Greetings. Welcome to the Align Q1 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Shirley Stacy with Align Technology. You may begin

Thank you. Good afternoon. Thank you for joining us. I’m Shirley Stacy, Vice President of Corporate Communications and Investor Relations. Joining me for today’s call is Joe Hogan, President and CEO, and John Morici, CFO. We issued first quarter 2022 financial results today via GlobeNewswire, 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 one month. A telephone replay will be available today by approximately 5:30 PM, Eastern Time, through 5:30 PM, Eastern Time, on May 11th. To access the telephone replay domestic callers should dial 866-813-9403 with access code 335004. International callers should dial 929-458-6194 using the same access code. As a reminder, the information provided and discussed today will include forward-looking statements including statements about Align’s future events and product outlook. These forward-looking statements are only predictions and involve risks and uncertainties that are described in more detail in our Form -- in our most recent periodic reports filed with the Securities and Exchange Commission available on our website and at sec.gov. 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 including our GAAP to non-GAAP reconciliation, if applicable, and our first quarter 2022 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 an overview of our Q1 results and discuss the performance of our two operating segments; Systems and Services and Clear Aligners. John will provide more detail on our financial performance and our view for the remainder of the year. Following that, I'll come back and summarize a few key points and open the call to questions. Overall, the first quarter proved to be a tougher-than-expected operating environment globally and we believe our results primarily reflect three key factors; the continued impact of COVID-19 waves in every region and especially in China, with its restrictions and lockdowns under their Zero COVID policy; a weaker economic environment and waning consumer confidence driven by increasing inflationary pressures and supply chain disruptions; and the military conflict in the Ukraine and fallout across Europe. In addition, with approximately half our business occurring outside the United States, unfavorable foreign exchange rates negatively impacting our revenues, margins, and EPS. Notwithstanding these headwinds, Q1 2022 total revenues of $973.2 million were up 8.8% year-over-year compared to Q1 2021 revenues of $894 million with a growth rate of 62% year-over-year. Our Q1 2022 operating income was $198 million and operating margin was 20.4%. In Q1, Systems and Services revenues were up 15.6% year-over-year, but down 24% sequentially coming off our sixth consecutive quarter of sequential growth and record scanner and services revenue. Sequential results primarily reflect lower volumes from our aforementioned headwinds and from seasonality as Q4 is historically a stronger capital equipment sales quarter. For Q1, Clear Aligner revenues were up 7.5% year-over-year, reflecting revenue growth across regions and products and were down slightly sequentially from Q4 at minus 0.7%. In the teen segment, 175,000 teen started treatment with Invisalign Aligners, up 6%…

Thanks Joe. Now, for our Q1 financial results. Total revenues for the first quarter were $973.2 million, down 5.6% from the prior quarter and up 8.8% from the corresponding quarter a year ago. For Clear Aligners, Q1 revenues of $809.7 million were down 0.7% sequentially due to lower Invisalign case volumes, partially offset by higher ASPs, reflecting higher ASPs and up 7.5% year-over-year reflecting higher ASPs in non-case revenues. In Q1, Invisalign case volume were down 5.1% sequentially and up 0.5% year-over-year. In addition, we shipped Clear Aligners to 82,400 Invisalign doctors worldwide, of which over 5,000 were first-time customers. Q1 comprehensive volume increased 2. 4% year-over-year and decreased 5% sequentially. Q1 non-comprehensive volume decreased 4% year-over-year and decreased 5.4% sequentially. Q1 adult patients decreased 1.6% year-over-year and decreased 5.7% sequentially. In Q1, teens or younger patients increased 6% year-over-year and decreased 3.6% sequentially. Clear Aligner revenues were unfavorably impacted by foreign exchange of approximately $6.5 million or approximately 0.8 points sequentially. On a year-over-year basis, Clear Aligner revenues were unfavorably impacted by foreign exchange of approximately $24 million or approximately 3.2 points. For Q1, Invisalign comprehensive ASPs increased sequentially and year-over-year. On a sequential basis, Invisalign comprehensive ASPs reflect per order processing fees charged on most Clear Aligner shipments, lower discounts, and higher additional lines, partially offset by unfavorable foreign exchange. On a year-over-year basis, comprehensive ASPs reflect higher additional aligners and per order processing fees, partially offset by unfavorable foreign exchange. Q1 Invisalign non-comprehensive ASPs increased sequentially and year-over-year. On a sequential basis, Invisalign non-comprehensive ASPs were favorably impacted by per order processing fees and lower discounts, partially offset by unfavorable foreign exchange. On a year-over-year basis, Invisalign non-comprehensive ASPs reflect per order processing fees, higher additional aligners, partially offset by foreign exchange. Clear Aligner deferred revenues on…

Thanks, John.

Excuse me. Joe Hogan, are you there?

Yes, operator.

Thanks, John. I'll run by this again. Okay. That was my fault. Over our first quarter results reflect a more challenging environment than expected. We know that COVID lockdowns, weaker consumer confidence, inflationary pressures and the Russia-Ukraine conflict have created headwinds, but we remain excited and committed to realizing the enormous opportunity in front of us to lead the evolution of digital orthodontics and comprehensive dentistry. With less than 10% share of the 21 million starts each year with over 500 million people globally who can benefit from a healthy beautiful smile, our market is as large as ever. No other company is as well positioned as us to take advantage of that potential as the environment improves and growth trends return. We will continue to focus on the execution of our strategic growth drivers, while managing investments in the near-term to account for the headwinds and uncertainty, and we will remain confident in our long-term revenue growth model of 20% to 30%. Before we open the call to questions, I want to address the military conflict in the Ukraine and our operations in Russia. It's a human tragedy for all people involved and our thoughts go out to everyone impacted and especially to those with personal connections who are undoubtedly concerned with their families and loved ones. Our primary concern remains the safety and security of our employees and their families, our doctors, their staff and patients. We have nothing to do with this conflict. As a global medical device provider of doctor-prescribed products, continuity of care is critical to the doctors and their patients in orthodontic treatment. We discontinued commercial activities in Russia that are not essential to providing continuity of care to patients. Our focus on only our values and ethical responsibility of patients in treatment. In…

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions] The first question is from the line of Jason Bednar with Piper Sandler. You may proceed.

Hi, Jason.

Hey, good afternoon, everyone. Hey, there. Thanks for taking the questions. So Joe, I guess just to start with you. I mean, you and John called out the consumer confidence items and the inflationary pressures impacting the business. The wind shifting pretty abruptly on you. I guess, are there tools you have at your disposal to manage through these pressures, or is this a matter of just keeping your head down, waiting for the macro environment to settle down, I guess, really just trying to get a sense of how we should be moderating expectations from what's typical sequential growth we would see in the business?

Yes, Jason, good question. I'd say being a global business, we talked about having 50% of our revenues outside. It just gives us good scope in the sense to take advantage where opportunities are. And so I feel really good about the company in that sense. And we've made great development over the last three years from an international standpoint. We also have a great portfolio. We have iTero scanners. We talked about some reluctance in the sense that we saw at the end of the first quarter as some doctors to really commit to it. But I mean that demand is still out there. When you look at iTero scanners are so underpenetrated still when you look at digital dentistry and what the future really brings. And so pushing that and pushing it in the right places and also you see the expansion of our Invisalign technology and what we're doing in different areas, too. So I feel like we have a lot of levers that we can pull, but we are constrained by these headwinds that we've seen. And obviously, we'll respect those and make the kind of adjustments needed to make sure this business stays on track with. Look, I love our portfolio. I love our position. I see a great future. We'll manage our way through this, Jason.

Okay. That’s helpful. And then maybe shifting over to the – the margin side, you're not stepping off the gas with spending. I wouldn't expect it to given the opportunity that you're talking about here today and you've talked about for quite some time. But I guess are you still comfortable with that long-term model of 25% plus operating margins? I know we've seen that for some select periods for the business. But is that the right margin level to think about for the business when you're driving towards that 20% topline growth? Just -- can you truly balance that, or do you have to sacrifice one for the other, again, thinking longer term here?

I think, Jason, honestly, I think we've managed that well over the years. I mean you can see how well we did last year in the sense of that operating profit has been squarely on top of that piece. And I think we've managed it within that bandwidth very well, and that's -- this current situation is not going to change that.

All right. Thanks guys.

Thank you, Jason.

Thank you. The next question is from the line of Jeff Johnson with Baird. You may proceed.

Hi Jeff.

Thank you. Hey guys, how are you? So, Joe, let me just pick up on that last point. I mean, you said you've managed OpEx well over the years in that. I guess, let me just be direct on it. I mean, if end markets are cyclically slowing that's kind of out of your control, do you put the gas pedal down to the accelerator? Do you say there's not a whole lot that that's going to accomplish? So I kind of protect margins here in the short run. Just what's your OpEx outlook kind of in the near term -- near to intermediate term, I guess, given some of this macro uncertainty?

Jeff, it's more the latter of your question. It's just you take off the accelerator. And we know -- John and I know where to adjust it won't hurt the business. We continue to invest in innovation in different areas, too. But there are several areas of short-term investments that aren't going to help us in this current crisis that will obviously lean into and make sure that we preserve margins as much as we can. : But with those investments, yes, it will be -- when we talked about the 20-plus percent on a GAAP basis, that's the trade-off that we'll have. We'll invest where we can see a return. And based on the volume that we expect, but deliver 20-plus percent op margin.

Yes, got it. Thanks John. And then a follow-up question, I guess, just on the gauge data, you talked about down 7% case starts ortho year-to-date. I'm hearing that through April, not just through March. But I don't get the whole gauge data set, but what I've seen is that the adult data is worse than the teen data, which would make sense to me. Everybody sitting at home, all the adults sitting home last year with the Zoom effect going on at this point in stimulus checks, sitting in pockets and all that. So, that all makes sense. But just what's the tenor in North America or in those markets that aren't impacted by China and Russia, Ukraine in that? What's the tenor of the teen business? And is the core that part of the business still doing better than you've just got real tough comps because all those adults were coming in last year as they were sitting at home and had nothing better to do than get Clear Aligners?

Hey Jeff, it's Joe. Look, the teen market, you're good to focus on that. I mean that's -- we look at that as a fairly secure market. Obviously, it can move up and down, but it won't have the volatility and you've seen in the adult market and you're comparing a against last year is a good way to look at it, given the Zoom effect and things we talked about before. So -- and Jeff, that's why you see us launching these teen products right now and getting ready from a summer time standpoint. We want to take advantage of that demand as much as we possibly can, especially in times like this. We know the adult market is going to be pressured. I'm talking about the US right now, but this sets leave China now because China is a unique position in the sense of a lockdown that they're going through. But we're -- you're going to see us take the same tact in Europe also. And you saw our teen volume in Europe was actually pretty good in the first quarter.

What about that teen volume in the US, Joe?

We expect that teen volume to be good. Summer seasonality is there. And it's funny. There's a window for to really have their teeth treated. And we've known that here for years, and that's why we prepared for teen season. And this year, honestly, Jeff, I feel better about our positioning for teens in the United States and also in Europe. I have many time since I've been here with these teen packs that we just talked about and how we'll go about it, I think we're well positioned to make further penetration in the teen market versus wires and brackets.

Yes, got it. Thanks, guys.

Thank you.

Thank you. Your next question is from the line of Jonathan Block with Stifel. You may proceed.

Hey, Jon.

Hey, guys. Thanks. Hey, guys. Good segue. I'll start with the teen case packs. We picked up on that program right after April. Quite honestly, unfortunately, I'm old enough to remember your teens pack programs internationally from like a decade ago. And if I remember this correctly, Joe, it is just hard to collect, if you would, if someone did below their threshold and hopefully, I'm making some sense. So maybe just talk to us -- here you are going after it, you're going after for teens, not overall, you're launching it. What's going to be different this go round when someone commits to a 50-case pack or a 100-case pack, let's go with 100, they do 88 and you've got to go out there and say, 'Hey, look, it's a user or lose it, we got to collect for you and then also just keep the tenor of the relationship or the goodwill of the relationship intact because now argue even have more options to go somewhere else versus what they were staring down a decade ago. So maybe if you could talk to that and just the timing behind kicking off the program, that will be a great place to start.

Jon, you're like an Align history, and that's a good question, right? Because I can tell you, I doesn't hear where that happened in Europe, but it's legendary here. But if you go back in time, I think our business in Europe was less than $10 million back then. Okay, now it’s over $1 billion. And I think the whole world is much more coined with Clear Aligners than when it was back then, we were really pioneers at that point in time. If you look at our DSP program, it's basically the same thing. They make commitments to how many aligners are going to buy over a certain period of time. We haven't had any issues in DSP with having customers regress or not making those benchmarks. So we feel pretty good about where we are. I mean will we run into a few situations, I think we will. I think they'll be outliers, and we'll deal with them in time.

Okay. Fair enough. And I just might go back to sort of where Jason started a little bit. There's going to be a lot of questions on 2022 and pulling the top line guidance. So let me just throw out a couple of things, and we could sort of work through it. If I look back the past five to six years, the first quarter was about 22% of total revenue. And if you run that exercise for this year, you get about 11% or 12% year-over-year revenue growth and you've got an incremental FX headwind. So should we throw a dart at 10%? And what's wrong with that thought process in getting to, call it, low double-digit 10%, 12% top line growth for 2022? Thanks, guys.

I think -- Jon, this is John. As we talked about that last earnings, there's a lot of changes that have happened in the marketplace and in the world. And as a result of that, we pulled the top line guidance until we get further clarity as how things are going to shake out. What we have committed to is being able to grow in a profitable way in a way that you would expect us to be responsible being at 20-plus percent, but we pulled that guidance because of the uncertainty.

Jon, just to add to John's comments, too, is that as we look at April versus March, we haven't seen any momentum from an April standpoint too. And we start from that standpoint also.

Okay. That’s helpful color. Thanks, guys.

Thank you. The next question is from the line of Erin Wright with Morgan Stanley. You may proceed.

Great. Thanks.

Hi Erin.

In the Americas -- hi, good to hear from you. So, in the Americas, can you parse out a little bit about what you're seeing in terms of macro headwinds compared to maybe some of the lingering COVID impact? And does it seem like some -- I mean it doesn't seem like some of these cases are coming back from maybe Omicron delays. But what are in terms of the dynamics there? Just trying to kind of parse out. Last quarter, you did break out kind of a COVID impact, but could you do that this quarter?

It's hard to be very discrete in the sense of what that impact is, Erin. But I'd say we -- obviously faced staffing shortages and things at different doctors in the first part of the first quarter that affected us. I'd say that drifted through to basically late February, early March. After that, you can -- if you watch the consumer confidence statistics in the United States, they've gone down pretty dramatically. And we started getting a lot of reports from our doctors is patients thought saying no, but patients not as quick to say, yes, that they wanted treatment. And we hear that both in the GP segment in the orthodontic segment. So, you can call out what you want to, okay? But do we see some reticence in the marketplace to move forward with treatment and again, it's not binary. It's not everybody is saying, no, like in the heart of a deep recession or something we saw back in 2007 or 2008. It's just more cautiousness from people about their personal finances.

Okay, great. Thanks. And then on ASPs for the balance of the year, I guess, how should we be thinking about that and the levers, I guess, you can pull on that front? Thanks.

Hey Erin, this is John. From an overall ASP standpoint, we don't have any anything unusual from a promotion standpoint or anything else that would affect us. Obviously, notwithstanding FX, we've seen unfavorable FX as we've gone through this year so far. But notwithstanding FX, we wouldn't expect anything dramatically different from an ASP standpoint.

Okay, great. Thank you.

Thanks Erin.

Thank you. The next question is from the line of Kevin Caliendo with UBS. You may proceed.

Hi, thanks for taking my call.

Hey Kevin.

Hi. So, I guess the question I have is, the first one is really why have the doc adds -- doc starts been so sluggish? Is it demand driven? Is it competitive positioning? Is it -- I would just love to hear sort of why in the US, especially the sort of doc ads have been flattish for the last couple of quarters? If there's anything, if it's macro or micro or competitive?

Well, I think I read your question, I think you're asking if it's competitive because I mean we're pretty clear on what we've been seeing around the globe in the United States from a macro standpoint, Kevin. So, I just -- look, from a competition standpoint, we don't see any major issue with competition in the sense of being a factor in this demand cycle that we're talking about.

And when we try to think about the impacts here that are driving all of this, how much do you -- have you guys been able to ascertain how much of this is economic-driven? You're talking about decisions taking longer and people being more hesitant and volumes being down, how much of that is economic versus COVID versus other -- like have you been able to just parse out what's really driving it as a percentage? Is it mostly simply listen, we're in an inflationary environment. People don't have as much to spend, consumers aren't spending as much broadly versus just an overall demand for your products and/or COVID, like those three things, if you were to group them?

Kevin, our announcement and the way we communicate to the marketplace, we talk about this huge market, right? We're totally underpenetrated in the orthodontic segment, less than 10% of 21 million case starts a year. Talking about what we see through the 500 million patients. So there's not a lack of demand out there and the lack of opportunity. There's not a competitive issue that we think is affecting our growth or our earnings. And so obviously, COVID is part of this thing. Part of it we see in Europe was the Ukraine conflict that's going on today. And I think significant amount of it is too is what we're seeing in the marketplace, too, from a consumer standpoint. I can't put any weighted averages on these things to give you an example. And I think -- if I compare to when we last talked to you at the first couple of days of February, the way things have changed, those variables in that equation, I think, have changed pretty dramatically. So it's really hard to say going forward what that might be.

Are there any goals that you have -- one last one for me. Are there any goals that you have for this year in terms of quantifiable goals in terms of whether it be doc ads or utilization uptick or -- I mean, I know those are the things you were focused on when you talked about increasing your spend. Like what are you targeting at this point? Is there anything that we can sort of put a stick in the ground and say, 'okay, here's something that the company is hoping to achieve in 2022 in terms of a quantifiable number.

Kevin, this is a growth company. And it never leaves our thought process. So what are we trying to do? We're trying to run the way we always do. We're running at these plays in a much more difficult market with more headwinds. That's all. And so we'll move these place around. We'll look at them by country. We'll see what makes the most sense. We still keep a good strong focus on how we can grow and where we can grow and we'll find those ways.

Appreciate it. Thanks, guys.

Thanks, Kevin.

Thank you. The next question is from the line of Michael Ryskin of Bank of America. You may proceed.

Great. Thanks for taking the questions, guys. I got two, a few I want to touch on. Can you hear me?

Yes.

Okay. Great. Thanks. One is just sort of talking through some of the dynamics we're talking to. You talked for the quarter. I think we can all kind of see that a lot of it or a lot of it is macro driven, a lot of it's global driven and each of these events that we're following, whether it's the China lockdowns or the conflict in Europe or even things like FX are going to be more temporary than others. I know your long-term outlook is still there for the 20% to 30% volume growth and revenue growth. But what about sort of catch-up spend on these things? Is there an expectation somewhere and you kind of touched on this when you talked about your spend and your expectations on investment this year? As we go through the next couple of months, next couple of quarters as some of these things start to fade, are you expecting another bolus of catch-up as these cases come back like we saw in 2020 and 2021? Anything you can sort of comment on that? And then I've got a follow-up.

I think a bolus, you talked about -- I mean, that was interesting is what we saw after the last downturn, it was first like COVID. I mean I look at that, Mike, overall, is it just shows you the demand out there for our kind of procedures. So it's there. And so John and I are in setting here are predicting another bolus or a wave or whatever, but I think it just shows you the demand that exists in this business and it can be pent up at times. We'll just have to see how the headwinds that we see filter through the marketplace and how it affects consumers and doctors.

Okay. I appreciate that. And then the follow-up, you touched on this in an answer earlier when you sort of referenced the 2007, 2008 downturn. Obviously, hopefully, we're not going to something quite like that in the coming year, too. But there's still a lot of talk about recession and sort of what the impact of prolong inflation is going to be on the consumer. Could you talk us through your plans if things do continue to deteriorate on that front, we're not there yet, but six months from now, a year from now, things are still heading in that direction sort of what are your internal plans for adjusting both on operations growth in that kind of environment? Because if you look back at 2007, 2008, 2009, there was a protracted period of essentially flat growth. So could you compare--

Yes, it's Joe again. I just -- we have a really strong balance sheet to start with. It's great to have a strong balance sheet and really no net debt from a company standpoint. So, look, it's -- I'm not an economist, but I'm not predicting a meltdown of our financial system, like we saw in 2007, 2008 depending on what Federal Reserve does or whatever, we're probably going to see an adjustment as they try to attack inflation. So, look, we -- this business is incredibly healthy. It generates a lot of cash. It's extremely international now. And we have a lot of levers to pull and a lot of things to do to keep this business going. So -- but if something dire did happen, I feel we got a balance sheet to be able to cover it, too, and we'll manage the business responsibly that way. So, I'd just tell you don't give up on us, okay? We love this business. We love the position that it's in. We're confident about the future. We're just going to see how these headwinds hit and how they subside, and we'll be ready on either end of that to be able to position this company to do well.

And I might add, just we are a different business than we were back in 2007, 2008. We didn't have iTero. We have iTero, much more of a global products, much further along in the teen market, more consumer awareness, all the things that we've done over this time period now being 25 years, we've evolved over time and created a business where we're very mindful of what is happening from a demand standpoint, and we can do a lot of things from a leverage standpoint in order to drive that right amount of profitability.

Thank you.

Thanks Mike.

Thank you. The next question is from the line of Nathan Rich with Goldman Sachs. you may proceed.

Hi, thanks for the questions. I wanted to follow-up on your commentary on April and not seeing momentum return. I was just wondering if there's any parameters you could put around that relative to maybe what you've seen in the first quarter? I guess like would that sort of mean volumes more flattish, anything that you could do to kind of help us think about how the business kind of exited the first quarter and where the current run rate is would be helpful?

Yes. Nate, I'll give you a quick rundown, and John can give you specifics to is. Look, we -- this is flattish to use your term. When you look at between March and April is more flattish than anything. But just remember, we have -- China is still our second biggest country in the world. It's locked down. Shanghai -- Beijing is going into lockdown. That's not the first lockdown we've seen in China. Remember, there are several provinces that were locked down before that, too. So, that part of our business has really been impacted in a big way, and that's part of that flattishness that we're talking about, too. So we're seeing impact in every region of the world in different ways. And on the APAC side, particularly with China, it's dramatic.

I don't have much -- anything to add to it. I just -- a lot has changed as we've seen over the last couple of months, and we're responding to that change.

Makes sense. And I guess, I'd be curious just to get your thoughts on sort of the consumer environment. I know it's been touched on in other questions. But Invisalign treatment is a higher ticket purchase, and we've kind of always thought of it as catering to a more affluent consumer. I guess, is there anything that you've seen kind of between higher-end consumer versus lower-end consumer? And they're going back to, I think, the way you framed it, kind of the reticence to start treatment, any difference that you've seen among maybe the different segments of the population that could be considering treatment? .

I commented that back to the other question was asked about teens, right? The teen aspect in the orthodontic segment is pretty resilient, and that is a certain demographic that it's always existed in the sense of the parents that they can afford that kind of treatment of young children. The adult segment, it's all over the place depending on -- sometimes, it's just teeth straightening. Some of times, it's a broad worth correction on what's going on. We don't have any data in that adult segment to say that a certain FIFA score certain match, certain amount would be fewer people taking treatment or whatever. I don't have that data. I don't know if John has seen it either. But you'd have to guess that the more your finances are impacted, you're actually going to sign up for a $3,500 to $7,000 treatment depending on what you want or how you're in a contract for it. So it's logical that certain demographics would be less willing at this point in time.

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

Absolutely. The next question is from the line of Elizabeth Anderson with Evercore ISI. You may proceed.

Hi, guys. Thanks so much for the question.

Hi, Elizabeth.

So maybe one question on the iTero scanner growth. Obviously, we saw a deceleration quarter-over-quarter, but still year-over-year growth there. When you sort of talk about how providers are looking at demand, and I realize that not all of that is like pure like iTero sales. How do we think about sort of what's driving the purchases in the first quarter? Obviously, there is some seasonality. But if you like, overall visits, maybe ex-Clear Aligners are not has maybe haven't been quite as impacted. Are we seeing sort of a reticence to spend? Is it sort of interest rates going up and people worried about sort of equipment financing? Could you walk us through some of the puts and takes of the demand drivers there?

Elizabeth, it's Joe. I'd start with the still market is broadly unpenetrated from a scanner standpoint. GP side, the ortho side, an ortho that does a lot of Invisalign, they can have four, five, six scanners overall. So look, with the GE Healthcare for years, ABB, I understand the capital equipment cycle. There is a true cycle in capital equipment. When people get concerned, they'll delay those kinds of purchases. And I think, obviously, you have -- when I talk about 250,000 doctors that we service today, some of them are going to be worried about what their cash flow is going to look like. They're going to be reticent in the sense of saying they want to sign up for a scanner that can cost anywhere between $15,000 to $35,000 right now and what we sell. So, I can't tell you by country or by region or whatever, but we didn't see things shut off. We just saw things as the quarter got through, they just didn't have as strong as demand for iTero than we anticipated. So, we'll have to -- obviously, we get into this way it goes. But there's going to be some more scrutiny, I think, around capital investment, if doctors are seeing less traffic through their practices.

Yes. It's just the delays that they put to not close and necessarily within the quarter. It's not going away, but it's just a delay. And we have to work to try to get them to say.

And you're not having any like supply chain issues on that side in terms of like being able to manufacture the equipment?

We didn't have any in the first quarter. We won't have any in the second quarter either.

Okay. And one more quick follow-up. In terms of the gross margin impact of the new Poland facility, can you remind us about the cadence of the gross margin pressure when you open a new facility as it scale? So, I'm just trying to be able to parse that out versus maybe some of the deleveraging impact of some of the volume shifts versus that.

Yes, Elizabeth. What we'll see is we'll go live in the second quarter here and that does have a gross margin impact. It really comes down to trying to get as much utilization through the plant as possible converting -- moving those countries and doctors through the plant. And then once that utilization increases, then you start to see some of that productivity. So, it hits about a quarter, maybe a little bit more than a quarter and then it subsides and then it gets more on a regular operating basis.

Got it. Thank you very much.

Thanks, Elizabeth. Well, thank you, everyone, for joining us today. This concludes our conference call. We look forward to speaking to you at upcoming conferences and industry meetings. And if you have any questions, please contact Investor Relations, and have a great day.

This concludes today's conference. You may now disconnect your line at this time. Thank you for your participation.