Align Technology, Inc. (ALGN) Q4 2019 Earnings Report, Transcript and Summary

Greetings, and welcome to Align Technologies Fourth Quarter and Full Year 2019 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Shirley Stacy, Vice President, Corporate and Investor Communications. Thank you Ms. Stacy. 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 Joe Hogan, President and CEO; and John Morici, CFO. We issued fourth quarter and full year 2019 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 p.m. Eastern Time through 5:30 p.m. Eastern Time on February 12, 2020. To access the telephone replay, domestic callers should dial 877-660-6853 with conference number 13697560 £. International call should dial 2016127415 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 first quarter and fiscal year outlook for 2020. 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 available on our website and at sec.gov. Actual results may vary significantly, and Align expressly assumes no obligation to update any forward-looking statements. We have posted historical financial statements, including the corresponding reconciliation and our fourth quarter and full year 2019 conference call slides on our website under Quarterly Results. Please refer to these files for more detailed information. With that, I'd like to 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 fourth quarter and full year then briefly discuss the performance of our two operating segments, clear aligners and intra-oral scanners. John will provide more detail on our financial results, discuss our outlook for the first quarter and share a high level thoughts about 2020. Following that, I'll come back and summarize a few key points and open up the call to questions. Our fourth quarter was a strong finish to a great year with record revenues and volumes. Q4 Invisalign shipments increased 23.9% year-over-year and marked another major milestone with our 8 millionth Invisalign patient who started treatment in December. This rate of growth is really amazing to me given our 7 million Invisalign patient was just this past May seven months ago. For Q4 iTero scanner revenues increased 20.2% year-over-year with strong growth especially from international doctors. On a sequential basis Invisalign volumes were up 7.4% driven by strong growth in North America, EMEA and Latin America with all-time highs in those regions. We also saw strong growth from Invisalign Go systems across all regions reflecting continued progress with GP dentists as well as a ramp up from Invisalign Moderate which launched at the beginning of Q4 in North America. For the quarter we shifted Invisalign cases to approximately 67,000 doctors of which 7.2 thousand were first-time customers. We also trained over 5,500 new doctors in Q4 including 3400 international doctors. For the full year total revenues of $2.4 billion reflect record revenues up 22.4% year-over-year includes $2 billion in clear line of revenues and 2019 Invisalign volumes were up 24.2% year-over-year and iTero scanner revenues were up 38.5% year-over-year. During the year over 1.5 million people started treatment with Invisalign clear aligners worldwide including 447,000 teens and younger patients which is up 34.1%. Now let's turn to the specifics around our fourth quarter results starting with the Americas region. For the Americas region Q4 Invisalign case volume was up 4.9% sequentially and up 19.3% year-over-year. On a sequential basis Q4 results reflects strong growth from North American GP dentists as well as continued strength from Latin American doctors. Year-over-year growth for Q4 reflects continued adoption of Invisalign treatment from both orthodontist and GP dentists channels which were up 20.5% and 17.3% respectively. Latin America volume was up 79% year-over-year led by continued strong growth from Brazil. For the full year America's Invisalign volume was up 17.5%. For international business Q4 was a great quarter with Invisalign case volume up 10.5% sequentially driven by strong growth in EMEA region rebounding from Q3 ‘19 summer holidays and offset somewhat by slower growth in A-Pac specifically China. On a year-over-year basis strong Invisalign volume of 30.1% reflects increased utilization and continued expansion of our customer base in both EMEA and Asia-Pacific region. In Q4 we trained over 3400 new Invisalign doctors internationally and roughly 55% EMEA and 45% in A-Pac. For the year international volume was up 34% year-on-year and EMEA Q4 was a strong quarter volumes were up 37.3% sequentially driven by growth and all core markets primarily from Spain and Italy as well as from the teen segments which was up 50.6% from Q3 19. On a year-over-year basis Invisalign volume was up 31.5% driven by growth in all core country markets including a teen segment which is up 38.7% from the prior year. For the full year EMEA volume was up 34.2% led by Spain, Italy and France as well as our key expansion markets led by Turkey, the Middle East and Africa region and Russia. For A-Pac Q4 was down sequentially as expected following a very strong Q3 19 teen season in China as well as less than expected volume from adults partially offset by strong volume growth from Japan. We believe the ongoing U.S.-China trade war and economic uncertainty remained a headwind for our consumer demand especially for consumption of luxury goods and considered purchases. On a year-over-year basis A-Pac volume was up 28% driven by growth across the region led by Japan, Australia, New Zealand, Southeast Asia. For the year A-Pac volume was up 33.7%. Overall for the teen market in Q4 approximately 116,000 teenagers started treatment with Invisalign clear aligners an increase of 33.1% year-over-year driven by continued strong adoption across all major regions. For the full year total teen cases worldwide grew 34.1% to approximately 447,000 teenagers or 29.3% of our total volume. I'm pleased with our progress treating teenagers and younger kids and continued strong adoption of Invisalign clear aligners globally. For 2019 Invisalign treatment with mandibular advancement was up 85% year-over-year and Invisalign First was up 455% year-over-year for a cumulative total of 41.5 thousand cases and 32.4 thousand cases to date respectively. Product, technology and innovation continues to be a key growth driver across our regions. Over the past year we’ve launched several new Invisalign offerings for both comprehensive and non-comprehensive treatment giving doctors more tools and choices to treat at greater range of cases from adults to teenagers and now kids as young as seven years old as well as new treatment options and technology designed to appeal to consumers who are considering or starting Invisalign treatment. In Q4 we introduced the Invisalign moderate package, a 20 stage treatment option designed for consumers whose treatment goals fall between the existing Invisalign light and Invisalign comprehensive packages and can be completed in the range of 5 to 12 months. We’ve launched SmileView an online tool designed to help prospective Invisalign patients visualize a new straighter smile before they offer Invisalign treatment. Alliance new SmileView visualization tool is designed to drive awareness and demand for teeth straightening using Invisalign treatment by engaging consumers and allowing them to see a simulation of what their smile could look like. We also upgraded my Invisalign mobile app which previously focused on patients already in treatment but now includes several new features to help potential patients who are seeking information about teeth straightening treatment including an in-app version of SmileView. Consumers can use the app to take a selfie and instantly visualize how their smile can transform after Invisalign treatment. Our consumer marketing efforts are designed to build the category and drive demand for Invisalign treatment through a doctor's office. We invest over a 100 million each year in consumer marketing programs including TV, digital social media, PR, event marketing as well as our patient concierge program. Our goals are to making Invisalign brand a household name worldwide and to motivate consumers to seek Invisalign treatment through a doctor's office. In Q4 we continue to see strong engagement with consumers and had over 5.3 million unique visitors on invisalign.com sites for a total of 18 million year-over-year. Other key metrics showed increased activity and engagement with the Invisalign brand and are included in our Q4 quarterly slides. For iTero scanner and services business Q4 is very strong quarter with better than expected revenues up 6.6% sequentially and 20.2% year-over-year driven by strength from all regions. Q4 volumes reflect continued commercialization of the iTero Element 2 and Element Flex scanners especially for orthodontists in North America to continue rollout with our major DSO partners and increased sales internationally especially in Japan. 2019 was a great year for iTero business with total revenues up 38.5% year-over-year cumulatively over 20.5 million orthodontic scans and 4.7 million restorative scans have been performed with iTero scanners. Use of iTero scanners for Invisalign case submission continues to grow and remains a positive catalyst for Invisalign utilization. For Q4 total Invisalign cases submitted with a digital scanner in the Americas increased to 79.5% from 73.5% in Q4 of last year. International scans increase to 64.7%, up from 57.5% in the same quarter last year. What's really exciting is to see that within the Americas 93.3% of cases submitted by North American orthodontists are submitted digitally now. We are pleased with the continued progress of iTero business and remain confident that will continue to help drive our overall growth and help increase the adoption of our digital platform Invisalign treatment. With that I'll turn the call over to John.

Thanks Joe. Now for our Q4 financial results. Total revenue for the fourth quarter was $649.8 million up 7% from the prior quarter and up 21.7% from the corresponding quarter a year ago for clear aligners Q4 revenues of $543.6 million was up 5.3% sequentially with strong Invisalign volume from EMEA and North America. Year-over-year clear aligner revenues growth of 22% reflects strong Invisalign growth volume across all regions. Clear aligner revenue growth was unfavorably impacted by approximately 1.3 points year-over-year from foreign exchange. Q4 Invisalign ASPs were down sequentially by approximately $20 to $1,240 primarily due to discounts mix and unfavorable foreign exchange. On a year-over-year basis Q4 Invisalign ASPs increased approximately $5 primarily reflecting price increases in all regions and increased additional aligner revenues partially offset by promotional discounts and unfavorable foreign exchange and product mix shift. Total Q4 Invisalign shipments of 413.7 thousand cases were up 7.4% sequentially and up 23.9% year-over-year. Our scanner and services revenue for the fourth quarter was $106.2 million up 16.6% sequentially due to volume increases in EMEA and Americas. Year-over-year revenues were up 20.2% primarily due to volume increases in EMEA, A-Pac and the Americas as well as higher services revenues from our increased installed base. Moving on to gross margin. Fourth quarter overall gross margin was 72.6% up 0.06 point six points sequentially and of 0.9 point year-over-year. Clear aligner gross margin for the fourth quarter was 74.1% up 0.6 point sequentially primarily due to lower freight and training costs and lower number of aligners per case partially offset by lower Invisalign ASPs. Clear aligner gross margin was flat year-over-year primarily due to lower training costs and a slight increase in Invisalign ASPs offset by an increase in aligners per case. Scanner gross margin for the fourth quarter was 64.9% up 0.8 point sequentially primarily due to manufacturing efficiencies partially offset by lower ASPs and up 5 points year-over-year primarily due to manufacturing efficiencies and higher service revenue and scanner ASPs. Q4 operating expenses were $320.8 million up sequentially 3.4% and up 22.2% year-over-year. The sequential increase in operating expenses primarily reflects our continued investment in sales and marketing and R&D activities partially offset by lower litigation expenses. Additionally the third quarter included a $6.8 million benefit from the settlement of our Invisalign store leases. Year-over-year the increase in operating expenses reflects higher spending commensurate with go-to market activities offset by lower legal expenses. Our fourth-quarter operating income was $151.2 million up 18.9% sequentially and up 25.5% year-over-year. Our fourth quarter operating margin was 23.3% up 2.4 points sequentially and up 0.7 points year-over-year. The sequential increases in operating income and operating margin are primarily attributed to an improved gross profit and reduction in litigation expenses. Operating margin was impacted by approximately 0.6 points year-over-year from foreign exchange. The third quarter operating income included a $6.8 million benefit from the settlement of our Invisalign store leases which increased Q3 operating margin by 1.1%. On a year-over-year basis the increase in operating income and operating margin primarily reflects higher gross profit and operating leverage partially offset by continued investment in R&D geographic expansion and go to market activities. With regards to fourth-quarter tax provision our tax rate was 22.2% which includes approximately $5.8 million of tax benefit related to a tax audit settlement. Fourth quarter diluted earnings per share was $1.53 up $0.25 sequentially and up $0.33 compared to the prior year. Moving on to the balance sheet. As of December 31, 2019 cash, cash equivalents and marketable securities including both short and long term investments were $868.6 million an increase of approximately $86.7 million from the prior quarter which is primarily due to higher cash flow from operations. Of our $868.6 million of cash, cash equivalents and marketable securities $590.1 million was held in the U.S. and $278.5 million was held by our international entities. Q4 accounts receivable balance was $550.3 million up approximately 3.5% sequentially. Our overall day sales outstanding was 76 days down 3 days sequentially and up 2 days as compared to Q4 last year. Cash flow from operations for the fourth quarter was $218.2 million and free cash flow defined as cash flow from operations less capital expenditures amounted to $175.6 million. Our business continues to have a very strong cash generation. Capital expenditures for the fourth quarter were $42.5 million primarily related to our continued investment in increasing aligner capacity and facilities. During Q4, 2019 we’ve repurchased $100.5 million of our stock against our stock buyback authorization and have $100 million still available for repurchase under the May 2018 repurchase program. Before we move to the Q1 outlook I would like to make a few comments on our full year 2019 results. In 2019 we shipped a record 1.5 million Invisalign cases up 24.2%. This reflects 34% volume growth from our international doctors and 17.5% volume growth from our America's doctors. Shipments of our iTero scanner were up 29.7% over 2018. Total revenue was a record $2.4 billion up 22.4% year-over-year with clear aligner revenues of $2 billion up 19.8% year-over-year. Clear aligner revenue growth was impacted by approximately 2.6 points year-over-year from foreign exchange. 2019 iTero scanner and services revenues were a record $38.1 million up 38.5%. Full year operating income of $542.5 million up 16.3% versus 2018 and operating margin at 22.5%. 2019 operating income also includes a litigation benefit of $51 million and Invisalign store closure cost of $23 million for a net positive impact on operating margin of approximately 1.2%. Operating margin was unfavorably impacted by approximately 1 point year-over-year from foreign exchange. Free cash flow was $597.6 million up $266.2 million versus 2018. For the year we’ve repurchased over 1.8 million shares of alliance stock for $400 million. 2019 diluted earnings per share was $5.53. Before I comment on the demand outlook I wanted to take a minute to talk about the corporate structure reorganization to relocate our European headquarters from the Netherlands to Switzerland in Q1 and the implication to our GAAP financials. As a result of the corporate structure reorganization to relocate our European headquarters from the Netherlands to Switzerland in Q1 our Q1, 2020 GAAP tax rate will reflect a significant one-time tax benefit associated with the recognition of a deferred tax assets related to the inter entity sale of certain intellectual property rights. This deferred tax benefit will be amortized starting in 2020 and will continue into subsequent quarters and years. The period over which this tax benefit will be recognized depends on the profitability of our Swiss headquarters and therefore is uncertain at this time. Management ordinarily assesses the health of our business with regard to these types of one-time events and believes this reorganization will make it difficult for investors to assess our core underlying financial performance where we to report solely based on GAAP. Therefore, we will supplement our GAAP information with non-GAAP measures going forward. Beginning in Q1, 2020 in addition to our GAAP results we will present non-GAAP measures that exclude the aforementioned tax impact along with certain other items that may not be indicative of our fundamental operating performance including discrete cash and non-cash charges in order to present investors with greater transparency into our core business operations. We will present GAAP, non-GAAP and a reconciliation in our earnings release in conference call materials. With that let's turn to our Q1 outlook and the factors that inform our view. Q4 was a strong quarter with record volumes and we expect to enter Q1 with this momentum from both the Americas and the EMEA regions. For the Americas region we expect Q1 to increase sequentially with growth from North America orthodontists and GP dentists. For international we expect Q1 volumes to be down sequentially. We expect demand to be up sequentially as momentum continues from Q4. However, we expect the growth to be offset by a sequential decrease in A-Pac primarily due to the expected impact from the novel coronavirus in China. We expect our iTero business to be down sequentially following a seasonally strong Q4 and consistent with seasonal trends in capital equipment market and fewer sales in China. Many of you have been following the news regarding the recent outbreak of the novel corona virus in Wuhan, the capital of Hubei providence in China. China is one of our largest country markets and represents roughly 8% of our total revenues. It is home to hundreds of employees across China. Thankfully we are not aware of any employee or family member who has contracted the novel corona virus. The situation in China is very fluid and we are closely monitoring it. We are in contact with all relevant agencies globally. The Chinese government has implemented travel bans and has essentially shut down public transportation in Wuhan. It has also issued public warnings to avoid all non-essential medical and dental procedures for the time being. Some government-run hospitals and private clinics are following suit by instructing patients to stay home unless it's an emergency. While we do not believe there is any impact to our product safety due to the stringent health and safety procedures ingrained in our manufacturing processes, we are taking additional precautions across China to minimize the risk of spreading illness to our internal teams including additional protections and health screening procedures as well as travel restrictions. Given the increased uncertainty and disruption to our employees doctor's practices, their patients and consumers we believe it is prudent to reduce our outlook for Q1 to reflect the increased risk. Therefore, for Q1 our outlook reflects approximately 20,000 to 25,000 less Invisalign cases and $30 million to $35 million less revenues for Invisalign and iTero product sold in China. In addition, we are also absorbing $3 million to $4 million in idle China manufacturing plant and treatment planning capacity which results in approximately 0.5% gross margin impact. With this as a backdrop we expect the first quarter to shape up as follows. Invisalign case volume is expected to be in the range of 396,000 to 406,000 cases up approximately 13% to 16% year over year. We expect Q1 revenues to be in the range of $615 million to $630 million up by approximately 12% to 15% year-over-year. Our supply agreement with SDC was terminated December 31, 2019 and hence our Q1, 2020 revenue outlook does not reflect any SDC volume as compared to the same quarter a year ago when non Invisalign aligners supply to SDC contributed about $5.7 million to revenue. On a GAAP basis we expect Q1 gross margin to be in the range of 71.5% to 72%. Q1 gross margin is expected to be down sequentially from slightly lower ASPs driven by lower mix of China volume, in idle China manufacturing and treatment planning capacity in our facility in Ji'an. On a non-GAAP basis we expect Q1 gross margin to be in the range of 71.7% to 72.2% excluding stock-based compensation from gross profit. We expect Q1 GAAP operating expenses to be in the range of $345 million to $350 million which reflects our continued investments in go-to market activities along with our annual increase in employee compensation expenses. On a GAAP basis Q1 operating margin is expected to be in a range of 15.4% to 16.5%. On a non-GAAP basis we expect operating margin to be in the range of 19.5% to 20.5% excluding stock-based compensation from operating income. On a GAAP basis our effective tax rate is expected to be approximately negative 1400% which includes approximately $1.4 billion of tax benefit associated with the recognition of a deferred tax asset related to the intra entity sale of certain intellectual property rights resulting from our corporate structure reorganization. This deferred tax benefit will be amortized starting in 2020 and continue into subsequent quarters and years. The period over which the tax benefit will be recognized depends on the profitability of our Swiss headquarters and is therefore is uncertain at this time. On a non-GAAP basis excluding the one-time benefit from the intra entity sale of certain IP rights as mentioned above and the tax benefits related to stock-based compensation, we expect our tax rate for Q1, 2020 to range from approximately 22% to 23%. Diluted shares outstanding should be approximately $79.1 million exclusive of any share repurchases. Taken together we expect our Q1, 2020 GAAP diluted earnings per share to be in the range of $18.65 to $18.74. Non-GAAP diluted earnings per share is expected to be in the range of $1.19 to $1.28 from excluding the one-time tax benefit from the intro entity sale of IP rights as mentioned above and the stock-based compensation related expenses. In addition, as we continue our operational expansion efforts, we expect capital expenditures for Q1 to be approximately $95 million to $100 million. And we expect depreciation and amortization to be $23 million to $25 million. Now, let me turn to our view for the full-year 2020. As I just described, the situation in China surrounding the novel corona virus is very fluid. While our Q1 outlook includes our best view of how the corona virus will impact our business in the first quarter. It is very difficult to predict and forecast the longer-term impact. Therefore we are providing you with our best view of 2020 prior to the novel corona virus outbreak so that you can use it as a baseline from which to build your models for the year. This means that you will need to make your own assumptions about how the corona virus outbreak impacts our business over the remainder of 2020. Beyond the Q1 outlook in our commentary for 2020 below, we will now provide specific 2020 guidance at this time. We will continue to monitor the situation closely and update these comments when appropriate. With that, our outlook for 2020 notwithstanding the impact of foreign exchange rates and the novel corona virus is as follows. We anticipate total revenue growth for the company Invisalign and iTero to be at the low end of our long-term operating model target of 20% to 30%. We anticipate Invisalign volume to be at the low end of our long-term growth model target of 20% to 30%. On a GAAP basis, we anticipate 2020 operating margin to be slightly above our 2019 operating margin of 22.5%. We also expect our long-term operating margin range of 25% to 30% to remain unchanged. On a non-GAAP basis, we expect 2020 operating margin to be approximately 3.5% higher than our GAAP operating margin excluding stock-based compensation from operating income. On a GAAP basis, our 2020 tax provision will include approximately $1.4 billion of tax benefit in Q1 associated with the recognition of a differed tax asset related to the intra-entity sale of certain intellectual property rights. This differed tax benefit will be amortized starting in 2020 and continue into subsequent quarters and years. The period over which this tax benefit will be recognized depends on the profitability of our Swiss headquarters and therefore is uncertain at this time. On a non-GAAP basis, excluding the one-time tax benefit from the intra-entity sale of certain IP rights as mentioned above and a tax benefits related to stock-based compensation we expect our tax rate for 2020 to range from approximately 22% to 23%. With that, I'll turn it back over to Joe for final comments. Joe?

Thanks John and thanks to those of you joining our call today. Overall, 2019 was a great year for Align and I'm very pleased with the strong performance for both our Invisalign and iTero businesses. Not only did we celebrate our 22nd year in business but we also achieved several major milestones including our 8 millionth Invisalign patient, 2.4 billion in revenue for the first time. As we kickoff 2020, we're very concerned for the safety and health of our employees, customers, doctors, and their patients in China. The wellbeing is our top priority and we are doing what we can to ensure that they are on good hands. We're working with our local teams to donate medical supplies and provide funding to help combat the outbreak. Like SARS in 2003, the corona virus is already having a major impact on China and may expand to other countries around the world. I saw and experienced this impact as the CEO of [GE] Healthcare. We expect that like SARS emerged before it, in time the virus will be addressed, the markets will assume an equilibrium and our business in China will continue to grow. The timing of this is uncertain but the future growth opportunity for our business in China is certain. While we are mindful of the increased uncertainty in China and its impact on our Q1 outlook, it's important to take a step back and remember that our business is broad and deep. We have a strong growth in other regions and are seeing strong momentum in the Americas, across EMEA and an in all other countries and APAC especially Japan, Australia and New Zealand, South-East Asia, Taiwan, and Korea. In closing, I want to share with you a few thought of you regarding the future of our industry. Never before I have seen an amount of change in products, technology, distribution channels and business models. Align has always believed that the market opportunity for clear aligners is significantly larger than the underlying orthodontic case starts each year. We believe that over 300 million people want a better smile and the best way to access that potential patients is through doctors. Using a digital approach with iTero scanners and the Invisalign system. Our partnership with doctors is a critical part of how we win with consumers and we will continue to insist that patients visit a doctor in person for Invisalign treatment. If I could leave you with one thing is that Align is not just a provider of the best clear aligner in the industry and our clear aligner is not just a piece of plastic. Align is founded on digital, IT data, artificial intelligence, software, algorithms, digital scanning and 3D printing. We are the largest mass customized business the world has ever seen. Each Invisalign aligner is the output of millions of lines of code in 1000s of digital actions that allow us to ship 0.5 million customized Class II medical devices a day. As a digital leader, we must continue to provide doctors with the best technology and tools to help them treat any patient. In 2020, we expect to bring several new products and systems and services to market. But we must provide more than just individual products. In digital, you pick a platform not a product. You pick a company you believe in for the long-term. Digital dentistry is being driven by products like iTero scanners and Invisalign clear aligners. And we believe our digital platform is setting the foundation for the future of dentistry. Aligner and doctor partners are sitting on the edge of one of the biggest areas of growth that dentistry has ever seen. And we are excited about what this means for our business and continued growth prospects in 2020 and beyond as we continue to transform smiles and change lives. With that, I want to thank you again for joining the call. I look forward to updating you on our progress. As the year unfolds, we'll see many of you at the Chicago Mid-Winter Meeting next month as well as the industry and financial conferences throughout the year. Including our Analyst Meeting on May 12 in New York City. Now, I'll turn the call over to the operator for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Nathan Rich with Goldman Sachs. Please proceed with your question.

Hi good afternoon, guys. Thanks for the question. Joe, maybe just to start on China. The revenue headwind that you guided to, I think it's kind of 60% or so of your kind of total China volume. Can you talk maybe just about what you've seen so far in January that kind of that you used to kind of inform your estimate of the case and revenue impact and if we continue to see this play out, can you kind of think about how to think about how we should trend the impact going forward.

You know Nathan that that we framed it as well as we can in the first quarter. I mean, that's and that's what we can see right now. I think our responsibility when you think about it is we're through January right now, we can take a look at our order rates. And we can responsibly make the prediction that John just did that we're going to 20,000 to 25,000 cases that we think are going to be pressured on. Then unfortunate part of this whole thing is we say we're on the dark side of the moon right now because of Chinese New Year and our order rates drop off to a point that you hardly see them. And it's not just now, it's been every year since and since. The government there is extended the holiday's for another week or so and it could go on. We really don’t have, we just take our best guess on that 20,000, 25,000, and we're not ready to project, I'm not ready to project anything into the second quarter and the rest of the year. Remember, going back to SARS, I talked about I was involved in that at GE Healthcare is that I remember took six months from the initial infection rate all the way to not to that ended but it actually stabilized and things got back in gear again, so. We know that it'd be more than the first quarter it will be impacted but none of us were ready to give any kind of a forecast just to extend to that.

That's fair. And then, maybe just a question on the America's GP growth. There is a nice acceleration in the quarter, utilization also takes higher. You've obviously put a lot of investment into that channel. Can you maybe just talk about some of the traction that you're seeing among the GP base that you serve?

Yes. There is, it is multiple levers we pull in that sense, all right. We have more of a segmentation around GPs today from a sales standpoint. You'll see that accentuated as we go into 2020. We have a product called iGo that it just fits the workflow aspect and sees produce extremely well. Then you have to add to that the extra salespeople we put in last year. A lot of those salespeople were making GP cost but there is just and you know there is only so far it go for the orthodontic community. And the last part of that, we have a huge amount of increased advertising from a consumer standpoint. I read about the consumer hits for new interest in Invisalign which are pretty outstanding when you look at it from a year-over-year basis. So, it's really all those variables we see are being put in to place to help to drive that growth.

Thanks, Nate. Next question, please?

Our next question comes from the line of Kevin Caliendo with UBS. Please proceed with your question.

Hi, thanks. Thanks for taking my call.

Hi, Kevin.

Just a quick one on China. Hi. So, quick one on China. The how is it impacting the training of the doctors in China. Obviously, it's impacting your revenues. But is it impacting the overall expansion of your business there as well so that as we think about the number of doctors and think about the number of dentists there that will be in registered Invisalign users. How do we think about the impact this is going to have on that as well?

Kevin, honestly it's a good question because that is a variable in the equation just to think of. So, right now you can imagine when you have a contagion like this, you don’t want a lot of people hanging out together and Chinese government knows that and we know it too. Our training facilities are in Shanghai and also Chengdu. There is obviously there is infection rates in those areas but they're not like the major provinces that have been impacted so far. But my anticipation is after the holidays you would just have to watch and see exactly what develops in the different provinces in China and what that means. If it's not and you know a big issue in Shanghai or Chengdu or whatever obviously we'll bring doctors and train them. But we're not in a position to even guess on that right now. But is a great question, it's a key variable and you must think develop will certainly come back after the first quarter and let you know.

And just one quick follow-up, as we talk about sort of expectations around margin expansion embedded in your 2020 guidance. Can you just a little bit of apples to apples on what you expect if we were to sort of back-in to your non-GAAP gross margin or operating margin expansion, what's sort of embedded in the non-GAAP side year-over-year?

Yes Kevin, this is John Morici. Yes, we would expect it to be slightly up both on a GAAP and on a non-GAAP basis for operating margin as well as growth margin.

Okay great, thank you so much.

Yes, thanks Kevin.

Our next question comes from the line of John Kreger with William Blair. Please proceed with your question.

Hi, thanks very much. John, first one's for you. Just to clarify that the full-year '20 commentary that you gave us, does that reflect a weaker first quarter from China but the rest is up to us or does it not reflect the Q1 hedge, I just wanted to clarify that.

It's the latter, it does not reflect any impact from China.

No impact from China. Okay, that's helpful. And then Joe, again just ticking on the China theme. If we think about over the last year the rates of growth that you guys have experienced in that region have been all over the place. From your perspective, what do you sort of view sort of the new normal there in terms of once we get beyond the infection outbreak, is a 20% is it a 50% - do you have an update if you're on it.

John, I don’t. I mean, because obviously we're in the storm right now and just trying to get through what that looks like. As I said in my script, if you think about, as we came off the third quarter, we had a really good teen season, we didn’t have as much of an adult pickup in the fourth quarter as we'd hoped. But again it was double digit growth and it's still robust growth but not the 50% to 60% that we had joined in China for several years, so. I'd say John I'd like to give that to you, I can't reliably give it to you now but its double digit growth. We continue to make our investments, we are continued to be excited about. China is our second biggest market and we don’t think that's going to change but we certainly got to get through this cloud before we can give you something definitive in that sense.

Great, thank you.

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

All right, thanks guys. Good afternoon.

Hi, Jon.

So, let me throw out a couple of growth rates on China just that kind of you some implied that. I mean with 20,000 to 25,000 fever cases in 1Q. It seems like you're implying that China's down 50% year-over-year in the first quarter in case volumes. And that would even be considering corona virus just sort in that there from the entire quarter from a Rev Rec standpoint. So, is that in the ballpark that we're seeing sort of that magnitude of a de-sell. Then maybe the follow-up to that first question would be more importantly what do you think about these cases, are they lost, are they delayed, are they some sort of a combination with you?

Hey Jon, this is John. I think you're in the ballpark I think when you look at what we see from China. I mean, it's certainly last year was significant growth in Q1 and this year obviously impacted by the corona virus It's difficult to say from other cases lost or delayed and so under certainly for this time period they're not they're not happening it's difficult for us to see afterwards after this period of time to see whether those cases come back or not but at least for the first quarter here we're assuming that they're not going to come into the quarter.

Okay got it. And then maybe to shift gears and I don't want everything lost on China Joe you highlighted and I think for the first time quantified the number of map and teams and Invisalign first cases pardon me. I think the summation was around 75,000 at 450,000 team cases for the year. So this has quickly become 15% to 20% of your teen cases maybe you can just talk to that do you still see hyper growth for those two offerings into 2020 and beyond and maybe there's an update on palatal expansion as well? Thanks guys.

Hi Jon I'm really excited about the [map] gross when you see that and you remember map 2 it's kind of age contained, it's a growth aspect between like you know 10 years old and 12.5 years old that really fits but when you take map and you combine that with first that is about 20% to 25% including palatal expansion of the team marketplace. So the idea that that's 15% to 20% of our team cases you talked about matches are pretty well in the sense of what we're seeing in the marketplace overall. I do think you'll continue to see this hyper growth out there. It is a great solution. We look at teens first and how it works. You don't see it John but we continue to improve map all the time. We learn about anchorage on back molars and certain kinds of teeth and whatever. We program those things. We have silent releases but piece by piece we get better at being confident and moving those class two things forward. So overall we're excited about it. I'm confident about the technology. Lastly on the palate expansion piece we know how to make this. We have the right kind of software to develop it. The trick is finding something that you can actually scale from a manufacturing standpoint and get consistent properties with it. And I feel we've been closing in on that rather fast. So we'll give you more of an update as we go into the investors conference in June, I mean in May on a more specificity around that kind of a launch date.

Fair enough. Thanks for your time guys.

Okay. All right. See you John.

Our next question comes from the line of Richard Newitter with SVB Leerink. Please proceed with your question.

Hi thanks for taking the questions. John I have two for you. Just going back to your comment on your experience with SARS the last time and the impact on the business you are running there at GE, can you maybe just give a little bit more color what's the definition of stabilization and kind of maybe just talk through some of the visibility that was able to come into focus and how that happened over that six-month time period? And then I have a follow-up. Thanks.

Yes. It just really interesting is to say when I talk about stabilization it means infection rate is how when you start to get to that plateau about not an increase in infection rate but a decrease and you'll see that that's kind of the deceleration and that indicates that it's kind of under control. Again what I learned in 2003 about China is and I think in the Western world we missed this sometimes, it's how much influence the overall government influences there. You can see they change holidays. They lock down cities. They take drastic measures to try to deal with these things. It's something it’s really unheard from a Western world standpoint. I think we kind of have to respect that that it's a society that will respond to these kind of things in a way that we're not necessarily used to which is actually good for the population because they're just trying to isolate it and contain that thing because depending that virus hasn't quantified yet with exactly it's infection rate meaning how many people are infected per person is infected but the numbers are jumping around but this is in the area of SARS and so I think the best proxy we can have right now is a SARS side. So that's the two things as one is when a plateau is when fewer people are being infected you see that curve start coming down and then secondly is how fast the Chinese government will move and that's why we're staying close with what's going on there and just staying behind the government and trying to support their actions.

Okay Rich.

Okay. That's helpful. Great.

No, nothing.

Okay. Just to follow up here on I appreciate the operating margin guidance excluding the China factors here but let's just say there is some extended impact moving through the year. What's your, how are you thinking about your approach to operating margins if there were to be kind of an extended shortfall in revenues in that region and would you kind of go full blast on the spend or is there a target that you'll kind of look to on preserving leverage, thanks.

Hey Rich this is John. It's probably too early to tell that now. I mean like we said we're kind of in the dark side right now of the extended Chinese New Year. We'll see how things progress as we come out and make that assessment. I mean as we've talked about a number of times in our business there's a lot of different leverage that we can pull or not pull based on the conditions that are going on in a particular market and we would assess that as well with China.

Our next question comes from the line of Matthew O’Brien with Piper Sandler. Please proceed with your question. Matthew O’Brien: Good afternoon. Thanks for taking my questions. Just a couple here and hello one was asked a little bit earlier just about the deferral of these cases. I mean if they're locking everybody down in China at this point it's not like they're going to be getting brackets and wires. So I'm just trying to figure out you know why this wouldn't come back in eventually and then if it were to come back in say in Q4 timeframe or something like that could you do upwards of 50,000 cases in a quarter? So like all of us have come running back to you fairly quickly if be all clear with signal?

You know Matt could we do 50,000 cases yes. I mean we have capacity. We have both treatment capacity and we have bleed off capacity obviously through Mexico and Costa Rica if we were overwhelmed in China what we have there too but Matt my experience in this business is if things don't happen like that that you don't get this kind of a bow wave that comes after something like this and so it's not that you lose those cases from an adult standpoint they just get pushed out into the future but they don't come back to you all at once. It's just latent demand. The only exception I would make to that that I would guess that the teen season because teens are kind of times based on their age that you have a little more what I call bolus effect there. You have a bow wave that you've really capitalized on teens but it wouldn't occur that way with adults. Matthew O’Brien: Okay. Can you give us, so it's fair to assume that this is not lost revenue. It will come back at some time. Can you give us any sense for the split between the two teens versus adult over in China?

No, at this point in time given what we're seeing over there I can't even guess that. If you're asking for historical splits I don't think we've shared that data in the past and just know that our third quarter is always our biggest quarter in China and it's the biggest because it is teen season. So if you take that look at historically you'd see what those numbers look like on adult versus teen. Matthew O’Brien: Got it. One quick one for John just on gross margin. It's come down over the last kind of three years to the low 70s in 2019. A lot of moving parts here but how do we think about that metric going forward? Are we kind of getting close to the bottom on that metric or should we expect more kind of annual erosion of that metric?

Well, I think you saw that our gross margin improved a 60 basis points in Q4 from Q3 and we would look into the future to expect that with the cases that we do sometimes more difficult versus even the non-comprehensive cases we know how to drive that gross margin and we'd expect to see improvement in 2020 and beyond. Matthew O’Brien: Thank you.

Thank you Matt.

Our next question comes from the line of Stephen Beuchaw with Wolfe Research. Please proceed with your question.

Thanks for the time here. Hi, I wanted to try to maybe put a rosier lens potentially on China for just a second. So we can consider the possibility that things do resolve. One is and I am sorry if I missed this but did you try to grow through the fourth quarter and then the second part of it is if this ends up isolated to Wuhan or the province surrounding Wuhan how does that change your view on the impact of the business?

Hey Steve it's Joe. It would obviously change it because now you segment what the issue is in China but I don't have a guess in the sense of what that would mean. I mean when you think about it obviously Shanghai is a big part of our business and more north of that Beijing is to I'd say the coastal provinces or whatever have always been pretty big. So I think your comment would be if it's just isolated to Wuhan or generally isolated Wuhan the effect won't be as dramatic but I can't, I really can't quantify it Steve. And I find it kind of surprising that it’s not that the infection rates going to reach the other provinces the way it has Wuhan it's just the Chinese government will take the same steps there to make sure that whatever infection is they do have in those regions don't end up being like Wuhan. Does that make sense?

It makes a lot of sense and I'm sorry did you give China growth for 4Q?

No, we didn't Steve. It's similar growth that we saw in Q3.

Okay. Perfect. Thank you and then John just a couple of quick one’s for you and then I'll drop back into queue. One is are you willing to give folks a sense for how much of the benefit on the margins in 2020 there is tied to the wind down of the Netherlands facility or some of the legal expenditures winding down and then can you give a sense for what your assumption is for pricing year-on-year and the outlook for 2020? I really appreciate that color here. Thank you.

Yes. When you look at some of that litigation and some of those entity restructuring programs it was about, it impacted us in 2019 by about a point of margin. So essentially that's a benefit for us in 2020 and that's part of our expansion but when we look at the expectations for 2020 and a comparison versus 2019 we would expect margin expansion and whether using GAAP or non-GAAP based on the leverage and the investments that we're making.

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

Thanks. Good afternoon. Joe, I don't have a question about China. Actually I want to talk about the U.S. I am curious if you've seen any, just curious to get your latest views around just the competitive environment between DTC and then the office and also notice you put Frank Quinn in a new role in terms of head of the U.S. curious about the rationale behind that and whether that's a reflection of a bigger focus on perhaps the DSO channel?

Brandon that's a good question actually. That's a good deep question. First of all I mean you saw our growth in the Americas for the fourth quarter. It's good. It's accelerating in a GP channel and good progress in the Ortho channel. So obviously I feel good about, I talked about in a previous caller in the sense of the investments we've made in sales people and advertising products and all that we have in those different channels and we look at that going forward we feel good about that capability. From a DTC standpoint we've always stuck with what we said. I mean we know that DTC will go after some of the same patients we do but we haven't necessarily felt an impact in that sense and you see us pushing hard in the sense of our product and portfolio to go after that. We talked about 100 million patients that we think want treatment from an orthodontic standpoint in North America. Other competitors, honestly they're out there. I can't say that we've made any price moves against them. We haven't necessarily felt that we have lost any significant volume in any consistent way and so I don't have anything different to report from that standpoint and I did the previous quarters that we had a discussion. I think when you're hearing about that too Brandon it's what I think we've been consistent for the last two years. When I talked about at the end of my script about this digital platform there's a lot of work you have to do to compete in this marketplace. It's not like just I could produce a plastic aligner and then I can have a material difference in how aligner is effective in the marketplace. There's just so many things you got to be good at in this business from a logistic standpoint, from a manufacturing standpoint, your digital platform, how it serves consumers and what it does with docs. You got to be able to play really well on multi dimensions and I'm not saying that none of our competitors will reach that they're just not at that scale right now but I think that it's made a tremendous difference to us in any way.

Thanks and then there is question about –

I am sorry. On Frank I'm sorry, on Franky, but Frank is a great commercial leader. I know he's associated with DSOs and he helped to put us on the map with DSOs with his leadership but overall Frank he came here with good external experience from a sales and dental standpoint. He has really helped the business that way and I thought he is a perfect pick for us to really help to I say to really help us not just extend what we do but to put a lot of focus from a commercial standpoint in our business. So we're excited about Frank. He has a good relationship with Simon. He has great experience from Europe also and taking some best practices there and implementing them. So we're excited about Frank and Simon probably the North American team.

And a question about the Invisalign moderate. Any early feedback you can share on that rollout as an international launch in the works and just curious about your thoughts in terms of whether you might see more trade up from Invisalign light rather than more so than trade down perhaps from a more comprehensive case for those patients?

Yes, I think we haven't actually documented much trade up from light product line. It's most of it have been trade down from a comprehensive but remember when you trade down on this product line it still has a gross margins. It's accretive to our business and decretive in that sense. So we're allowing more choice for our patients, allowing more choice for our doctors. But we're not doing this to an extent that it really hurts our operating profit.

Thank you.

Yes. See you Brandon.

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

Hey guys thanks. Good afternoon. Joe I missed the prepared remark. So I'll go back to the transcript on that but just a question one other on China just maybe you addressed it but are you seeing any bleed outside of China any of the tangential markets where patients there also has been to go to hospital settings dental settings, dental office settings things like that any early indications of anything brewing like that?

No, Jeff nothing like that so far. We haven't seen anything anywhere around the world in that sense. Hong Kong has been kind of locked down since the protest or whatever so it's hard to get its signal out of there one way or another but Taiwan, Korea some of the neighboring countries Southeast Asia we haven't seen anything.

All right. That's helpful and then in the GP summit late last year Joe you made a big effort I thought to kind of at least put in people's head the idea of around a $2500 price point, $3,000 price point things like that. We've anecdotally been hearing some guys dropping their prices there to compete more against the DTCs. We did some survey work though and didn't find that at all in fact I think GPs and orthos both thought their price points that they charged patients going up over the next 12 and 24 months. Just what are you hearing on a more consolidated basis. Are these docs willing to kind of go aggressively after this lower comprehensive or non-comprehensive market and use some of your newer product to do that and really get after that 100 million patient population in North America.

Yes, Jeff it's funny. It’s not funny but it's really interesting there's a lot of noise out there right and it's just your question is how do you pull signal from noise out of this whole thing and what we feel is obviously there's a lot of doctors both GPs and orthos. There is a segment, a significant segment of them that see really a clinical build meaning if you don't have to do a complete bite reconfiguration on. You can responsibly move anterior teeth to give a good smile without having to move molars and other aspect of what's going on. Those doctors see this progressive as a maybe I'll fix the anterior teeth for a lower price and then move to a full bite correction at some point in time the patient wants to go. But we see both orthodontists and GPs a certain segment of them really engaging in that sense. So we feel the comment there's enough doctors out there that want to hit this kind of a price point and we'll do it in a very efficient way. Someone look at it doing with maybe two or three touches with a patient rather than constant touches every few weeks and using remote monitoring and those kind of things to see how patients are going. So we actually feel that we can that there are doctors out there with a limited product that will engage in that sense and be able to go after these what we'd call price sensitive DTC patients who are looking for just really an aesthetic correction not a bite correction.

Yes. Fair enough. Thank you.

Our next question comes from the line of Steven Valiquette with Barclays. Please proceed with your question.

Great. Thanks. Good afternoon. My China questions also have been addressed. I'm going to go non-China for a moment. Just the question on the total ASPs. For the portion of ASP that was down sequentially due to the promotional discounts that you alluded to just curious some more color around that whether that's related to maybe a higher volume is being achieved by individual practitioners? It sounds like what happened in mid 18 that nobody probably wants to relive if they can help in or perhaps related to maybe a greater mix a DSO business maybe more discounts for groups maybe less related individuals. Just more color around on the discount that you alluded to. Thanks.

Yes, I think Steve as you look at it we run promotions on a regular basis to be able to drive volume, drive behavior. We see a mix effect of that as well where in Q3 there was more ortho cases and in Q4 more fortunately GP cases but as we said as I've said really throughout the 2019 we expected our ASPs to be relatively flat throughout the year notwithstanding FX and if we looked at where things were a year ago we're up $5 and if you look at the FX impact to that it was a negative $15. So you're going to have puts it takes as you go to the quarters but we saw relative consistency throughout the year on our ASPs.

Okay. All right thanks.

Our next question comes from the line of Michael Ryskin with Bank of America. Please proceed with your question.

Yes, thanks. Same a lot of the China questions have been sort of flushed out. I want to follow up on Steve’s questions just now is sort of how do you think about that moving forward the ASP component as we move through 2020? You highlighted some of the moving pieces you had in 2019 and historically and you've also got a shifting portfolio mix, shifting geographic mix especially with some China events going on? Just wanted to get a sense of how you're thinking about both discounts promotions, the advantage program and the mix shift evolving over the last couple years of [indiscernible] how do you envision ASPs trending down?

Yes, it's a good question Michael. I mean you think of it, just think of them separately for once and then we will go together. So if you look at separately if you look at the comprehensive product relatively consistent. There's not going to, from a promotion standpoint everything else you would expect consistency in those ASPs. Same way from a non-comprehensive product. But when you see the interaction between the two as non-comp grows faster you could see ASPs to be flat to be slightly down as a result of that mix and as we've said and as we saw in the fourth quarter where ASPs even if it's at a lower ASP it still comes with a higher gross margin and we saw that in the fourth quarter. We expect that going forward. So when we look to the future ASPs of course get the headlines but we're really focusing on driving that gross margin and operating margin.

Great and quick one if I may as well on the scanner segment on iTero. Strong end to the year but still sort of not nearly at the same pace you had earlier and I’ve realized part of that is the stat comps but there's also been a lot of noise in the market with some other competitor entrance throughout 2019. Can talk about anything you're seeing at iTero if it's tied to so your DSOs where you sort of exhausted the pool of the installs that you had when you sign on board with them or if it's something from a competitive landscape you're seeing.

I still felt great about the growth iTero business for the year at the 38% and you're right I mean even you look at the capital equipment market in any medical business the fourth quarter is usually the biggest one at people are looking at the what they're going to do from a CapEx standpoint they buy. So it was a tough comparison year-over-year but still growing 20%. I think the best way to think about this Michael there's competition out there. We feel really good about our digital platform that iTero represents, how it competes against any scanner really out there and you see that it's doing well on restorative to as well as from an orthodontic standpoint. So we think we're really competitive but I think the back your question is like how do you model that thing going forward. I think you model that at our 20% to 30% growth rates that we have given you for our business in general and that's what we've done through the many years we've had iTero so far is keeping that range. Sometimes we've been outside that range on the upside or whatever but long-term your model I think of 20% to 30% and a significant amount of that being some services revenue to that really helps in that.

Our next question comes from the line of Erin Wright with Crédit Suisse. Please proceed with your question.

Great. Thanks. Follow-up on iTero, I guess what's the early feedback on the 5D scanner and how should we think about the overall opportunity on that track? Thanks.

The doctor feedback, Erin it's Joe, on the 5D scanner has really been great .I mean the ones that really use it to scan every patient when they come in, they're picking up caries or cavities at a rate that are almost 2x of what they can actually visually see or see through an X-ray and that's driven a lot of new business through those docs and so a lot of this information comes in, I mean obviously outside the United States because the FDA hasn't approved that yet. So we see this near infrared technology that we're being used to see cracks in teeth and caries in teeth. It's really helping from a cash flow standpoint, from a doctor and the cases they're seeing and secondly it's helping patients in that sense be able to identify issues that you can get at a little more proactively before they really become an issue. As far as 5D in the United States I think we've said that I'm never going to guess when the FDA says yes. I've been in class 2 medical device business for too long but our expectation is in sometime in the first half that it will get 5D approval through the FDA.

Thanks Erin. Next question please.

Next question comes from line of Chris Cooley with Stephens. Please proceed with your question.

Thanks for squeezing me in and also thank you for taking a shot at China. Now that's a really fluid situation for you guys this evening. Just from my perspective can we go back to 30,000 [feet] and just looking at the guidance for 20 in terms of growth ex-China you're talking about towards the lower bound of the LRP plan there to say 20% to 25%. Why wouldn't growth inflect higher after the deceleration and from ‘18 to ‘19 it was pretty meaningful. Could you maybe just help us parse that out whether it's the challenging part of comps? If it's a difference in the consumer mix, competition? Just want to try and understand why that wouldn't inflect back up with the strong volume growth that you're seeing globally here in 2018 and 2019 independent obviously of China. Thanks.

Yes, Chris this is John. It's a good question. I mean when we look at the investments that we're making, we invested to as you said that long term growth model where there's international expansion and we continue to expand and grow in two countries. We want to continue to grow our utilization whether it's on the ortho side or the GP side. We look at how we exited. We felt really good about fourth quarter. We feel good about coming into this year and what we want to make sure that as we invest and as we continue to grow we can give you information that we see and as we look at the year and as we look at our investments this is the best information that we can get. Of course as we invest we always look for additional opportunities whether it's growth in other markets, increase utilization and so on and those are things that will do. China gets a lot of the headlines now because of what's happening there but the rest of our business is a good growth opportunity for us and we're making investments within those areas.

Our last question comes from the line of Ravi Misra with Berenberg Capital Markets. Please proceed with your question.

Hi Ravi.

Ravi your line is live are you on mute.

Hi. how are you? Sorry I was on mute. Two quick questions. Thanks for squeezing me in. just on the balance sheet both of them. Number one just inventory days have been creeping up throughout the year. Historically there's been a pretty good working capital business. Can you help me understand why that's the case and what's the kind of new normal expected there and secondly with almost 870 million on the balance sheet just in terms of capital allocation maybe help us think about any changes to the current kind of philosophy of share repurchases. Thanks.

Hey Ravi, this is Joe. I will take the first one on iTero or the balance sheet with inventory. The majority of that increase is on the iTero side as we transition through products with Element 1 to Element 2 and then to 5D there's just some timing related to that but that as we start to sell more 5D and as we increase our volume on iTero that inventory will come down. On the Invisalign side it's pretty consistent to what our growth has been.

On the cash on a balance sheet obviously there is company's amazing cash generator in that way. I just want to emphasize Ravi we're not into the general dentistry business. So don't look us going out to broaden the portfolio in any particular way. We're building what we talked about when I closed about a digital platform and investing in that digital platform is where we're focused on. So we have our Investor Day in May we will re-approach in a sense of the share buyback and what we think we'll be doing with that cash in the future.

Thanks Ravi. Thanks everyone. That concludes our conference call today. We appreciate you taking the time. As a reminder we did send out information today the date for our Investor Day in May 12 in New York City. If you have any questions please contact Investor Relations. Have a great day.

Ladies and gentlemen this concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.