Align Technology, Inc.
Q1 2016 Earnings Call Transcript

Published: 29 Apr 2016

[Operator:]

Greetings and welcome to the Align Technology's First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I'd now like to turn the conference over to your host, Shirley Stacy, VP of Corporate and Investor Communications. Thank you. You may now 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 David White, CFO. We issued first quarter 2016 financial results today via Marketwired, 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 financial highlights and then briefly discuss the performance of our two operating segments

[David L. White:]

Thanks, Joe. Let's review our first quarter financial results. Revenue for the first quarter was $238.7 million, up 3.7% from the prior quarter, and up 20.5% from the corresponding quarter a year-ago. On a year-over-year comparative basis, first quarter revenue growth rate was lower by approximately five points, related to the Additional Aligner policy and the impact of foreign currency exchange rates. First quarter Clear Aligner revenue of $219.7 million was up 2.6% sequentially and up 17.5% year-over-year. The sequential revenue increase was primarily related to increased Clear Aligner volumes. Q1 ASPs were slightly up from Q4, about $5, due to more Additional Aligner submissions and dealer promotions, partially offset by foreign exchange rates and a small shift in product mix towards our low-end products, driven by the single arch option we introduced last year. Our year-over-year revenue growth reflected Invisalign case volume growth across all customer channels and geographies, partially offset by lower ASPs, primarily related to Additional Aligner policy change and foreign exchange rates. For the first quarter, total Invisalign shipments of 163.7 thousand cases were up 2.1% sequentially, reflecting growth predominantly from our North American orthodontist customers. Year-over-year case volume growth was 25.2%, driven by growth across all regions. For North American orthodontist, Q1 Invisalign case volume was up 7% sequentially, reflecting higher adoption and utilization rates across the channel, and up 23.6% year-over-year. For North American GP dentists, case volume was flat sequentially and up 18.6% year-over-year. For international doctors, Invisalign case volume was seasonally down 1.5% sequentially and up 34.1% year-over-year. Worldwide Invisalign utilization in Q1 was 4.9 cases per doctor, up from 4.5 cases in Q1 last year. North America ortho utilization was a record 10.4 cases, up from nine cases in the prior year. North America GP utilization was a three cases, up from 2.9 cases in the prior year. And international utilization was 4.7 cases also a record, up from 4.4 cases per doctor in Q1 last year. In Q1, we added 2,470 new Invisalign doctors worldwide, 870 of which were new North American doctors, and 1,600 of which were new international doctors. Our Scanner & Services revenue for the first quarter was $19 million, up 17.2% sequentially and 72% year-over-year. We're pleased with continued strong demand for the iTero Element scanner. Notwithstanding these strong results, production capacity has been more constrained than expected as we strive to ramp production and work down backlog. Moving on to gross margin. First quarter overall gross margin was 75.7%, slightly better-than-expected, up 0.7 points sequentially and down 0.6 points year-over-year. Clear Aligner gross margin for the first quarter was 78.3%, up 0.4 points sequentially and down 0.8 points year-over-year. The sequential increase was primarily driven by lower freight costs from a slightly lower mix of international shipments. The year-over-year decrease in gross margin was primarily the result of lower Clear Aligner ASPs related to our new Additional Aligner policy implemented in July last year. Q1 gross margin for our Scanner segment was a record 45%, up 7.3 points sequentially and 16.7 points year-over-year. Both the sequential and year-over-year increase in gross margin was primarily a result of higher ASPs and lower cost of our iTero Element scanner. Q1 operating expenses were $127.3 million, up sequentially by $13.8 million or 12.2%, primarily due to the planned annual increases in employee compensation and benefits programs, costs associated with our internal sales meeting event that take place in Q1, increased investments in sales and marketing, and go-to-market activities, as well as our ERP implementation program. Q1 operating expenses were lower than our outlook due primarily to more ERP costs being capitalized and anticipated during the quarter. In addition, the timing of certain investments in marketing were delayed to the second quarter and second half of the year. On a year-over-year basis, Q1 operating expenses were up $25.1 million, or 24.6%, reflecting increased head count and continued investment in go-to-market activities incidental to the growth of our business, as well as our ERP implementation project. Also recall, that in the first quarter last year, operating expenses included a benefit of $6.8 million, associated with a medical device excise tax refund. Our first quarter operating margin was 22.3%, down 3.5 points sequentially and down 2.4 points year-over-year. This sequential decrease in operating margin relates primarily to higher expenses as just described. On a year-over-year basis, Q1 operating margin was impacted by approximately 2.5 points from Additional Aligner policy and foreign currency exchange. Also note, again that the year-over-year comparison reflects the aforementioned benefit on the medical device excise tax in Q1 2015. With regards to our first quarter tax provision, our tax rate was 23.4%, slightly up from our 2015 tax rate of 22.6% and 18.2% in Q4 2015. 2015 and Q4 2015 tax rates are lower primarily a result of lower tax expense related to the true up incidental to the filing of certain tax returns and the renewal of the U.S. R&D tax credit in Q4 2015. First quarter diluted earnings per share was $0.50 compared to $0.60 reported in Q4 and $0.44 reported in the same quarter a year-ago. First quarter EPS was impacted by approximately $0.09 per share from the new Additional Aligners policy and a year-over-year impact of currency. Further, recall that the first quarter of last year included a benefit of $0.06 per share associated with the refund of the medical device excise tax. Moving on to the balance sheet. Capital expenditures for the first quarter were $20.2 million, primarily relating to equipment purchases to expand our manufacturing capacity in Juárez, Mexico, as well as our ERP implementation. Cash flow from operations for the first quarter was $30.7 million and free cash flow for the first quarter, defined as cash flow from operations less capital expenditures, amounted to $10.5 million. During the quarter, we also used $22.6 million of cash to pay employee taxes for the net settlement of vesting employee stock awards that otherwise would have been issued. Over the last 12 months, these amounts, together with repurchases, has amounted to $128.6 million. Today we announced that our board of directors has authorized a plan to repurchase up to an additional $300 million of the company's stock. This latest authorization is in addition to the existing $300 million authorization announced in April 2014, which brings the total authorization to $600 million. Today, we have repurchased approximately $200 million of our stock and anticipate we'll repurchase another $100 million over the next 12 months. Cash, cash equivalents and marketable securities, including both short-term and long-term investments were $680.8 million. This compares to $678.7 million at the end of 2015, an increase of approximately $2.1 million. Of our $680.8 million of cash, cash equivalents and marketable securities, $216 million was held by the U.S. and $464.8 million was held by our international entities. With that, let's now turn to our business outlook and the factors that inform our view. Starting with the demand outlook; for North America, we expect Invisalign volumes to be up sequentially from Q1. For international, we typically see strong sequential growth following Q1 winter holidays in EMEA and the Lunar New Year in APAC. For our Scanner business, we expect revenues to be up sequentially from Q1, as we continue to ramp production for the new iTero Element and fulfill strong backlog and demand. Notwithstanding this strength, given recent and continuing constraints on production of the new iTero Element, our outlook for Scanner revenue for the full-year is slightly less robust than originally anticipated. With this as a backdrop, we expect the second quarter to shape up as follows

[Joseph M. Hogan:]

Thanks, David. I'm pleased with Q1 and our better-than-expected start to the year thanks to continued growth and adoption across our customer base. We credit that to our focus on and investment in key growth drivers, especially our continued expansion outside of North America, commitment to product and technology innovation and consumer demand programs that help drive Invisalign adoption. Q2 will be a busy quarter for us with the upcoming AAO in Orlando, the APAC Summit in Macao, and our Analyst Day coming up in June. I look forward to seeing many of you at that Analyst Meeting in New York to sharing more details about our opportunities for growth, our competitive advantages and the key things we're focusing on for the future. Thank you for your time today. I'll now open the call to questions. Operator?

[Operator:]

Thank you. At this time, we'll be conducting a question-and-answer session. Our first question comes from Robert Jones from Goldman Sachs.

[Robert Patrick Jones:]

Thanks for the questions. You guys mentioned that some of the investments were delayed from Q1 to later in the year. I guess, first part will be why, were they delayed? And then the second part and more importantly, does that delay in investment have any impact at all on your view of mid-20% revenue growth for the year. Obviously, case growth continues to be pretty strong and also tied to that level of investment. Just wondering, if the timing of the spend, has affected at all your view of the full-year?

[David L. White:]

So, Bob. This is David. I'll see if I can field that for you. They were marketing expenses as we talked about, as I mentioned in the script. They were, however, though related to things that had a longer-term aspect to them. So, they weren't near-term types of items that would necessarily be driving current year case growth. They had more to do with portfolio types of planning and studies and things like that. So, no impact to the year.

[Robert Patrick Jones:]

Got it. And then I guess just on the international side, case growth, you are obviously very robust there. But kind of in line with the type of growth we've seen in the last few quarters. I know you guys had mentioned more investments this year coming on the international side versus the domestic side. I'm just curious, if you could talk about what type of growth rate or growth rate acceleration we should maybe think about on the international side, and then maybe just the timeline or timing around the returns on the investments you're making internationally would be helpful?

[Joseph M. Hogan:]

It's Joe, Bob. And I'd say, you know the – what we expect is to continue with the growth rates, we've seen you know in the – from an international standpoint, but I don't see a change there. In a sense of – you know overall in that business, it's pretty much what we've been telling you, there's not a lot of dilution in the sense of what we do internationally, in the sense of the resources that we put it in a year; and the return, we're getting on those resources through so, think about that return in the aspect of a one-year kind of return on international commercial kinds of resources.

[Robert Patrick Jones:]

Got it. Thanks so much.

[Joseph M. Hogan:]

You're welcome.

[Operator:]

Thank you. Our next question comes from Steve Beuchaw from Morgan Stanley.

[Steve C. Beuchaw:]

Thanks for taking the questions, guys. My first one is actually on the buyback. Well, of course, very nice to see. My question is, are you framing the buyback for 2016, as something like a new normal or is this something that we should think of as a one-time step-up relative to the historical trend?

[David L. White:]

So, I don't think there is any intended change in the program that we announced a couple years ago, Steve. We announced $300 million, we anticipated to repurchase $100 million a year. In the first two years of that program, we repurchased $70 million of the $100 million in each case, using an ASR and then we repurchased the remaining $30 million in open-market transactions over the balance of the year. And this year, pretty much the same thing except for changing it to a 50-50 split. No other change other than that.

[Steve C. Beuchaw:]

Okay. Got it. So, it's not – okay, now I understand the period you're saying. And then, my second question actually David is, could you quantify how much of the spend was delayed out of Q1 into the balance of the year?

[David L. White:]

So, the portion that was delayed into Q2 is in our guidance. Portion that was delayed into the second half is about $2 million or so, roughly.

[Steve C. Beuchaw:]

Got it. And then, I will...

[David L. White:]

Go ahead.

[Steve C. Beuchaw:]

Thank you very much. Have a good night.

[David L. White:]

You bet.

[Shirley Stacy:]

Steve.

[Operator:]

Thank you. Our next question comes from John Kreger from William Blair.

[John C. Kreger:]

Hi.

[Joseph M. Hogan:]

Hi, John.

[John C. Kreger:]

Thanks very much. Hi, Joe, can you just maybe give us some update on market commentary. There has been a fair amount of economic volatility in recent months. Are you seeing any of that filter through to your GP or ortho customers?

[Joseph M. Hogan:]

I haven't seen any change at all from what we experienced in 2015, as we go into 2016 and nothing recently either in that sense.

[John C. Kreger:]

So, what does that tell you? Does that say there is just not as much sensitivity around what we would probably think of is a fairly discretionary purchase by consumers or do you think there's just such an under penetration for Clear Aligners that you can kind of power through a cyclicality that an orthodontist might see?

[Joseph M. Hogan:]

I'll be cautious, I haven't gone through a cycle in this business yet, John. So, I'll just be cautious on what I'd say here. See, if I look at the economic data and backup a little bit, a lot of that economic data has to do with inventory and production right now. And I don't think it's in a consumer sense, something that's definitive yet. So, what I'm seeing right now, I want to try and communicate to you is, the market fields now is the market has for the last really 10 months since I've been here. If this thing hits the consumer and there is a significant consumer effect, I think, it'd be naïve of us to say that we think we'll just power through that with the same kind of growth rates we have today, but I think we just got to take that a quarter, but a quarter of time right now.

[John C. Kreger:]

Great. Thanks. And then one more. You mentioned the upcoming AAO meeting. It's been a little longer than I think in the past of when you guys have announced some product updates, any preview you could give us about something that might be coming there or just in general the cadence that we should expect about new product innovation?

[Joseph M. Hogan:]

No big change in the cadence of new product introduction. I can't give you any kind of a look under the covers right now, in the sense of – you know what we might do at the AAO, John or not do at the AAO. But, look R&D is incredibly important to us, you know we're focused on now inclusions in the sense of making this a deeper and deeper penetration against wires and brackets. We're really excited about that future portfolio and what we can do, but not ready to announce anything big coming up on the AAO right now.

[John C. Kreger:]

Okay. Great. Thank you.

[Joseph M. Hogan:]

Welcome.

[Operator:]

Our next question comes from Brandon Couillard from Jefferies.

[Brandon Couillard:]

Hey, thanks. Good afternoon. Joe, just a question on the digital case submissions. I'm curious as to your latest thoughts on how much contribution, or how would you characterize the success or progress of the Seric (28

[Joseph M. Hogan:]

Brandon that really hasn't changed. I think we try to communicate to the market as much as possible, as that we think that these open-source way is the way to go to make sure that you know – ability to no matter what's game you're on, if you have the kind of accuracy and capability that you can submit in this line kind of order. I'm frankly not surprised of what we see, I think when you look at Sirona, they've been cautious in the sense of how they bring people on and make sure of the accuracy and – which is really good in the sense of how they can interface with us. And so, right now, it's really no change in the sense of, I think what we anticipated prior to Sirona coming on and what we're seeing right now. But again, we feel good about that open-source commitment, and we feel good from a North America standpoint, in particular, to see the rates of digitized impressions coming in. It's good for our business, it's actually good for customers, because of the sensation, because of the accuracy of it, and how much faster we can actually turn things around.

[Brandon Couillard:]

And – sorry, if this has already been asked, I don't think so, but could you – you'd pointed to perhaps the Cadent or iTero scanner revenues falling a little bit short of your prior goal for the year. Could you quantify that and perhaps give us a sense of the magnitude of the backlog and how long you think it might take to burn off?

[David L. White:]

Yeah. Brandon. So, when we ended 2015, we had more than six months of backlog on the iTero scanner and that number still holds true today. Notwithstanding the fact that, our revenues in that business were up significantly in Q1 and we're almost doubling the business. In the January call, we talked about our expectations that business perhaps doubling this year and I think that might have – given where we are today with some production capacity constraints and so forth, that might have been a little bit more optimistic by maybe 10% or so. And we hope to work through those constraints and work down the backlog as we continue to ship product throughout the balance of the year.

[Brandon Couillard:]

Sure. Thank you.

[Operator:]

Thank you. Our next question comes from Matthew O'Brien from Piper Jaffray.

[Matthew O’Brien:]

Hi, guys. Thanks for taking the questions. So, you guys have seen impressive North American growth over the last four quarters, how much can you attribute that to the stratification of the sales force?

[Joseph M. Hogan:]

I think, it's not a binary instrument on this whole thing, I think the stratification was helpful, when you define that stratification is, we're focused on our really high-end orthos, what we call our SAM (31

[Matthew O’Brien:]

Great. And also, I apologize if you guys have maybe answered this already, but single arch was a big growth last quarter. How much of that contributed to GP segment this quarter? Thanks.

[David L. White:]

So, good question. As we looked at it, if you look at the single arch and you look at even the pricing actions we took a year-ago in Q2, where we lowered the pricing on both the E5 and the E10; we changed the staff discount program, and so forth. As we look at it now, we're seeing great traction on those products; I mean they're growing well and – much faster than what the rest of our business is on a volume basis, maybe not the same way on a revenue side. But, certainly on a volume basis, they're growing at a rate faster than what our full products are. And when you look at it on a quarter-over-quarter basis, or I should say a year-over-year basis, it's probably about three points of growth when you compare it year-over-year.

[Matthew O’Brien:]

Great. Thank you very much.

[Joseph M. Hogan:]

Okay.

[Operator:]

Thank you. Our next question comes from Chris Lewis from ROTH Capital Partners.

[Shirley Stacy:]

Hey, Chris.

[Christopher William Lewis:]

Joe, you mentioned – hey guys.

[Shirley Stacy:]

Are you there?

[Christopher William Lewis:]

I'm here, can you hear me?

[Joseph M. Hogan:]

Yeah, got you.

[Christopher William Lewis:]

Okay. Great. Joe you mentioned, you're beginning to see some progress with teen in international markets; can you talk about what's starting to drive that progress?

[Joseph M. Hogan:]

Chris, again it's not subjectivity to my comment here, but I think, if you look at the history, particularly in North America, we had a history here of years of people thinking we really – orthodontics is not thinking we can do with teen. As we go overseas, I don't think we're burdened with that mythology as much as – because obviously we changed the type of malocclusions we could do; we moved into teens pretty well. We've changed our portfolio to address that, and just think there is less inertia to overcome overseas than maybe what we've had in North America over the years is my guess. And obviously what we're going to have to do is double back in North America and push a lot harder in the sense of our capability in that area now to overcome, I think, some history that's existed there.

[Christopher William Lewis:]

On Additional Aligners program, it's been around I think nine months since you implemented that, I was hoping you could just take a minute and kind of talk about it here, if you're starting to see ordering patterns and your customer behavior in terms of your utilization rates being impacted from that program?

[David L. White:]

Okay. Yeah, Chris, when we look at the impact of Additional Aligners, we look at it over many years. We see increasing usages of Additional Aligners over time. And primarily, that's the result of a number of factors

[Christopher William Lewis:]

Okay. Thanks for the time.

[Operator:]

Thank you. Our next question comes from Jon Block from Stifel.

[Jon Block:]

Great. Thanks, and good afternoon, guys. Maybe two or three. The first one Joe, I believe for you, on the teen market, I think you guys gave some metrics, teens up about 22% trailing 12 months, but it is like in adult, and you mentioned the average teen age around 15 years old, but of course, a lot of teens are out there getting orthodontic care at 11 years old to 14 years old. So, I guess the question is, can you go younger with the current product, or do you need something more specific to mix dentition and tracking compliance et cetera?

[Joseph M. Hogan:]

Jon, I think you know the answer of that question, you know that. But I think honestly, one part of the practical side of me, Jon, is that our teen utilization rate in the 20% to 25% range depending on how you look at it, is really insufficient, given the market is 75% teens. And so, regardless of how young, you want to move back into the teen segment, we have plenty of opportunity when you look at complete dentition above 13 years old. So, we should be able to get out regardless of that kind of an approach. But I mean, obviously our R&D is focused on how we can go back and look at what I call morphology changes rather than just moving piece is actually moving things in. Obviously, we have some clinical trials in the marketplace in that area to see how well our appliances can fit in that particular area and we're optimistic about it.

[Jon Block:]

Okay. And next two questions I promise I really don't know. So with the first one David for you, you mentioned maybe on Cadent more optimistic by 10%. I just want to make sure, I understand what you meant. So, the Cadent revs were going to roughly double this year, which was the initial guidance, that was an incremental $45 million. I believe what you're saying, maybe it's $4 million or $5 million too high, that's – is that correct? And then second part is, do you make up that $4 million or $5 million shortfall just to keep your – I think it was low to mid-20% revenue guidance for the year? And then, I've just got one more.

[David L. White:]

So, I think, the net of it all is that our revenue guidance is roughly intact. We'll make it up elsewhere either through pricing or through other things that were built into that plan.

[Jon Block:]

Okay. And then just a very last one, you guys gave some interesting metrics on sort of the percent of high volume guys that own a scanner and there is a lot of them and we've been showing the average scanner user. There is a lot more cases in your overall average, but this brings back in the question sort of the chicken or egg, so are there any metrics that you can give even at a higher level of what someone looks like before they get a scanner and then where they go six months, 12 months or 18 months after they bring it into their practice? Thanks, guys.

[Joseph M. Hogan:]

Hey, Jon. We're obviously looking at that. Our penetration rates are being furthered right now. You got to look at ortho, definitely we do GPs in that sense, but we really don't have anything definitive to share with you yet, that would say, you buy a scanner, you automatically do more Invisalign. We're not ready to say that.

[Jon Block:]

Okay. Perfect. Thanks for your time, guys.

[Joseph M. Hogan:]

Thank you.

[Shirley Stacy:]

Thanks, Jon.

[Operator:]

Our next question comes from Richard Newitter from Leerink Partners.

[Unknown Speaker:]

Hi. This is Robby (39

[Shirley Stacy:]

Hi, Robby (39

[Joseph M. Hogan:]

Hi, Robby (40

[Unknown Speaker:]

Great. Thanks for taking the questions. I had a question – a couple of questions. One, maybe on the doc training and then another on gross margins. First, on the Invisalign doctors training, sequentially, it looks like there is a seasonal step down in North America, but you're flat year-over-year, whereas O-U.S. training stepped up sequentially. Hoping you could help explain some of the dynamics behind that, and how we should see training progress throughout the year. And then, maybe second on the gross margins. Scanner gross margin of about 45%. Where do you think that can go over time? And should we think of sort of 2Q, 4Q at the similar level? Thanks.

[Joseph M. Hogan:]

So, Robby (40

[David L. White:]

The gross margins on Scanner.

[Joseph M. Hogan:]

So, the gross margins on Scanners, they are in the 45% to 50% type of range and a lot of that is due to, when we designed the new iTero Element. We designed it, as not only a more feature-rich product than the 2.9, which it replaced; but we designed it a lot for cost reduction and so, you have a much smaller footprint in terms of physical form factor, that sits in the doctor's office, you have much lower support costs for the product, because the wand detaches from the base unit. The training is all done virtually, instead of us actually – having to actually whole classes on the training, it's done virtually. The doctor installs it himself versus us having to send somebody into do a field install. So, all those things kind of contribute from a business model standpoint, why it's a better gross margin proposition than what the prior version was. Does that answer your question?

[Unknown Speaker:]

Yeah. It does. And then maybe if I could get one more in, regarding the 3Shape announcement, sorry if you had mentioned it, I may have missed it. Did you say anything about what you think their installed base is and how many that opens up?

[David L. White:]

No, we didn't. And we're not quite privy to that information either. So, I mean obviously, it's a successful scanner, but there is not an installed base number that's been shared with us.

[Unknown Speaker:]

Great. Thank you.

[Shirley Stacy:]

Thanks, Robby (43

[David L. White:]

Thank you, Robby (43

[Shirley Stacy:]

Operator, we'll take one more question, please.

[Operator:]

Our last question comes from Jeff Johnson from Robert W. Baird.

[Jeff D. Johnson:]

Thank you. Good evening, guys.

[Shirley Stacy:]

Jeff.

[Jeff D. Johnson:]

Joe, just wanted to start with you. Hey, how are you? So, Joe, starting with you on the utilization number, the 10.4 case number obviously as you guys said kind of an all-time high on the North American ortho side. As I'm looking at it, it's also I think without the biggest sequential jump up I've seen in that metric as well. So, I don't revisit the point you made about kind of end market being stable. How much of that sequential improvement maybe is coming from some of the efforts, you guys have been putting in the field, a lot of the work we've done and I'm sure others, but survey work in that seems like North American dental market has picked up here a bit in the last six months. How much might be tied to those factors, things like that? Just want to focus a little more on that 10.4 case number, if possible?

[Joseph M. Hogan:]

Jeff, it's a good question. I'd tell you again, it's a great answer, because I think we don't see this definitively. But I would say, I just look at kind of a constant force from a market standpoint over the last 12 months. And then overall, I think it's really the people we put into field and it's obviously I think some of our inventions like D5, D6. And then frankly, when you think about E5, E10 and some of our pricing dynamics on that too, all these things I think have really helped from a penetration standpoint with those guys. So, I wouldn't necessarily attribute it to a market uptick. I think, the market is in very consistent. I think, our resource allocation and focuses, I think, it really help in that sense.

[Jeff D. Johnson:]

All right. Great. And then David, just one question for you on the guidance or at least on some of the P&L numbers. You mentioned the operating margin 250 basis points here, I think, you said between the extra Aligner policy in the FX in the quarter. Any chance you could split that out or disaggregate those two numbers? And then, just want to make sure I've got my gating correct. It seems like the FX drag pretty much goes away starting in the second quarter in the extra Aligner policy, will at least anniversaries through the model starting in the third quarter. Is that the right way to think about those drags?

[David L. White:]

When you always do these compares, it's always against what you're comparing to. When you're comparing quarter-over-quarter, FX and Additional Aligner is not a big impact on Q2; it was a little bit of a drag, but 20 bps or so. When you look at it year-over-year, you see a bigger impact and like we said about almost three point, most of that Additional Aligner, about $8 million of that is Additional Aligner and like another $2.5 million or so roughly of FX.

[Jeff D. Johnson:]

Okay. And then, the FX component as we go into 2Q would expect that pretty much on a year-over-year basis, were done with most of those headwinds at this point you think?

[Joseph M. Hogan:]

Well, you tell me what exactly...

[Jeff D. Johnson:]

No. Assuming currency stays stable where it is today.

[Joseph M. Hogan:]

Yeah. If currency stays flat, the only "headwind" you might say we have that we keep calling out is Additional Aligner. An Additional Aligner – our discussion about Additional Aligner and its impact, kind of swan songs in Q2, because once we get to Q3, our comparatives will have the full impact in both ways.

[Jeff D. Johnson:]

Got it. Thank you.

[Shirley Stacy:]

Thanks, Jeff.

[Joseph M. Hogan:]

Thanks, Jeff.

[Shirley Stacy:]

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

[Operator:]

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.