Greetings, and welcome to the Align Technology Q1 2014 Earnings Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host to Shirley Stacy, VP, Corporate and Investor Communications. Thank you, you may begin.

Good afternoon and thank you for joining us. I’m Shirley Stacy, Vice President of Corporate Communications and Investor Relations. Joining me for today’s call is Tom Prescott, President and CEO; and David White, CFO. We issued first quarter 2014 financial results today via Marketwire, 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. Telephone replay will be available today by approximately 5:30 pm Eastern Time through 5:30 pm Eastern Time on April 30th. To access the telephone replay, domestic callers should dial 877-660-6853 with conference number 13579429, 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 without limitations, statements about Align’s future events, product outlook and the expected financial results for the second quarter of 2014. These forward-looking statements are only predictions and involve risks and uncertainties such that actual results may vary significantly. These and other risks are set forth in more detail in our Form 10-K for the fiscal year ended December 31, 2013. These forward-looking statements reflect beliefs, estimates and predictions as of today, and Align expressly assumes no obligation to update any such forward-looking statements. During today’s conference call, we will provide listeners with several financial metrics determined on a non-GAAP basis to aid comparisons between our current and historical financial results. These items, together with the corresponding GAAP numbers and the reconciliations to the comparable GAAP financial measures, are contained in today’s financial results press release, which we have posted on our website at investor.aligntech.com under Financial Releases and have been furnished to the SEC on Form 8-K. We encourage listeners to review these items. We’ve also posted a set of GAAP and non-GAAP historical financial statements, including the corresponding reconciliations, and our first quarter conference call slides on our website under Quarterly Results. Please refer to these files for more detailed information. And with that, I’ll turn the call over to Align Technology’s President and CEO, Tom Prescott. Tom?

Thanks, Shirley. Good afternoon, everyone, and thank you all for joining us. On the call today, I’ll provide some highlights from our first quarter and briefly discuss the performance of our 2 operating segments, Invisalign clear aligner, and iTero scanner and services. I’ll also provide some color on our orthodontist and GP dentist customers as well as progress in our geographies around the world. David will then share more detail on our first quarter financials and discuss our outlook for the second quarter. Following that I’ll come back and summarize a few key points and then open the call to your questions. We’re pleased with our overall first quarter results with better than expected revenue and earnings. Record first quarter revenue increased nearly 18% year-over-year, driven by strong Invisalign volume. This solid growth reflects continued expansion of our customer base as well as increased adoption and utilization as doctors treat more patients with Invisalign. Despite numerous global economic challenges, our business remains strong with growth driven by continued progress in our EMEA and Asia Pacific regions. Our performance in Q1 reflects continued focused execution of our strategic plan including three key growth drivers which are; market expansion, product innovation and brand strength. I will provide a brief update on each of these before discussing our results. First, market expansion, this strategic growth driver encompasses the many ways we are working to grow the adult treatment category, increase our share of teen treatment and in parallel open up new geographies. In Q1, we continued targeted investments into our existing markets including North America, Europe and the Asia Pacific region through a combination of sales coverage and support along with professional marketing in the clinical education programs. As mentioned during our January call, we are further expanding our directly covered markets in…

Thanks, Tom. Before I get into the details, I'd like to note that unless stated otherwise, all the financial information I'll discuss will be presented on a GAAP basis. Also beginning this fiscal year we’re consolidating some of the additional product and geographic breakdowns that we provide. We will continue to explain the performance of our products and geographies and include commentaries appropriate, however we believe the consolidated view of our quarterly financials is more consistent with disclosures from our respective peer group. With that, let's review our first quarter financial results. Revenue for the first quarter was a record $180.6 million, up 1.3% from the prior quarter and up 17.6% from the corresponding quarter a year ago. First quarter clear aligner revenue was a $168.2 million, was up 1.2% sequentially and up 18.8% year-over-year. Our year-over-year growth reflected higher Invisalign volumes led by our international doctors as well as higher international ASPs. For the first quarter, total Invisalign shipments of 112,200 cases were up approximately 1,000 cases largely due to the factors Tom described earlier. Year-over-year growth of 14.3% was driven by volume growth of our international doctors’ case shipments as well as continued expansion of our customer base. For North American orthodontists Q1 Invisalign case volume increased 3.9% sequentially and 10.5% year-over-year. For North American GP Dentists Q1 Invisalign case volume decreased 1% sequentially and increased 7.4% year-over-year. For international doctors Invisalign case volume decreased 1% sequentially for seasonal factors however increased 31.2% year-over-year. We continue to focus on training new Invisalign providers worldwide and in Q1, we added 630 new North American doctors and 1,255 new international doctors for a total of 1,885 new Invisalign doctors. While the number of Invisalign doctors trained in Q1 was down sequentially because of fewer training courses offered in Q1 it…

Thanks David. We’re pleased to have 2014 started off with these solid results. The Align team continues to execute well against both strategic and financial objectives as we work to extend the growth of our Invisalign franchise and begin to create greater leverage from our scanner business. Based on continued solid operating results and progress towards our long-term strategic objectives, our Board of Directors has authorized a $300 million share repurchase program, which David described earlier. We believe returning excess cash to shareholders, beyond what we need to invest in the business is the right thing to do. Over the next month or two, much of the Align management team will be with customers at the AAO meeting in New Orleans later this week to see thousands of orthodontists from North America and across the world. And we're also going to be in Singapore in June for our first ever APAC Summit, which will be a sold out event with over 400 key customers from Asia Pacific. In addition, we are very much looking forward to spending time with our investors during upcoming conferences including our Analysts meeting on May 29th in New York. I will provide a more comprehensive view of our strategy and why we believe Align’s best days are still ahead. With that I’ll say thank you for your time today and turn the call back to the operator for some questions. Operator?

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Thank you. Our first question comes from the line of John Kreger with William Blair. Please proceed with your question.

Hi, good afternoon guys. It’s actually Ravi Fadah in for John.

Hey Ravi.

Congrats on the great quarter. And just wanted to start with the question on the second quarter guidance, it looks like that first quarter came in a little bit better than expected weather didn’t seem to be an issue and the slow start that you had talked about last quarter, you seem to be able to push through those pretty well. Yet the second quarter guidance seems like it’s a little bit more conservative relative to our expectations than, at least relative to our expectations. What is driving your thought process that would prevent it from being a significant step up from Q1?

Ravi, I'll start maybe from a qualitative perspective and let David come back and comment more quantitatively. In this case, we think is the net activity level, the patient traffic that did have some impact in North America. And while I think most of those appointments probably got reschedule, they took a little time to do that. That showed up a little bit more on the GP side and the ortho side. And some of that softness will play into Q2 shipments, especially with the earlier part of March that those would normally that volume growth would have seen is differed a bit. As we certainly ended the quarter, we had very strong robust pipeline and doctors are reporting, patients are in and offices are full and all those dynamics are good. But clearly, there is a month or two hit them is through the quarter that was tough. So, qualitatively that's the biggest part of the shift into the first part of Q2. I'll let David add to it, if he wants to add some color.

Yes. The only thing I guess I would add is, when we put our guidance together we look at seasonality trends over the last three or four years the company has experienced. We look at information that we get from the field in terms of demand we're seeing from individual doctors and so forth. And we use all that to try and form our guidance. If you look at our historical seasonality and you look at how much we're projecting -- if you look at our guidance today and how much has the percentage increase our growth year-over-year. It is slightly down from where our three, four year average has been, but it’s not significantly. And so those factors that Tom just inferred, planning to cause to be tempered a little bit for the second quarter than what might historically been otherwise.

Got it, that’s helpful. And what you see the patient traffic trends right now looking like and do you see them improving, did you see them in March and April structure get a little bit better?

Well, in certainly March, we’ll stop with March. Definitely a significant rebound and I think the cascade of what weather caused surprise our customers a little bit and they went to an offline reschedule churn. Our customers pretty much across the board are reporting full offices and busy practices and if anything that’s sharpen their appetite to get back to growing their practice I think chunk of the industry had a softer start, which for our customers means lower cash received months and they don’t like that. So, in general we think things are healthy, but I will come back with comment earlier. With all that happening, we are seeing a pretty big sequential increase Q1 and Q2 and that’s implied in our guidance. So, we are pretty comfortable direction of business is going, but it’s still pretty big step up for Q2.

Great, thanks very much, guys.

Sure Ravi.

Thank you. Our next question comes from the line of Jon Block with Stifel. Please proceed with your question.

Great and good afternoon guys. The first question is actually just on the Express cases. If I look at full versus express I think you are giving us, David as you mentioned a little less granularity than in the past, but Express cases were up roughly 5% year-over-year. In 2013 express was up 35%, so clearly you had a more difficult comp. Can you sort of talk to what might be going on specific to the Express cases? is it just a tough comp thing and now Express 5 is two years removed or are some of these wires and brackets guys we have heard the environment there is “street fight.” Are they starting to throw some clear aligners into try to get some of the wire and bracket share? Thanks.

Let me take this in a couple of ways. One, probably the biggest factor that makes the comp issue tougher is we were really driving for initial trial with Express 5 you go back a year even two years and we were trying to go as wide as we could to get initial trial, we aren’t doing those promos anymore. We got trial, it actually has been pretty sticky in the practices. We targeted for Express 5 with a more experienced customer that knew what they could move in five stages. I think there is noise and I think at the low-end more on the GP side there is a lot of labs providing these we spoke about this in the context of thinking about the realigned product and working out through a new channel with Henry Schein. And so I think there is some noise out there. The competitive environment is I think roughly the same and we don’t see what I would call really incredible technology base products at the low-end or at the high-end other than what you are aware of. So, the bigger factor is with Express are two; one, that comp issue from prior promotions driven kind of volumes which worked we got a good test and trial and adoption although it came to stay just lower? And then secondly and in some ways better than our original expectations for growth unfold cases as our applicability gets wider both in North America and especially outside North America with the greater complexity cases they are treating. And with 51% growth in volume in Asia year-over-year those are just about all full cases. So I think in some ways it’s a wonderful problem. On a percentage basis, Express is certainly growing lower but high quality problem.

Okay. That was very helpful, Tom. And maybe just two more quick ones. David, it’s hard to do the implied math on the ASP that you’re laying out for 2Q because you’re giving us a little less on non-case and scanner. But just looking at your case volumes at the low end and your revenues at the low end and thinking like $22 million comes from other and scanner. It seems like you’re walking down the implied ASP from 1,400 to 1,405 this quarter to maybe like 1,360, 1,370, can you talk to that? Because again as Tom just mentioned, a lot of the growth is coming from these four cases. So, why would we see a step down in ASP that dramatically sequentially?

Well, good question. I think a lot of that, John, has to do with our estimations as to the effects of mix in the next quarter. And when we think about mix, Tom is talking about geographically Asia Pac being strong and so forth. So, when we think about Q2, we’re anticipating a bigger rebound on North America, given the softness it started out with. And that’s why we do some of the simpler cases. And actually when you think about it, that’s where we do a large percentage of the Express types of cases. So as North America rebounds, it tends to lower that ASP quarter-over-quarter as a result.

And I’ll jump in on top of that. The second part that North America trend, we see the pipeline activity goes directly to Advantage program for top doctors. Because of the softer market environment and dynamics in Q1, number of doctors, even big orthos fell short of what their expectations were, and maybe I think it’s a pricing. We had a lot of GPs that didn’t deliver volume and didn’t get the kind of pricing. It’s not the way we want to higher ASP when our customers don’t do the volume they or we expected but it’s a fact. So as we project greater activity, greater volumes from these committed customers, that’s a direct relationship to ASP. Those two factors together kind of make up the difference.

Okay. And last one if I could just quickly ask. You clearly brought on a lot of sales reps in North America last year and I think it was maybe about this time last year, yet we’re seeing a decel in North American cases. It’s a messy quarter from a weather perspective et cetera, but can you just talk at a high level, are these guys taking longer to get ramped up, are we seeing a little bit of the law of diminishing returns in the last 40 reps you brought on, how are those sales reps performing in the field over the past 9 months? Thanks guys.

Sure, it’s an easy one. We think actually the team is performing very, very well. And we’re certainly one of the first to go out in our space of dentistry but I think the market is going to, at least the direct sell-through, not through distribution where there is a buffering effect for timing, I think the direct sale companies in general are all going to be looking at little bit softer period in North America, offset to some extent by Europe or Asia growing. Our team is doing great, we still believe we’re very -- we know we’re very underpenetrated. We believe there is still opportunities to feather in more sales coverage and we will do that over time. If it’s significant enough to talk about in numbers, we’ll do as we’ve done before and describe that. But I think the deceleration you are describing, once we normalized for all the factors in our business including the APAC distributor, I think our core growth rates continue to be about 16%. And that’s even off of a very big base. That’s not across the world equivalently, but our biggest market coverage is still North America. The team is doing very, very well there. So this is not a perfectly linear business and certainly isn’t perfect. But I think we’re on the right track here and we got a lot of confidence in the team.

Thank you.

Thank you. Our next question comes from the line of Glen Santangelo with Credit Suisse. Please proceed with your question.

Yes, thanks and good evening. Tom, I just wanted to kind of follow up, and David I just want to follow up on the guidance for 2Q. It kind of sounds like you are assuming that patient traffic is picking and you are sort of model the case shipment and you model the revenues that way. But David if I heard you correctly in your prepared remarks, you are suggesting that gross margins would be down sequentially as well as operating profit margins would be down sequentially. And I guess maybe I understand the gross margins a little bit, if it’s a mix or ASP issue but could you elaborate a little bit more on why the margins step down so much in 2Q?

Well, couple of things. When we think about Q2 and I thought initially, you were going to talk about Q1. But if you look at the quarter, Q1 was 76%, it was gross margin for the total company. And our guidance, the middle of our guidance is somewhere around 75% or so. So, it’s down about a point. Some of that is due to the fact that Q2, we typically see a pickup in revenues and costs associated with training activities and those training activities typically we price and so forth at very, very de minimis margin. And so the effect of that increase of -- in the non-case revenue associated with training that picking up quarter over quarter, it tends to bring the overall gross margins down. And that’s the principal reason between Q1 and Q2. On the operating margin side, our operating expenses, we did guide up a little bit quarter over quarter. Some of that is due to the fact that our Q2 is typically a heavy promotional period for us, particularly as we get ready for the summer season for teens and so forth. We have a number of promotions that we typically begin in the second quarter and a number of media campaigns that get kicked off in the second quarter in advance of that summer season. And so you see a little bit of pick up in our expenses associated with that. And as we have also talked about throughout this year, we are investing in what we call the number of global strategic imperatives which Tom talked about in his prepared remarks and so forth. The largest component of that has to do with market expansion. And some of that’s geographic coverage expansions, some of that is territory coverage increases and so forth, so that also tends to be a little bit of the reason for the pick-up in operating expenses.

Okay, that’s helpful. Thanks so much. And Tom, maybe if I could just sort of follow up, obviously we got the news from the ITC into quarter here and obviously that was good news for you guys. Could you maybe elaborate, maybe a little bit more on kind of where the company goes from here, where that situation stands? And as you kind of give the situation in ClearCorrect, I mean do you think it’s an opportunity for your sales force to go after and start to try to sign those doctors up and start to take that market share, and how do you think about the competitive landscape at this point, is there anything else beyond ClearCorrect that’s kind of on your periphery that you’re paying attention to?

Well, if there is a place where we can be both confident in our strategy and (inaudible) get out, that’s kind of where we live. We assume everybody wants into this market and are working very hard to do so. There is no other competitive dynamics other than what I commented on a moment ago. And our best strategy forward to deal with that is to innovate like crazy, keep bringing better value to our customers and make the product work better and better. Our goal long term is standard of care. So, I would really not comment specifically, I think the process is still kind of in final stages of working out. I do have Roger George here with us and whatever he wants to comment on from a practical perspective next steps ClearCorrect ITC specific, Roger please maybe do so.

Sure. Well why don’t I do it this way, with Tom’s comments to your question, would you like to refine the question at all that I might respond to?

I am not sure how I’d refine. I mean basically, I mean is there any sort of injunctions placed against ClearCorrect I mean will they be out of the market soon, and I am guessing really just trying to understand if you all believe that it’s an opportunity to ultimately take that market share at some point in the foreseeable future.

So, let me start with that point, our sales force has been pretty aware for quite some time that we don’t really share any customers ClearCorrect, we don’t really have any customers who are Invisalign providers who are also doing cases with ClearCorrect. And in a lot of cases or in a lot of the instances, doctors who are doing cases with ClearCorrect are those who are not invited to do cases with us any more for various reasons. The order that was issued by the International Trade Commission is a cease-and-desist order saying that ClearCorrect has to stop importing goods meaning their software digital treatment plans that infringe our patents and that they have got to stop producing aligners with that stuff. Now you know that they have responded that the cease-and-desist order doesn’t their change their life and that it’s still business for usual as them. I don’t how know how you can read a very long detailed order saying cease-and-desist from the federal government that they have got to stop. But that’s the position they are taking. So, they intend to appeal various parts of that order and we intend to move forward based on what the order says and we will be going back to patent litigation in Texas to take up the damages part of our case.

Hey Glen if I could just maybe finish the thought off here. We have said before we didn’t feel that much of the headwind from them and we don’t think there is a much of a tailwind. We obviously love to grow our customer base with doctors that believe in clear aligner treatment and over time we’ll work on doing that. But in terms of a shared customer base or big opportunity, that’s not the way we’re thinking about this one.

Okay. Thanks so much.

Sure. Thank you very much.

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

Thanks for the questions. Just looking at the ASPs and specifically the international ASPs, again expanded significantly year-over-year but I imagine that obviously is related to the switch in 2013 to direct distribution. If I look at that international ASP sequentially it seems like a little bit more of a steady state forming there. And Tom I know you mentioned bringing a few other countries or if I should say going direct in a few other countries. How should we think about the ASP on international? Is what we’ve seen in the last two quarters a starting to solidify into a more normalized run rate?

Short answer is yes, notwithstanding FX, notwithstanding some other things we might do. I think there is a clearer mix shift in Europe, in Asia towards full cases because of the greater complexity in (inaudible). And then secondly there is a bit of a price premium in each of those markets over North American pricing that is persisted. With that said, once we get passed May 1, the comp will be cleaner, the read-through will be cleaner relative to ASP versus volume, but I mean even with Asia volume up 51% what that’s done for our net ASPs there. So I think it is stabilizing, but I would say given that growth outside North America has been significantly faster than in, I think to the extent ASP holds to the extent that we're able to get more complex cases with widening applicability things like deep bite and more then I think it does buffer us against some mix shift, the low end here in North America, it does buffer us a little against the negative effects of FX if and when that comes, but the trend in general is just as you described.

Okay. That’s helpful. Now I guess just on, iTero, if I could sneak some in on the scanner side, [news was] they have been pretty positive, but if I look at unit growth for 46.5% year-over-year versus sales growth, just I guess any inside you can give us on discounts and promotions, trade ups and then is there a different way we should be thinking about unit versus revenue growth going forward?

May be David and I can tag team a little bit. I’ll just say in general, the market’s gotten more competitive. We have met that competitive we have a very premium scanner and we are not the lowest priced unit, but just about a year ago, we basically made a decision to simplify pricing and reduce pricing and that’s been rewarded. So in general volume has grown faster than revenue if you look at a year-over-year basis, but we're confident overtime, we could make this a profitable and increasingly valuable part of franchise. David if you want to add color there please.

Yes. Once again when you kind of drill down a little bit, certainly volumes are up I think in my prepared comments of something north of 40% year-over-year in volumes, there are two things from a revenue standpoint, when you look at it year-over-year, one of which is the fact that a year ago we had a special promotion going on for iTero, for upgrades, as we released the new version. And when you normalize for that, you see well that was a -- that had the effect of increasing revenues last year.

In the volume of scanners.

And the volume of scanners is I said up about 46% or so. So, ASPs are at this point a pretty stable. We took some pricing actions when we announced the new iTero scanner about a year ago, pricing has been pretty stable over the past year. And I think going forward, I think we'll see a pretty normalized rate of business as it continues to grow and we continue to see adoption of the product.

That makes a lot of sense. And then just the other one on the scanner, obviously looking at impressive chart hereof digitally submitted Invisalign cases and I think you probably get this question every quarter Tom. But any progress other than the current scanners out there in the market that can submit Invisalign cases digitally, any progress on some of the other larger installed bases and any ability to work with them?

Well, I was as clear [in a word] as I could be in my comment and they stand for themselves. But the reality is it's not to reveal and every scanner is different. And in effect we're releasing a new factory floor technology as a front end of a process. And any other party would have to be very certain there to work well. And that's what we're after. So when there is news there, we'll be happy to report it. And we expect it would make our customers even happier and overtime build greater strategic advance for the Invisalign franchise. So, it is a priority, I think it's in our interest to do so and I'll stop there.

Great. Thanks for the questions.

Sure. Thank you.

Thanks Bob. Next question please?

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

Hi, good afternoon. Thanks for taking the questions.

Hi Steve.

Hey everybody. One is for David and one for Tom. David, I wonder if you could even qualitatively walk us through the margin profile over the balance of the year. There has been a lot of focus on the first quarter and the guide for the second quarter, but you’ve given us a perspective on 2014 in totality. Can you remind us what the key levers we should be thinking about over the balance of the year; any perspective if you have it on how operating expense growth might trend will be very helpful? And then Tom for you, I wonder if you could without stealing all the thunder comment on the Analyst Day that’s coming up. It’s not something you do every year, this is the first, I want to say in about four years. So, why now and what should be we focusing on? Thanks everyone?

I’ll let David go first (inaudible) happy to comment.

Okay. So Steve, on our gross margin profile, I am going to focus my comments primarily on Invisalign side of our business since that pretty much dominates our overall margin profile as a company. When you look at Invisalign and you look at our margin profile and so forth, it’s perhaps most heavily influenced by really a couple of factors. One is, is product mix, which drives ASP. And when I talk about product mix, I probably should drill down a little bit more, really more from the standpoint of geographic mix. And so as we seen our international business continue to grow at faster rates in North America that is have the effective lifting ASPs overall for the company and as we lift those ASPs that has the effect of lifting our gross margins overall at the same time. On the cost side, our cost model is largely today benefits from high utilization in the factory, high volumes. And as we continue to grow the business, we continue to benefit from better absorption of fixed overhead in the factories which drive down cost on a per case basis. So, as we think about going out over the next year or so with those trends continue, our business continues to grow as we would expect and as our international business continues to increase as a percentage of the total mix with the company than our expectation would be that our margin should see some uplift, our gross margin see some uplift to them. Now I temper that a little bit from the standpoint that when you look at our business model that we’ve guided overall from a long-term standpoint, we’ve set our overall gross margin business model somewhere in the 73% to 78% range and we are consistently operating well within that if not at the high side of that. So, I wouldn’t want you to get too far over we’ve already guided from that perspective, but those are the drivers that have perhaps the most influence on gross margin. From an OpEx standpoint, in January we talked a lot about some of the investments that we are making as a company and how those investments were a part of a consorted effort on our part to balance our growth profile for the year and for the long-term relative to and the investments it would take to drive that relative to what our operating margins as a company might be. And the direction we have given really for this year is our aspirations would be to achieve the same type of operating margin performance in 2014 as what we did in 2013.

If I can pile on just to finish that one off a little bit with a hammer, this year is a little bit like last year in some ways where our investment framework is more front-end loaded for the year, headcount expansions, key initiatives, some step up in consumer spend versus a year ago we were still developing new adds, we launched in May, we’re out in market within Q1, Q2 with a little more consumer, fully loaded headcount in place versus maybe partial year last year. So, and in parallel with that in Q1 we had a little bit of volume challenge. We had some headwinds in terms of certainly North America market. All those things add up and a little less momentum going into Q2 for volume all those things add up to say little more pressure on operating margin what David described is getting back towards an operating margin profile roughly compared to last year, which means a pretty big lift in the second half, but we believe the pieces are in place to go do that. And as much as we’ve showed last year, we believe when those come together we can demonstrate that progress. And then quarter-to-quarter hope to over perform the kind of numbers David was pointing to. So, hopefully that takes care of the model and you want to shift briefly to the Analyst Day?

Absolutely.

Perfect. All right, so yes it has been a while, I think 3, 3.5 years. And there is a reason for that; we’ve kind of had our heads down for a couple of years executing like crazy. We believe we’ve really changed the state of the enterprise in many, many ways. One of those is visible in product and market impact in growth in the financial progress we’re making. And there is other ways that most of our owners having a chance to meet the number of the senior management team. We’ve got incredibly talented group of folks here and I think this provides and affords our owners an opportunity to get them know them to hear from them about our markets, our geographies, our technology evolving and how we’re going to scale the business. And so, I’d say I believe Thursday the 29th of May we’re looking forward to spend the better part of the half a day together. And hopefully you’ll take away what we believe which is great excitement about where we are today, but even more about what the future looks like and that’s we’ll focus lot on strategy evolution there.

Thanks so much everyone.

Thanks Steve.

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

Thanks. Good afternoon.

Hey Brandon.

Tom or David, I think if you could quantify the mix of Asian Invisalign cases as a percent of total or is the percent of the international business? And then could you give us an update around uptake in China and that’s performing relative to your internal plan?

So without giving numbers because we haven’t broken out that detailed level, the very substantial majority of all of our volume outside North America is full of cases. There are fewer teen cases treated as many of the countries in Europe where we have a little more maturity have state plants basically free for brackets and wires. We are getting teen cases, that’s going nicely but it’s on a pretty small base. The bulk of what gets treated are full and mostly adult cases today. And so I’ll leave that there. China is going game busters as is Japan, as our some other geographies. And the team has big ideas about how we can make that a very big business. And you’ll start to see that showing up just year-over-year in volume, which then you can tell there is leverage on the revenue side. So, we're right on track with our very aggressive game plans and the team is working like the [dickens] to continue that.

Thanks. And one more Tom, with respect to the new ClinCheck software, the enhanced functionality seems pretty significant in terms of what the practitioners are able to do themselves. Do you perceive that as a case volume driver? And if you could elaborate on what some of the early feedback has been that would be helpful?

Well, and again our highest volume customers who treat the most cases and a lot of most complex cases, sometimes do the most ClinCheck cycle just to get it perfect before they press go. And this really reduces those cycles when they are getting close, but instead of sending it back to their, even a treat technician that knows their human approach very well and describing a little lateral movement or a little rotation of two or three teeth. They can actually move that and it's a virtual model that actually moves and shows collisions and then they can send it in and teeth that goes Ah, I got it. It might as some of our doctors tell us, it might cut through one, two or three treatment cycles and communication while they are close. And so we think yes, the output is greater adoption and getting a bigger share of their practice. But it starts with having the customer get what they want more quickly and having that customer experience to be better. More precision, it gives them more confidence in the treatment and it reduces absolute factor of it. So, all those things are in the side of good and we're getting a lot of positive feedback from our doctors, most of them are more experienced, many of them are orthodontists about, boy this is just what I wanted, I’ve been waiting for this for a long time. Thank you.

Perfect. Thank you.

Thanks Brandon.

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

Thanks guys. A lot of my questions have been answered, but let me just through a couple of more out there. One Tom on the international ASP and kind of following up on Jon's question and I think another one we had as well. I think last quarter you talked about kind of the shift going away from i7, away from Express 5 and then up to Express 10 and i14 and that being one of the drivers along with just playing the international mix of kind of slow steady rise in ASPs going forward. Yet to Jon's point on one of your earlier questions, it looks like your implied guidance is for ASP is to be down sequentially, at least in the second quarter. So, I'm just trying to reconcile those two. Should I think about kind of that slow steady ASP rise being more of a long-term guidance, but there is going to be some volatility from quarter-to-quarter just based on mix or how should I think about that?

Yes. This is David. I think you just hit it right there. I mean from quarter-to-quarter, there is seasonality in our business, different seasonality in Asia versus Europe versus North America and that tends to influence geographic mix, which will affect ASPs. I think when we talk about our ASP trend overtime and a mixed shift towards international business where there is a much heavier concentration on complex cases and that is driving ASPs, that’s more of a long-term type of trend as we see it today. And so you shouldn’t take our guidance as necessarily being anything that would be indicative of a change in that trend and our expectations.

Go ahead, I’m sorry.

No, please Tom, go ahead.

I was just going to say reiterating, our expectations are that our North American doctors will be busier, many of that, much of that volume comes through our advantaged customers and we want them to deliver that volume and get that discount that will directly relate to ASP in North America, which tends to skew that down a little bit.

Yes. Okay. That’s helpful. And then David just two quick follow-ups; one, in the absence of share repurchases this year, what would you expect, the share count has been fairly stable here over the last couple of years, but stock price is up quite a bit. Would you expect absent share repurchases share count to trend up this year? And then a second one just technically can you tell me why you are not subject to the MedTech tax any longer, I’m trying to figure out if there is any derivative recruiting in my other companies?

So, the way I would look at it as it relates to share count is I think that the guidance we gave for Q2 is 83.6 million shares. One of the things that obviously increases that is going to be stock options as they vest, which we pretty much don’t grab into longer, but we still have a tail of those that are still cycling through the final vesting on those. And then we have employee RSUs. So, if I was modeling and I would just simply look at what our historical uptick has been quarter-over-quarter and assume that and apply that to basically the guidance we gave is that related to Q2 for shares outstanding.

Okay.

As it relates to the medical device tax, it’s a little bit more complex but let me see if I can make it really simple. Our business is a little bit unique relative to many other companies in our space. We sell directly to doctors, we don’t sell through wholesale channels and so forth. And so, a year or plus ago when we were evaluating the applicability of the medical device tax to the company and so forth with the advice of outside consultants and so forth and given that this is a very new law that was still subject to some interpretation, our assessment at that time was that our company would most likely be fall under the ruling and we would have to pay medical device taxes. Now, we -- during that course of that year that evaluation was on a number of subjective criteria that is outlined in the law. So over the course of the last year, we have had a number of dialogs with the IRS. And in the course of that and in the course re-reviewing our case and how those subjective guidelines apply to us, the IRS informed us in March that they believe that we should be exempt from the medical device tax and based on that subjective criteria and how they apply to our business. And so that effectively we have stopped accruing for the taxes effective in March.

And I just want to say here, we don’t think this is a cookie cutter. I would urge you not to make assumptions that another business or model might apply. I’ll say our team has done good work, it’s not quite finished yet in terms of an overall process. But as we finish this off and have more to disclose under this, there will be a little more information. But again, this is -- you’re hearing it at real time, there are [timing] implications and accrual implications which is why we’re dealing with it as a Q1 issue and a Q2 guidance matter.

Yes. And just to pile on to Tom’s comment, it is a case-by-case assessment and so our case facts are going to be different from almost any other company you would look at. And so, I don’t think you can rinse and repeat necessarily what we’ve applied here.

Okay. And then just two quick follow-ups I guess on that there is no catch up provision or anything where you can go back and capture device tax you paid over the last 4.5 quarters, anything like that?

So a good question. I think the answer to that is yes. We’ve historically paid about $8.3 million between 2013 and the first two months of this calendar year. We’ve applied for refund for that. The refund however though is processed through a separate division of the IRS, obviously they talk to one another but that separate division has to go through audit and approve it. That audit has not been completed. When it does, we would expect the answer to come back that we would get a full refund.

And lastly, yes.

Just to be really clear, we can’t project that, it is in process and there is nothing more than what you just heard, can we do anything with so.

No, understood. And just so I am doing the math right that’s about 100 basis points per quarter going forward here of margin benefit I guess relative to how we had set our model up?

It’s about $1.5 million to $2 million of expense a quarter.

It comes out of cost…

At our current revenue run rates.

Yes, right. Understood. Thanks guys.

Thank you.

Thank you. Our next question comes from the line of Chris Lewis at the Roth Capital Partners. Please proceed with your question.

Hi, guys. Thanks for taking the questions.

Hey Chris.

I just wanted to go back on the volume guidance for the second quarter at 11% year-over-year. That’s still healthy double-digit growth but a slight pull back versus I guess the 14% this quarter and kind of that high teen to low 20% range in the second half of last year. So understand weather played a factor there with delaying some cases and possibly pushing out some of those shipments and time the revenue is recognized, but I guess Tom beyond the weather, are there any other factors or some of the market challenges that you would mention that’s contributing to that volume outlook in the second quarter?

Chris, I think it’s, the look at the business it’s actually pretty clean. I think if I take a rough -- if I norm for a lot of factors that have impacted revenue and volume, our growth as a company is somewhere in the neighborhood of 16% through all the different factors that have been puts and takes over last year two volume, revenue, et cetera. Q2 guidance is impacted by an improving March receipts, which means improving April shipments, but we weren’t at the rate we wanted to be. If we had be running for all of March out of receipts level, we would be a little bit more bullish in our guidance and so figure that 30-day lapse. The business has responded -- we’re really comfortable with our pipeline but all that is factored into our Q2. So yes, we’re -- it’s a little underwhelming, but it’s going the right direction. And we believe we’re still getting get to a place for the year where we’re going to have another really terrific year and putting us in broader context, the orthodontic market is probably growing in mid single-digits maybe in a good year 6%, in a bad year 3% to 5%. We’re growing in almost every market 2 to 3 to 4x that rate. And so, our view is as long as we’re doing that, whatever the absolute number quarter to quarter is, we’re less worried about it. The contrary would be true if we thought there are some new fundamental competitive dynamic or something going on in the market, we don’t see any of those factors. The business is actually doing great. We’re going to AAO this week to see thousands of our orthodontics customers. And I think we’re very bullish about the business, both I’d say near and mid-term as well as the long-term.

Great, thanks for the color there. On the deep bite G5, I know it’s still relatively early, but it sounds like you saw lot of excitement with the G5 launch events you talked about. Maybe you can just provide some more feedback you have seen from those customers and the reception so far in the field?

Sure. I think, the first thing is we’ve seen the use of the deep bit features go up significantly, it’s very early where we have doctors that were already treating some deep bite, they are jumping right on it. Because bite ramps and some other features make it easier for them to actually do those treatments. Where we have doctors that hadn’t done deep bite before, it’s a more, let me try 2 or 3 cases and see how it evolves. And we’re 7 weeks since release, and you would have had to have deep bite case kind of in process. So, we’re very early in terms of those doctors that were not doing deep bite with clear aligners. But we’re getting very good feedback from them. And we’re approaching a point at quarter end 3, 6, 9 months in, we’re really going to see the acceleration of those cases. And then we believe that’s what really impacts utilization growth in that area. a lot of the doctors in Europe that were treating deep bite are really excited about this. And we’re seeing same thing happen there, a little bit of a lag in Asia, as they really are more -- they are treating extraction cases more in general. But again seven weeks in since release, since launch, we have a whole bunch of internal metric use, they are all green, and we got a lot to learn in the months and quarters ahead, but some of these hard deep bite cases are a year and a half to sometimes two years long. And so we are going to be learning as we go through the next 6 to 12 months about how the product is evolving and we will make improvements as we go long, but all good so far.

If I could just kick take one more in. On R&D line, it looks like expense jumped out quite a bit there over the fourth quarter and first quarter of last year, so maybe just walk us through the reasons behind that increase?

We have some headcount expansions, we have programs spending in a couple of important areas. What I would say in general when we come back at analyst day and start talking about IP, we are inventing more things, we are writing more disclosures, we are filing for more patents, all those factors were being, were very active in terms of technology with large R&D specifically and clinical research and some other areas that are going on. So I think you’ll have a chance to meet our Head of R&D at the analyst day Zelko Relic and as well as our marketing leader and talk about how we see the pipeline evolving, what is possible in the future state, and this is the money we are investing to do those things.

Yes. Chris, I would just add to that reinforce I guess the comments I made earlier a bit. As you look at broadly speaking, our expenses went up from Q4 to Q1 for a number of things. Q4 was artificially lower because of some core features we had of stock, which gave us a credit for stock compensation expense. And then Q1 as we start on security taxes and we have our annual [focal] process for employee compensation et cetera. And so generally speaking those are the largest drivers quarter-over-quarter and coupled with the comment Tom just made as it relates to some of our strategic growth drivers that we are also investing in.

Okay, congrats on the quarter.

Thanks very much Chris.

Well thank you everyone. This concludes our conference call today. We look forward to seeing at upcoming financial conferences, industry meetings of course our Analyst Meeting in New York on May 29. If you haven’t already, please register for the Analyst Meeting. The link to the registration is on our earnings press release that we issued today or if you need any more information, please contract Investor Relations. Have a great day. Bye, bye.

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