Align Technology, Inc.

Greetings and welcome to the Align Q1 21 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Shirley Stacey, Vice President, Corporate Communications and Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us. I'm Shirley Stacey, Vice President of Corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO, and John Marucci, CFO. We issued first quarter 2021 financial results today via Globe Newswire, 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 May 12th. To access the telephone replay, domestic callers should dial 877-660-6853 with conference number 13718065 followed by pound. International callers should dial 201-612-7415 with the same conference number. As a reminder, the information provided and discussed today will include forward-looking statements, including statements about Align's future events and product outlook. These forward-looking statements are only predictions and involve risks and uncertainties that are described in more detail in our most recent periodic reports filed with the Securities and Exchange Commission, available on our website and at FCC.gov. Actual results may vary significantly, and a line expressly assumes no obligation to update any forward-looking statement. We have posted historical financial statements, including the corresponding reconciliations, including our GAAP to non-GAAP reconciliation, if applicable. and our first quarter 2021 conference call slides on our website under quarterly results. Please refer to these files for more detailed information. Please note, as of Q1 2021, we are no longer including number of doctors trained, clear aligner shipment volume by region, and total worldwide average selling price. We will continue to share information management uses to evaluate the business and metrics to help investors and analysts assess our financial performance. With that, I'll turn the call over to Align Technologies President and CEO, Joe Hogan. Joe?

Thanks, Shirley. Good afternoon, and thanks for joining us. On our call today, I'll provide some highlights from the first quarter, then briefly discuss the performance of our two operating segments, clear aligners and systems and services. John will provide more detail on our financial results and discuss our outlook for the full year. Following that, I'll come back and summarize a few key points and open the call to questions. I'm pleased to report another strong quarter with record revenues and volumes reflecting strong growth for both Invisalign clear aligners and iTero systems and services, across products and customer channels worldwide. Q1 sequential Invisalign clear aligner growth was driven by strength in both adult and teen market segments across products, customer channels, especially in North America and the EMEA region. The year is off to a great start, and Q1 reflects increasing momentum and the benefit from continued investments in our strategic initiatives focusing on expanding our operations globally in existing and emerging international markets, increasing ortho adoption, and utilization of Invisalign treatment, especially with teens, training and education GP dentists, and increasing conversion to clear aligners, and building Invisalign brand preference with millions of consumers through advertising, PR, digital, social media, and influencer marketing to drive demand and conversion through Invisalign-trained doctors. For Q1, total revenues were $89.4 million, up 72% sequentially, and 62.4% year-over-year. Q1 system and services were $141.5 million, up 5.8% sequentially, and up 104% year-over-year. Q1-21 clear line of revenues of $753.3 million were up 7.5% sequentially and increased 56.4% year-over-year. In Q1, we shipped a record 595.8 thousand Invisalign cases. an increase of 4.9% sequentially, and 65.8% year-over-year. In addition, we shipped to a record 78.6 thousand Invisalign doctors worldwide, of which approximately 6.6 thousand were first-time customers. During the quarter, we reached a significant milestone with our 10 millionth Invisalign patient, Gabriela Silva, who recently began her treatment with Dr. Eunice Blind, an Invisalign-trained orthodontist in Sao Paulo, Brazil. one of our fastest-growing country markets. It's remarkable to think about the pace of growth and adoption that we are experiencing worldwide, especially when considering it took 10 years to achieve our one millionth Invisalign patient milestone, and now we're adding one million new Invisalign patients in less than six months. We're grateful to our doctor partners and their patients and to our 20,000 employees around the world who have helped us reach this milestone. In recognition of our 10 millionth Invisalign milestone, we've donated 10 million to the Invisalign Foundation Donor Advised Fund and are kicking off a campaign called 10 Million Smiles. 10 million thanks centered around the transformative power of Invisalign treatment through the eyes of Invisalign patients. From a product perspective, Q1 clear line of revenues reflects strong growth across the Invisalign portfolio for both comprehensive and non-comprehensive products. Q1 comp volume increased 4.9% sequentially and 62.3% year-over-year, and Q1 non-comp or non-comprehensive volume increased 5.0% sequentially and 74.4% year-over-year. Invisalign clear aligners address a wide range of case complexity and can treat approximately 90% of case starts for adults and teens, and phase one treatment for kids as young as six years old. Q1 adult patients increased 5.8% sequentially and 68.5% year-over-year. Q1 teens or younger patients increased 2.7% sequentially, 58.9% year-over-year. Teenage cases made up nearly 75% of the 15 million ortho starts each year, and despite our rapid growth in adoption, Invisalign treatment is still only single digits worldwide, so we continue to see significant runway here. Our strong Q1 results also reflect our multimillion-dollar consumer marketing investment across key media channels with broad reach to drive consumers to Invisalign doctor practices. Our teen and mom-focused consumer campaign generated 138% year-over-year increase in unique visitors to our website and 35% increase in leads generated. In addition, Invisalign social media influencers like Charlie D'Amelio, Ivana Gregg, and Tawn Franz and many others, content creators, influencers, enabled a delivery of 4.2 billion impressions in Q121, delivering exciting new content and increased engagement for the Invisalign brand among their millions of followers. The consumer insights and data we receive from our programs suggest adults are also continuing to invest more in themselves for their overall health and well-being and have more disposable income to do so. They are seeking Invisalign clear line of treatment from our Invisalign doctors and sharing their positive experiences with their friends, family, and social networks, becoming influencers themselves. Now let's turn to the specifics around our first quarter results, starting with the Americas. For the Americas region, Q1 was another strong quarter, with Invisalign case volume up 8.4% sequentially and 53.8% year-over-year, reflecting increased Invisalign submitters and utilization growth for both orthodontic and GP channels. Q1 results also reflect continued investment in digital marketing, sales programs, our channel focus around GPs, orthos and DSOs, and other initiatives to help drive utilization. In the GP channel, Invisalign Moderate and Invisalign Go continue to gain traction. This is especially true for GP dentists that enrolled in the iPro program, as well as doctors that have installed iTero scanners. The GP Accelerator program, designed exclusively for GPs, provides an all-encompassing support plan based on practice needs that is centered around maximizing ITERO integration, clinical support needs, and implementing new marketing strategies. DSO utilization also increased and continues to be a strong growth driver in outpaced non-DSO practices. Today we announced that we have extended our relationship with DECA Dental Group and have signed a new multi-year agreement for the Invisalign system through early 2025. In addition, DECA Dental Group is extending utilization of iTero Element 5D imaging system across its affiliate practices in the United States. This provides DECA dental doctors and clinical support team members with access to align customized clinical education for the Invisalign system and the iTero Element 5D imaging system to support practices in adopting new workflows for restorative dentistry and for digital orthodontics. In the ortho channel, the Teen Awesomeness Centers program directs patients to Invisalign doctors who are experts at treating teens and are seen as the go-to doctors in their markets, helping to drive increased comprehensive treatments within the North American Ortho Channel. Tomorrow, registration opens for the 2021 Teen Forum, virtual edition, to be held on June 10th and 11th, which combines two days of all-new dynamic sessions focused on the Invisalign teen patient journey. Sessions will focus on building clinical confidence, efficient workflows, teen and parent conversion, and the overall digital treatment experience that teens expect. The timing of the form is designed as a strong lead to the busy teen season, and attendees will have the option after post-form mentoring by Invisalign teen experts to help orthos and their staff apply the tools from the teen form to their practices and get additional support through their busy summer. For our international business, Q1 Invisalign case volume was up sequentially 0.9%. On a year-over-year basis, international shipments were up 83.2%. In EMEA, Q1 volumes were sequentially 3.7%, up 74.9% year-over-year, with strong broad-based growth across all markets, led by the UK, France, and Italy, along with continued growth in our expansion markets led by Turkey, Russia, CIS, and Benelux. We also saw strong performance from both ortho and GP channels, with momentum in the GP channels with adults reflected in strong utilization and shipments from Invisalign Go. EMEA growth programs are customized by market and customers type to encourage Invisalign utilization, such as professional 360 ortho and advanced 360 ortho programs with over 2,000 orthodontists enrolled. We also have GP Move 360, a program designed to be able to help move doctors along their developmental journeys. with an increase in GP cohorts of over 117% compared to a prior year. We'll also continue to offer online and on-demand education events, which have reached over 15,000 GPs cumulatively. In the region, we hosted several successful summits and forums for Invisalign doctors this quarter. In all virtual formats, the UK GP Forum and OrthoSummit, French OrthoSummit, and the iTero Element Plus launch media event In addition, we just held the Italian and doc or German ortho summits last week. International expansion remains one of our key strategic pillars. Last week, we announced plans to open a new manufacturing facility in Poland, which would be our first aligner plant in the EMEA region. And our third plant worldwide joining whereas Mexico is young China. The new facility expected to be supplying customers in the EMEA region in early 2022. helping address the large and relatively untapped market of more than 5 million annual orthodontic case starts and more than 150 million EMEA customers who could benefit from treatment. The investment is part of our strategy to bring operational facilities closer to our customers and reflects our commitment to Invisalign-trained doctors and their patients in the EMEA region and extends our local operations in the region. The state-of-the-art EMEA plan and work law is expected to add more than 2,500 jobs by the end of 2025, making it the company's largest investment in Maya to date and the largest 3D printing operation in the region. For APAC, Q1 volumes were down sequentially, 3.9% as expected, reflecting seasonality. On a year-over-year basis, APAC was up 101.3% compared to the prior year, reflecting continued strong growth across the region, led by China, Japan, and ANZ. Invisalign volume growth drivers were young adults with young kids ramping faster than any other age group. In the teen segment, Invisalign volumes accelerated during the quarter and were driven by increased Invisalign utilization and case submissions from Invisalign doctors. We also continue to see good adoption of the Invisalign modern product for non-comprehensive treatment in the GP channel. During the quarter, we continue to offer online and on-demand education events, which reached over 14,000 GPs cumulatively. Invisalign volumes in China were flat sequentially and up over 200% year-over-year. In Q1, China volumes gained momentum throughout the quarter. The Align Clinical Education site is the go-to digital hub for Invisalign doctors in team education and training. The digital learning environment was relaunched in February 2020 for Invisalign doctors, offering a comprehensive learning platform with role-specific content for orthos, GPs, and their teams. The site enables more online learning opportunities with spotlight features for what's trending now, recommended learning paths based on doctors' experiences, and expanded categories, including digital treatment planning, comprehensive dentistry, and team education. During the quarter, over 102,000 unique users have assessed the records lecture, completed self-paced learning modules, and watched how-to videos, viewing more than 3 million pages of learned content. From the ortho channel, over 38,000 unique users have engaged with the digital learning site, an additional 63,000 unique users from the GP channel. We also continue to see good adoption of the ADAPT program, which is an expert and independent fee-based business consulting service offered by Align to optimize clinics' operational workflow and processes to enhance patient experience, customer and staff satisfaction. As a result of the ADAPT service, practices experience higher growth and greater efficiencies for orthodontic practices, as well as improved profitability after implementation. To date, we've seen a 50% increase in Invisalign cases among doctors cohorts within six months of participation in the ADAPT program. In addition, while still early in the program, we're also seeing a strong correlation or halo effect on team utilization among ADAPT doctor cohorts. On consumer marketing, this focuses on educating consumers about the Invisalign system and driving that demand to our Invisalign doctor offices, ultimately capitalizing on the massive market opportunity to transform 500 million smiles. In Q1, we continue to see strong digital engagement globally with more than 138% increase in unique visitors, 95% increase in doctor locator searches, and 35% increase in leads created on a year-over-year basis. driven by our global adult and mom-focused campaigns and teen-focused influencer content. Our U.S. mom-teen multi-touch, multi-million dollar campaign with influencer-led YouTube videos, a mom-focused TV spot, a custom Twitch activation, and mega teen sensations such as Charli D'Amelio and Yvonne Gregg continue to perform well and garnered 4.2 billion impressions in Q1. The statistics I shared previously speak to the continued success this marketing campaign is having to not only drive demand with consumers, but also educate them on the benefits of Invisalign treatment through a doctor's office. The Align Digital platform continues to gain traction globally. Our consumer and patient app, My Invisalign, is now available in 58 markets, resulting in a more than 4x increase in app downloads and 3x increase in patients actively using our app in Q1 2021 versus the same period a year ago. Our consumer and patient feature usage continues to increase. For example, Invisalign virtual appointment tool was used 86,000 times, and our insurance verification feature was used 27,000 times in Q1. Further, we received more than 575,000 patient photos in our virtual care feature to date globally, providing us rich data to leverage our AI capabilities to improve our services for doctors and patients. Lastly, our new consumer website has been rolled out to more than 50 markets and continues to drive increased effectiveness in lead creation. In the EMEA region, we built on the tremendous success we saw with the consumer marketing pilot in Q4 in the UK and expanded our media investments across the UK, Germany, and France to drive engagements, resulting in more than 335% increase in unique visitors and a 95% increase in leads. We also expanded our consumer advertising in the APAC region in Australia, Japan, and China, and saw more than a 2,000% increase in consumer engagement and a 298% increase in leads. Several key metrics that show increased activity engagement with Invisalign brand are included in our Q1 quarterly presentation slides available on our website. Our NFL partnership continues to do well, generating over 23.5 million impressions during the quarter. It continues to be another major integral channel to reach adults considering clear line of treatment through an Invisalign-trained doctor. During the quarter, we expanded our sports partnership marketing strategy with the Invisalign brand, named the official smile partner of the Golden State Warriors. As part of the agreement with the six-times NBA champion Golden State Warriors, the Invisalign brand also the official smile partner of the Santa Cruz Warriors, the Golden State's G League affiliate, and the Golden Guardians, its eSport affiliates. The sponsorship includes an omnichannel activation across TV, digital media, social, a Jersey partnership with the Golden Guardians, and the Santa Cruz Warriors. Finally, on the consumer marketing front, we also launched our first-ever social purpose initiative in Q1 called Invisalign Changemakers. An award program we developed in partnership with the National 4-H Council to celebrate and highlight teens in making an impact in their communities. We were blown away by the number of recommendations and stories we received about teens, from redistributing excess food to combat hunger in their communities, to donating weighted blankets to those in the autism spectrum. Overall, it's been heartwarming to learn about each of these amazing teenagers who bring a unique approach to positively impacting their communities and following their passions to create change. In total, we received nearly 800 Changemaker applications. On June 28th, we will announce 100 winners each of whom will receive $5,000 to help them continue their goodwill efforts. We'll also celebrate these young forces of change with a virtual ceremony currently slated for mid-July. We are continuing to invest in creating consumer demand for Invisalign aligners in markets around the world. Our global campaigns include a multi-channel media strategy using digital video, social media, influencer marketing, and TV. For our systems and services business, Q1 revenues were up 5.8% sequentially, reflecting slightly lower scanner volume following a record fourth quarter. This is primarily due to the seasonality of capital equipment sales at year end and higher services revenue. On a year-over-year basis, systems and services revenues were up 104%, reflecting strong scanner shipments and services. The ITERRA Element 5D imaging system continues to gain traction across all regions. Element 5D is the first integrated dental imaging system that simultaneously records 3D interaural optical impressions 2D color images in near-infrared technology or NERI technology. Full-arch scans can be completed in as little as 60 seconds. And NERI technology scans the structure of the tooth in real time without harmful radiation, acting as digital aid for detection of interproximal caries or cavities above the gingival line. In APAC, the element FLEX is doing well with its wand-only configuration that provides needed mobility so doctors can see patients anywhere they choose and also will perform full arch scans in even the smallest office. During the quarter, we announced availability of the iTero Element Plus series, which expands the iTero portfolio to serve a broad range of the dental market. The new Element Plus series offers faster processing time, advanced visualization capabilities for a seamless scanning experience, and a new sleek ergonomically designed package. It's also engineered with the latest computing power, a dedicated AI chip and new AI-based features, as well as an easy upgrade path for future innovation. In terms of digital scans used for Invisalign case submissions in Q1, total digital scans increased to 80.9% from 75.8% in Q1 last year. International scans increased to 75.1%, up from 68.7% in the same quarter last year. For the Americas, 85.5% of the cases submitted digitally compared to 80.5% a year ago. Cumulatively, over 35.4 million orthodontic scans and 7.5 million restorative scans have been performed with iTero scanners. Turning to ExoCAD, a year ago in April, we welcomed ExoCAD into the Align family. I want to thank the entire team for their continued progress on integration and roadmap development. Together, we are working to extend ExoCAD's position as a key technology provider for the dental CAD CAM industry and to drive continuous innovation with the open and integrated approach that is the foundation of ExoCAD. During Q1, the new release of ExoCAD's DentalCAD 3D Galway was successfully rolled out globally with very positive customer feedback. A record number of over 70,000 verified prosthetic components were created in DentalCAD Galway, one of the largest prosthetic libraries in the industry. ExoCAD also reached a new milestone for the Exoplan database, which now supports nearly 10,000 implants from over 90 manufacturers. The new release also includes a unique and highly innovative dental CAD feature, instant anatomic morphing, that reduces design time by up to 30% compared to previous version. It also includes new AI technology for ExoCAD Smile Creator, which enables time-saving automatic detection of facial features. In addition, the new My iTero connector was launched directly to ExoCAD Labs. The My iTero connector creates an easy and integrated way to receive inter-oral scan cases from thousands of iTero doctors worldwide. New cases are downloaded automatically and will show up directly in the DentalDB case list. ExoCAD also co-hosted a joint dentistry event in the UK to showcase full workflow with Chairside titled Digital Dentistry Hands-On, a virtual roadshow aimed at general dentists showcases a full digital workflow for the clinical environment with Chairside CAD, ExoCAD's complete Open Architecture CAD software platform for single-visit dentistry. Hosted by Dr. Gilshan Murgari, the participants of the Roadshow series learned how to use the software for single-visit restorations and implant planning in a dental practice along the entire digital dentistry workflow. These are just a few milestones, and we're excited about the opportunities ahead to shape the dental industry with technology and expertise that benefits all customers, labs, partners, and users. We look forward to sharing more about ongoing EXOCAD developments. With that, I'll now turn it over to John.

Thanks, Joe. Now for our Q1 financial results. Total revenues for the first quarter were $894.8 million, up 7.2% from the prior quarter and up 62.4% from the corresponding quarter a year ago. For clear aligners, Q1 revenues of $753.3 million were up 7.5% sequentially and up 56.4% year-over-year, reflecting Invisalign volume growth in most geographies. Clear aligner revenue growth was favorably impacted by foreign exchange of approximately $14.4 million, or approximately 2.1 points sequentially and on a year-over-year basis by approximately $22.3 million, or approximately 4.6 points. For Q1 Invisalign, comprehensive and non-comprehensive ASPs were both up sequentially. On a year-over-year basis, Q1 Invisalign comprehensive and non-comprehensive ASPs decreased. Overall, on a sequential and year-over-year basis, ASPs were favorably impacted by foreign exchange. On a year-over-year basis, ASPs were impacted by higher net revenue deferrals in all regions and higher promotional discounts. Clear aligner deferred revenue on the balance sheet increased $79 million sequentially and $256 million year-over-year and will be recognized as the additional aligners are shipped. Total Q1 clear aligner shipments of 595.8 thousand cases were up 4.9% sequentially and up 65.8% year-over-year. Our systems and services revenues for the first quarter was a record $141.5 million, up 5.8% sequentially due to product mix and increased services revenues from our larger installed base and ExoCAD's CAD-CAM services. Year-over-year systems and services revenues was up 104% due to higher scanner shipments and services and the inclusion of Exocast CAD CAM services from the April 2020 acquisition and increased services from our larger installed base. Our systems and services deferred revenue was up 17% sequentially and up 102% year-over-year, primarily due to the increase in scanner sales and the deferral of service revenues, which will be recognized ratably over the service period. Moving on to gross margin. First quarter overall gross margin was 75.7%, up 2.5 points sequentially, and up 4.1 points year-over-year. On a non-GAAP basis, excluding stock-based compensation and amortization of intangibles related to our Exocad acquisition, overall gross margin was 76.1% for the first quarter, and up 2.5 points sequentially, and up 4.2 points year-over-year. Overall gross margin was favorably impacted by approximately 0.5 points sequentially and 0.7 points on a year-over-year basis due to foreign exchange. Clear aligner gross margin for the first quarter was 77.6%, up 2.7 points sequentially due to increased manufacturing efficiencies from higher production volumes, higher ASPs, and lower freight, partially offset by higher additional aligner volume. Clear aligner gross margin was up 4.6 points year-over-year due to increased manufacturing efficiencies from higher production volumes and lower freight, partially offset by lower ASPs. Systems and services gross margin for the first quarter was a record 65.4%, up 1.2 points sequentially, primarily due to manufacturing efficiencies from higher production volumes and higher ASPs, partially offset by increased freight. Systems and services gross margin was up 3.6 points year over year due to manufacturing efficiencies from increased volume, higher ASPs, and services revenues. Q1 operating expenses were $451.7 million, up sequentially 13.7%, and up 39.2% year over year. The sequential increase in operating expenses is due to increased compensation primarily from additional headcount and incentive compensation consumer marketing spend, and other general and administrative costs. Year-over-year operating expenses increased by $127.2 million, reflecting our continued investment in sales and R&D activities and investments commensurate with business growth. On an on-gap basis, which excludes stock-based compensation, amortization of intangibles related to our Exocad acquisition, and acquisition costs related to our Exocad acquisition, operating expenses were $424.8 million, up sequentially 14.1%, and up 40.9% year-over-year. Our first quarter operating income of $225.4 million resulted in an operating margin of 25.2%, down 0.3 points sequentially, and up 12.5 points year-over-year. The sequential decrease in operating margin is attributed to operational investments. The year-over-year increase in operating margin are primarily attributed to higher gross margin and operating leverage. On an on-gap basis, which excludes stock-based compensation and amortization of intangibles, the acquisition costs related to our Exocad acquisition operating margin for the first quarter was 28.6%, down 0.4 points sequentially and up 11.5 points year-over-year. Our operating margin was favorably impacted by approximately 0.8 points sequentially and 1.5 points on a year-over-year basis due to foreign exchange. Interest in other income and expense net for the first quarter was a gain of $36.2 million, primarily driven by the SDC arbitration award gain. Excluding the SDC arbitration award gain, interest in other income and expense net was a $7.2 million expense on a non-GAAP basis. With regards to the first quarter tax provision, our GAAP tax rate was 23.4%, which includes tax expense of approximately $11 million related to U.S. taxes on the FTC arbitration award received and approximately $14 million of excess tax benefits related to stock-based compensation. Our gap tax rate this quarter was lower than the prior quarter rate of 25.9%, primarily due to the higher excess tax benefits from stock-based compensation, partially offset by foreign income taxes at different rates. Our gap tax rate was higher than the same quarter last year, which was negative 2,745%. primarily due to a one-time tax benefit of approximately $1.5 billion associated with our corporate structure reorganization completed during the first quarter of 2020. The first quarter tax rate on a non-GAAP basis was 20.2 percent compared to 14.5 percent in prior quarter and 33.2 percent in the prior year. The first quarter non-GAAP tax rate was higher than the prior quarter rate primarily due to lower tax benefits foreign income tax at different rates. In comparison to prior year, the non-GAAP tax rate for the first quarter was lower, primarily due to higher tax benefits from foreign income tax at different rates. First quarter net income per diluted share was $2.51, up 51 cents sequentially and down $16.70 compared to prior year. On a non-GAAP basis, net income per diluted share was $2.49 for the first quarter, down 12 cents sequentially, and up $1.76 year-over-year. Moving on to the balance sheet. As of March 31, 2021, cash and cash equivalents were $1.1 billion, an increase of approximately $170.9 million from the prior quarter, which is primarily due to cash flow from operations. Of our $1.1 billion of cash and cash equivalents, $684.4 million was held in the US, and $447.3 million was held by our international entities. Q1 accounts receivable balance was $719 million, up approximately 9.3% sequentially. Our overall day sales outstanding was 72 days, up approximately one day sequentially, and down approximately 15 days as compared to Q1 last year. Cash flow from operations for the first quarter was $227.2 million. Capital expenditures for the first quarter were $43.4 million, primarily related to our continued investment in increasing aligner capacity and facilities. Pre-cash flow, defined as cash flow from operation less capital expenditures, amounted to $183.8 million. We also have 300 million available under our revolving line of credit. Under our May 2018 repurchase program, we have $100 million remaining available for repurchase of our common stock. Now let me turn to our outlook. Overall, we are very pleased with our first quarter results and our continued strong momentum across regions and customer channels. It has been over a year since the pandemic began, and I want to briefly recap the actions we took to support our employees by protecting employee jobs and salaries, and by supporting our customers with PPE, extended payment terms, training, and many other areas of assistance. Instead of going quiet, we accelerated our investments in marketing to drive consumer demand to our doctors' offices and stay top of mind with consumers. We accelerated our digital technology investments so that we could provide virtual tools to our doctors. enabling them to stay connected with their patients and keep their treatment moving forward. We continue to grow the business, increased our investments in R&D and product innovation, and developing our plans for manufacturing expansion in Emeo. We did all these things for our customers, partners, employees, and shareholders because we believe in the industry and the size of the market opportunity. Our results are the outcome of our conviction in our business model, focus, and ability to execute. While there continues to be uncertainty around the pandemic and global environment, the strength in our business reflects the purposeful decisions we made through the pandemic and fuels our confidence and continue to invest into growth to drive demand and conversion globally. Q2 is off to a great start and momentum has continued through April. Consumer demand trends and patient traffic across the dental industry are favorable and continue to improve. Given these factors and the positive trends we continue to see across the business, we believe it is important to share our current outlook and provide guidance for the full year. Note that the outlook we are providing does not reflect any potential significant disruption or additional costs related to any supply constraints. With that, let's turn to our full year 2021 outlook and the factors that inform our view. We have growing confidence in our digital platform and how it is driving growth across all regions and market segments. We expect 2021 revenues of $3.7 to $3.9 billion, up 50% to 58% year-over-year. Consistent with past years, we expect second-half revenue to make up more than half of the full-year revenue and our second-half revenue to grow year-over-year around the midpoint of our long-term operating model target of 20% to 30%. As discussed during our last earnings call, we are increasing our investments in sales, marketing, innovation, and manufacturing capacity to continue to drive our growth programs and accelerate adoption in a vastly underpenetrated market. On a GAAP basis, we anticipate 2021 operating margin to be between 23.5% and 24.5%. On a non-GAAP basis, we expect 2021 operating margin to be approximately three points higher than our GAAP operating margin after excluding stock-based compensation and intangible amortization. In addition, during Q2 2021, we expect to repurchase $100 million of our common stock through either open market repurchases or an accelerated stock repurchase agreement we intend to enter into on or prior to May 3, 2021. The repurchase is intended to complete the $600 million stock repurchase authorization announced on May 23, 2018. For 2021, we expect our investments in capital expenditures to exceed $300 million. Capital expenditures primarily relate to building, construction, and improvements, as well as additional manufacturing capacity to support our international expansion. This includes our planned investment in a new manufacturing facility in Roca, Poland, our first one in the EMEA region. We intend to fund these needs with cash generated from operations. With that, I'll turn it back over to Joe for final comments. Joe?

Thanks, John. In summary, we're very pleased with the first quarter results of 2021. Our strong growth and continued momentum reflect our strategic initiatives and investments, including support for doctors to ensure treatment and business continuity, ramping availability of virtual tools to keep doctors and patients connected throughout treatment, and increased consumer marketing and concierge programs. The benefits of digital treatment and digital tools and the limitations of outdated old analog approaches continue to drive adoption of Invisalign clear aligners and iTero scanners and services. Over the past year, more doctors have experienced Align's digital platform, which made it possible for thousands of Invisalign practices and patients to continue treatments throughout global disruption, thanks to Invisalign aligners, digital treatment planning, virtual monitoring and care, as well as by iTero scanners. But the shift from traditional analog wires and brackets to a fully end-to-end digital platform is not easy. It cannot be done without very complex technology. And this technology is prevalent, touching every aspect of what we do, from manufacturing excellence, where we currently manufacture over 700,000 unique aligners per day, to expanding our geographic footprint to over 100 markets, to building a network of over 200,000 trained Invisalign doctors, and providing the technology to our doctors in a complete digital system, the Align Digital Platform. As the market leader in the clear aligner space, we've been building this industry over 24 years to get to where it is today, and yet the majority of the market opportunity remains largely untapped. With over 500 million potential case starts globally, Align is in a rare position to address this market with the Align digital platform. Powered by two decades of clinical data based on more than 10.2 million patients with AI machine learning and digital tools to help our doctors efficiently communicate with their patients, show and explain any issues, and visualize potential treatment outcomes. And together with doctors, we're going to leverage the power of digital dentistry and orthodontics more than ever. We remain focused on our strategic execution, agility, customer service excellence, and continue to make investments to grow our business to drive utilization of the Invisalign system, ultimately returning value to our shareholders. This is the multivariable equation that we talk about, and there's no other company in the market today that has all these capabilities combined. Finally, throughout the pandemic, our priority has been the health and safety of our employees and their families, and our doctor customers and their staff, And that has not changed. We remain dedicated to their well-being. And I want to reiterate our commitment to all Invisalign practices and our employees around the world, especially those in areas recently affected by a surge in COVID-19. India, Brazil, France, Poland, Ukraine, Mexico, Thailand, and Japan. We are continuing to monitor the situations and are providing support and resources to those impacted employees. Thanks for your time today. I look forward to updating you on our progress as the year unfolds. Now I'll turn the call back over to the operator.

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For those using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question is from Nathan Rich from Goldman Sachs. Please go ahead.

Good afternoon, and thanks so much for the questions. Maybe starting with the guidance for the year and your expectations over the balance of the year, appreciate the detail that you gave. I guess, you know, should we think about the revenue cadence as being similar, you know, to a normal year? And Joe, I mean, it certainly seems like the shift in market share that you've been highlighting has accelerated during the pandemic. I guess, you know, I'd be curious to know if you have any way of kind of quantifying the magnitude of this shift as we think about the ability of you to kind of sustain this momentum going forward and the gains that obviously clear aligners have had during the pandemic.

Nathan, we're obviously optimistic. I mean, given the guidance we had today and the strong first quarter results, we really feel good about where we are. The great thing about this growth is it's been broad and deep. It is across every region. We see it whether it's in APAC or whether it's in MEA, whether it's in the Americas overall, and then across the GP spectrum, across the ortho spectrum too. It's been terrific. And it's also up and down. That's why we're giving you comprehensive, non-comprehensive now, all different kinds of cases. So we just feel great about the demand patterns, the depth and breadth of this rebound, and That's why we have some clarity now. We decided to give guidance, and we're excited about this year and going forward. John, any thoughts on that?

And to add to your question, Nathan, the seasonality and things that we've seen in the past will continue. We would expect those to continue as we go through this year. So it's hard to compare year over year, especially in the first half. But going forward, it makes sense to look at it quarter over quarter.

Great. And if I could just ask a quick follow-up on the, it seems like there's going to be more discussion around comprehensive versus non-comprehensive instead of the regional breakout going forward. So I was wondering if you could just level set us on the current mix of business between comprehensive and non-comprehensive cases and how you're thinking about the growth of those two categories going forward. Thanks a lot.

When you look at it, Nathan, it's about 75% comprehensive, 25% non-comprehensive. It can vary by quarter based on team season and so on, but that's roughly the split there. We're investing in both areas to be able to grow, whether it's on the ortho side or the GP side for those categories.

Nathan, I think you know the margin on those products also. This is not like a margin split. You still have higher margins on the, you know, less than comprehensive product line too. So it's a good mix.

Makes sense. Thank you.

Yeah. Okay.

The next question is from Jason Bednar from Piper Sandler. Please go ahead.

Hey guys. Good afternoon. Hey, hey, congrats. Congrats on another really nice quarter here. I actually wanted to start on guidance as well. You know, if I focus in the second half of the year, maybe when comps tend to normalize a bit and use the midpoint of that 20 to 30%, long-term guide you've got out there. Are you able to talk about how this comes together from a regional or channel perspective? Is it safe to assume that Teams International still grows above that mid-20s level? And then is it right to think about imaging and CAD CAM growing at that mid-20s level as well?

Yeah, Jason, this is John. We would look at Invisalign and our systems and services to grow at that midpoint in the second half, so around that 25% year-over-year level. across the business. And, you know, we're making investments and continuing investments, as we've talked about, to really establish and continue our growth.

Okay. And, John, just sorry, anything from a regional or channel perspective, international or teams, or just how that all comes together?

You know, I think, you know, we're not forecasting by, you know, each of the regions and so on from that. I think you can You know, from our business, we're trying to grow teen. It's a great indicator for the penetration on the ortho side, and we'll continue to grow that, but not giving specifics by region.

Okay, understood. And then just one other follow-up. I mean, the clear line of gross margin was extremely strong this quarter. We had a clear line of revenue that grew $50 million sequentially, but COGS that fell by $10 million. John, I know you stepped through some of the factors just incorporated there, but Is this a sustainable level that we should be thinking about for clear liner gross margin going forward, kind of in this upper 70s level? Or maybe were there some other factors that helped push that gross margin higher here just in the first quarter?

Well, we did see some FX benefit, as we called out, but it's a reflection of investing in this business, adding capacity, adding in places where we see the growth, and this was leveraging some of those investments. Okay. It's a reflection of the work that we have, the productivity that we can drive across the business, utilizing some of the facilities that we have, and then benefit a bit from FX on a quarter-by-quarter basis.

Thanks, Jason. Understood. Thanks, Jason.

The next question is from Elizabeth Anderson from Evercore. Please go ahead.

Hi, guys. Hey, thanks so much for the question, and congrats on this quarter. Can you talk about any changes in your DSO strategy? I know you obviously highlighted the DECA renewal in the quarter, but I just didn't know if there, as we come out of COVID, anything to think about there in terms of how you're working with that group of customers?

No, Elizabeth. Actually, you know, we do what we can. We bring the entire online digital platform together with iTero, the different, you know, Some DSOs want to approach this thing from a comprehensive standpoint, some want non-comprehensive. So we just basically gear our digital platform and our product line based on what a DSO wants to do and what they want to accomplish, not just in the U.S., but really all over the world.

Got it. That's helpful. And then in terms of the new facility in Poland, should we think about the potential impact on the gross margin line to be similar to when you open the ZIANG facility, or is there a different way that this one is different?

I think when we look at that, we'll leverage to ramp up that facility as fast as possible. A lot of volume can come through from EMEA. So I wouldn't look at that as a model for that. Remember what we did in China was a temporary facility to move to a greenfield, and this is a greenfield new facility to start with.

Got it. Okay, thanks. Thanks, Elizabeth.

Thanks, Elizabeth.

The next question is from John Block from Stiefel. Please go ahead.

Thanks, guys. Hey, Joe. Nice quarter. Two relatively quick ones. I guess to start, Joe, you called out EMEA North America as the primary case volume. Call it upside drivers, not APAC. And just, you know, maybe we could talk to APAC a little bit more. It was sort of first in COVID, and I think everyone was thinking first in, first out. But it seems like EMEA has been stronger. I mean, it was on a two-year stack basis despite all the headline stuff that we hear in EMEA. Any details on APAC? Obviously, you've got a pretty big competitor in China. Any more granularity there would be very helpful, and then I've got a little bit of a tighter follow-up. Thanks.

First of all, I mean, EMEA was amazing in that way, but I wouldn't let it eclipse APAC, right? We feel really good about APAC across the board. You have China, you know, obviously being a big area, the sequential growth of China is When you look at fourth quarter, you know, versus first quarters, right? And that's seven, seven and a half percent range, like the entire businesses. And then, you know, obviously APAC is extremely diverse, but from Japan, ANZ, those key areas that we have in APAC, it's really strong growth. So I really feel great about APAC. It's just, there's somewhat of an eclipse right now because, you know, EMEA was extremely strong, but you shouldn't let yourself think in any way. that that means APAC was weak in some way. We feel good about APAC as we go into the first quarter and the whole year.

Okay. Yeah, I guess good problem to have. Second one is sort of a derivative of Nathan's question, but the biggest question I get from investors is this pull forward of demand, right? In other words, is the 1Q21 volume call it success? Is that at the expense of future quarters? And it seems like your guidance suggests you're not too worried about that, Joe. But can you give us more details here? Like, why aren't you worried about any pull forward? What are you hearing from sales reps? What are docs saying about sustaining the momentum throughout the year?

Thanks. Yeah, John. You know, John, first of all, it's the breadth of this growth, right? It's not like it's a singular region like we just talked about with the May and APAC and, you know, how strong the Americas is. We're seeing great uptake in the GP side. We see terrific growth there. The orthodontic side, you see our teen numbers are good and respectable. We're moving into teen season. So what we feel good about is just the breadth and depth of this business. It's not just leaning on one or two legs from a strategy standpoint. It really is well positioned going forward. You know, we hear the same thing about demand pull forward or whatever. You know, doctors aren't talking like that. Remember the questions back in the third quarter and fourth quarter was backlog, right? How much of this was backlog that wasn't consummated in second quarter, early third quarter. We got way past that. Obviously, we got into the fourth quarter, whatever. I think we're just seeing a realization in the adult and the teen market of what digital orthodontics can do. Our company is very well positioned to take advantage of that when you look throughout the world. John, anything to add? John, thanks. Thanks, guys.

The next question is from Kevin Caliendo from UBS. Please go ahead.

Thanks. Thanks for taking my call. I want to talk a little bit about how to think about seasonality with regards to teens. Um, you typically you gear up the summer is a big team season historically. Do you expect that again next year is sort of back to school might be a little more normal and what, how should we think about you gearing up for, uh, another incremental teen season? What might be different? Any expectations around incremental share for teens? I'd just love to hear the strategy.

Well, I think we have a strategy really based on every region because the teen season is different by region from a calendar standpoint. And doctors apply our technology in different ways with teens. But let's just take U.S. and Canada for a second. Obviously, in the second quarter, beginning of third quarter, those are the really strong areas. You'll see our advertising program really kick in in a big way. We talked about the teen awesomeness centers that we put in place. That's with making sure that we have doctors that are really well equipped to handle teens, and we direct the leads to that teens with confidence that they can be serviced properly. You know, overseas, we understand, you know, what those timing are for the teens also, and we put those programs together too. You know, honestly, Kevin, we have a great portfolio, right? And we can go across teens in a lot of different ways, all the way from six-year-olds, you know, to really older teens when you get to, you know, 16 to 19 years old, and the tooth movements associated with those, too. So it's just having those doctors ready. It's having the communications with the teens and the moms to make sure they're aware of a digital orthodontic option, and they really ask for that as they go into the doctors. And that's a strategy we apply just in different ways in different seasons around the world, but it specifically applies to teens.

That's helpful. And just one follow-up on... margins, the gross margin number was mentioned. You covered that already. Should we think about any of that flowing down to the operating margin or any sort of target for operating margins over the next couple years? You've historically always looked to spend to grow, and you've always been rewarded for it. There's no reason to change, but just thinking sort of where you are now, maybe if you do have a little bit of an uptick in the gross margin that you can let more of it flow through to the operating side. How do you think about that

I think when you look at it, Kevin, this is John. I mean, you know, we're looking to balance our growth opportunities with our margin. And in certain countries, you might be at different parts of that equation. But on balance, you know, we're pleased with the gross margin. We've talked a lot about the investments, the productivity, other things that we see, and that continues. And it gives us a lot of flexibility to be able to invest. But in a vastly underpenetrated market that we're in, making these investments to grow volume make a lot of sense to us. But we're always mindful of that balance between volume and margin.

Great. Thanks so much.

Yeah, thanks, John.

The next question is from Ravi Misra from Berenberg Capital Markets. Please go ahead.

Hi, good afternoon. Thanks for taking the question. So just want to press a little bit more on kind of just some of the marketing opportunities that you're highlighting. And just curious, you know, you have the ski team now, you're talking about the Golden State Warriors. I'm sure Draymond Green's not very happy about that. But just can you help us understand, like, what do you go after when you look at the marketing opportunity, like, in terms of, you know, the return that you're searching for, you know, the particular brands that you're aligning with? And then I'll follow up after that. Thanks.

You know, we do a lot of work on this, Robby, figuring out what channels, what kind of return we get by channel. how much you put in social media, sports team, how much you put in television. But overall, John and I expect a certain return, and we know what those returns are by region. We invest a dollar here, we know what we get back. I don't necessarily want to convey exactly what those returns are, but we make sure they're positive. And you've seen us increase our advertising pretty dramatically outside the United States. The response for that's been really good. And obviously, we use a lot of what we learned here in North America to apply that around the world. So You know, Invisalign is an incredibly well-known brand, not just in, you know, North America, but all around the world. And being able to leverage that and having that as kind of a common name around the world, it's very helpful for us in the sense of driving volumes, giving doctors confidence and patients confidence too. So we really feel good about our investments. And obviously we balance that well with increased salespeople, with technology investments. You know, all the things you have to do when you run a business like this, but it is something that obviously gains a lot of attention and a lot of analysis from us.

Great. And then maybe just one on, you know, on the press release, something caught my eye around your kind of orthosummit case shootout where the highest vote was around kind of a class two, class three Invisalign case presentation. Now, historically, that's been, you know, something I think maybe that unless you're a bleeding edge KOL or doctor that you weren't doing, the fact that that's kind of, you know, winning the kind of peer award now, does that suggest that you're getting deeper into these more complicated cases. And just more specifically, do you feel that you have an edge versus your competitors in the space that allow you to do this? Or is this kind of a class effect that you think has to do with comfort and ease of use of the technology as a whole? Thanks.

Yeah, Robbie, it's a good question. Look, remember, we've done what? We said 10.2 million cases. And through those 10.2 million cases... We've learned a lot, and we learn more every day. We run AI machine learning across those cases, and that's how we just launched GA, as we understood in deep bite cases. We have some issues with posterior open bite and different clinical kind of issues that would bore you to death, but we understand based on millions of cases we've done what's the best way to move those teeth to ensure that they end up in the right positions with the right smile. Obviously, you want to do this as quickly as you possibly can because patients don't want to be in treatment for five years. So I feel we have an incredible advantage here. You look at Smart Track, we look at how they initiate that with over four million lines of code that we have in ClinCheck. You look at the accuracy of iTero and the sense of transferring information through over to our manufacturing facility in order to make this. I feel very confident about a 24 year first mover advantage in what we've done. Now obviously there's competitors out there and competitors are coming up, but a lot of them have to crawl through the friction that we did in order to learn this. a lot of the IP that we've put down that makes us unique in a sense of how we position ourselves in the marketplace. So back to what you started with, when you do these shootouts and all, it's really great to sit in the audience and look at the before and after photos. I mean, it's amazing. When I first joined this business, I just said, it's hard to believe that you can do this. What's happening today is it's becoming more common. I mean, you go all around the world. It's not one or two doctors doing this. There's hundreds, if not thousands, They're doing incredible kinds of cases. And so what you're thinking more and more, it just lends credibility to this product line. And it can do what we say now, 90% of all the cases that are out there. Um, that's not just because it's plastic, right? It is the whole system from how we 3d print, what plastic you use, the algorithms we use, how we constantly tweak it by the information that we have driving a brand like this, having the kind of training we talked about 200,000 doctors that we've trained and gone through these things. This takes time to do. It takes expertise. And doctors need that confidence and understanding. And we feel we can give it to them better than anyone.

And that technology is brought about by investments. And we'll invest over $250 million this year alone in R&D to improve our systems and Invisalign for our customers. That's an advantage. It's an advantage, like Joe said, over a period of time, but we're continuing to invest to make things better and better for our customers.

Thanks, Robbie.

The next question is from Richard Newager from SVB Lear Inc. Please go ahead.

Hi, this is Jamie on for Rich. Just one question for me. Appreciating that you guys are obviously focused on driving higher ortho teen utilization overall GP adoption at the same time. I'm just curious, in your view, you know, which of the two is likely to be the bigger make or break driver of growth over the near to intermediate term?

You know, it just sounds like a terrible answer to you, but they're both, really. We talk about, you know, 500 million patients out there that could use Invisalign treatments. We know that, you know, of the 15 million orthodontic cases, you know, roughly 75% to 80% are teens. I mean, all of those, they're both huge opportunities. And there's not a difference from a technology standpoint or how you apply that technology to either of those that would make one easier to do or more beneficial than another. So, honestly, both of those are great reservoirs of growth for us.

Got it. Okay, and then just... Oh, go ahead, Jane. One last one for me, just on the DSO, kind of the business model and strategy that you guys have for entrenching itero systems in DSOs across all practices, kind of how do you approach that? And when you do see DSOs where the large majority of their practices have adopted the itero scanner, what's the sort of pickup that you guys see in terms of utilization? Thanks so much.

Well, where you use iTera scanners, you train the doctors properly. You have the right products in a GP channel like iGo and different products like that. We get terrific uptake. I mean, you can't measure it the way you do, you know, share a chair for an orthodontic office. But our DSO business is significant now. It's meaningful in that way. And, you know, it's one where that digital platform strategy that you kind of outlined in your question is what we employ. But, again, we employ it in different ways depending on how a DSO works. really want to engage with us.

Thank you. Next question, please.

Next question is from Jeff Johnson from Barrage.

Please go ahead.

Hey, Jeff.

Hey, guys. Good evening. Hey, John, I want to go back. You mentioned the $250 million in R&D, and I think the number we've discussed over the last, I don't know, probably somewhere in the last six or nine months or so is like $500 million total of what you guys spend not only on R&D, but channel support, advertising, social media, all that stuff. And You know, in our mind, that's one of your bigger barriers to entry, even probably more so than some of the IP and what have you. But it sounds like with some of the stuff, you're taking up EMEA, you're taking up APAC advertising, you know, more and more sports teams and things like that. Is that $500 million number a dated number at this point? Is that barrier to entry and that spend even going well above that number in the near to intermediate term?

You will see that. That's a good question. Jeff, we talked about that at our last Investor Day, about the $500 million combined, kind of the marketing, go-to-market, plus the R&D. And what you'll see is in success, and we've talked about a lot, as you know, where we see returns, where we see volume, where we see profitability, we're going to continue to make those investments. So as we go through this year, that number will most likely go up as we find success in these investments and and find that right return.

Yeah, fair enough. And Joe, I'd be interested. I mean, you know, we saw COVID case counts and restrictions even in the 1Q and some of the markets you called out in EMEA as being so strong, UK, France, I'm sure some others. You called out other areas, obviously India, that were all watching closely, but a lot of other markets as well that are still dealing with COVID case counts and heightened risks there. Does that even matter to case shipments to Invisalign at this point? I guess what I'm trying to figure out is, is that stuff holding back some volumes that could come through next year? Are we all just with COVID fatigue still comfortable going in and getting clear aligner cases even in those markets? So is COVID a risk factor, I guess, that you've had to build in some caution and the guidance for in some of those markets? or are cases just as strong in those markets as they are in markets where maybe COVID is a little more under control? Thanks.

Yeah. Jeff, that's a good question. It's just what we've seen. There's one definitive. If offices are shut down and patients aren't allowed to go to offices, we saw that. That happened in the second quarter. It happened all around the world. And then the term lockdown is used very loosely all around the world, what's a lockdown and what isn't. The situations like in India right now are a disaster, you know, obviously, and there's, you know, People are very cautious. But the rest of the way around the world, what we see is it looks like communities and people have been able to manage this. Is there any kind of a backlog of patients not going into dental offices because of that? I think in certain countries around the world, there is. But we can't really quantify that right now. And again, the breadth and depth of our demand pattern gives us confidence that we think we can predict around it.

Thanks. Thanks, Jeff. The next question is from Erin Reich from Credit Suisse. Please go ahead.

Great, thanks. Can you speak a little bit about what you're doing differently in terms of promotions or other initiatives around ITERO that's really resonating with customers maybe differently now, and where's the traction mostly tied to on the ortho or GP channel, and do you anticipate any lumpiness quarter to quarter across that business thing?

Yeah, well, ITERO's been great for us, right? We have a good services business there. We announced a plus series ITERO, which is Aaron, it's a breakthrough. I mean, it sounds like it's a derivative as far as, you know, an incremental, but it is really a strong platform. We talk about the artificial intelligence we've been able to embed in that machine. You know, we see doctors both on the GP side and orthodontic side, really excited about it. This is not a promotional discussion in the sense when you ask your question about how to promote it. There's nothing tricky there. What we do is we have a broad number of products. You know, you have the NERI product plus, which is the very high-end product line. Then you have the Flex system, which I mentioned in my opening, which is basically a wand itself and it's used with a normal kind of a computer that's adapted to that. And it helps to get flexibility in the sense of what a customer wants to use or a doctor wants to use on both ends. So I feel it's like how we take this to market, the different products that we have and the different way that we segment that. And then obviously if you want to do Invisalign, this is the front end, the key end of our digital platform. And that's very attractive to both GPs and orthos that really want to do Invisalign. They know that iTero is critical for that.

Thanks. Next question, please. Okay, great.

The next question is from Brandon Couillard from Jefferies. Please go ahead.

Hey, thanks for squeezing me in. John, maybe just a two-part question around guidance. The operating margin outlook would suggest your margins kind of moderate a bit over the balance of the year from 1Q levels. You sort of elaborate on your expectations for gross margins for the balance of the year, and then what should we, how should we think about the trend of ASPs over the next few quarters? I'll just leave it there.

Yeah, Brandon, when we look at, you know, we're pleased with our gross margin and margin that we had in the first quarter. A lot of things came together on that. When we look at the investments and the growth opportunities we have, we're not given specific guidance around our own gross margin, but you can see as it translates to off margins, a reflection of the growth opportunities we have, investment opportunities that we have to be able to invest and grow in this business. And, you know, we can update as we go forward based on what we see. Your other part of the question regarding... kind of ASPs and so on. You know, when you look at, you know, we have a breakout and we show that on a regular basis between comprehensive and non-comprehensive. You know, we don't expect any major fluctuation across our ASPs. The only thing that comes up and we saw it in this quarter a bit was with currency changes. But in terms of the promotions and how we go about the business and how we're trying to drive growth, there's nothing out of the ordinary that would impact ASPs.

Thanks, Brandon. Next question, please.

Next question is from John Craker from William Blair. Please go ahead.

Hey, John. Hey, Jo. I just wanted to follow up on Jeff's question a bit. So if you move beyond office closures, as you look at certain regions of the world becoming hot spots and then that fading, does that impact demand levels that you're seeing?

You know, it's not a great answer for a joint. It's yes and no. Depending on the severity and where it is, I can say yes. For the most part, we say no. And that's after the second quarter when, again, the definitive piece, if you shut offices down, you won't let patients in there, we're going to have an issue. But actually, after the second quarter, early third quarter, we've been dealing with lockdowns that are basically lockdowns of time frame, lockdowns of where people can travel. but not specific lockdowns of doctor offices. If the market stays away from that, we feel we're pretty good. Okay, thank you.

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

Sounds good. The next question is from Michael Reiskin of Bank of America. Please go ahead.

Thanks for squeezing me in. Hey, guys. I'll just ask a quick one. I want to expand a little bit on the ASP question that was just asked. I'm just wondering, you know, you cited a little bit in your prepared remarks in terms of promotional, things like that, discounts. Are you referring specifically to the Advantage program? And if you could talk about, you know, how some of the orthos and GPs are falling in with those tiers. Have you seen any movement over the last couple quarters where, you know, people are falling more into the platinum and the diamond grouping there? Kind of also backing into sort of the numbers on utilization between ortho, I've seen some really nice numbers the last couple quarters. Is that indicative of that, a higher portion of orthos and GPs falling at those higher tiers and therefore walking in those, you know, the high promotional discounts?

Yes, certainly that is an impact. When you have, you know, as doctors grow through the tiers, they, you know, they become more proficient, they take on more cases, whether they're on On the ortho side or the GP side, we see them work their way through tiers. They do more cases. We get that volume benefit, and then they'll see those discounts there. We've had those programs in place. Those programs really help drive utilization and really talk to the utilization growth that you noted there. So those are programs that we've had. They're there to drive utilization, and it's something that we've, we've used in our business and expect to continue to use. Thanks, Michael.

This concludes the question and answer session. I'd like to turn the call back over to Shirley Stacey for closing remarks.

Well, thank you everyone for joining us today. We appreciate your time. We look forward to seeing you or speaking with you at upcoming financial conferences and industry meetings and events. If you have any follow-up questions, please contact our Investor Relations Department. Have a great day.

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