Greetings, and welcome to the Align Technology Second Quarter 20 17 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms.
Shirley Stacy, VP, Corporate and Investor Communications. 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 Marici, CFO. We issued Q2 2017 financial results today via MarketWired, which is available on our website at investor. Aligntech.com.
Today's conference call is being audio webcast and will be archived on our website for approximately 12 months. The telephone replay will be available today by approximately 5:30 p. M. Eastern Time through 5:30 p. M.
Eastern Time on August 10. To access the telephone replay, domestic callers should dial 877-660-6853 with conference number 13665,263 followed by pound. International callers should dial 201-612-7415 with the same conference number. As a reminder, the information that the presenters discuss today will include forward looking statements, including statements about Align's future events, product outlook and the expected financial results for the Q3 of 2017. These forward looking statements are only predictions and involve risks and uncertainties that are set forth in more detail in our most periodic reports filed with the Securities and Exchange Commission.
Actual results may vary significantly and Align expressly assumes no obligation to update any forward looking statements. We have posted historical financial statements, including the corresponding reconciliations and our Q2 conference call slides on our website under Quarterly Results. Please refer to these files for more detailed information. With that, I'll turn the call over to Align Technology's President and CEO, Joe Hogan. Joe?
Thanks, Shirley. Good afternoon and thanks for joining us. On our call today, I'll provide some highlights from the quarter and then briefly discuss the performance of our 2 operating segments, Clear aligners and scanners. John will provide more detail on our financial results and discuss our outlook for the Q3. Following that, I'll come back and summarize a few key points and open up the call to questions.
Our Q2 results were better than expected across all key financial metrics, including revenue, volume, margins and EPS. Q2 revenues increased 32.3% year over year, driven by strong Invisalign case shipments across all channels and especially in the teen segment. Solid execution of our strategy and key investments continue to deliver strong growth across the board with record Invisalign volume in almost every geography. Q2 also had an all time high of nearly 5,000 newly trained doctors in the quarter for the first time ever. And our Tiara scanner business also performed well this quarter with revenues up 36.7% year over year.
For Q2, North America Invisalign case volume was up 10.3% sequentially and 27.6% year over year, reflecting strong year over year growth on both orthodontist and GP dentist channels. Continued uptake with teams drove Invisalign growth in North America and contributed to another record quarter for ortho volumes, up 34.5% year over year and in utilization up to 13.6 cases per doctor. Q2 volume for North America GP Dentists increased 18.9% year over year, primarily reflecting continued expansion of our GP customer base and utilization growth, which increased to a record 3.3 cases per doctor. Q2 was the 1st quarter we offered Invisalign Lite in North America and we saw solid uptake, especially among GP dentists. Invisalign Light includes up to 14 stages of aligners and intended to treat simple to moderate cases.
Q2 Invisalign volume for international doctors was up 13.6% sequentially and 37.4% year over year, driven primarily by new customers in both EMEA and APAC regions. In EMEA, Q2 volumes were up 33.2% year over year. All five of our core European markets showed record growth rates led by Spain and the UK. Expansion markets also had record volume with over 50% year over year growth led by Central and Eastern Europe and the Benelux. In Asia Pacific, Q2 volumes were up 44.4% year over year led by China, where we trained over 1,000 doctors for the first time, followed by growth from Southeast Asia, Japan and ANZ.
Turning to the teen market, over 55,000 teenagers started treatment with Invisalign clear aligners in Q2, up 12.6% sequentially and 37.6% year over year, reflecting continued acceleration above adult case volume growth. North America ortho teen cases increased 11.6% sequentially and 42.1% year over year compared to adult cases of 9.8% 30.5%, the 3rd consecutive quarter teen growth rate that has been above adults. International case shipments to teen patients increased both 13.7% sequentially and 40.5% year over year as well. In Q2, we expanded commercialization of Invisalign treatment with mandibular advancement to select countries in EMEA and APAC. Math, as we call it, is the first clear aligner solution for Class II correction that advances the mandible while moving teeth at the same time.
While it's still very early in adoption cycle to date, we're pleased with the initial update and expect to see continued ramp up over the course of the year. Invisalign treatment with mandibular advancement is not available in the U. S. Yet where it's pending FDA approval. Invisalign brand and our consumer marketing campaign programs continue to be key factors in raising awareness and creating demand for Invisalign treatment.
In Q2, we continue to benefit from our investments in new programs as well as optimizing online spending and media mix for existing programs. In U. S, we launched our new teen focused marketing campaign in May that aims to educate teens and their parents, moms especially, about the benefits of teeth straightening with Invisalign clear aligners. It also works to ensure that teens know Invisalign treatment is the best option for their lifestyle. The new program contributed significant growth in consumer demand during the quarter that helped drive Invisalign teen volume.
Our teen campaign expands to the Invisalign Made to Move campaign that we introduced in March, and we continue to see positive impact from the overarching campaign on consumer interest as well. Specifically in Q2, we saw 23% year over year increase in unique visitors to our website and achieved significant growth year over year in doctor locator searches. We also saw a continued uptick in adult male patients as compared to females as a result of our changing consumer targeting approach. In EMEA, early results show the Invisalign Made to Move campaign is resulting in higher engagement with consumers across digital display, PPC and social channels. During the quarter, we piloted new social media formats that delivered exceptional results Pinterest, Facebook, Canvas and Instagram, all outperforming benchmarks.
Social media remains a key driver delivering 200% more users. Although we also saw a significant increase in the number smile assessment completions plus 22% and total leads plus 30% and we'll continue to roll out the Made to Move campaign across the remaining countries in EMEA in Q3. In the Asia Pacific region, our Q2 customer marketing campaigns focused primarily on Australia and New Zealand, where we saw momentum from our summer campaign featuring Invisalign ambassador John Dunness, a well known TV host and personality in Australia. The campaign shares Jason's personal journey of how Invisalign treatment helped transform his smile and his career, along with a call for consumers focused on their New Year's resolution to improve their lives by getting the smile they've always wanted. We also continue driving Invisalign website doctor locator visits by reaching out to potential patients who engaged with our ads and banners in Q1.
And in India, we were just getting started, we participated in Beach Fashion Week, where the Invisalign brand was a beautiful smile partner. In Q2, our scanner revenues increased 36.7% year over year and 26.9% sequentially. In May, we announced the new iTero Element 1.5 software upgrade, which includes 2 key features, time lapse and 1 minute scan. Time lapse compares a patient's prior 3 d scans to their most current scan and gives doctors an enhanced visualization assessment and communications tool that can help them provide additional treatment recommendations. 1 minute scans enable practitioners to complete a full arc scan in less than a minute with the same accuracy and reliability practitioners have come to expect from iTero scanners.
The use of our iTero scanners for Invisalign case submissions in place of PVS impressions continues to expand, remains a positive catalyst for Invisalign utilization. In Q2, total Invisalign cases submitted with a digital scanner in North America increased to a record 59%, up from 47% in Q2 of last year. In the doctor directed at home channel, Q2 was our 2nd full quarter supplying clear aligners to the Snod Direct Club or SDC. Q2 shipments to this new channel were strong and nearly tripled sequentially off a small base. As their exclusive third party supplier, we produce roughly 1 third of SmileDirectClub's clear aligner volume and they manufacture the remaining amount.
In Q2, SDC continued to invest significantly in consumer marketing, including TV advertising, print, online media, including social media, which we believe has a positive effect on both SDC and Invisalign demand. They also opened several new smile shops in the U. S, which are continuing to ramp. Overall, we're excited about the long term potential for the at home doctor directed market, remain pleased with our investment and supply agreement. Today, we also announced that we have purchased an additional 2% of SmileDirectClub for $12,800,000 which brings our total ownership to 19%.
We've extended SDC's line of credit from $15,000,000 to $30,000,000 Finally, before I turn the call over to John, I want to provide a brief update on our operational expansion plans. In June, we opened a new treatment planning facility in Chengdu, China, which services and supports our customers within China. It also serves as a clinical education and training center for all of our customers across Asia Pacific. We have been steadily migrating Chinese Invisalign cases to Chengdu and are continuing to train new technicians and improve lead times. We will also open a treatment planning facility to support our EMEA customers in Cologne, Germany in Q3.
With that, I'll turn it over to John.
Thanks, Joe. Now for our Q2 financial results. Total company revenue for the 2nd quarter was a record 300 and $56,500,000 up 14.9 percent from the prior quarter and up 32.3% from the corresponding quarter a year ago. Clear aligner revenue of $321,000,000 was up 13.7% sequentially, driven by primarily by better than expected Invisalign shipments and higher Invisalign ASPs. Year over year clear aligner revenue growth of 31.9% reflected strong Invisalign shipment growth across all customer channels and geographies and increased prices.
This was partially offset by product mix shift to non comprehensive products, primarily driven by increased sales of SDC clear aligners, higher discounts and unfavorable foreign exchange rates. Q2 Invisalign ASPs were up sequentially approximately $15 from Q1 to $12.85 reflecting price increases and favorable foreign exchange, partially offset by increased promotional discounts. On a year over year basis, Q2 Invisalign ASPs were flat, reflecting price increases offset by increased promotional discounts and unfavorable foreign exchange. For the Q2, total Invisalign shipments of 231,900 cases were up 11.5% sequentially, driven primarily by our international doctors and North American orthodontists. Year over year, Invisalign case volume growth was up 31%, driven by growth across all regions as well as expansion of our customer base, primarily from Asia Pacific.
For North American orthodontists, Q2 Invisalign case volume was up 10.5% sequentially and up 34.5% year over year. For North American GP Dentists, Invisalign case volume was up 9.9% sequentially and up 18.9% year over year. For international doctors, Invisalign case volume was up 13.6% sequentially and up 37.4% year over year. Our scanner and services revenue for the 2nd quarter was $35,400,000 up 26.9% sequentially and up 36.7% year over year. Moving on to gross margin.
2nd quarter overall gross margin was 76%, up 0.1 points sequentially and down 0.2 points year over year. Clear aligner gross margin for the 2nd quarter was 78.1 percent, up 0.2 points sequentially, primarily due to leveraging our manufacturing costs over higher volumes. Clear aligner gross margins were down 0.5 points year over year primarily due to lower ASPs. Scanner gross margin for the 2nd quarter was 56.7%, up 0.6 points sequentially, primarily due to lower services cost on our installed base and partially offset by lower ASPs. Scanner segment gross margin was up 3.1 points year over year, primarily a result of lower service costs and product mix shift to our lower cost iTero Element Scanner.
Q2 operating expenses were $187,300,000 up sequentially by $13,400,000 or 7.7 percent, primarily related to increased employee headcount, marketing programs, including our advertising campaigns, key customer events and international commercialization efforts. On a year over year basis, Q2 operating expenses were up 33.7%, reflecting increased headcount and continued investment in our go to market activities critical to the growth of the business. Our 2nd quarter operating margin was 23.4%, up 3.5 points sequentially and down 0.8 points year over year. The sequential increase in operating margin relates primarily to increased clear aligner volume. On a year over year basis, the decrease in operating margin primarily reflects higher operating expenses as we invest in headcount, geographic expansion and new products in order to increase adoption and accelerate the growth of our business.
With regards to our 2nd quarter tax provision, our tax rate was 17.7%, which includes $1,100,000 in excess tax benefit and is down by approximately 5.5 points compared to prior year, primarily due to a favorable resolution of foreign jurisdiction unrecognized tax benefits during the quarter. We supply aligners to SmileDirectClub and therefore revenue and cost for this activity are included in our operating profit and reporting results, although they were immaterial to the company this quarter. Additionally, we report our share of SmileDirectClub's losses below operating margin and our tax provision and is entitled Equity and Losses of Investee Net of Tax. Our Q2 loss net of tax was approximately $2,200,000 or $0.03 per diluted share. 2nd quarter diluted earnings per share was $0.85 flat compared to Q1 and up 37% compared to prior year.
Moving on to the balance sheet. As of the Q2, cash, cash equivalents and marketable securities, including both short and long term investments, were $676,600,000 This compared to $644,200,000 at the end of Q1, an increase of approximately $32,400,000 primarily related to net income growth in our collections efforts. Of our $676,600,000 of cash, cash equivalents and marketable securities, dollars 218,400,000 was held by the U. S. And $458,200,000 was held by international entities.
Q2 accounts receivable balance was $291,700,000 up approximately 9.2% sequentially. Our overall DSO was 74 days, down 3 days sequentially and up 10 days year over year. The year over year increase is a result of our ERP and other related systems implementation last July, which have impacted our timing of our customer collections. As we work through these changes, we anticipate that our DSOs will continue to decline over the next few quarters. Cash flow from operations for the Q2 was $110,500,000 up $34,300,000 compared to prior year.
Free cash flow for the Q2, defined as cash flow from operations less capital expenditures, amounted to $92,000,000 Capital expenditures for the Q2 were $18,500,000 primarily relating to building improvements, equipment purchases for additional manufacturing capacity as well as our global expansion efforts. During the 2nd quarter, we paid $50,000,000 under an accelerated stock repurchase plan, ASR, in which we received an initial delivery of approximately 300,000 shares of common stock. The final number of shares repurchased will be determined at the completion of the ASR based on Align's volume weighted average stock price during the term of the ASR, less than agreed upon discount. There remains approximately $250,000,000 available for repurchases under the existing stock repurchase authorization. And as Joe mentioned earlier, we have purchased an additional 2% of SmileDirectClub for $12,800,000 which brings our total ownership to 19% and we extended SDC's line of credit from $15,000,000 to $30,000,000 All other terms remain the same.
With that, let's turn to our Q3 outlook and the factors that inform our view, starting with the demand outlook. For our international market, expect Invisalign volume to be up sequentially, which reflects continued strong growth in APAC, partially offset by summer holidays in EMEA. For North America, expect Invisalign volume to be flat to slightly down sequentially, reflecting stronger teen volume for orthos, offset by GP dentists who typically have less days in the office and lighter patient traffic during the summer. For our scanner business, expect revenues to be up sequentially. With this as a backdrop, we expect the Q3 to shape up as follows: Invisalign case volume is expected to be in the range of 231000 to 234000 cases, up approximately 30% to 32% over the same period a year ago, reflecting continued strong demand, including summer seasonality in North America, ortho and Asia Pacific.
We expect Q3 net revenues to be in the range of $355,000,000 to $360,000,000 an increase of 27% to 29% year over year. We expect Q3 gross margins to be in the range of 74.7% to 75.7%, reflecting higher ASPs, partially offset by higher expenses as we globalize our treatment planning operations. We expect Q3 operating expenses to be in the range of $184,500,000 to $187,500,000 relatively flat on a sequential basis. Q3 operating margin should be in the range of 22.7 percent to 23.6%. Our effective tax rate, including an excess tax benefit of about $1,000,000 should be approximately 21%.
We expect a $2,000,000 loss related to our share of SmileDirectClub and diluted shares outstanding should be approximately 81,800,000 exclusive of any share repurchases. Taken together, we expect our Q3 diluted earnings per share to be in the range of $0.78 to $0.81 In addition, as we continue to operationalize expansion efforts, we expect CapEx for Q3 to be approximately $70,000,000 to $75,000,000 which includes purchasing a new facility in Costa Rica for $26,100,000 With that, I'll turn it back over to Joe for final comments. Joe?
Thanks, John. Overall, we're pleased to see the first half of the year off to such a strong start. Many of you have already recently think of a question about us being at a tipping point. And I'm sure we'll get that question following today's calls. Frankly, we think it's too early to tell.
The growth we're seeing in our business is better than we expect and reflects progress in several areas, including clinical efficacy, sales coverage and support models, customer engagement and demand generation and patient capture. We believe it also reflects a healthy underlying market with solid patient traffic and a significant increase in direct to consumer programs by us and others. There's still a lot of work ahead as we move toward our goal of replacing metal braces and making Invisalign the standard of care in orthodontics. We know there will be challenges and we aren't drawing a straight line up into the right at this point, But we are confident in our ability to drive this industry forward and transform it from an outdated analog process to a fully digital system. Thanks for your time today and we look forward to your questions.
At this time, we will be conducting a question and answer session. Our first question comes from the line of Robert Jones of Goldman Sachs. Please proceed with your question.
Joe, the teen growth the past couple of quarters now, the acceleration has been noticeably pretty steep. Understanding that it's obviously not one factor that's driving this acceleration, is there any couple of areas that you would point to specifically? Anything that you could just help us get our head around what you think is most resonating with practitioners in the marketplace?
Bob, from a a team standpoint overall, I just focused on North America for a second. We mentioned last year when we put our plan together that we would have a strong focus on teens as we go into the Q2 of this year because it's the teen season for North America. What we started that program off with is we had several programs in North America just to get doctors ready for this program overall, next level partnership, a program we call IMOP, some specific things that really focused on teams to get that base ready. And then we start to really unleash the communications part of this, the $14,000,000 or so that we're moving in consumer advertising to do that. So I think when you look at the first half and those two kind of simultaneous actions, that's been really one of the biggest underlying drivers in North America to make that to really go.
That along with our ad campaigns and everything else we put in place that are much more specific these days in the sense of how we go to market, you see how we're working both the teens' channels and the moms' channels from a marketing standpoint also. It's just a much cleaner and more specific approach to teens that includes a real sales effort with our doctors and a real strong customer patient facing piece with moms and teens.
No, I appreciate all that. And then I guess just shifting over, I had a question on North American GPs and then the focus has been on orthos and rightfully so, but notice that the North American GP saw a significant step up from the level of growth you had been seeing. Anything that you would talk to there specifically that you think would attribute to the step up in growth we saw in the quarter?
Yes, I'd say 2 major variables, Bob. One would be just media spend. We've had a significant increase in media spend itself and we have seen a strong correlation between media spend in the U. S. And GP increase.
And then secondly, like our light product that we introduced in the Q2 with the GP segment, we're more and more targeting that segment with easier products that are more simple for them to deliver to the marketplace. So I'd say media spend and some specific products have really helped in that sense.
Got it. Makes sense. Thanks for the questions.
Okay, Bob. Thanks. Our next question comes from the line of Brandon Couillard of Jefferies. Please proceed with your question.
Thanks. Good afternoon.
Hey, Brandon. Hey.
Joe, on SmileDirectClub, could you give us a sense of how much of the manufacturing volume you did for them in the Q1? And I'm just curious like why the equity the additional equity investment couldn't have been larger and if that was even an option for you guys?
Well, we mentioned in my briefing that we're doing 1 third of their cases right now. It's still not material in that sense, Brendan. We just wanted to give you just an idea of where we stand overall. They do still 2 thirds of their volume. As far as the percent equity, it was just an opportunity we have.
We work closely with David and his team at STC and that equity was available. We're pleased with the relationship and we that was just a great next step for
us in that sense.
And then on teen, I'm curious if the Q2 was materially ahead of where you thought it would be in terms of volumes. And then would it be reasonable to expect further acceleration in the teen growth rate in the Q3 given that the ad campaign didn't really start until mid-2Q?
Johnny? Yes, I'll take that one, Brandon. This is John. What we saw in the teens that helped us contribute to some of the upside that we saw in the Q2 for some of the volume. And, it's part of the overall campaign that we have where we're spending additional this year.
And our guidance in Q3 reflects all those factors into our numbers.
Thanks. And then the $14,000,000 for the ad campaign, was that all absorbed in 2Q or is there some that rolls into the Q3 as well?
That's throughout the year. I mean, it's primarily where a lot of that hits in the second and third quarter, but it's there's additional spend throughout the year.
Got you. Thanks.
Thanks, Brent.
Our next question comes from the line of John Kreger of William Blair. Please proceed with your question.
Hi, thanks, Reem. Hey, another just quick follow-up on SmileDirect. When you did that deal, I think you said that when incoming case volume came in, if the case was too complicated, it would sort of get pushed into Invisalign. Is that the case? And so, what have you learned?
What sort of percentage of case volume ends up driving into Invisalign?
We haven't had John, it's Joe. We haven't had terrific conversion rates in that sense, but we've learned a lot and we tweak that model all the time is the patients at SmileDirectClub service, they have a certain price point in mind. They usually have a simple kind of an approach that they want in a sense of correcting their smile. And they need to be dealt with really quickly. In other words, when those patients are interested, moving them into an orthodontist in this case or a GP that wants to do that, it has to be done quickly and concisely.
These patients are they're just different than the normal patients that we work with. So we keep honing that model. We've had some success and we keep building on it. But we think in the future as we put this thing together, we'll have a much better yield.
Great. Thanks. And Joe, I think you said, you're just getting started on India. Can you talk a little bit more about that market? Maybe try to size it for us and just kind of lay out what sort of strategy, you're thinking about to ramp it over time?
India. You said India, John?
Yes, India. India. That's India. I was I'll
go back to India again this year, just there last year. What we do when we go into a country like that, John, if you really do this by city, when you go into city and you recruit doctors and you just begin to ramp up in those specific cities, you find great doctors in a sense of peer to peer being able to one doctor to teach another. And so you look at this as almost a city by city effort in India. We'll take obviously the biggest and the most prosperous cities first and we work out from there. We're really in our 2nd year of this in a big way.
We're reaching our goals. The business has been growing pretty rapidly in that sense. And this is a model we really follow all over the world. It's just when you get to India, you just have to make sure that you approach it in an Indian way. And as an example, what's an Indian way is, they often don't want to buy our scanners.
So what we have is a scanner that's often a few of them in a city on a truck that they just they rent and we move them in almost daily into different offices as they line up patients to do scans. And so we just acclimatize to use that word to the marketplace and keep working that. So we're excited about it and we feel very confident of our long term trend there.
Great. Thanks much.
Yes. Thanks, John.
Our next question comes from the line of Aaron Wright of Credit Suisse. Please proceed with your question.
Hi, good afternoon. This is Adam Krasner on for Aaron. I just wanted to touch on the strength in doctors trained in the quarter. Try to get a sense of what the typical ramp is for new doctors who are added to get up towards the average level of productivity?
Average ramp of a new doctor?
Right. Like that probably didn't contribute very much to the record shipments in the quarter, the fact that you added so many new doctors or did it?
So we're having a lot of expansion opportunities obviously outside the U. S. Where we're adding new doctors. So you're seeing a lot of the growth outside the U. S.
Being driven by adding new doctors. In the U. S. And in particular in both our ortho and GP channel, you're seeing growth by utilization predominantly, but we saw both as a driver in the GP channel.
Thanks. And do you have
a sense of I'm looking
at the statistic in the press release of 123,000 doctors trained worldwide. Is there a sense for what the total size of this market is to get a flavor of kind of how far the penetration is as of now?
Yes. So when you look at the total size of the number of orthodontists and general dentists and we can follow-up with you if you want more detail. In the U. S, there's roughly 140,000, 150,000 GPs and orthodontists roughly 10,000. Outside the U.
S, the market substantially larger. In Europe, there's probably 300,000. In Asia Pacific, there's probably quite that. So very, very yes, it's huge, 4 or 5 times that. So and we're happy to provide more sets for you offline.
Great. Thanks a lot.
Thanks, Adam.
Our next question comes from the line of Steven Valiquette of Bank of America Merrill Lynch. Please proceed with your question.
Thanks. Good afternoon, Joe and John. Incredible results. Hi, Steve. So as we've been doing work and just talking to more practitioners, we're getting even greater appreciation for the SmartTrak aligner material.
I guess with the disclosure back in May that you got the 2 patents issued, just curious to get more color around the patent protection on that material, because I think it is a big critical part of the overall picture. I mean the biggest thing is these seem to be the primary patents to protect that material. I just want to confirm that. And then one was filed in 2012, the other one in 2016. But really, I guess what I care about more than anything else is what's the expiration date?
How long will you get protection on this material? Is it 20 years from the date of filing or 20 years from date of issuance? I just forgot the details around that. Thanks.
Steve, it's Joe. The date of filing is at 20 years. There's a multilayer material. We do have patent protection on it now. The vendor that we use on it has a certain amount of restrictions in the sense of dentistry and where it can be used, but also has patents on process and all and how this is put together, it's not an easy material to do in that way.
So yes, I mean just look at it as from data filing and all, we have a significant number of years that the SmartTrak continues to be an Invisalign and an aligned material.
So on the simple math, you should be good till about 2,032 or so, is that about right?
Yes. We'll both be on the beach by then.
Okay. Just wanted
to confirm that. Thanks.
Thanks, Steve.
Thanks, Steve. Thanks, Steve.
Our next question comes from the line of Jon Block of Stifel. Please proceed with your question.
Hi, Jon. Thanks.
Hey, guys. Joe, you'll be on the beach then. I still think I'll be at this desk right here. But maybe just some thoughts on 2017 and maybe I missed that John from your commentary or even the slides. But I think last quarter you talked about the high end of the 15% to 25% revenue growth in op margin in and around 23%.
Are there revisions to either of those numbers that you gave last call for 2017?
Well, what we've guided to Q3 and you could see those that from an overall guidance standpoint. So that's the update, John, that we have after we've seen Q2. And then from there, you can probably do the math to kind of get an overall from a year standpoint. But at least for the Q3 guide, we feel comfortable with what we've what we're seeing so far and that's what we ended up forecasting.
Okay. I mean I got it. I got it from a math perspective. I guess just to push you a little bit notably on the revenue, you blow out 2Q, you guide 3Q ahead. Obviously, if you just keep the 25% for the year, it would imply a bigger step down for 4Q.
But I guess you're just sort of saying, go with what you guys gave last quarter. There's no official change to those numbers.
That's exactly what you're hearing, John.
Okay. Fair enough.
We said it better than
we wanted to. It was really good.
All right. And then just any thoughts on the ASP. John, if you could remind us, I believe, you took price in the U. S. Earlier in the year.
Did you take price internationally more recently? And then the euro for the first time in several quarters has sort of flipped and should be a tailwind. So maybe when we think out on the Invisalign ASP in the back half of 'seventeen, is there any direction you can give us there? Thanks guys.
Yes, you're right,
John. In North America, we took price increase in April and in EMEA, it came in July. So the price increases have happened. And as we look what's happening for the next quarter, we're pretty much expecting price to be flat to this quarter. So we have price increases.
We also have other pressures and FX unfavorability as well. But you net all that out in Q3, we expect ASPs to be flat.
Hey, John. Joe, again on your question on Q3, Q4. Just I think the best way to take what we're saying is we're not calling a step down in the Q4. We're just doing giving you good clarity on what the Q3 is, because that's what we have clarity on now. Understood.
Okay.
Understood. Thanks guys.
Yes.
Our next question comes from the line of Jeff Johnson of Robert W. Baird. Please proceed with your question.
Hey, guys. Good afternoon.
Hey, Jeff.
Just on the ASPs, John's question just reminded me as he was asking about euro flipping and maybe getting a little benefit over the next few quarters. Hey, John, as we get into 'eighteen, are we inching closer at all to any release of those additional aligner reserves where that could theoretically start to help ASPs at all? Or is it still too early for thinking about any ASP benefit from those kind of factors?
Yes, Jeff, it's too early. I mean, it's part of our overall plan, where we have that premium price product that has the additional aligners and that's built into the plans that we have and the pricing that we have. So there's no extra reserve coming back related to that. It's just part of our overall plan from a strategic standpoint as well as what we're thinking from an ASP standpoint.
Yes, fair enough. And Joe, I found your comments interesting at the very end of the call, just maybe a note of caution. And obviously, I know as the numbers go up, so to do expectations. And so I get trying to keep everybody kind of a little level headed here. But I think in past calls, you've also talked about your confidence in clear aligners eventually replacing brackets and bands and why would you want metal on your teeth and things like that.
And you had a slightly different message this evening. Is there anything looming over the next few quarters that has you maybe a little worried or you just want to make sure we all kind of account for titrate in our models, anything like that?
I know I'm not trying to give you any kind of warning or anything like that, Jeff. I have all the confidence in the world, like I said in my final comments that we'll complete this mission of eliminating wires and brackets with a digital system with plastic. I just I think I get questions all the time, as you can guess, when you see kind of growth rates about the tip we ended at tipping point in this business. And I think we all know about the whole term tipping point of what it would mean. And I was trying to get across is I don't think you can take 2 quarters and draw a line through the tipping point.
But don't mistake in anything at all that there is something that we see that would in some way shake our confidence in what we think we can do.
All right.
Fair enough. I appreciate it, guys.
Appreciate it, guys.
Appreciate it.
Our next question comes from the line of Richard Newitter of Leerink Partners. Please proceed with your question.
Hi, good afternoon.
This is actually Ravi for Rich. Thank you for taking the questions. So just a couple, if I can start just with the scanner business. You guided, I think I heard, up sequentially 3Q. Can you give us a little bit of color in terms of what kind of penetration into your adoption base are you seeing here?
I mean, we use a proxy of about 34,000 doctors that you shipped Invisalign product to last year, can you help us kind of understand what the runway here is for additional docs taking picking up this product? And then secondly, just going to take a stab at the SDC volume. I'm guessing it may be about 2,000 cases in the quarter. Any direction on that? Thanks.
Robbie, on the scanner penetration, you have to look at it as almost 2 separate markets as the orthodontic market and the GP market. I'm not sure exactly how far penetrated we are in the orthodontic side, but I'd say what you have to look at is often when a doctor starts to do more and more Invisalign, they want an iTero scanner per chair. And so you really can't look at it as a unit per doctor in that sense. You can't look at it as a unit in the sense of number of chairs in that office. And so I'd say, obviously, we have a higher penetration rate right now on the ortho side than we do on the GP side.
But what like Shirley quoted a moment ago at 150,000 GPs in United States, we haven't really even begun in that sense. And that type of scanner has a good balance between Invisalign and being able to do restorative applications too. So if you're worried about kind of a max out on penetration, that's not necessarily in the way that we're thinking on a certainly on a yearly basis. On the SDC volume piece, I don't think we've given out
that data and don't think
we necessarily want to do that both for our sakes and SDCs too.
Great. And then if I can just get one more on just OpEx and investments. Some of the calls that we've spoken to is that dentists are pretty favorable amount, maybe shifting more of their cases towards Invisalign. Can you just talk a little bit about kind of the TFM, how that's kind of playing out as you brought it to the U. S?
And whether you feel like you need to expand and do even more investments to support further conversion of these cases to Invisalign? Thanks.
Yes, Ravi. First, I think your question is a great question. It's just how from a penetration standpoint, how do you drive more of it and what you do. TFM is one of it. I mean, we've really rolled that out strongly in North America this year.
Our numbers are tremendous in the sense of when you have a customer who wants to dedicate time to really learn. So again, think of TFM as kind of a learning curve. As you're you have a primarily an analog process and your whole office has worked around gluing wires and brackets and adjusting emergencies to people's teeth and what's it look like when you go to more of a digital format, at the front end of the digital system, how you work with ClinCheck. And these are doctors that come forward and say they want to devote 90 days, 120 days of just learning and spending time to learn how to really ramp up in a digital format and it works well. But it's self selected in that case because doctors come forward that really want to do that and spend their time.
I'd also say the other thing I've learned in this job over the last 2 years is how important peer to peer is from a growth standpoint It's having really good strong doctors that can communicate to other doctors about how to use Invisalign. We see this not just in North America, we see it all over the world as critical. And we've ramped up new programs like IMOP and some other things that just really helped in that sense, both across the orthodontic community and also across the GB community to do it. So those are the 2 big programs I'd say we use to address the question that you have about how you ramp up doctors.
Great. Thanks.
And then if I could squeeze one last one in. Just given the landscape in the dental industry out there right now and your cash balance, Any type of color on what kind of acquisitions that you guys would be potentially interested in beyond the I appreciate that you've been kind of building out the OUS kind of sales base by some of those distributor purchases. But anything beyond that, that we can kind of think about?
I call that an IQ question kind of, okay. And the way I'd answer that is we're in the clear aligner business and anything that helps us to sell more clear aligners directly that doesn't have to be explained would be in our range. So that's why we have a scanner business. We have a scanner business not from a diversification standpoint. We have a scanner business because it allows us to sell more clear aligners.
And so this you're not looking I don't care how much cash we have, we're not looking to be a diversified dental company. We do clear aligners.
Thanks. Appreciate the questions.
Thanks, Robbie. We've got one more question. Operator?
Our last question comes from the line of Steve Bouchard of Morgan Stanley. Please proceed with your question.
Yes, thanks. This is actually Zack Wachter on for Steve. Joe, just one question on Invisalign Go. I'm wondering if you could just update us, Joe, on the ramp there and how we should think about the timing of Go given that the GP channel seems to be doing a bit better here. When should we think about Go making a more substantial
impact? I think, Zach, the best way to think about that is if you take a step back from this whole thing, our approach to GP channel more and more has to be to make it easy and efficient. And Go is a product like that. It's a product where you can adapt quickly from a GP standpoint. It does simple cases.
Most goes are less than I think 15 aligners or so. We've adopted the protocols to make it simpler for doctors to do also. So I would say, don't just take Go, you can look in the future. We'll have a series of more simple kind of products and systems that we'll introduce to GPs to get through. Igo is just the first one of those.
That's not the down sell Igo, but as we learn from Igo, we can continue to iterate on that product line and make new and new offerings. So but it's a big part of our GP strategy overall. It's having the right product and the right kind of system that it feeds through to make it really simple for the GP docs.
Got you. Okay. And just last one then. As far as the distributors that you acquired in EMEA and Brazil go, was there any meaningful impact in the quarter from that?
I wouldn't no material impact and you usually don't see material impact in that for 18 months or 2 years.
So
next year at this time is a great time to ask questions, Zach.
There are no further questions over the audio portion of the conference. I'd now like to turn the conference back over to management for closing remarks.
Thank you, everyone, for joining us on our conference call today. This concludes our formal remarks. If you have any questions, please reach out to the Investor Relations department. Have a great day.
This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful rest of your day.