Greetings, and welcome to the Align Technology First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I would now like to turn the conference over to Shirley Stacy, Vice President of Corporate Investor Communications. Thank you. You may begin.

Thank you. Good afternoon, and thank you for joining us. I'm Shirley Stacy, Vice President of Corporate Investor Communications. Joining me for today is Joe Hogan, President and CEO; and John Morici, CFO. We issued first quarter 2019 financial results today via GlobeNewswire, which is available on our website at investor.aligntech.com. Today's conference call is also 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 p.m. Eastern time through 5:30 p.m. Eastern time May 08. To access the telephone replay, domestic callers should dial (877) 660-6853 with conference number 13689188 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 second quarter of 2019. 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 statement. We have posted historical financial statements, including the corresponding reconciliations and our first quarter 2019 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 from the first quarter and briefly discuss the performance of our two operating segments, Clear aligners and intraoral scanners. John will provide more detail on our financial results, discuss our outlook for the second quarter. Following that, I'll come back and summarize a few key points and open up the call to questions. Our first quarter was a very good start to the year with revenues, volumes, gross margin in EPS all above our guidance. Record Q1 revenues and Invisalign volumes were up 25.6% and 28.3% year-over-year respectively. Reflecting continued strong growth across all geographies and customer channels as well as strong iTero Scanner and Services revenues, which are up 55.1% year-over-year. Q1 sequential growth was driven primarily by North America and EMEA volumes reflecting strength across the Invisalign product portfolio. We saw a nice uptick in adoption of Invisalign treatment with a record utilization overall as well as expansion of our customer base, which totaled 57,000 active doctors worldwide in Q1. Now let's turn to the specifics around our first quarter results starting with the Americas region. For the Americas region, Q1 was a solid quarter with Invisalign case volume up 7.1% sequentially and 21.8% year-over-year reflecting growth in both our orthodontic and GP Dentists channel. Q1 we trained 1,700 new Invisalign doctors in the Americas region of which 1,400 were North American doctors. On a sequential basis Q1 Invisalign volume growth reflects record utilization for the Americas region overall driven by North American Orthros at 18.3 cases per doctor with good initial adoption with Invisalign mandibular advancement in North America driven by the mid-Q4 launch in the U.S. We also had solid performance from GP Dentists with continued momentum from Invisalign…

Thanks Joe. Now for our Q1 financial results. Total revenue for the first quarter was $549 million, up 2.8% from the prior quarter and up 25.6% from the corresponding quarter a year ago. Year-over-year revenue growth includes $16.5 million of unfavorable foreign exchange. For Clear aligners, Q1 revenue of $469.2 million was up 5.3% sequentially on strong Invisalign volume from North America and EMEA, and higher than expected Invisalign ASPs. Year-over-year clear aligner revenue growth of 21.7% reflected strong Invisalign shipment growth across all customer channels and geographies. Q1 Invisalign ASPs were up sequentially by approximately $10 to $1,245 reflecting favorable impacts from FX and product mix shift, partially offset by higher promotions. On a year-over-year basis, Q1 Invisalign ASPs were down $65 primarily reflecting promotional discounts, unfavorable foreign exchange and product mix shift, partially offset by price increases in July 2018. Total Q1 Invisalign shipments of 349,000.2 cases were up 4.6% sequentially and up 28.3% year-over-year. For Americas Orthodontists, Q1 Invisalign case volume was up 9.5% sequentially and up 25.9% year-over-year. For Americas GP Dentists, Invisalign case volume was up 3.5% sequentially and up 15.5% year-over-year. For international doctors, Invisalign case volume was up 1.3% sequentially and up 38.5% year-over-year. Our Scanner and Services revenue for the first quarter was $79.8 million, down 9.8% sequentially due to seasonality as Q4 is typically stronger due to end of the year capital equipment purchases. Year-over-year revenue was up 55.1%, primarily due to higher scanner units across regions and related service revenues. Moving on to gross margin. First quarter overall gross margin was 73.2%, up 1.5 points sequentially and down 1.7 points year-over-year. Clear aligner gross margin for the first quarter was 74.9%, up 0.8 points sequentially primarily due to improved manufacturing leverage, approximately $4 million of one-time benefits related to freight…

Thanks John. Overall Q1 was another solid quarter and I'm pleased with the continued progress we're making and executing on our strategic growth drivers and I'm excited about the opportunity we have. Just want to highlight those four growth drivers here for the quarter. From an international expansion standpoint Invisalign volume was up 38.5%. On our Ortho/Teen Utilization our worldwide Invisalign Teen patients growth was over 41%. GP Treat and Refer, leading with iTero scanners, our worldwide GP volumes for Invisalign were up 27.3% and 15.5% for GPs in the Americas. And iTero scanner revenues were up 55.1%. Consumer and patient conversion with Invisalign treatment, we engaged with 4 million consumers globally in Q1 and are building the most recognized orthodontic brand in the industry. In Q2, we have a number of exciting programs and initiatives heading into the summer season kicking off with the AAO in early May, and the Invisalign Symposium on the Digital Practice in London, which is our first ever truly global event and designed to foster a global community of Invisalign doctors. The symposium will bring together 300 of the most experienced and most high volume Invisalign orthodontists from across the world to discuss the digital orthodontics and the challenges and opportunities digital transformation provides their practices. Finally, before I open the call up for questions, I want to take a minute to welcome Raj Pudipeddi who joined Align last month as Senior Vice President and Chief Marketing Officer, CMO, reporting to me. Raj joins us with more than 24 years of business leadership experience and brand building experience for companies including Procter & Gamble and Bharti Airtel, an Indian telecom leader. He has an outstanding track record of delivering results across the North America, Latin America and Asia Pacific regions. Raj also brings great consumer acumen and marketing expertise in terms of building brands, launching new products and accelerating digital businesses globally. His knowledge and understanding of how to leverage big data and consumer personalization will be instrumental as we continue to lead the transformation of digital orthodontics and dentistry and help millions of consumers get a smile they love with Invisalign doctors. Raj is a strong addition to our leadership team and I am thrilled to have him on board. With that, I want to thank you again for joining our call. I look forward to updating you on our progress as the year unfolds. We’ll see many of you at the American Association of Orthodontist Meeting in Los Angeles next month, as well as the upcoming financial conferences including BankAmerica Merrill Lynch, Northcoast, Stifel, Goldman Sachs and William Blair. Now I’ll turn the call over to the operator for questions. Operator?

Thank you. [Operator Instructions] Our first question is from Erin Wright With Credit Suisse. Please proceed. Erin?

Hi, Erin, are you there?

Please check as if your line is mute.

Apologies. Can you hear me now?

Yes.

Hi, Erin.

Hi, Erin.

Hi. So on the gross margin, how should we be thinking about the run rate for the remainder of the year? I understand there was an onetime factors in freight refunds, rebates. Are there other moving parts we should be thinking about in the second quarter from a gross margin perspective? And more broadly, can you characterize how we should be thinking about that longer-term leverage to that metric over the next few years? Thanks.

Hi, Erin, this is John. Yes, what we saw – in Q1, we saw good improvement in our gross margin, we talked about 4 million of some of the unusual, you strip that out. What we expect as we go forward in our Q2 guidance is that progression, we're going to continue to improve our gross margin, some of that comes to some of the operational efficiencies in China and other places that we'll see as the year progresses.

Okay, great. And then can you speak to some of the incremental cost and opportunities associated with this reorganization of your corporate entity structure? Are there incremental costs there from what you said in the fourth quarter? And what are those longer-term financial efficiencies that this can generate from a tax perspective or from an operational perspective as well?

Yeah, Erin, this is John again. So no additional than what we had talked about. We laid out from a reorganization standpoint about 1% in total for the year. And that'll really progress with Q2 on, but really what we see is a more agile organization and one, that can accommodate changes to any global changes that might come up around taxes or anything else. So that's really the benefits that we have. EMEA is growing so much as centralized as that location, but it also gives us an operating structure that we can use in the future.

Okay. Great. Thank you.

Our next question is from Jeff Johnson with Baird. Please proceed with your question.

Hi, Jeff.

Thank you. Good afternoon guys, can you hear me okay? Hey Joe, how are you?

Great.

Let me start with you and then – Hey, all. So let me start with you, Joe, and then I have a question for John as well on the margin front. But Joe, with the store shut down here in April, I guess, what are you seeing impact wise on volumes maybe in the near-term, whether that's 2Q or over the next couple quarters? And then how might that impact how you allocate some expenses this year? Is there some way you can reallocate those expenses into other kind of growth initiatives, whether that's with DSO or other private docs or what have you?

Hey Jeff, first of all, I mean I think we – when we announced this issue with SDC having to close the stores, they just said it wasn't going to be material from a revenue standpoint and what we – for the year and so we're sticking with that overall. I mean, obviously there'll be some case loss from a store standpoint. The other part of your question is we shift some of that spend back into advertising back into other activities that we have going on to help to drive that demand. So we are – we will reallocate that expense, it's reallocated into marketing and sales and be able to do that. And we expect to have good results from that too. We have I think good experience and understanding what that investment return rate is.

All right, that's helpful. Thanks. And then John on the margin front, I mean if I exclude some of the onetime costs in the 1Q, it seems like your operating margin probably would have beaten by maybe 500 basis points or so relative to your guidance. And then if I take into account the gains in 2Q, it seems like margins are going to be down 400 basis points, 500 basis points year-over-year, and the 2Q, which is kind of worse than we were thinking. So I guess I'm just trying to get my arms around kind of volatility around margins. Is there more volatility x the noise in the base business going on right now? Is there just conservatism in your base business guidance for 2Q? How should we think about kind of recent and future margin trends?

Yes, so from a – you’re talking about specific gross margin, when you look at that, we're seeing good improvement from some of the manufacturing efficiencies and things that happened in the first quarter. We expect that to continue, we saw ASPs up $10 in Q1, which helps contribute to that. But this is about being able to continue to leverage the manufacturing and the other operations that we have. And that should continue to get better as the year progresses. And so that's similar to what we talked about at the end of Q4 as well. This is something that we – we’ll get those efficiencies as the year progresses.

Well, let me just clarify, I guess that question and focus just on the first quarter x the charges in the 1Q, it seems like your margin probably beat even at the operating line by almost 500 basis points relative to your guidance because I think your guidance did not anticipate these onetime store closure costs in that. So what drove that upside and how did you get the 500 basis points of upside in the quarter?

Yes. So really when we saw, as we looked through it Jeff, we saw like I said some improvement on the gross margin standpoint, some of the OpEx leverage that we are able to achieve in the first quarter as well and that started our year in a very strong position from an operating margin standpoint. And then as we go through the year as we've talked about, there'll be some litigation and some reorganization costs that we've been calling out, as we go through. But it was really a strong start to the year from a gross margin standpoint and then managing the op-Expenditures and we saw that leverage really show up in Q1.

Thank you.

Thanks Jeff.

Our next question is from Jon Block with Stifel. Please proceed with your question.

Hey, Jon.

Great. Thanks guys, good afternoon. I'm also going to ask a margin related question, and then on pivot. But just John big normalized EPS be it for 1Q, obviously there's been sort of no shortage of news flow over the past couple of months. So I just wanted to check in, I'm going to drill down or make sure that I'm clear on the op margins. In other words, if I were to check it on the 2H 2019 op margin, should I get back to the 25% to 30% OM range, that you will alluded to last quarter? That's sort of part A of number one. And then part B would be, your 2Q revenue guidance, the revs are slightly ahead with the cases of smidge below. So do we assume a sort of flattish 1Q to 2Q ASP? And then I'll ask my second one.

Okay. Yes, from an op margin standpoint and what we tried to do is lay that out a little bit in the slides for you, Jon, but when we look at as we've reported on a gap basis, just talk to the high guide of 25.4% from a guidance standpoint. And we're staying within there because that's GAAP, within there is a Straumann settlement of approximately 5 points. And then we have some of the corporate structure and reorganization costs, as well as the legal cost. And you back out or add back a couple of points to that. So that gets you to 22.5% or so from an op margin standpoint in Q2 on an operational basis.

John, I'm sure if I could jump in there really quick. I didn't mean 2Q, I meant 2H, last quarter you talked about 2H 2019 op margins falling back in your long-term guidance range of 25% to 30%, here we are today. Do you still have high conviction in 2H 2019 the op margins are 25% to 30%.

Yes, sorry, Jon, yes. In the second half the conviction that we have and what we expect to have in the second half is consistent, it's the 25% range in the second half of the year.

Okay. And then the implied ASPs for 2Q flattish with 1Q, is that the quick ballpark demand?

That – there is a little bit of FX from 1Q to Q2, but essentially flat.

Okay, great. And then for 1Q 2019, Simon EMEA growth rate is now within 300 bips relative to Julie's, which I view as a good thing from a diversification standpoint and congrats to Simon, who I know has been chasing Julie for several years. But I'm just curious how we should think about that going forward, especially with the scanner that's technically newer in China. And Joe, you talked about the teen opportunity in China. Do we think that, call it closer to parity Joe is here to stay? Or is there anything unique in one market or the other, teen I go scanner that can cause APAC to sort of separate again. Thanks.

Hey, Jon, I think first of all you've got to take cyclicality into – in fact when you look at China and APAC versus EMEA, EMEA goes around the dark side of the moon right after the second quarter, China has really strong third quarter like they always do, get to Lunar New Year in the fourth quarter, you got a stronger EMEA in the first quarter. So I think you can't do this kind of an apples-to-oranges comparison when you look at what Simon did this quarter. So what I would take away from this one is you got a continuing growth rate in EMEA and continuing penetration rates there that are terrific. We still have a great business in APAC from a growth standpoint overall. So I love the competition between those two. I'm cheering for them both, Jon.

Okay, fair enough. Thanks guys.

Our next question is from Robert Jones with Goldman Sachs. Please proceed.

Hi, this is Nathan Rich on for Bob this evening. Maybe just going back to ASPs, it looks like you saw a pretty nice step up sequentially in the quarter mostly on the international side. Could you maybe just talk about what came in better than expectations in the quarter? And then you kind of talked about the 2Q guidance for ASPs to be flat, but it does seem like you're seeing some nice progression there relative to your kind of full year guidance for ASPs to be flat to 4Q of last year. So how should we think about the progression of ASPs going forward over the balance of the year?

Hey Nate, this is John. Similar to what we've said in the past where we see better comprehensive cases like we saw I think compared to what we had expected, driven by mandibular advancement and other products that we have, that was in the teen growth that we saw, the 41%. That all contributes to higher ASP that showed up in Q1. And when we think about – as we're looking forward, take FX out of that, we think that the – it's pretty balanced. We'll have that – overall, we'll have a good international growth, we have that growth in the comprehensive cases with teens, but then we have the low stage mix shift that we see, where the low stage is growing faster than our comprehensive cases. But in balance, we think it's – it balances out.

Okay. That makes sense. And then, Joe, maybe one for you. The ortho utilization in the quarter was very impressive. Can you maybe just talk to kind of what's resonating in the market and where you think this could go? It seems like you should still have a lot of traction with some of the recent launches, like MA and the marketing initiatives that you guys talked about. So just curious to get your thoughts on where you think this could ultimately end up?

Nathan, overall, when you look at what's going on, I'd say there's two prime drivers in that ortho segment. One is what you mentioned is you have our MAF product now that was qualified in November of last year, you have our Invisalign teen product, which we're doing a lot of cases, seven-year old patients, eight-year old patients that we really never touched before. So that's obviously a big driver from an increased utilization standpoint. Secondly, I think it's just increasing awareness of the preference of consumers for clear aligners and I think orthodontists know that and we see more and more orthodontists really adopting that. Thirdly, when you think about the segment overall is – from a long-term standpoint, like we talk about, that's our second strategic imperative, is we see a lot of runway in teens. And that's why we're having our Teen Summit coming up this year, we'll have a lot of focus on our top 300 in London this year also on teens and we see more and more uptake on that as we work with orthos on the teens and we go directly to consumers and parents about it.

Great, thank you.

Nate, thanks. Next question, please.

Yes. Thanks.

Our next question is from Glen Santangelo with Guggenheim Securities. Please proceed.

Thanks and good evening. Joe, I just want to follow up on the previous sort of ASP question because I almost look out a little bit differently, right. I mean, you clearly had a decent uptick on an international basis and your worldwide ASP was up slightly. Does that kind of imply that North America might have been flat or even maybe down? And I know there's a lot of moving parts and I think, John, you talked about some of those like mix and promotional discounts and FX. Could you just peel back the onion a little bit on North American ASPs and give us a sense because I think it's important, given the market's focus on the competitive landscape? So just give us a sense for what's going on there.

Yes. Glen, when we look at the ASPs, totally like you said, up about $10 on a worldwide basis. In North America, slightly down from Q4, but from a standpoint of – really coming from a mix standpoint, it's just a matter of how and what type of cases the doctors are taking on, whether it's more comprehensive or some of the low-stage. And remember from a low-stage standpoint, those are some of our highest margin rate products. So when we look at that in total, we'll go to where the volume is and what makes sense for our business.

Maybe I'll just ask one follow-up question on your utilization. Within North American orthodontists, you saw a healthy sequential uptick in the number of cases, maybe – any idea what drove that and maybe could you give us a better sense for where maybe market penetration stands now for clear tray aligner and maybe what your market share numbers might look like to give us a sense for how much runway there maybe to go?

Hey, Glen. It's Joe. On the utilization for orthos, think about two big vectors there, it's just our product line in teens, MAF and our Invisalign First product line. It really brings us into, what is about 25% to 30% of the teen market that we couldn't access before, before we had those products. Overall, I just think we have good momentum in that sense and we're going to continue to see continued increase in utilization as more and more doctors gain confidence in those products.

Thanks, Glen. Next question, please?

Our next question is from Ravi Misra with Berenberg Capital Markets. Please proceed.

Hi, thank you for taking the questions. So I guess, just following up on that, Joe. Can we just talk a little bit about how the Invisalign First and mandibular advancement are contributing to that growth rate in that kind of teen, the strong teen growth number that you put there? And a little bit related, can you maybe touch upon what you're seeing out there with the competition and how your strategy is evolving now that the store closure has become underway? Thanks.

First of all, Ravi, I'll just say, again, the utilization rates that you referenced and all and for teens, again, it's new product. We feel we're still having underutilization in teens. I mean, we're still in the United States, 9%, 10% from a teen standpoint. I'd say from a clinical standpoint, we can handle 80% to 90% of those cases, depending on how you want to rate them. Many of our Invisalign docs say they can do anything in teen than they can in Invisalign. So we have a long way to go from a growth standpoint. From a competitive standpoint, we really have no competitors in those kind of products. Okay, those are highly proprietary products that – it just take a lot of history and knowledge to be able to make them and have them function well in the marketplace. As far as how we're competing out there with Invisalign stores or whatever, look, Invisalign stores or what they always have been was how do you drive more demand for our product line, it was way instead of – we've been advertising consumers for years. This was a way of just taking those advertisement kind of capabilities and bring them in the store and exciting patients, moving those patients to doctors. It was nothing different in our business model. I mean, it's a shame in the sense of what the arbitrator ruled, but look, we respect that decision and we'll move on in the sense of continuing to generate demand the way we know how to generate demand. From a competitive standpoint, SDC is a different kind of competitor. Obviously, they have high growth rates, we have high growth rates too, we show we can mutually co-exist in the marketplace and we continue to both grow.

Great, thanks.

Thanks, Ravi. Next question, please?

Our next question is from John Kreger with William Blair. Please proceed.

Hey, John.

Hey, how are you?

Good.

So I'd like to go back to China. Can you just talk about the next steps there? What do you have to do to continue growing as quickly as you have? We noticed that the number of doctors trained in APAC and China declined a little bit compared to where it was at the end of 2018. Is that in any way related to the slowing economic outlook in your opinion or is that seasonality? And can you just talk about how you expect the competitive dynamics in China to change, now that Straumann is making an entrance via a partnership there?

Hey. Look, it's – you're back to Joe here. Look, China is great growth market for us, we have – we're manufacturing in China now. We've put treatment planning in Chengdu. We handle all of our Chinese doctors right now out of China itself. We have two wonderful training centers, one in Shanghai, one in Chengdu. We feel very capable in China, we lead in China. Straumann's move with a third or fourth tier player from a clear aligner standpoint, I don't see that as a dramatic effect on this market now or in the immediate future at all.

Okay, great. And then just one quick clarifying question on operating margin. So if you strip out the one-time gains and losses that you've discussed, does your full year outlook that you discussed a quarter ago for operating margin that's below the long-term outlook, does that still hold?

Yes. Yes, it does.

Okay, thank you.

You're welcome.

Our next question is from Brandon Couillard with Jefferies. Please proceed.

Thanks, good afternoon. Joe, two part question on the scanner business. First, would like to get your perspective on how you sort of see the competitive landscape developing, number of new launches, all the ideas? And do you anticipate any stepped up level in just noise or evaluations as customers kind of digest these new intros? And then secondly, could you give us a sense of the relative growth rates in the scanner business between O-U.S. and North America? And then I guess, thirdly, any help you can give us in terms of the expected timing of the U.S. approval for the new iTero 5D?

Starting with your broader question on the scanner business is – look, we feel really good about our scanner. I mean, 5D leads, I mean, obviously, you see the 3Shape product came out, but you got two separate scans that kind of use the near-infrared. And I mean, we're so focused on workflow of GPs, we just known over the years that, goodness, GP's time is such an important commodity in that sense and you want to do things as fast as you possibly can. So combining the near-infrared together for caries detection and tooth cracking together with just a normal digital scan is a big breakthrough for us in the industry. And we've gotten great feedback. Obviously, they're starting off well. From a standpoint of U.S. approval, it's the FDA. Right. I won't talk too much about it, but there are some issues in the sense of how the FDA wants this one to be designed from a disease control standpoint. But we have a good vector on what needs to be done, it's going to take a little bit longer, just like our MAF product did, but we're confident. And I would say late fourth quarter early first quarter next year, we'll be able to get approval.

Thanks. And a couple for John, housekeeping items. First, could you quantify the impact of the China facility on gross margins in the first quarter? Secondly, were there any legal or corporate expense or corporate reorg expenses absorbed in the first quarter? And then lastly, the $0.10 SDC equity gain in 2Q, just confirm, is that below the line?

Well, I can answer that one first. Yes, that's below the line. That's the equity gain that we will have. And then the corporate restructuring costs, very small amount in Q1, it really started in Q2 and handles the rest of the rest of the year. And then in terms of the China gross margin or the impact on costs, I mean, we saw higher utilization in those plants, drives efficiencies and we see that come through to our bottom line. So as we described earlier, it starts in Q1 and it progresses through the year.

Thanks, Brandon. Next question, please?

Our next question is from Elizabeth Anderson with Evercore. Please proceed.

Hi, good afternoon. Could you talk a little bit about the feedback that you guys have received on the doctor-owned experience centers, now they're sort of switching over more to that strategy?

Elizabeth, it’s Joe. We have about two of those out there right now. Feedback is good. I mean, we've had Invisalign stores out there for years, basically, and these are ones just dedicated Invisalign stores with brand and all. And feedback has been terrific, uptick has been good. So overall, it's a good place for us to invest.

Okay. And if you, the new plan for sort of that growth going forward there, you don't anticipate sort of any major changes versus what you've been sort of seeing recently with those?

No, I think we'll just – we will continue with the pace that we've been going and there's a lot of interest out there. We're just working through it right now. But overall, the interest from an orthodontic standpoint has been extremely good and also from the GP practices.

Okay, perfect. Thank you.

Our next question is from Steven Valiquette with Barclays. Please proceed.

Hi. Thanks, good afternoon. So I just have a question here around the Straumann settlement. The $35 million initial payment, I mean, that seems pretty straightforward. But for the extra non-binding part of the agreement, seems like the potential for Straumann to sell 5,000 extra iTero scanners would be much more positive for Align versus just receiving an extra $16 million from them. So I guess the questions are, first, do you agree or disagree with that? But then also, secondarily, just from the Straumann perspective, what would be the incentives for them to sell iTero instead of just paying you the $16 million? So just curious to get more color around this. Thanks.

Well hey, Steve, it's Joe. First of all when you look at Straumann, they have their own internal scanner, but it really doesn't fit the broad application base that you need for both clear aligners and also for the restorative aspect of GP. So they primarily use 3Shape for those kind of scans today. So your comment about which is better, the $60 million or this. It's a good question. I mean, you have to assume with the 5,000 that they would sell will be 5,000 we can't sell. And, I mean, that's not necessarily true or a discrete variable in this whole equation. So, look, ideally, I think having the scanner sold by Straumann and having a good restorative workflow together would be helpful. But I wouldn't, it's not a live or die proposition. I feel we have good distribution in the marketplace. We have good coverage in three different regions and we'll be able to function well in either scenario.

Okay. Got it. Thanks.

Yes.

Our next question is from Matt O'Brien with Piper Jaffray. Please proceed.

Thanks for squeezing me in. This is Kevin on for Matt today. First one just quickly on iTero. Assume the seasonality in Q1, likely the low watermark there and assume the outlook for the sequential increase in Q2 that you provided, but can you put any numbers or a trend around the iTero growth for the second half of the year? The comps there are obviously difficult, but I assume you have a bigger specialized sales force just on that and then you're lapping some DSO partnerships.

Yeah. Kevin, this is John. So good growth in Q1. What we expect is to be able to continue to, globally, be able to have more and more iTeros sold. We think it's a great scanner, new 5D and so on really contributes to that growth. But we've seen good growth so far. Really no change in what – in how we think about it for the total year, but it's going to continue to expand and work through as many doctors as possible.

Okay, sounds great. If I could squeeze one more in for Joe. It seems like the initiatives in Brazil are continuing to ramp up with those 3,000 docs trained and you've obviously been highly under index there historically as a percentage of Americas, despite it being a big market. Can you frame up that opportunity a little bit and talk about the type of revenue contribution you can get this year and in the coming years from that region? Is it upside to the plan? How do you think about that region? Thank you.

Well, I mean, I think it's in our plan for 2019 is already baked in there from a Brazil and Latin America standpoint. I could tell by your question, you do recognize the opportunity that we have in Latin America and also Brazil, given the focus on orthodontics in both of those regions. And look, your comment also, we were late to the game there. And that's why you see us making significant investments now in the sense of training doctors, putting people in place and building infrastructure there. So, we haven't broken out those numbers yet. When they really become material to the business, we will do that. But right now, we're not making any projections or specifics about it. But rest assured, as you know, this is a big opportunity for us, it's a good product at the right time and we feel we have good leadership there and good momentum.

Thanks very much. Next question, please?

Our next question is from Michael Ryskin with Bank of America. Please proceed.

Thanks for squeezing me in guys. Just two real quick ones. One on the mandibular advancement, it's been a few months now since it's been out in the States. And you mentioned that you saw a positive adoption response in 1Q. Could you go a little bit deeper? Did it show up materially in the numbers? Do you think it contributed and sort of how does it feel going into the ramp for the rest of the year?

Hey, Mike. This is John. It certainly helps. It's a slow adoption. I mean, these are doctors that they just started trying some of these cases, they want to see and experience it for themselves to be able to see that it works in the way they want. So it's a slow rollout and adoption, but it gets that some of the key parts of our business that we want to grow, which is teen.

Got it. I was just trying to get if that contributed to the North American ortho boost in the quarter. And then a quick follow on. The China fabrication facility you mentioned is still being underutilized, continues to ramp. Any thoughts for when you think you could hit full ramp or close to it? Is it later this year? Is it early 2020 just to give us a sense for how that moves through?

Yes, Mike. This is John again. So we will see a progression and we saw a good improvement in Q1 and it will continue to improve as you utilize that facility more and more, but that will take the rest of this year.

Thanks, Mike. Next question, please?

Our next question is from Richard Newitter with SVB Leerink. Please proceed.

Hi, this is Jaime on for Rich. Thanks for squeezing me in. I just wanted to circle back on competition. I know some of your competitors have recently launched more price favorable lines geared towards the GP channel. So I was wondering, if you're seeing – or running a little bit more in that channel? And then also just kind of a sense of the ortho channel as well as you're now several quarters into seeing some competition. Thanks.

Hey, Jaime, it's Joe. Just a quick question for you, would you tell me who that competitor is with the price favorable lines of GP?

I believe Henry Schein had been – they had launched a new product, geared...

Yes. We haven't really seen Schein, felt Schein in the marketplace at all. And we don't even know what their pricing is frankly. And so we really haven't had to respond to that piece. I think if you look at the marketplace, you'd say that ClearCorrect traditionally has been in that GP segment. They're obviously owned by Straumann now. Straumann has been taking them throughout that channel. But we really haven't felt a higher degree of competitive pressure since it is a piece either. So I just find your question interesting. I know there's a lot of speculation out there right now, but we don't necessarily feel that. And remember, ClearCorrect always had a price favorable line from a GP standpoint. And we're basically being able to fight that with technology and coverage in the marketplace.

Thanks for your question. We'll take one last question, operator.

Our last question is from Kevin Caliendo with UBS Investment Bank. Please proceed.

Hi, thanks for taking one last question. Appreciate it. Just any color around the doctors trained in the quarter? Noticed a sequential decline. There's always some seasonality to this, but just the number of docs trained was pretty meaningfully lower both O-US and in the Americas. Just any color around that.

Hey Kevin, this is John. From a doctor's standpoint, Q1 is typically lower from a training standpoint. So things build as you go through the year and we saw that from Q4 to Q1, but nothing more. We want to work with doctors that want to come with cases and really get into being able to use more and more Invisalign. So, some of it's just the timing of making that all happen, but nothing more than that.

Great, thank you very much.

Well, thank you, everyone. This wraps up our first quarter conference call. If you have any follow-up questions, please follow up with Investor Relations. We hope you have a great day. We look forward to seeing you at future meetings.

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