Align Technology Inc (ALGN) — Q2 2017 Earnings Call Transcript

Good afternoon and thank you for joining us. I'm Shirley Stacy, Vice President of Corporate Communications & Investor Relations. Joining me for today's call is Joe Hogan, President and CEO; and John Morici, CFO. We issued second quarter 2017 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 5:30 PM Eastern Time through 5:30 PM Eastern Time on August 10. To access the telephone replay, domestic callers should dial 877-660-6853 with conference number 13665263 followed by #. International callers should dial 201-612-7415 with the same conference number. As a reminder, the information that the presenters discuss today will include forward-looking statements, including statements about Align's future events, product outlook, and the expected financial results for the third quarter of 2017. These forward-looking statements are only predictions and involve risks and uncertainties that are set forth in more detail in our most recent periodic reports filed with the Securities and Exchange Commission. Actual results may vary significantly and Align expressly assumes no obligation to update any forward-looking statements. We've posted historical financial statements, including the corresponding reconciliations and our second quarter conference call slides on our website under Quarterly Results. Please refer to these files for more detailed information. With that, I'll turn the call over to Align Technology's President and CEO, Joe Hogan. Joe?

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, clear aligners and scanners. John will provide more detail on our financial results and discuss our outlook for the third quarter. Following that, I'll come back and summarize a few key points and open up the call to questions. Our second quarter results were better than expected across all key financial metrics, including revenue, volume, margins and EPS. Q2 revenues increased 32.3% year-over-year, driven by strong Invisalign case shipments across all channels, and especially in the teen segment. Solid execution of our strategy and key investments continue to deliver strong growth across the board, with record Invisalign volume in almost every geography. Q2 also had an all-time high of nearly 5,000 newly trained doctors in a quarter for the first time ever. Our iTero scanner business also performed well this quarter with revenues up 36.7% year-over-year. For Q2, North American Invisalign case volume was up 10.3% sequentially and 27.6% year-over-year, reflecting strong year-over-year growth from both orthodontists and GP dentist channels. Continued uptake with teens drove Invisalign growth in North America and contributed to another record quarter for ortho volumes, up 34.5% year-over-year, and an utilization up to 13.6 cases per doctor. Q2 volume for North America GP dentist increased 18.9% year-over-year, primarily reflecting continued expansion of our GP customer base and utilization growth, which increased to a record 3.3 cases per doctor. Q2 was the first quarter we offered Invisalign Lite in North America and we saw solid uptake, especially among GP dentists. Invisalign Lite includes up to 14 stages of aligners and is intended to treat simple to moderate cases. Q2 Invisalign volume for international doctors was up 13.6% sequentially and 37.4% year-over-year, driven primarily by new customers in both EMEA and APAC regions. In EMEA, Q2 volumes were up 33.2% year-over-year. All five of our core European markets showed record growth rates led by Spain and the UK. Expansion markets also had record volume with over 50% year-over-year growth led by Central and Eastern Europe and the Benelux. In Asia Pacific, Q2 volumes were up 44.4% year-over-year led by China where we trained over 1,000 doctors for the first time, followed by growth from Southeast Asia, Japan, and ANZ. Turning to the teen markets, over 55,000 teenagers started treatment with Invisalign clear aligners in Q2, up 12.6% sequentially and 37.6% year-over-year, reflecting continued acceleration above adult case volume growth. North America ortho teen cases increased 11.6% sequentially and 42.1% year-over-year compared to adult cases of 9.8% and 30.5%, the third consecutive quarter teen growth rate that has been above adults. International case shipments to teen patients increased both 13.7% sequentially and 40.5% year-over-year as well. In Q2, we expanded commercialization of Invisalign treatment with mandibular advancement to select countries in EMEA and APAC. This program is the first clear aligner solution for Class II correction that advances the mandibular while moving teeth at the same time. While we're still very early in the adoption cycle to date, we're pleased with the initial uptake and expect to see continued ramp-up over the course of the year. Invisalign treatment with mandibular advancement is not available in the U.S. yet, where it's pending FDA approval. The Invisalign brand and our consumer marketing campaign programs continue to be key factors in raising awareness and creating demand for Invisalign treatment. In Q2, we continued to benefit from our investments in new programs as well as optimizing online spending and media mix for existing programs. In the U.S., we launched our new teen-focused marketing campaign in May that aims to educate teens and their parents, especially moms, about the benefits of teeth straightening with Invisalign clear aligners. It also ensures that teens know Invisalign treatment is the best option for their lifestyle. The new program contributed significant growth in consumer demand during the quarter that helped drive Invisalign teen volume. Our teen campaign expands to the Invisalign Made to Move campaign that we introduced in March and we continue to see a positive impact from the overarching campaign and in consumer interest as well. Specifically, in Q2, we saw a 23% year-over-year increase in unique visitors to our website and achieved significant growth year over year in doctor locator searches. We also saw a continued uptick in adult male patients as compared to females as a result of our changing consumer targeting approach. In EMEA, early results show the Invisalign Made to Move campaign is resulting in higher engagement with consumers across digital display, PPC and social channels. During the quarter, we piloted new social media formats that delivered exceptional results, with Pinterest, Facebook Canvas and Instagram all outperforming benchmarks. Social media remains a key driver delivering 200% more users. Although we also saw a significant increase in the number of smile assessment completions, increasing 22%, as well as total leads, which increased by 30%. We will continue to roll out the Made to Move campaign across the remaining countries in EMEA in Q3. In the Asia Pacific region, our Q2 customer marketing campaign is focused primarily on Australia and New Zealand, where we saw momentum from our Summer Campaign featuring Invisalign Ambassador Jason Dundas, a well-known TV host and personality in Australia. The campaign shares Jason's personal journey of how Invisalign treatment helped transform his smile and career, along with a call to action for consumers focused on their New Year's resolution to improve their lives by getting the smile they've always wanted. We continued driving Invisalign website doctor locator visits by reaching out to potential patients who engaged with our ads and banners in Q1. In India, where we're just getting started, we participated in Beach Fashion Week, where the Invisalign brand was their Beautiful Smile Partner. In Q2, our scanner revenues increased 36.7% year over year and 26.9% sequentially. In May, we announced the new iTero Element 1.5 software upgrade, which includes two key features: TimeLapse and 1-minute scans. TimeLapse compares a patient's prior 3D scans to their current scan and gives doctors an enhanced visualization assessment and communications tool that can help them provide additional treatment recommendations. One-minute scans enable practitioners to complete a full arc scan in less than a minute while maintaining the same accuracy and reliability that practitioners have come to expect from iTero scanners. The use of our iTero scanners for Invisalign case submissions in place of PVS impressions continues to expand and remains a positive catalyst for Invisalign utilization. In Q2, total Invisalign cases submitted with a digital scanner in North America increased to a record 59%, up from 47% in Q2 of last year. In the doctor-directed at-home channel, Q2 was our second full quarter supplying clear aligners to SmileDirectClub. Q2 shipments to this new channel were strong, nearly tripling sequentially off a small base. As their exclusive third-party supplier, we produced roughly one third of SmileDirectClub's clear aligner volume, while they manufacture the remaining amount. In Q2, SDC continued to invest significantly in consumer marketing, including TV advertising, print, and online media, including social media, which we believe has a positive effect on both SDC and Invisalign demand. We also opened several new SmileShops in the U.S., which continue to ramp. Overall, we are excited about the long-term potential for the at-home, doctor-directed market and are pleased with our investment and supply agreement. Today, we also announced that we have purchased an additional 2% of SmileDirectClub for $12.8 million, which brings our total ownership to 19%. We've extended SDC's line of credit from $15 million to $30 million. Finally, before I turn the call over to John, I want to provide a brief update on our operational expansion plans. In June, we opened a new treatment planning facility in Chengdu, China, which serves and supports our customers within China. It also serves as a clinical education and training center for all our customers across Asia Pacific. We have been steadily migrating Chinese Invisalign cases to Chengdu and are continuing to train new technicians, improving lead times. We'll also open a treatment planning facility to support our EMEA customers in Cologne, Germany, in Q3. With that, I'll turn it over to John.

Thanks, Joe. Now for our Q2 financial results. Total company revenue for the second quarter was a record $356.5 million, up 14.9% from the prior quarter and up 32.3% from the corresponding quarter a year ago. Clear aligner revenue of $321 million was up 13.7% sequentially, driven primarily by better-than-expected Invisalign shipments and higher Invisalign ASPs. Year over year clear aligner revenue growth, up 31.9%, reflected strong Invisalign shipment growth across all customer channels and geographies and increased prices. This was partially offset by product mix shift to non-comprehensive products, primarily driven by increased sales of SDC clear aligners, higher discounts and unfavorable foreign exchange rates. Q2 Invisalign ASPs were up sequentially approximately $15 from Q1 to $1,285 reflecting price increases and favorable foreign exchange, partially offset by increased promotional discounts. On a year-over-year basis, Q2 Invisalign ASPs were flat, reflecting price increases, offset by increased promotional discounts and unfavorable foreign exchange. For the second quarter, total Invisalign shipments of 231.9 thousand cases were up 11.5% sequentially, driven primarily by our international doctors and North American orthodontists. Year-over-year Invisalign case volume growth was up 31%, driven by growth across all regions as well as expansion of our customer base, primarily from Asia Pacific. For North American orthodontists, Q2 Invisalign case volume was up 10.5% sequentially and up 34.5% year over year. For North American GP dentists, Invisalign case volume was up 9.9% sequentially and up 18.9% year over year. For international doctors, Invisalign case volume was up 13.6% sequentially and up 37.4% year over year. Our Scanner & Services revenue for the second quarter was $35.4 million, up 26.9% sequentially and up 36.7% year-over-year. Moving onto gross margin, second quarter overall gross margin was 76%, up 0.1 points sequentially and down 0.2 points year-over-year. Clear aligner gross margin for the second quarter was 78.1%, up 0.2 points sequentially, primarily due to leveraging our manufacturing costs over higher volumes. Clear aligner gross margins were down 0.5 points year-over-year, primarily due to lower ASPs. Scanner gross margin for the second quarter was 56.7%, up 0.6 points sequentially, primarily due to lower service costs on our installed base and partially offset by lower ASPs. Scanner segment gross margin was up 3.1 points year-over-year, primarily a result of lower service costs and product mix shift to our lower-cost iTero Element scanner. Q2 operating expenses were $187.3 million, up sequentially by $13.4 million or 7.7%, primarily related to increased employee headcount, marketing programs, including our advertising campaigns, key customer events and international commercialization efforts. On a year-over-year basis, Q2 operating expenses were up 33.7%, reflecting increased headcount and continued investment in our go-to-market activities critical to the growth of the business. Our second quarter operating margin was 23.4%, up 3.5 points sequentially and down 0.8 points year-over-year. The sequential increase in operating margin relates primarily to increased clear aligner volumes. On a year-over-year basis, the decrease in operating margin primarily reflects higher operating expenses as we invest in headcount, geographic expansion and new products in order to increase adoption and accelerate the growth of our business. With regards to our second quarter tax provision, our tax rate was 17.7%, which includes $1.1 million in excess tax benefit and is down by approximately 5.5 points compared to prior year, primarily due to a favorable resolution of foreign jurisdiction unrecognized tax benefits during the quarter. We supply aligners to SmileDirectClub, and therefore, revenue and cost for this activity are included in our operating profit and reporting results, although they were immaterial to the company this quarter. Additionally, we report our share of SmileDirectClub's losses below operating margin and our tax provision, entitled Equity and Losses of Investee, net of tax. Our Q2 loss, net of tax was approximately $2.2 million or $0.03 per diluted share. Second quarter diluted earnings per share was $0.85, flat compared to Q1 and up 37% compared to prior year. Moving onto the balance sheet, as of the second quarter, cash, cash equivalents, and marketable securities, including both short and long-term investments, were $676.6 million. This compared to $644.2 million at the end of Q1, an increase of approximately $32.4 million, primarily related to net income growth and our collections efforts. Of our $676.6 million of cash, cash equivalents, and marketable securities, $218.4 million was held by the U.S. and $458.2 million was held by international entities. Q2 accounts receivable balance was $291.7 million, up approximately 9.2% sequentially. Our overall DSO was 74 days, down three days sequentially and up 10 days year-over-year. The year-over-year increase is a result of our ERP and other related systems implementation last July, which have impacted our timing of our customer collections. As we work through these changes, we anticipate that our DSOs will continue to decline over the next few quarters. Cash flow from operations for the second quarter was $110.5 million, up $34.3 million compared to prior year. Free cash flow for the second quarter, defined as cash flow from operations less capital expenditures, amounted to $92 million. Capital expenditures for the second quarter were $18.5 million, primarily relating to building improvements, equipment purchases for additional manufacturing capacity, as well as our global expansion efforts. During the second quarter, we paid $50 million under an accelerated stock repurchase plan, ASR, in which we received an initial delivery of approximately 300,000 shares of common stock. The final number of shares repurchased will be determined at the completion of the ASR, based on Align's volume-weighted average stock price during the term of the ASR, less an agreed-upon discount. There remains approximately $250 million available for repurchases under the existing stock repurchase authorization. And as Joe mentioned earlier, we have purchased an additional 2% of SmileDirectClub for $12.8 million, which brings our total ownership to 19%. We extended SDC's line of credit from $15 million to $30 million. All other terms remain the same. With that, let's turn to our Q3 outlook and the factors that inform our view, starting with the demand outlook. For our international markets, we expect Invisalign volume to be up sequentially, which reflects continued strong growth in APAC, partially offset by summer holidays in EMEA. For North America, we expect Invisalign volume to be flat to slightly down sequentially, reflecting stronger teen volume for orthodontists, offset by GP dentists who typically have fewer days in the office and lighter patient traffic during the summer. For our scanner business, we expect revenues to be up sequentially. With this as a backdrop, we expect the third quarter to shape up as follows. Invisalign case volume is expected to be in the range of 231,000 to 234,000 cases, up approximately 30% to 32% over the same period a year ago, reflecting continued strong demand, including summer seasonality in North America, ortho, and Asia Pacific. We expect Q3 net revenues to be in the range of $355 million to $360 million, an increase of 27% to 29% year-over-year. We expect Q3 gross margins to be in the range of 74.7% to 75.7%, reflecting higher ASPs, partially offset by higher expenses as we globalize our treatment planning operations. We expect Q3 operating expenses to be in the range of $184.5 million to $187.5 million, relatively flat on a sequential basis. Q3 operating margin should be in the range of 22.7% to 23.6%. Our effective tax rate, including an excess tax benefit of about $1 million, should be approximately 21%. We expect a $2 million loss related to our share of SmileDirectClub, and diluted shares outstanding should be approximately 81.8 million, exclusive of any share repurchases. Taken together, we expect our Q3 diluted earnings per share to be in the range of $0.78 to $0.81. In addition, as we continue to operationalize expansion efforts, we expect CapEx for Q3 to be approximately $70 million to $75 million, which includes purchasing a new facility in Costa Rica for $26.1 million. With that, I'll turn it back over to Joe for final comments.

Thanks, John. Overall, we're pleased to see the first half of the year off to such a strong start. Many of you have already recently asked a question about us being at a tipping point, and I'm sure we'll get that question following today's call. Frankly, we think it's too early to tell. The growth we're seeing in our business is better than we expected and reflects progress in several areas, including clinical efficacy, sales coverage and support models, customer engagement, demand generation, and patient capture. We believe this also reflects a healthy underlying market with solid patient traffic and a significant increase in direct-to-consumer programs by us and others. There's still a lot of work ahead as we move toward our goal of replacing metal braces and making Invisalign the standard of care in orthodontics. We know there will be challenges and we aren't seeing a straight line up and to the right at this point. But we're confident in our ability to drive this industry forward and transform it from an outdated analog process to a fully digital system. Thanks for your time today, and we look forward to your questions.

Great. Thanks for the questions. Joe, the teen growth for the past couple of quarters now – the acceleration has been noticeably steep. Understanding that it's obviously not one factor that's driving this acceleration, are there any areas that you would point to specifically? Anything that could help us get our head around what you think is resonating most with practitioners in the marketplace?

Bob, from a teen's standpoint, overall, I'll just focus on North America for a second. We mentioned last year when we put our plan together that we would have a strong focus on teens as we go into the second quarter this year, because this is the teen season for North America. What we started that program off with is we had several initiatives in North America just to prepare doctors for this program overall, including a next-level partnership program we call IMOP, some specific efforts really focused on teens to get that base ready. Then we launched the communications part of this, the $14 million or so that we're moving into consumer advertising to support it. So I think, when you look at the first half and those two simultaneous actions, that's been one of the biggest underlying drivers in North America. That, along with our ad campaigns and everything else we've put in place, has resulted in a much cleaner, more specific approach to teens that includes a real sales effort with our doctors and a strong customer patient-facing piece with moms and teens.

No, I appreciate all that. And I guess just shifting over, I had a question on North American GPs. I know the focus has just been on orthodontists and rightfully so, but I noticed that the North American GPs saw a significant step-up from the level of growth you had been seeing. Anything specific that you would attribute to the step-up in growth we saw in the quarter?

Yeah. I'd point to two major variables, Bob. One would be just media spend. We've had a significant increase in media spend itself, and we've seen a strong correlation between media spend in the U.S. and the GP increase. The second would be our Lite product that we introduced in the second quarter with the GP segment, where we are increasingly targeting that segment with simpler products that are more straightforward for them to deliver to the marketplace. So I'd say media spend and some specific products have really helped in that sense.

Got it. Makes sense. Thanks for the questions.

Okay, Bob. Thanks.

Thanks. Good afternoon.

Hi, Brandon.

Hi, Brandon.

Hey. Joe, on SmileDirectClub, could you give us a sense of how much manufacturing volume you did for them in the first quarter? And I'm just curious why the additional equity investment couldn't have been larger and if that was even an option for you.

Well, you know what, we mentioned in my briefing that we're doing one-third of their cases right now. It's still not material in that sense, Brandon. We just wanted to give you an idea of where we stand overall. They still handle two-thirds of their volume. As far as the equity percentage, it was just an opportunity we had. We work closely with David and his team at SDC, and that equity was available. We're pleased with the relationship and we thought that was just a great next step for us in that aspect.

And then on teen, I'm curious if the second quarter was materially ahead of where you thought it would be in terms of volumes? Would it be reasonable to expect a further acceleration in the teen growth rate in the third quarter given that the ad campaign didn't really start until mid-2Q?

Yeah. I'll take that one, Brandon. This is John. What we saw with teens contributing to some of the upside that we saw in the second quarter for some of the volume is part of the overall campaign where we're spending additionally this year. Our guidance in Q3 reflects all those factors into our numbers.

Thanks. And then the $14 million for the ad campaign, was that all absorbed in Q2, or is there some that rolls into the third quarter as well?

That's throughout the year. I mean, primarily where a lot of that hits in the second quarter and third quarter, but there is additional spend throughout the year.

Got you. Thanks.

Thanks, Brandon.

Hi. Thanks.

Hi, John.

Another quick follow-up on SmileDirect. When you did that deal, I think you said that when income in case volume came in, if the case was too complicated, it would sort of get pushed into Invisalign. Is that the case? What have you learned, and what percentage of case volume ends up driving into Invisalign?

We haven't had terrific conversion rates in that sense, but we've learned a lot and we tweak that model all the time. The patient to SmileDirectClub service, they have a certain price point in mind. They usually have a simple approach that they want for correcting their smile. They need to be dealt with really quickly because these patients are different than the normal ones we work with. So we keep honing that model. We've had some success, and we continue to build on it, but we believe that in the future, as we develop this, we will have a much better yield.

Great. Thanks. Joe, I think you said you're just getting started on India. Can you talk a little bit more about that market? Maybe try to size it for us and lay out what strategy you're thinking about to ramp it over time?

That's correct. I'll go back to India again this year. I was just there last year. What we do when we go into a country like that, John, is we operate city by city. We go into a city, recruit doctors, and begin to ramp up in those specific cities, finding great doctors that can teach each other. We take the biggest and most prosperous cities first and work outward from there. We are in our second year of this in a big way. We're reaching our goals, and the business has been growing rapidly. This is a model we follow globally, but in India, we just have to make sure that we approach it in a culturally appropriate way. For example, they often don't want to buy our scanners, so we have a scanner mounted on a truck that we move into different offices daily. They line up patients for scans. So we are acclimatizing, if you will, to the market and working steadily. We are excited about it and feel very confident in our long-term trend there.

Great. Thanks much.

Yeah. Thanks, John.

Hi. Good afternoon. This is Adam Krasner on behalf of Erin. I just wanted to touch on the strength in doctors trained in the quarter. I'm trying to get a sense of what the typical ramp is for new doctors added to get up towards the average level of productivity?

Average ramp of a new doctor? Is that...

Right. Like that probably didn't contribute too much to the record shipments in the quarter, the fact that you added so many new doctors, or did it?

We are experiencing a lot of expansion opportunities, particularly by adding new doctors. So you're seeing a lot of growth outside the U.S. being driven by new doctors. In the U.S., especially in both our ortho and GP channels, you're seeing growth primarily by utilization, but we saw both as a driver in the GP channel.

Thanks. I noticed the statistic in the press release of 123,000 doctors trained worldwide. Is there a sense of what the total size of that market is to get a flavor of how far the penetration is as of now?

When looking at the total size of the number of orthodontists and general dentists, and we can follow up with you for more details, in the U.S., there are roughly 140,000 to 150,000 GPs and orthodontists, and roughly 10,000 orthodontists. Outside the U.S., the market is substantially larger. In Europe, there are probably around 300,000, and in Asia Pacific, there are probably twice that. So, it's a huge market. It represents four or five times the size we are currently addressing.

Great. Thanks a lot.

Thanks, Adam.

Thanks. Good afternoon, Joe and John. Incredible results.

Hi, Steve.

So as you've been doing work and just talking to more practitioners, we're getting greater appreciation for the SmartTrack aligner material. I guess, the disclosure back in May that you got the two patents issued. I'm curious to get more color around the patent protection on that material. Do you think it's a critical part of the overall picture? These seem to be the primary patents to protect that material; just want to confirm that. One was filed in 2012, the other in 2016. What's the expiration date? How long will you get protection on these materials? Is it 20 years from the date of filing or 20 years from issuance? I just forgot the details around that. Thanks.

Steve, it's Joe. Data filing is 20 years. There are some multi-layer material protections. We do have patent protection on it now. The vendor that we use on it has certain restrictions in the dental field regarding where it can be used, but also has patents on the processes for how this is integrated; it isn't an easy material to produce. So, just look at it from a data filing perspective: we have a significant number of years that SmartTrack will continue to be an Invisalign material.

So, on the simple math, you should be good until about 2032 or so. Is that about right?

Yeah. We'll both be on a beach by then.

Thanks, Steve.

Thanks, Steve.

Thanks, Steve.

Thanks. Hey, guys. Joe, you'll be on the beach then. I still think I'll be at this desk right here. But maybe just some thoughts on 2017. Maybe I missed that, John, from your commentary or even the slides. I think last quarter you talked about a high end of the 15% to 25% revenue growth and operating margin around 23%. Are there revisions to either of those numbers that you gave last call for 2017?

What we've guided to Q3 – and you could see that from an overall guidance standpoint. So, that's the update, Jon, that we have after we've seen Q2. From there, you can probably do the math to get an overall perspective from a yearly standpoint, but at least for the Q3 guide we feel comfortable with what we're seeing so far, and that's what we ended up forecasting.

Okay. I mean, I got it from a math perspective. I guess just to push you a bit on revenue. You blow out Q2 and guide Q3 ahead. If you keep it at 25% for the year, that would imply a bigger step down for Q4. Are you just saying to go with what you guys gave last quarter? There is no official change to those numbers?

That's exactly what you're hearing, Jon.

Okay. Fair enough.

You said it better than we wanted to. That was really good.

All right. And then just any thoughts on the ASP? John, can you remind us – I believe you took price in the U.S. earlier in the year. Did you take price internationally more recently? The euro for the first time in several quarters has flipped, should be a tailwind. So, when you think about the Invisalign ASP in the back half of 2017, is there any direction you can give us there? Thanks, guys.

You're right, Jon. In North America, we took a price increase in April. In EMEA, it came in July. The price increases have happened. As we look at what's happening for the next quarter, we're pretty much expecting price to be flat for this quarter. So we have price increases. We also have other pressures and unfavorable FX, but if you net all that out, in the third quarter we expect ASP to be flat.

Hey, Jon. Joe again. On your question about the third quarter and fourth quarter, I think the best way to take what we're saying is we're not calling a step down in the fourth quarter. We're simply giving you good clarity on the third quarter. That's what we have clarity on now.

Understood.

Thanks for understanding.

Hey, guys. Good afternoon.

Hey, Jeff.

Just on the ASPs, Jon's question reminded me. He was asking about the euro flipping and getting a little benefit over the next few quarters. John, as we get into 2018, are we inching closer to any release of additional aligner reserves that could theoretically start to help ASPs at all? Or is it still too early to think about any ASP benefits from those factors?

Yeah. Jeff, it's too early. It's part of our overall plan where we have that premium price product that includes additional aligners, and that's built into the plans we have and the pricing. There are no extra reserves coming back related to that. It's just part of our overall strategy from a pricing perspective.

Yeah, it's part of our strategy for the premium price product.

Yeah. Thanks. This is actually Zach Wachter on behalf of Steve. Joe, just one question on Invisalign Go. I'm wondering if you could update us on the ramp there and how we should think about the timing of Go given that the GP channel seems to be doing a bit better. When should we think about Go making a more substantial impact?

I think, Zach, the best way to think about that is if we take a step back. Our approach in the GP channel more and more is to make it easy and efficient, and Go is a product like that. It allows GPs to adapt quickly. Most GOs involve less than 15 aligners. We've also adopted protocols to streamline the process for doctors. So, I would say, don't just take Go. Look at the future. We'll have a series of simpler products and systems to introduce to GPs to facilitate this. iGo is just the first. As we learn from iGo, we continue to iterate on products and improve offerings. But this is a key part of our GP strategy overall: having the right product and the appropriate features for GPs.

Great. And just last one then. As far as the distributors you acquired in EMEA and Brazil Go, was there any meaningful impact in the quarter from that?

No material impact, and you usually don't see a material impact in that for 18 months or two years, really.

Okay.

Next year, this time is a great time to ask that question, Zach.

Thank you, everyone, for joining us on our conference call today. This concludes our formal remarks. If you have any questions, please reach out to the Investor Relations department. Have a great day.