both have been very open in the sense of working with us and frontloading their businesses with iTero that will allow them to – give them a very strong position in clear aligners. And so that's – it's just right in line with our GP strategy and it allows us to be able to multiply that strategy across a number of different locations with the DSOs that really help us. We've been working with Heartland for a while on clear aligners and their uptake of iTero scanners have been great. Our growth with Heartland has really been terrific. And they've been able to translate it across their organizations well. We haven't shared a whole lot of numbers in the sense of how that's going and we won't. That's how we want to handle that internally and how Heartland wants to handle that internally, too. But we're excited about the development. We think it's a way for us to be able to – it's a force multiplier for us in the sense of getting Align out there and getting it in front of a lot of customers. And iTero is still critical from a digital workflow standpoint to make it really productive. And at GP offices, you do that.

[Robert Patrick Jones:]

No, no, I appreciate that, Joe. And then maybe I could just sneak one more in for John. On the 3Q EBIT margins, looks a little maybe softer than expected following a relatively strong 2Q on the EBIT margin line. And so just was wondering if you could talk about some of the moving pieces. I think you talked about some of the spending – areas of spend in your prepared remarks. So maybe just what informs that 3Q EBIT guide?

[John F. Morici:]

I mean I think when we look at – as was noted earlier, we are investing globally to try to – as we regionalize some of our manufacturing and treatment clients, so there's some costs associated with that. We saw that in the second quarter. Some of that will continue into the third quarter. But we'll also see from an investment standpoint, from an operating expenditure standpoint, it's balanced. The high end of our guide is 24.9%, which is pretty consistent to what we saw in Q2.

[Robert Patrick Jones:]

Thanks.

[Joseph M. Hogan:]

Yeah. Thanks.

[Operator:]

Thank you. Our next question comes from the line of Elizabeth Anderson with Evercore ISI. Please proceed.

[Suzie Yoon:]

Hey, guys. This is Suzie Yoon on for Elizabeth. Thanks for taking my question, and congrats on another nice quarter. Looks like total utilization was up nicely in the quarter. Could you just talk about some of the factors that drove the uptick in North America? And then a quick follow-up. Given your findings from the stores so far, how are you thinking about the future store plans?

[Joseph M. Hogan:]

As far as the strong uptick, internationally, APAC, EMEA, but also North America. I'd say a lot of what you can see the growth from – there's good growth from an orthodontic standpoint and a lot of that is a teen marketplace. And I think you've known from previous calls, Suzie, we focused a lot on teens. And that's a really important focus for us because that's a majority of what we see in the orthodontic marketplace is the teen piece. So just seeing further evidence of our ability to be able to go after that marketplace. We're excited about the teen first launch we put in place. It allows you to do Phase 1 treatment – dental treatment on teens. And we have a good start, like we talked about, almost 1,000 starts (35

[Suzie Yoon:]

Great. That's very helpful. Thank you.

[Joseph M. Hogan:]

Welcome.

[Operator:]

Thank you. Our next question comes from the line of Glen Santangelo with Deutsche Bank. Please proceed.

[Glen Santangelo:]

Yeah. Thanks for taking the questions. Hey, Joe, I just want to talk to you about North America in a little bit more detail. I mean you have posted decent growth in that business, I think, 22% case shipment growth this quarter. But over the last six quarters it's trended pretty steadily in that 20% to 25% range. And I'm kind of curious to get your perspective like what percentage of the docs in this region have already been trained? And I guess what I'm really trying to get at is what's really the key to sort of breaking out of that 20% to 25% range and accelerating that growth because it feels like we're seeing very strong growth on the ortho side? We're seeing strong growth in terms of teens, but that number seems to be flat lined in that 20% to 25% range. So can you give us a little bit more color in terms of what's going on there?

[Joseph M. Hogan:]

We feel good about our North American marketplace. When you talk about North America, look at Canada and the United States. And as you mentioned and I'll reemphasize, the teen piece is going extremely well. Are we doing well with GPs also on the lighter cases as we work through that? Yeah, I'd say with the steady state of that, when you start to look at our year-over-year comparisons that's still a very strong performance from a North American standpoint. So what we're doing to continue to expand that? In the orthodontics segment, of course, we've trained probably the majority of the orthodontists out there. But obviously there's refreshes. There's new products. There's a lot of things we have to continue to reenergize that market with and educate the market as we change that. On the GP side, obviously we just talked about the DSOs and that kind of an opportunity for us too. And then we feel the stores really help with that consumer initiation and turning those consumers into patients. So overall we have momentum in that marketplace. The third quarter is always a time where you see less of a GP marketplace and a strong orthodontic marketplace. That kind of reverses in the fourth quarter and so you will see in our third quarter piece we have a big number in there for teens on the ortho side to help that growth number.

[Glen Santangelo:]

And maybe just one quick follow-up on the DSOs. What percentage of the North American market would you say is now represented by DSOs? And any other contracts above Heartland and Aspen sort of worth calling out? And what I'm really also trying to understand is, are these GPOs or DSOs rather – are they just replacing the existing technology they have or are they using iTero to sort of augment maybe what they already have? Thanks and I'll stop there.

[Joseph M. Hogan:]

Yeah. I think just to start with your last question. The iTero is new to their office in the sense it's not an augmentation or replacement of equipment they currently have. It's more of a commitment to the DSOs for just the whole idea of digital dentistry. And obviously there's a different workflow that you have inside GPs and you have on orthos. And we've been able to more and more make sure that we have that kind of workflow capability within iTero and we continue to work with that so we can be a great tool for GPs in that sense. The DSOs – when you say what percentage of the market in North America, we normally quote 15% to 20%. That number kind of varies around depending on what you call a DSO and what you don't. So, the upper number to use on that is 20% and the other one is 15%. I hope I've answered the question.

[Glen Santangelo:]

Thank you. Yep. That's fine. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Steve Beuchaw with Morgan Stanley. Please proceed.

[Steve Beuchaw:]

Hey, team. How are things?

[Joseph M. Hogan:]

Hey, Steve.

[John F. Morici:]

Hey, Steve.

[Steve Beuchaw:]

The first question is on China. So when I think about the drivers for this year that are incremental, clearly the China iTero launch is a big one. I wonder if you could dive in a little bit on how you think about the customer there. Maybe, more specifically, are these people who had access to Intraoral scanners and you're going through a swap process where you give them a better mousetrap? Or are these customers where they were really using PVS or is it somewhere in between?

[Joseph M. Hogan:]

Steve, it's amazing. I mean it's all PVS. This is not replacing scanners that are over there. So it's not a swap. So if you would see our offices in China at any point in time you just see rooms full of PVS boxes that would previously go to Mexico. So those VPNs that (40

[Steve Beuchaw:]

That's what I was looking for. And then, just to follow-up. I mean you've given us between China and some of the DSO dynamics reasons to think that the iTero trajectory this year remains really, really strong, certainly beating our numbers. Should we think about the first half as a reasonable barometer for iTero growth for the second half or are there other puts and takes that we ought to factor into the model? Thanks so much.

[Joseph M. Hogan:]

I think, Steve, you're right to call these out. I would call them anomalies in the sense of not – I mean there's going to be great uptake in China. This is the initial uptake in China. We expect more going forward. On the DSO side, I mean, Heartland and Aspen, two of the biggest DSOs going. So, I wouldn't necessarily draw a line through this one and continue to draw it through the rest of the year. But we are having great success with iTero. You, as much as anybody, know how important that is from a standpoint of having an incredible foundation in place to be able to drive more Invisalign. And so you're seeing these big successes. We have little ones too. But these are big penetration moves and I wouldn't necessarily say that you should take it times 2X as you go into the second half.

[Steve Beuchaw:]

Really appreciate it. Thanks again.

[Operator:]

Thank you. Our next question comes from the line of Brandon Couillard with Jefferies. Please proceed.

[Brandon Couillard:]

Thanks. Good afternoon.

[Joseph M. Hogan:]

Good afternoon.

[Brandon Couillard:]

Joe, if you would kind of discuss the decision to manufacture iTero systems in China. Is that a cost play or a market access play? And would you expect, over some period of time, to actually shift some manufacturing to that location?

[Joseph M. Hogan:]

That's actually a really good question, okay. That's a market access play. And having some experience of seeing that before, it's really important in the sense of how it's being done. And the Chinese government – those provincial governments have worked with us really well to make that work. And it's just so much easier to be able to address those Chinese regulations from a Chinese standpoint than it is, in this case, from an Israeli standpoint too. So that's why we're doing it. From a cost standpoint, this is not a cost play. I'd say expect cost to be neutral. If they are a little worse or a little better, you won't see it in our numbers in any way. So I wouldn't put it in your model.

[Brandon Couillard:]

Thanks and a couple for John. First, any chance you could quantify the gross margin impact on the clear aligner business from the manufacturing capacity expansions? And then any pockets of inflation or material costs or freight or shipping costs that you're seeing in the business?

[John F. Morici:]

Nothing from a freight or material cost that is of note. It simply comes down to as we regionalize both from treatment planning as well as manufacturing going live in China from a manufacturing standpoint in Q4. There's start-up costs. You're adding that facility. You're training workers. You're getting that manufacturing up and running. And we saw some of that in Q2. We will see some of that in Q3. And then as we grow and as we get more volume out of those facilities, you see some normalize again. So, it's short-term. It's something that we've expected. And then once we're fully up and running, we get the benefits of being local, faster to our customers. We reduce freight costs. There's a lot of other offsets that we see, but we have to get that facility up and running and that will be in Q4.

[Brandon Couillard:]

Very good. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Erin Wright with Credit Suisse. Please proceed. Erin Wilson Wright - Credit Suisse Securities (USA) LLC Hey. Thanks. On your retail store pilot, I understand it's still early days here, but you gave some preliminary metrics at your Investor Day as it relates to the sell-through traction with the retail stores and with, I guess, the majority of the scanned patient scheduling appointments after visiting. I guess I'm curious, do you have an update on any of these metrics and if there's a conversion rate at all that you could speak to into actual Invisalign customers? Thanks.

[Joseph M. Hogan:]

Thanks for the question and thanks for the interest. I think, at this point in time, we gave you as much as we wanted to give you at the Investors Meeting. We still call these pilot stores and they are. We're making a lot of iterations as we go through that. But we feel good about the progress. As we get more stores out there and we move this thing more firmly as our stores and not call them pilots, and I'd say as we move into next year we'll be more open with you in the sense of the close rates, number of patients going through. But, as I mentioned on our announcement, we have about 8,000 patients that have gone through those stores already. And then there's varying conversion rates. But, again, not ready to share that yet. Erin Wilson Wright - Credit Suisse Securities (USA) LLC Okay. Totally fair. On the DSO relationships, I guess can you speak to how the conversation and the sales cycle had evolved, I guess, at Aspen and potentially with other DSOs and the opportunity there. Is there any sort of new approach that you're taking from a DSO perspective in that sales process?

[Joseph M. Hogan:]

We take a broad approach to both of them. These are very good businesses. They're extremely successful what I call businesses too because they operate in a business sense. So we're able to, I think, communicate well in a broad sense what we can bring to the practice and how we can help to drive growth throughout. I mean, obviously, DSOs – one of the keys are going to be in-store sales. And being able to have an iTero inside that store and be able to drive more aligner sales, Invisalign sales through those is a big help. So, it's just we have organized within the business to be able to work with DSOs much better, bring the resources in place and we put those things in place under Frank Quinn and North American organization over the last 18 months. He's done a terrific job. So, it's not just us. It's the DSOs reaching out for us too. These are good partnerships that are well understood and we're excited about both of them and we feel they'll be successful. Erin Wilson Wright - Credit Suisse Securities (USA) LLC Okay. Great. Thank you.

[Joseph M. Hogan:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Richard Newitter with Leerink Partners. Please proceed.

[Richard Newitter:]

Hi. Thanks for taking the questions. First one on just competition. Joe, is there anything since some of the competitors launched back in May that you're hearing in terms of how they're approaching their customers there and potentially your customer bases with respect to trialing or getting some initial kind of traction in the field or has it been relatively kind of quiet? And then with respect to the guidance question and competition is there anything at all factored into your 2018 growth outlook, including the revised one, any kind of impact from competition? Thanks.

[Joseph M. Hogan:]

Yeah. I'd say from a competitive standpoint what we see in the marketplace is kind of what you expect. I'd say it's a cautious approach from a competition standpoint. I'd call – if you take a look at 3M, they more like slipstream into the marketplace behind their wires and brackets business and try to get a few uptakes. We'll be on road this week in North America just out talking to many customers, most of the EMC staff. And the feedback that we get is they're being contacted, but there's nothing really that's different from what was the output from the AAO in that piece. And so there's some interest and curiosity I'd say from a customer base, but there's not a momentum piece or anything that we are adjusting the business around right now.

[John F. Morici:]

And I would say, Rich, as we guide and as we forecast we're always looking at what's happening in the market, products that are coming, what's happening with competition. So that's in our way that we look at our guidance and what we expect to see coming. So when we look at our revenue that we talk to for 2018 to low to mid-30s that is inclusive of what we see from a competitive standpoint.

[Richard Newitter:]

Okay. Great. And then maybe just one quick follow-up. You're still guiding to Mandibular Advancement FDA approval in the back half of 2018. Anything that occurred intra quarter to kind of give you the confidence to reiterate that timeline? Any color there would be helpful. Thank you.

[Joseph M. Hogan:]

It's an old saying no news on the FDA is good news. So we're still looking at the fourth quarter for this year.

[Richard Newitter:]

Thank you.

[Joseph M. Hogan:]

Yeah. You're welcome.

[Operator:]

Thank you. Our next question comes from the line of Steven Valiquette with Barclays. Please proceed.

[Steven Valiquette:]

Thanks. Good afternoon. Thanks for taking the question. I guess, just for me, given that you mentioned that you do not plan to renew your current agreement with SmileDirectClub next year, just curious kind of thinking out loud about this. Would you still consider partnering with other players in that direct market? Or is it more likely you'll just kind of abandon any partnerships, maybe just try your best on your own to just capture any volume in that direct market through your various initiatives? Thanks.

[Joseph M. Hogan:]

Yeah. I don't have any interest from a manufacturing standpoint of supporting other, what we call, direct to consumer kind of aligner companies. We're going to run our play in a sense of our stores and how we work with our doctor partners. We feel strongly that a doctor's office approach is a great approach to take, given the seriousness of moving teeth. And that's the vector we're pursuing in this business. And so it'd be kind of disingenuine is after our agreement with SDC runs out that we go find someone else to supply aligners to. We have no interest in that from a strategic standpoint at all.

[Steven Valiquette:]

Okay. Got it. Okay. Thanks.

[Joseph M. Hogan:]

Okay, thanks.

[Operator:]

Thank you. Our next question comes from the line of Michael Ryskin with Bank of America Merrill Lynch. Please proceed.

[Michael Ryskin:]

Hi, guys. Thanks for taking the call. Congrats on the quarter. Real quick one for Joe and then one for John. For the second half outlook and for the fiscal year, I noticed you bumped up the revenue guide incrementally. Is there anything there in terms of that you're seeing from the new products, whether it's Mandibular Advancement internationally, or from the new iTero launches, or Invisalign First that's giving you a little bit more confidence with how that's started? Or is it more let's call it the legacy business that you're just seeing stability in?

[John F. Morici:]

Mike, this is John. I think it's a combination. I think we're seeing, as we've seen in the last couple quarters here, great growth across our legacy business. We're driving great teenage growth. We have a lot of momentum internationally, and we're seeing that. But then as we've seen we've seen great iTero volume as well. So, the DSO business that we've talked about being able to have a release in China, so that in the second quarter we expect that to continue into the second half. So there's a lot of momentum given our existing business, but we have either new products on iTero with the various products that we have, Flex and iTero, too, and then also some of the expansion that we're doing in China and other places.

[Michael Ryskin:]

Great. Thanks. And then a quick follow-up on a previous question specifically about iTero in China. You mentioned that right now or previously it was all predominantly PVS. How quickly do you see that market evolving? And in five years can you get similar rates of digital submission as you get in North America or at least elsewhere internationally? Or how long of a timeframe is it going to take to ramp that up?

[Joseph M. Hogan:]

As I talked about in the last call, these ramp-up times in China will be faster than they were in the Western world. We know that. The intervening variable in that equation is we're signing up more and more doctors in China, not just orthodontists but GPs. And so those could entitle more PVS impressions, too. So if we look at the current kind of installed base of docs and who submits through that, I feel very confident you'll see this ramped up really dramatically in the next two to three years. But outside of that we might have just other doctors who maybe not buy an iTero but still want to submit for that could come into the equation. And it's just hard to project what that could be.

[Michael Ryskin:]

Thanks. And then one really quick one, the 5 points of FX tail in the first quarter. Can you quantify? I'm sure it was down small in 2Q. But how much was it?

[John F. Morici:]

Actually 2Q was about 4%. So on a year-over-year basis, we saw a little bit less FX benefit on a year-over-year basis than the first quarter but still at 4%.

[Michael Ryskin:]

And the same one-third flow through to the bottom line?

[John F. Morici:]

That's right. We saw, actually, about two-thirds flow through to the bottom line.

[Michael Ryskin:]

Okay. Thank you. Thanks a lot.

[Joseph M. Hogan:]

Yeah. Thanks, Michael.

[Operator:]

Thank you. Our next question comes from the line of Jeff Johnson with Robert W. Baird. Please proceed.

[Jeff D. Johnson:]

Thank you. Good afternoon, guys. Maybe just a couple cleanup questions here. Joe, I didn't hear you say anything about the 19% equity stake with SDC. Is there any change to that once you end the supply agreement at the end of 2019?

[Joseph M. Hogan:]

I don't know, honestly, Jeff. I'd say we still own that. We'll have to find a way to reconcile that. But that's – after we get our operational conflict out of the way I think that will be addressed.

[Jeff D. Johnson:]

Okay. Fair enough and then on the store concept or the Pilot Store, sorry. How many more are you thinking about opening this year? And, I guess, John, maybe you can walk us through. There's obviously expenses involved in opening those stores. I'd assume maybe that's a little bit of some of the EBIT questions that have been on the call today, as well. But I also hear that you guys are getting full list price on those cases or at least very good pricing on those cases. So, I would assume there's a breakeven here that's pretty quick on these stores. So any comments or kind of color you can provide on that would be helpful. Thanks.

[John F. Morici:]

Yeah. Jeff, this is John. Yes, you're right. Stores – we've got four now. By the end of the year, we'll have 10 stores or so. We continue to find places that are very strategic to us, the right place to turn those consumers into patients through our doctor's offices. There's expenses related to start-up. There's also some targeted marketing that we do in the area. But don't think of it all as incremental. Think of it as we're spending money in certain places on some of the marketing and advertising. And instead of going as maybe as broad, we can go a little bit more targeted to be able to try to get that consumer conversion. So when we look at the second half and what we've guided for the year, we've now said that we expect to be up in operating margins from 2014. So there's no flat anymore. So, with these investments that we're making, we still think that they're ultimately incremental to our business and a key part of our strategy.

[Jeff D. Johnson:]

Thank you.

[Joseph M. Hogan:]

Yeah. See you, Jeff.

[Operator:]

Thank you. Our next question comes from the line of John Kreger with William Blair. Please proceed.

[John C. Kreger:]

Hi. Thanks very much. Joe, I don't think you've mentioned the financing pilot. Can you just give us your latest thoughts on that? And if you're considering taking it more broad, what the timing might be?

[Joseph M. Hogan:]

I'll turn you over to my expert on the financing.

[John F. Morici:]

Hey, John. This is John. So, on financing, it's really moved from a pilot to – it's fully released now. And what it is is a tool that we have with our sales team as well as working with our doctors to be able to give patients options in terms of financing, so they can do some things where they can look to come up with financing over a period of time. It's beneficial to the doctor. It's beneficial for the patients. Ultimately, we get paid faster. So there's a lot of wins. But really what we're trying to do is make it easier for those end customers, those end patients to be able to come up with financing to be able to get them into treatment and we think it's a benefit to everybody in this value chain to be able to get a higher conversion. So it's gone from pilot to full release. And we're actively working with doctors and potential patients to get the understanding of this.

[John C. Kreger:]

Great. Thank you. And then just one more follow-up, another DSO question. I think there's maybe 50 of size in the U.S., at least that's my understanding. How many of those would you say you've got relationships with at this point?

[Joseph M. Hogan:]

Well, I'd say we probably have contact with over 75% of them. I wouldn't say we have a relationship to the degree we have with Aspen and Heartland in that sense, John. So obviously DSOs are on our list in a sense to work with (58

[John C. Kreger:]

Great. Thank you.

[Joseph M. Hogan:]

Yeah. You're welcome, John.

[John F. Morici:]

Thanks, John.

[Operator:]

Thank you. We have reached the end of our Q&A session. Allow me to hand the floor back over for closing remarks.

[Shirley Stacy:]

Well, thank you, everyone, for joining us today. This concludes our conference call. If you have any follow-up questions, please contact our Investor Relations department. Have a great day.

[Operator:]

Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.