愛齊科技 (ALGN) 2005 Q4 法說會逐字稿

Greetings ladies and gentlemen, and thank you for standing by. Welcome to Align Technology's Fourth Quarter and Fiscal Year 2005 Financial Results Conference Call.

[OPERATOR INSTRUCTIONS]

It is now my pleasure to introduce Barbara Domingo, Director of Investor Relations. Ms. Domingo, you may begin.

Thanks, Martha and welcome to everyone on the line. If you haven't received a copy of our press release please go to the investor relations page on our website at investor.aligntech.com. Before we start the call today I'd like to make some comments on forward-looking statements. During this conference call we may make forward-looking statements relating to Align's expectations about future events, products and its future results, including statements regarding expected financial results for Q1 2006 and fiscal 2006.

Any forward-looking statements we make during this conference call are based upon information available to Align as of the date hereof. Listeners are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. As a result, actual results may differ materially and adversely from those expressed in any forward-looking statement.

Factors that might cause such a difference include, but are not limited to risks that are detailed from time to time in Align's periodic reports filed with the Securities and Exchange Commission, including but not limited to its annual report on form 10-K for the fiscal year ended December 31, 2004 which was filed with the Securities and Exchange Commission on March 3, 2005, and as quarterly reports on form 10-Q. Align undertakes no obligation to revise or update publicly any forward-looking statements for any reason. Please also note that on this conference call we will provide listeners with several financial metrics determined on a non-GAAP basis for comparisons to previous quarters.

Most of these items together with the corresponding GAAP numbers and a reconciliation to the comparable GAAP financial measures where practicable, are contained in today's financial results press release, which we posted on our website investor.aligntech.com under financial relations and have furnished to the Securities and Exchange Commission on form 8-K. We encourage listeners to review these items. Additionally we have posted a 12 quarter GAAP and non-GAAP revenue model on our website at investor.aligntech.com under historical financial data. Please refer to both these downloadable Excel spreadsheets for more detailed line item information.

With that said, I'd like to introduce Align Technologies' President and CEO Tom Prescott. Tom?

Thanks Barbara, and welcome to our shareholders and friends who are listening today on the phone and through our website. 2005 was a pretty challenging year for Align Technology. We began the year by filing a lawsuit against a competing company led by our former chairman. We lost a large number of our orthodontic sales reps as they were recruited to join this new entrant. We had high turnover in our senior management team. And as result of all this, we saw our financial results suffer.

Despite all that we were still able to grow revenues 20% to $207 million. We've hired four very experienced executives, we've rebuilt our sales team and we are beginning to see case volumes return along with some key customers. Before we get into a recap of last year and discuss 2006, let me go quickly through the metrics for Q4 and 2005. In the fourth quarter case shipments increased 17% sequentially and 29% year-over-year to 34,000. Ortho cases were up 11% to 12,800 cases from the 11,500 in Q3. 26% of Ortho cases were Invisalign Express cases. We shipped 17,500 cases to GPs up 20% from Q3, 31% of those cases were Invisalign Express.

On the international side case shipments were up 18% sequentially to 3,800 cases. Looking at the full year we shipped 123,000 cases in 2005, an increase of 23% from last year. In 2005 we trained 4,300 GP doctors, 1,300 of them in the fourth quarter alone. Our total of trained GPs is now 18,200, 13,400 of them or 74% have used the product. In 2006 we expect to train 3,000 GPs. We intend to slightly decrease the number of new certifications and focus more effort on driving initial adoption and subsequent case growth in our GP practices.

Last quarter 11,500 doctors worldwide sent in cases. Nearly 1,500 of these doctors were first-time submitters in Q4. The number of US orthodontists submitting cases was 2,800, down just a bit from 2,900 in Q3. And 7,100 US GP dentists submitted cases an increase from 6,400 last quarter. Out of the 35,800 doctors trained worldwide, 23,300 doctors have treated with Invisalign, and 19,400 or 83% of those have generated multiple cases.

Utilization has regained momentum from the previous quarters. For Q4, US Ortho utilization was 4.5, US GP was 2.5, international was 3.2. The increases in utilization coupled with the increase of new customers, suggest that many doctors are trying Invisalign Express. We believe that once doctors are comfortable with Invisalign Express and see how well the product and the system work, they will become more confident in utilizing Invisalign treatment on a broader range of cases. In total now, almost 380,000 patients have started treatment with our product and we've manufactured more than 16.5 million aligners.

Let me move onto our sales force. As I mentioned in early 2005, we saw almost half of our orthodontic sales reps recruited away by the competition. We manage to quickly cover those territories with existing reps and began our own recruitment effort. We hired sales reps with years of experience in not just the dental industry, but also talented reps with pharmaceutical or other medical product sales experience. Despite continued aggressive recruiting of our sales reps and outlandish offers by OrthoClear, we've lost no one on this team. This new team is full of energy and the will to compete.

Last week we held our national sales meeting. This meeting is for sales reps to understand our value proposition, our strategy, our competition and how we intend to be leaders in invisible orthodontics. The morale is high. Our reps are excited about their company and many of them have specifically told me they know they're working for the right team. Their personal goals are to beat the competition in their territories. This gang is focused and they are more excited than ever to sell our product. We now have 106 of the best sales reps in the industry. This number may increase only slightly in '06 as we plan for future needs in our '05 hiring.

Let me move on to discuss the exciting year we had. Despite numerous challenges we were able to make significant accomplishments in 2005. Those include the following; we launched the Premier Provider Program in April; we launched the highly successful Bloom consumer campaign in May' we held the first-ever GP summit and the first-ever international summit. In June the volume discount program was launched and then expanded in Q4. We launched Invisalign Express in August a full six months ahead of schedule. And finally, we deployed ClinCheck 2.0 a major upgrade to our user environment.

These programs are just a few of the highlights of the value would bring to our doctors. Some of you may have heard our presentation at the JP Morgan conference two weeks ago. For those who did not let me briefly discuss our value proposition. I'll also touch briefly on the strategy we will focus on to maintain our leadership position in the world of invisible orthodontics.

In 1997, we were the first and only company to use mass customization to help doctors straighten teeth. We began with a simple product that would revolutionize the world of orthodontics. Throughout the years we have evolved from a company that just provides plastic, to one that incorporates superior technology and manufacturing, world-class customer support, extensive clinical education and competitive pricing as well. Our value proposition is simple, we deliver outstanding quality at a competitive price. This comes along with a tremendous support infrastructure to ensure docs get great results.

Let me tell you how these four key elements translate into real value for our customers and the advantages these components bring to their practices. Starting with superior technology and manufacturing. We have devoted millions of dollars to R&D over the past seven years, so that we can deliver a product that works. Our products are consistent unique and of very high quality. They have to fit every time. Last year, we added Invisalign Express, our low cost alternative to treat mild malocclusion cases. On top of all this we guaranteed dependable delivery even expedited delivery like a week or two when a customer really needs it. In short, we deliver a product and related technology that meets or exceeds our customers' needs.

The second element is world-class customer support. Our customer support organization is truly unique with over 60 associates, thousands of doctors get answers to all their questions whether it's a simple business issue or a complex clinical question regarding their patients' treatment plan. Our California-based group is supplemented by our team in Costa Rica. There, doctors have access to expert clinical support with dedicated treatment technicians, dentists and orthodontists. And for those doctors just starting their first Invisalign cases, we also offer clinical support services through our own Invisalign consulting service, ICS. Doctors consistently state that our national consumer advertising along with our website and lead generation is a major factor in generating new business for their practices.

The launch of the Bloom campaign has spurred great interest among the end-users, the patients. And integrating the doctor's premier provider status on our website, has made it easier for patients to find doctors that can make Invisalign work for them. The third element is extensive clinical education. We're proud to have the most extensive clinical education program in our industry providing Align-sponsored courses for orthodontist and general practitioners at every experience level. In fact, we host more than 350 clinical education events each year, including Invisalign certification courses, provider workshops, local study clubs, as well as study clubs in our facility in Costa Rica, the Invisalign summits, online courses and much more.

In 2005 we held our first GP summit, as well as our first international summit. Both were extremely well attended and doctors were asking when is the next one? Educational events like these focus doctors on what they can do with Invisalign and how many more patients they can treat with our product. We've also increased the number of universities and industry institutions with whom we've partnered. In the US, we have now integrated Invisalign into 19 leading universities and industry institutions. And outside the US, we've partnered with 41 universities.

And last, competitive pricing. As far as competitive pricing, well, the high price of the Invisalign labs fee has been a barrier to adoption by some doctors. With new competition undercutting our prices, our ASPs of $1,650 came under pressure. In July of last year, we began testing a volume rebate program with just a few hundred doctors signing on to participate. This program was so well received we decided to expand the program for all doctors in Q4. And based on feedback from our customers on November 1 of last year, we also decided to simplify our pricing structures.

Now instead of five price points, all four Invisalign cases with up to three case refinements, cost just $1,495. And Invisalign Express cost just $750. This is a direct response to what customers asked for, more cost-effective fees so they can pass that savings onto patients for less complicated cases and expand their practice or, maintain or increase their own profit margins for more complicated cases. While our current prices are still higher than the competition's prices, we are hearing from more and more doctors that the lowest product price may not be the determining factor in choosing their therapy choice. Again, it's the value and additional service that we provide and our competitors just can't touch.

We believe that doctors want a product that they know will work for their patients, that comes with the support and services that benefit their practices, even if it isn't necessarily the lowest priced product. So even with a competing product on the market our customers recognize that the quality and value of our products far exceed the price they pay. Our entire value proposition for Invisalign was not built overnight. It has taken almost nine years, time and experience and substantial investment to build a value proposition that truly enhances our customers' practices. Even with our success we feel like we're just getting started. So to extend this progress we're focused on a strategy to create the future.

As many of you heard at JP Morgan conference, our strategy hinges on three points, customer responsiveness, product leadership and operational effectiveness. Today, I'll concentrate on product leadership and walk you through the new products and product enhancements that will keep us at the forefront of the orthodontic revolution. We have a product development strategy that focuses on delivering new products and new revenue streams, enhancing the user experience, as well as delivering new product features. I'll discuss a couple of these.

First the bracket positioning template or BPT, will enable doctors to place traditional brackets on teeth with minimal effort. We're developing a template that when used in conjunction with our digital treatment plans, will guide doctors in traditional bracket therapy. Increasing efficiency and reducing chair time are important factors in helping our customers increase their profitability with Invisalign treatment. Through BPT we can extend the efficiency inherent in Invisalign treatment through traditional bracket therapy.

Doctors will be able to place brackets on teeth in about twenty minutes rather than hours without compromising precision. The template will guide a doctor in optimal bracket placement. In states were the dental assistants have a more involved role in treatment, doctors will be able to delegate bracket placement to them, freeing up even more chair time for the doctor. Twelve practices are currently beta testing the current version of the product with 90 patients. We look for that to continue.

Second, our compliance indicator. This will help doctors and patients understand if patients have worn their aligners for enough time to effectively move their teeth. The compliance indicator will be similar to a dot on the aligner that reacts with saliva. A reaction will cause the dot to slowly disintegrate as the aligner is worn. This is especially important for doctors to manage their patients' expectations and for align -- in determining why treatment may not progress for some patients.

In our current competitive environment, we're looking for new ways to distinguish and grow the Invisalign brand. It's increasingly important for us to differentiate ourselves not just through our product performance, but through the reputation of this brand. Imagine a plastic aligner with Invisalign branding on it. Patients would be able to go to doctors and ask for Invisalign by name. With Invisalign branded aligners they will know with absolute certainty that they are getting the quality and proven effectiveness of Invisalign.

And last, our next-generation aligner material. We are implementing a new aligner material that will more consistently deliver force to the teeth over a longer period of time. This will help the efficacy of treatment. All of these new product and enhancements to our products are scheduled to come out later in the year. Beyond those I've just discussed there are many more great projects in our product pipeline. As they take shape and get closer to market I'll be sharing them with you. Our strategy for ensuring product leadership will keep us at the forefront of this market. We are moving beyond being the first invisible orthodontic company, to maintaining our position as the best invisible orthodontic company.

Let me now quickly give you an update on our legal proceedings. We fully believe that we are competing for and winning our customers business based on the value of our products and services. While we are confident of our success, we cannot ignore the responsibility we have to our shareholders, our customers and our employees to defend the intellectual property and hard work that underpins our products and processes. For that reason, we are waging a multi-front legal battle against OrthoClear.

Litigation is not our primary strategy for beating the competition, but it is one of our strategies. And the very real and common theme in all litigation against OrthoClear is unfair competition. In 2005, Align filed complaints against OrthoClear in California and in federal court alleging among other things, trade secret and contract violations and trademark infringement respectively. A few weeks ago, we filed patent infringement complaints against OrthoClear in federal court and with the International Trade Commission or ITC.

We have discussed the details of the California State case and the federal trademark infringement case with you in past calls. But I want to comment briefly on a patent infringement complaints filed with the ITC in Wisconsin federal court. In the course of our investigations over the last several months, we have compiled a significant amount of information that leads us to believe that OC is infringing on our patents. A few weeks ago Align filed a complaint against OrthoClear with the United States International Trade Commission, ITC, alleging patent infringement and violations of Align's other intellectual property rights.

Our goal is to stop OrthoClear from importing infringing OC aligners into the US. We are requesting that the ITC launch an immediate investigation into our claims, and ultimately that the ITC issue a permanent exclusionary order against the infringing products and cease-and-desist orders against OrthoClear. These orders will prohibit the importation of and sale of OC aligners in the US. A complaint filed with the ITC is one of the most formidable weapons in patent litigation. If the ITC rules in Align's favor and grants the exclusionary and/or cease-and-desist orders, those actions can completely halt the sale and importation of OC aligners into the US.

An additional important benefit is that the ITC offers a much faster resolution than typical federal litigation, say 12 to 18 months, compared to several years in federal court. We are confident that once the ITC reviews our complaint and our supporting evidence they will initiate a formal investigation. Once a formal investigation is underway, the ITC only needs to determine that OC infringed one of the more than 200 claims included in our case to issue that exclusionary order. We have also filed a patent infringement suit in the Western District of Wisconsin seeking monetary damages from OrthoClear. It is likely that the federal court action will be put on temporary hold until a decision is reached by the ITC.

Before I turn the call over to Eldon, let me close by saying that despite the challenges in 2005, your company has accomplished a great deal. Our top line grew by 20%, and case files were up by 23%. We've enhanced our ability to compete, not just with this new competitor, but with anyone, now and in the future. We worked hard to establish a robust value proposition with real benefits for doctors. Throughout 2006 we will continue to provide the best product and the best value for customers. We expect to see case volumes expand significantly. However due to the combined impact of pricing and case mix effects, our top line may be a bit bumpy. By focusing on great execution of a winning strategy we'll continue to grow this business and capitalize on the huge opportunity this market represents. We believe that will result in superior returns for our shareholders.

And with that said, let me turn the call over to Eldon. Eldon?

Thanks Tom. As a quick reminder our fourth-quarter and full-year press release and 8-K filing of the same document are available on our website. Let me first review reported numbers for the quarter and then the full year. I'll then review guidance for Q1 of 2006 and fiscal year 2006. First, Q4 revenues were $51.2 million, up slightly from last quarter, and 17.2% year-over-year. Fourth-quarter revenues by channel were 18.7 million for US Ortho, 23.2 million for US GP, and 6.6 million for international. These channels represent 36%, 45% and 13% of revenues respectively.

Invisalign Express revenues included in these numbers were 2.4 million for US Ortho, and 4 million for US GP. Worldwide training and other revenues were $2.6 million. Blended ASPs not including Invisalign Express was approximately $1,660 per case. ASPs for US Ortho, US GP and international were 1,710, 1,590 and 1,750 respectively. These numbers are posted on our website under additional information for your reference.

Revenue includes a $1.8 million benefit associated with our case refinement policy change last June, as previously discussed. Gross profit for the fourth quarter of 2005 was 34.5 million or 67.3%, compared to 35.9 million or 70.6% last quarter. This also compares to a gross profit of 28.7 million or 65.7% for the fourth quarter of 2004. Gross margin decreased sequentially as a result of Invisalign Express case volume and period costs associated with equipment moves from Santa Clara to Juarez, Mexico.

Operating expenses were 33.8 million for the fourth quarter of 2005. This compares to 37.4 million last quarter and 28 million for the same quarter one year ago. For comparison purposes non-GAAP operating expense which excludes stock based compensation, last year was 27.9 million. The decrease in operating expenses is related primarily to lower compensation and bonus expenses, slightly lower outside services and fewer than anticipated new hires in the quarter. OpEx includes approximately $2.5 million in OrthoClear related expenses.

Net profit for the fourth quarter was $528,000 or $0.01 per share, compared to a net loss of 1.5 million or $0.02 per share last quarter, and a net profit of 1.1 million or $0.02 per share in the fourth quarter of 2004. For comparison purposes non-GAAP net profit last year was 1.3 million or $0.02 per share. Now for the full year 2005. 2005 revenues totaled 207.1 million, an increase of 19.8% from last year. Ortho revenues were 85.4 million, GP revenues were 89.2 million, and international revenues were 23.2 million. These figures represent 41%, 43% and 11% of revenues. Training and ancillary revenues were $9.4 million.

Gross profit for 2005 was 143.3 million or 69.2% of revenue, compared to 115.3 million or 66.7% of revenues for 2004. The improvement in gross margin is mainly attributable year-over-year to improvements in case design and manufacturing processes. Operating expenses were 140.9 million for 2005, this compares with 105.5 million for 2004. And OpEx for 2005 includes approximately $10 million in OrthoClear-related expenses.

Net profit for 2005 therefore was 1.4 million or $0.02 per share, compared to a 2004 net profit of 8.8 million or $0.14 per share. For comparison purposes non-GAAP net profit, which excludes stock-based compensation, was 14.4 million or EPS of $0.22 per share in 2004. The full-year case refinement policy change impact to net profit was $3.5 million or approximately $0.06 per share. Again a full non-GAAP income statement and a reconciliation of GAAP to non-GAAP financials are available in our press release.

Now onto the balance sheet. Cash and cash equivalents and marketable securities at the end of 2005 were 74.4 million compared to 70 million at the end of 2004. Days sales outstanding were 52 days, consistent with our expectations. Capital expenditures for 2005 were approximately $15 million. Now let me move on to guidance for 2006. As Tom discussed, the key objective for our business in 2006 is to drive utilization and case growth across all categories of our business, both from the perspective of channel, Ortho GP and international and product for Invisalign and Invisalign Express.

We also will provide programs and products that enhance our value proposition to doctors and thus increase average utilization per practice. Introducing Invisalign Express, simplifying prices for full Invisalign cases and introducing volume based discounting is just the beginning. Success in growing volumes positions the business for a strong future, pricing and discounting will however [mute] revenue growth in the short term. Additionally, we will carefully manage operating dispenses while investing strategically in programs to fuel case volume growth. The projections I'm going to walk you through reflect these objectives.

We believe that executing on our plan and meeting our milestones may lead to unprofitability in the first half of the year. In the second half of the year, we expect that increased volumes and prudent spending will return the business to profitability. Before I begin guidance, let me address Financial Accounting Standards 123R. As you know, all public companies including Align are implementing FAS 123R governing the expensing of stock options. We expect to record stock option expenses of approximately $2.5 million for Q1 and $9.5 to $10.5 million for full year 2006. We will call out the impact by category as a non-GAAP item.

Case shipment volumes are projected to be in the range of 34,000 to 36,000 cases in the first quarter, an increase from Q4. We expect that Express cases will comprise approximately 30% of overall case volume. We expect Q1 revenues to be in the range of $46 million to $48 million reflecting a full quarter impact of our price changes and additional volume discounts. Ortho channel, GP channel and international Invisalign cases are expected to comprise 29%, 39% and 11% of Q1 revenues respectively. 15% to 20% of total product revenue will come from Invisalign Express cases. The majority of this or 70% will come from GPs. The remaining 4% of total revenue is training and ancillary revenues.

Blended average selling prices not including Invisalign Express, are expected to be approximately $1,500 to $1,525 for Q1. This sequential decrease in ASPs for Q1 reflect the effective price changes announced November 1 of last year in customer participation in our discounting programs that will help us ensure our value proposition remains competitive. Revenue also includes case refinement impact of approximately $1.6 million. Q1 GAAP gross margins are projected to be in the range of 63.5% to 64.5%. Gross margin includes approximately $200,000 of stock options expense charged to cost of revenues. Adding this back, non-GAAP gross margins are projected to be in the range of 64% to 65%. The sequential decline in gross margins reflect the effect of our price changes and volume discount programs along with increased Invisalign Express volume.

Q1 GAAP operating expenses are projected to be in the range of $37.8 to $38.8 million. Sales and marketing, R&D and G&A represent approximately 54%, 12% and 34% of operating expenses respectively. Operating expenses include $2.3 million of stock option expense, of which 26%, 13% and 61% reside in sales and marketing, R&D and G&A respectively.

Excluding this $2.3 million expense, we would arrive at non-GAAP operating expenses of 35.5 to 36.5 million for Q1. This sequential increase in operating expenses results primarily from the kick-off of our 2006 media advertising campaign. This guidance also reflects OrthoClear-related expenses of $2 to $2.5 million for the quarter. GAAP net loss is projected to be in the $7.5 to $8.5 million range or a loss of $0.12 to $0.14 per share for Q1. Bottom line impact of stock option expense is estimated at $2.5 million for the quarter, resulting in a non-GAAP loss of $5 to $6 million or $0.08 to $0.10 per share.

Let me turn to guidance for full year 2006. 2006 revenue is projected to be in the range of $204 to $210 million. Ortho channel, GP channel and international Invisalign cases are expected to comprise 28%, 41% and 12% of full year revenue, while Invisalign express cases are expected to be 15 to 20% of revenue, with the remaining 4% of total revenue approximating training and ancillary products.

Case shipment volumes are expected to be in the range of 153 to 158,000 cases. We expect that Invisalign Express cases will make up approximately 25 to 30% of full year case volume. Blended ASPs, not including Invisalign express, are expected to be $1,465 to $1,490 for full year and include case refinement impact of about $5.5 million. Full year GAAP gross margins are projected in the range of 66.3 to 68.1%. Gross margin includes $800,000 of stock option expense charged to cost of revenue. Adding this back, non-GAAP gross margins are projected to be in the range of 66.8 to 68.5%.

2006 GAAP operating expenses are projected to be in the range of 149.2 to 153.2 million. Sales and marketing, R&D, and G&A represent 52%, 13% and 35% of operating expenses respectively. Operating expenses for the year include 9.2 million of stock option expense. Excluding this 9.2 million expense, we would arrive at non-GAAP operating expenses of $140 to $144 million.

2006 is expected to include OrthoClear related expenses of $10 to $12 million. GAAP net loss for the full year is projected to be in the $10 to $15 million range or a loss per share of $0.16 to $0.24 per share. Bottom line impact of stock option expense for the year is estimated to be $10 million, resulting in a non-GAAP bottom line of breakeven to a loss of $5 million, or a loss per share of 0 to $0.08 per share.

Taking a quick look at the balance sheet, we estimate our cash balance at the end of Q1 in the range of $64 to $66 million. We estimate our cash balance at year-end to be in the $64 to $70 million range. Day sales outstanding are expected to average in the mid 50's. We project full year capital expenditures in the range of $13 to $16 million, with depreciation and amortization expense expected to be in the range of $11 to $12 million for the full year.

We'll now go to the operator for questions-and-answers. Operator?

Thank you.

[OPERATOR INSTRUCTIONS]

Our first question comes from the line of [inaudible - technical difficulties] of Deutsche Bank. Please state your question.

Good morning. It's Tao from Deutsche Bank. A couple quick questions over here. First Tom, I was wondering if you could walk us through the dynamics of Express in the sense of cannibalization in orthodontic -- orthodontics' channel as well as GP, and also what are new cases as far as you're able to --?

All right, so if I play that back just to make sure I got the question. Touch on Invisalign Express relative to cannibalization either in Ortho or GP and also relative to new cases, I mean incremental growth?

You got it. Yes

All right. So I think, we had some internal assumptions about cannibalization and those are bearing out. What we believe, what we see happening in individual practices and what we have in feedback from doctors leads us to believe that, in fact, most of what we're seeing with Express is incremental. There is no question that on a very simple case, say 10 or 12 stages that would have been a full case, a doctor doing that with Express now is cannibalizing a full case start. But the simple fact is, that was a hard case to sell at $4,000 for them, which was typically where a GP would be at 3,500 to 4 and an Ortho might even be a bit above that.

So, what we see in fact happening is market expansion. We see both orthodontists and dentists pricing expressed to the market able to package -- say a dentist is able to package whitening, some simple restorative, and an Express case for say $2,200 to $2,500, and that's just not a price point to the end user, the patient, that was there in prior times with us at $1,895. So, I guess for us the interesting thing is there are a lot of orthodontists selling simple cases with not treating full treatment, but treating the visible social six teeth, if you will with part of [their] malocclusion and that's what we view as a nice upside relative to Express. We expected to see that on the GP side, we didn't quite expect to see orthos get so excited about this product. So we're pleased.

Okay. Great. And if --I don't know if you can comment on the legal side, can you give us -- does the ITC have some specific timelines or milestones? So the next thing I guess is you filed, so they need to accept it probably this week, or next week or sometime. What do they do going forward for say the next nine months? Are there events that have to happen so that we get some more clarity on what's going on on the ITC front?

I will ask Roger George, our General Counsel, to comment briefly on this. Obviously it is in litigation and we aren't going to go into a lot of detail here but --. Roger?

Good morning Tao and everyone else on the line. The ITC process is pretty prescribed as compared with regular federal civil litigation, which has a much more flexible timeline, depending on what the parties do to each other during the pretrial process. So, the next thing that will happen with the ITC is that on the 30-day anniversary of our filing, and our filing was January 10th, so on or even before February 10th, the ITC will come back and announce whether they are going to undertake an investigation of the matter or whether they will not.

We expect that they will undertake an investigation, and that will kick off a highly involved period of investigation by the ITC staff which is made up entirely of patent lawyers who are expert in these matters, who will go through the voluminous documents and claims that we have filed in order to prove that the claims of infringement are in fact as we say they are. And they give OrthoClear a chance to respond and they go through discovery and they eventually get to the point where they make a decision, and all of that takes about 12 months and it can take longer. And then they put the decision into writing, which will be hundreds of pages long. It's a highly reasoned decision as opposed to just getting a court order.

Okay, so nothing for -- you said acceptance and up to 30 days and then nothing for another 12 months.

Yes.

Okay. And I was wondering if you could comment on Express ASP, I don't know if you called that out on the call. And just lastly, going forward, the SG&A this quarter was a tad lighter than we were looking for -- going forward you're looking for that to bump up. Is there -- should we think of that being more front end loaded for the year rather than back half loaded? Just some commentary there and that's it. Thanks.

Tao, I'll start just by talking structurally how we think about SG&A and then I'll ask Eldon to comment specifically on the numbers. We planned the SG&A that occurred, we did all the hiring we wanted to do. We drove all the programs we wanted to do, and it was not without significant spending in the quarter. We had summits, we had other things going on. We -- I think Eldon specifically discussed, we are turning back on significant amount of the Bloom campaign again in Q1 and we expect to do that. But we -- we look at that as a strategic issue.

So, I would -- what I would say is we're going to manage the business carefully, but building the business for the future. And that's, maybe the balance I'd suggest to you and I'll ask Eldon to comment specifically on the SG&A numbers.

I think Tom, you pretty well covered it. Going sequentially the main up tick in our spending, Tao, going into the first quarter is launching our media campaign. That's not new. Typically in our business we don't invest much at all in media advertising in the fourth quarter of the year. The logic behind that is not to compete with the Christmas advertising crush. And then we usually hit the market with a new round of campaigning going into the new year. So that's, that's about a $2.5 million sequential impact, in and out of the quarter. Didn't elaborate on the Express ASPs because they're pretty steady and pretty consistent right at $750 per case.

Okay, great. Thanks a lot.

Our next question comes from the line of Ryan Rauch of Jeffries & Company. Please proceed with your question.

Good morning guys and Barbara.

Morning Ryan.

Good morning. Yes, just a couple quick questions. As far as maybe Tao asked it, do you plan to add to your 102 person sales force in '06 or, is that going to be relatively flat?

It's 106 and we might increment that very slightly. I think as we talked about, when we did the Q3 call, we thought we were getting to a fully staffed team, whereas roughly a year ago we were thinking the number to get the right kind of coverage model, was probably 115 to 120. We think we're pretty much there, and while we may tweak in a couple of territories where there's opportunity to drive significant growth, I think for the near term it would just be tweaking. So we don't see substantial expansion in that in the moment.

Okay, perfect. And I think last call you indicated that there was sort of a nine month lag from the beginning of your direct to consumer ad campaign to new case starts. Have you started to see any benefits from that since your direct to consumer campaign started in May? So do we expect sort of less than nine months from case starts going forward?

Well of course, there -- if you look at the whole cycle, you can have as long as nine months to a year from first exposure to action and a case start. So I think if you follow that raindrop all the way out. The -- what we see is, and in fact we saw a significant lead activity and interest still persisting into Q4, even through we were off the air. So I think we track unique visitors to our website. We track what we call the matchmaking that goes on with patients looking for a doctor and we track the conversion process that underlies all of that.

So, what we -- when we turn the media back on in individual markets and then more broadly, what we see is increased flow at the front end and then it just further fills the pipe. So I think what you're -- what we expect to see is a steadier growth in contribution and one of the things, as we consistently survey the docs is that patients are getting into the chairs. They've all seen the point of sale material. They've all seen the Bloom campaign on TV. They are more knowledgeable, many of them have already been on our website before they've even been into the chair, and they are easier for these doctors to convert.

So, all of those factors play into the positive effect. But I wouldn't look for any kind of step function change in either demand growth. What I'd say is a good steady bow wave that we want to keep building.

Okay. And then Eldon, what were the costs to the gross margin line to move from Santa Clara to Juarez?

Within the fourth quarter, Ryan, it was about $400,000.

Okay. And then finally, we've done a lot of sort of checks recently since your ITC announcement with Physicians, and there were clearly a lot of feedback that there's some that are not going to start new cases with OrthoClear just because of the potential exposure in case they lost the ITC hearing. I know your sales force has recently gone out sort of with a message regarding the lawsuit. Are you seeing this at all as far as feedback from your sales force to you guys about physicians in the marketplace that it might change their ordering patterns based on the potential litigation risk?

First off, we have had very thoughtful and complete discussions with our sales team last week where we challenged them to walk that very professional line in terms of communicating factually about where we are and how we're going to compete. We have in fact had a number of conversations with doctors that indicate that this is maybe the straw that breaks the camel's back, but there are other elements that factor into them coming back to Invisalign that have to do with customer support in service, in product quality and all those other things we talked about that are a more complete way for us to compete. And a little difference in price isn't enough to justify continuing on with the other plans. So we have seen that from doctors. I wouldn't say there's a broad effect yet, but we are having more and more of these discussions happening every day.

Okay, thanks a lot. Have a good day.

Thanks, Ryan.

Our next question comes from the line of Kevin Kotler of Broadfin. Please proceed with your question.

Good morning.

Hey Kevin. How are you?

Good, good. I was just -- I was listening to your guidance and maybe you could just help me out. Just can you tell me what the '05 to '06 ASP, the average ASP over all the revenues would be? I don't know if you provided that number, but I didn't catch it. And then, what was the ASP growth and unit growth, the year '06 numbers.

From '05 to '06 Kevin?

Yes, as you give the '06 guidance, what was just the units of ASPs, and just the growth rate assumptions?

Hey Kevin?

Yes?

Blended ASPs not including Express, 1,465 to 1,490.

Okay.

That was the range that we quoted for 2006.

Right. And is it normal to take out the Express? I mean why would you just --?

Well we've -- I think we've started, we've just started doing that now, so that is a change in the way we're portraying the numbers for you. And the reason why we're doing that is because of the significant difference in the ASP between Express and full Invisalign cases, so you can understand mix and price within the equation.

Okay.

I mean, Express is pretty much at the price and we're giving at volume of cases, so you can extract out what's going on, what changes are happening, both mix as well as price.

Yes, yes, actually you're giving me more information than I actually wanted to get a hold of so, I appreciate that.

Sorry.

It's okay. The other question -- just a couple of other ones. The anonymous group that asked the patent office to request a review of your fundamental patents, that came back, I guess, positively. You put a press release out on that. My understanding is that it's illegal or it's against patent law for the inventor or the company to go back and review a patent that they were involved with. Obviously that's relating to your former CEO chairman. And I was just wondering, do we know who that group is? I mean have we investigated that and any implications as far as other litigation that could be pursued related to that request?

This is Roger George, General Counsel. Your understanding of the law is spot on. And I can tell you that we are following that line of thinking in how we respond to the challenge.

Okay. And I just wanted to make another, just a statement I guess. I look at companies like Connor, which don't really have any market capital revenue multiples that you could really apply and they have a much tougher litigation battle, because they're actually coming after the fact of Boston's patents and here you're kind of assuming that everything you've written in your 10-K is correct. It seems to me why you're getting a multiple of 1.6 times sales is kind of confusing to me. But anyway, thanks for answering my questions.

Well thanks for your editorial. We don't disagree Kevin.

Yes.

Our next question comes from the line of Derek Leckow of Barrington Research. Please proceed with your question.

Thank you, very much and good morning. Congratulations on a good finish to the year, despite the circumstances.

Thanks, Derek.

Thank you.

I've got a question here on the guidance as well. I think I missed it, I was trying to write so fast, and you've got so many numbers there. But the average -- the growth rate within the segment of, excluding Express, what was the growth rate in number of cases there?

Derek, you were --.

Total cases grew 23% for the year.

I'm talking about for '06, the guidance you gave on number of expected --.

Okay. Yes what we said for full year for cases was -- for the full year was a range of 153 to 158,000 cases. And we expect Express will be about 25 to 30% of that total.

Okay.

We didn't express it as a percent, we just gave you the numbers.

Okay.

So 153 to 158,000 total cases of which 25 to 30% we expect to be Express.

I'm sure I could calculate this, but what would be the average selling price for all those cases, for all those 155,000 cases?

Well, how we expressed it was that for full Invisalign cases, not including Express was 1,465 to 1,490, and the Express cases are on or about $750.

750.

We thought it was less meaningful to give you a blended ASP. It would be more useful for models or for projecting where we're headed to see specific products and the ASPs that we felt would be supporting those.

Yes, I agree, that is very helpful. I'm just trying to understand the guidance relative to the total growth in revenue. It seems to me to be kind of a conservative number, especially given the fact that you're going to be ramping up your media spending here pretty significantly and you have all those new products coming on later in the year. So I'm just trying to gauge -- it seems to me that you guys are being pretty conservative on that.

Well Derek, after coming out of the challenging year we've had and with the combination of mix, price changes and frankly still getting started at generating productivity out of this very new sales force, we're trying to be consistent with how we're seeing the world and as we perform against this view we'll be happy to improve out view of the outlook. But we're trying to start from the base that says we're going to grow volume, we're going to try and generate some top line growth, but right now we're calling it as we see it.

Well, I think you're going to have some happy sales people then next year as they blow past their numbers.

And the one thing that I'd ask, or not ask, but add is the importance that we're placing and the emphasis on growing our volume. And that's across the channels and also level of participation or utilization per practice. That's, those are of utmost importance to us. And as I mentioned, when I started my discussion on guidance, volume is very important to us, to evolve the business in 2006 and to position for the future.

And I mentioned that revenue would be muted in 2006 as the result of rolling through the full impact of our pricing changes that we announced effective November 1, and also the mix impact of Invisalign Express where you've got a product at $750 per case.

Okay. Then just a question on the new aligner material that you're talking about. Is this designed to be an enhancement of the product? In other words, would it be a product priced at a higher point with some additional features or, will this be a product that kind of, material that replaces what you have out there now?

I think at this point in time we'll keep our alternatives open. It is likely to be the latter, where we will have a more effective, better conforming material to more consistently deliver force to all the teeth. I would say over time we expect to enhance the whole product line in offerings, and you can probably expect to see us broaden the number of price points and how we bundle and unbundle a whole set of things in the products. But that particular feature is probably going to be deployed across all the aligners and we expect it will be, it will increase efficacy of treatment.

And when are these new features going to be incorporated into your media ads campaign?

Well we won't -- a number of these features wont necessary have the same pull for consumers, so not all the changes we're making in product will wind up in demand creation side. Some of these -- a number of these, such as the compliance indicator are much more important in terms of channel with the doctor and training materials and the support materials for the doctor. But again, it depends on which element we're talking about, but not all of these really have the same kind of pull at a consumer level, and so we will continue to kind of build brand and the core messages with consumers and deliver more of that value proposition element to the doc.

Well, it'll probably be incorporated into the clinical piece of it when you do your training sessions and so forth.

Absolutely, absolutely and how to manage the cases and how to adjust cases that are going off track and how to message this to consumers, perspective patients, all of that.

And that will be toward the end of the -- that will be in the second half of the year obviously with some of those big shows.

Correct.

Okay. Great, thanks a lot for your help.

Thank you, Derek.

Our next question comes from the line of Taylor Harris of JP Morgan. Please proceed with your question.

Great. Thanks for taking the question. My question is on just what your forecast, what your assumption is on market shares next year in unit case volume. And just as I look at -- I think your assumption for case growth is around 25%. OrthoClear's made the statement that they're approaching 30% market share. If I add that up, that implies overall market unit growth well over 50%. So, do you think that we're -- maybe just make a comment on the market shares, is that 30% number aggressive in your mind or are we really seeing a resurgence in overall market unit growth?

I'm -- I guess let me say this as professionally as I can. I am not going to put great weight in what this particular company talks about. They're not bound by the same consideration that we are in terms of talking with our investors in a public setting. So I'm really not going to put a lot of credence in the numbers they throw around.

What I would say as by far the dominant share player, we do see expansion going on in this market. We see growth in the existing Ortho space starting to restage. We see more interest in the average orthodontist practice. We see more adults seeking treatment. We see this happening, not just here, but around the world. I do think that there is the potential as the channel evolves and matures, as the product set evolves for much more dramatic expansion of this market in out years.

I think we're still in the blocking and tackling stages of that expansion today, and I think what we're still doing is competing for a share of starts in the US market against traditional treatment, clear brackets or conventional brackets and bands, metal brackets and bands. But we do see real expansion going on in the GP side, almost every case that starts with a GP that doesn't have a fixed appliance practice is purely incremental and we do see growth going on more broadly.

So, I don't want to comment maybe on what some other guys have said about market shares and all that stuff. I think if we go out and do what we're supposed to get done, we continue to act as the leader and have the best products, the best value proposition, the best support, we're going to continue to lead this market and grow this market and there's probably room for more than one player, but that doesn't mean we want to make it easy on anybody.

Great. So Tom, is it fair to characterize, in your mind, the confusion that had been created in the marketplace at the GP and Ortho level at the time that OrthoClear sort of first came to the market as having cleared up and we're back on a normal, or perhaps above normal growth trajectory for the market as a whole?

I don't think -- I'm not sure Taylor there was confusion caused. There was more what I would call disruption.

Disruption. Okay.

I think the reason why we -- why we had some quarters of less than stellar growth was, because we got our whole sales force interrupted and we got a whole bunch of relationships interrupted. Those practices stopped spending effort to try and look for patients, start new cases, and get going. Many of those practices are now getting back on track. Now, some of them are starting some cases with OC and they're certainly doing cases with us. But we see more and more docs coming back saying it's not worth the little difference in price. I wanted -- my staff and I really wanted to get rolling again with Invisalign, we want to be a premiere provider and I think it was more of a disruptive effect than a broad market effect. And now that we have a sales force rolling again and all that good stuff, I think we're going to see a little more consistent volume growth.

Again, we're trying to be thoughtful about how we roll that volume growth due to price and mix changes into a top line, but I think the first thing we're focused on is getting utilization increase in each channel, driving meaningful volume growth with both of these products, starting to get productivity out of this new sales force and then ultimately driving meaningful growth in the top line.

Our next question --

Does that help at all?

Our next question comes from the line of [Lawrence Coolidge] - of [Loren and College].

Hi Tom, this is Larry Coolidge. I wanted to ask a question for Tom. Some analysts are a bit concerned that Align may not be aggressively utilizing growth opportunities abroad, particularly in Europe, Japan, China and India, and that OrthoClear may be taking market share away from Align in these markets. Have you considered a joint venture with a larger internationally-oriented company, such as J&J, 3M or Dent Supply?

Boy, hardball Larry. The first thing is that we have a decent footprint of core business in Western Europe, Germany, France, Italy, the UK, et cetera. We have what I'd say is a good start in Hong Kong, Australia and we just, we made the decision to go it alone in Japan after a long lengthy discussion with several perspective joint venture partners in Japan. We felt starting with the full involvement and support of the Japanese Orthodontic Society, in a small way in Japan, then building out to a broader group of orthodontists in Japan and GPs we may, over the period of the next couple years, decide to integrate that as a joint venture with the right partner that could help us scale.

I think if you step back from those good starts, there is great interest for us for key doctors around the world in countries like Korea, Taiwan, India, other places where there -- a growing middle class with disposable income. There are -- there is far more interest in getting started than there is the financial merits of building the infrastructure and support network to build a sustainable business. So we're trying to be very thoughtful about the targets we're choosing and the time frame we're choosing to go after them.

So what I would say, Larry, is that in the coming years we will probably be more flexible about the way we go into certain countries both structurally versus direct, as well as with certain partners. And we've had lots of discussions with potentially valuable partners, nothing to report today and I think we're going to continue to keep our eye on the ball in building North America, building core Europe and planting the right seeds around the rest of the world. But I also have to say that this other competitor, mostly, they're not really doing their own training and development of markets. They're drafting in our wake.

So to the extent we haven't gone and developed a market and haven't trained the doctors, it would be much more difficult for them to actually go do that work. They've not shown the capability of doing that thus far. But again, we're going to go try to do this the right way. Build a great sustainable business for the long term.

Thank you.

Thanks.

Our next question comes from the line of Anthony Ostrea of JMP Securities. Please proceed with your question.

Hi, good morning. It's Anthony from JMP. Couple of quick questions. We're in 2006, can you talk about -- 2006 guidance that is, can you talk about the split between new users, growth in utilization from current users?

We didn't really -- we didn't really define how much of the case volume growth would come from utilization increases and we haven't specifically kind of forecasted that versus new customers. What we have said, in general, was we're going to pull back a little bit on certification of new GPs, dial that back just a bit and invest more effort in increasing utilization. We think that is really the key for the long term.

So you can probably apply some numbers to that. All that said, we did show up with 1,500 new users in Q4. So we are on a path to continue to get new user growth but alongside that, Anthony, we really want to emphasize growth in practice, growth in share practice and that utilization increase underneath that. That's the best way to build the business for the long term.

Okay. And then, just based on Q1 guidance and full year '06 guidance. I mean it looks like expecting a lot more growth in the second half of the year. Can you just talk about, or maybe not give definitive numbers but just qualitatively, what you see in terms of volume progression throughout the year, and what's driving these assumptions?

Yes, I mean you're looking at the volumes that we're projecting for the quarter and evolving from there. As we said, our focus and what's important to us and key objective is to grow by channel and as Tom just mentioned, to grow level of utilization and deeper into -- on a per practice or per store front basis. And our objective is as we evolve through time is to project solid growth. I mean from time to time it will be a little bit lumpy. We do see some seasonality that sometimes is consistent and sometimes is not through the different seasons of the year and times of the year, whether it be holiday period or it be summer. Those can be somewhat unpredictable, but our overall objective is to be on a trajectory of overall growth. Not necessarily consistent period-to-period, but to grow consistently as we go forward.

Okay. And then Tom, you had mentioned in your comments earlier that you're seeing some customers come back. Can you just maybe give us a little more detail with regards to, maybe not numbers per se, but just generally how that -- well, I guess how many customers or what percentage of prior customers or of new OrthoClear users are coming back to you guys saying they're not going to use OrthoClear anymore?

Well, I'm not going to throw numbers around. We actually track this very carefully and both -- we track each practice week to week in each territory and look at what's going on in each territory. And certainly as we have seen, what were previously important customers drift away, as they come back it's a big deal for us. So I'm not going to talk about this in terms of numbers, but I would say it's an increasing effect. And instead of kind of a doc coming back, saying I'm not doing any of this, they come back over stages.

They and their staff have experienced the other company -- quality, service, support, all those things, ability to help build practice and they've come back and said, I don't think the difference in price is worth it, let's get back on track and let's go get going again. And so, rather than kind of people flipping back and forth I think this is just, they've kind of went that direction, they're coming back this direction. So this is another reason why we're being thoughtful about the volume expansion and the effectiveness of our sales force. We think this is a slow steady, win customers back, start to build volume again and remind them of the great stuff we do here and why we're a better choice as a partner.

Okay. And just one last question. Can you just talk about the timing of the launch of the bracket precisioning template, and give us some sense as to how big that product could be?

We've talked about expansion into a broader pilot around the end of the year. This is important strategically for us because it is -- it does two things. Number one, it - today there are doctors on very -- we still are not competing, for the most part, for share of practice where there are very complex cases involved. Doctors typically have to treatment plan those and do those with conventional therapies, fixed appliances. What some doctors are trying to do is use a combination of clear brackets and Invisalign to treat those complex cases. The problem with that is they don't have a way to treatment plan the entire case as a system. They have to actually treat it as two cases. And they have an Invisalign portion of it and they pick up and start from ground zero and do the next year and a half or whatever with those fixed appliances.

We're going to create a capability that an orthodontist can completely treatment plan a highly complex case, potentially including even the surgical intervention and be able to see that whole case and then in fact organize the movements that Invisalign does better and the movements -- the specific movements that are expressed better with fixed appliances in to a systematic way that they can then plan and monitor that complete case.

At the time they're ready to move to fixed appliances, then, though -- that bracket will be the template that will allow they and their staff to then very quickly and efficiently place all those brackets in XYZ space on the tooth in precise locations. That will save substantial amounts of time for them both to do treatment planning and monitoring in one consistent way and then to do bracket placement once in an organized way.

And in markets like Japan and in Asia, where because of the different facial structure, they have far more, what we call for -- bicuspid extraction cases, highly complex cases. This will be the norm rather than the exception and many of the cases they will seek to treat will be highly complex. So, we look at that as an absolute key for markets like Japan and markets in Asia that we find attractive.

And so for us, it's very strategic to both make Invisalign a much bigger part of every orthodontist's practice. And in fact, we might be able to work our way to some practices today that doesn't use any Invisalign, is only a fixed appliance practice by -- because they'll have a new set of capabilities to treatment plan and manage cases. It will also allow them to reach out to different kinds of consumers that simply -- that want to optimize their treatment and if they can have Invisalign and less invasive methods for part of treatment, they would go ahead and do that. So, for us it's using all the skills and knowledge and capabilities and patents that we have. It is about unlocking a whole other leg of potential growth.

Great. Thank you, very much.

Yes.

Our next question comes from the line of Raj Denhoy of Piper Jaffray. Please proceed with your question.

Oh great. Thanks a lot.

Hey Raj.

How are you guys doing? Just a couple of questions actually on the Express side. I think it -- it might have been the first question even, you stated that you didn't think that you were getting any cannibalization from Express and that it was actually all incremental. I was just doing some back of the envelope calculations. It looks like you guys did something like 8,700 cases or 8,750 cases and that the remainder was something on the order of 25,000 cases, which was a sharp decline from where it's been historically. And I'm curious whether you really think there's no cannibalization going on there or if that was a bit of an overstatement?

No, I think Raj what I said, what I said was we had assumed a rate of cannibalization and that is -- we believe we've observed that rate of cannibalization. And the way to, I guess the way to think about this, we know exactly over past quarters how many case set ups we did, how many case starts we had that were full cases. And even if we took and said 13, 14 stages, and less, those would likely be the candidates that we would -- and that was a pretty steady number, those would likely be the candidates that would explicitly be, that would have been cannibalized. And I think we've in fact seen that.

What we, what -- another way maybe I'd think about it is, because of disruption we would have had even less volume if we didn't have a great new product like Invisalign. I think the reason why it is striking a cord is, there are a lot of patients out there that have -- that either don't want full treatment and want to have a partial treatment to have their front teeth, the crowning repaired, or don't want to spend what it costs for full treatment, 5, 6, $7,000 and are wanting to have a smile improved. And so there's a price point out there from the docs to the patients and there certainly is a price point and a value proposition out there from us to the docs.

So I think we've pretty consistently said we had expected a rate of cannibalization -- we think we've seen that -- and I think what the difference is, is some incremental growth. And yes, that has offset what may have been sharper declines in the business and that's partly because of the disruption we had.

Okay. And then just, sort of a follow up, you mentioned that you think you'll get to, I think you said 25 or 30% of cases per total of 2006 will be Express. Now here on the first quarter it's already something on the order of 26%, I think, if I did the math right. I mean are you thinking that it's pretty much at a point of stasis here as far as penetration?

We think it's steadying. I'll let Eldon talk specifically about the numbers, but we think, we see it's -- it was a great launch, the doctors jumped right on it. It's a great way for them to get the discussion started with patients. And I think what we see is a pretty solid consistent flow at this point, but I'll let Eldon talk to the numbers.

All right. Raj, I think Tom portrayed that pretty well. I mean we saw the participation in Express ramp up very rapidly from the point in time that we introduced the product in mid August. And we're also still learning with the product. What our assumption is right now that we're going to see a settling in, in terms of share and Express will grow with the cadence of the business. But the only qualifier I'll put around that is we're only one full quarter into the product and we're learning day-by-day, week-by-week, what clinician -- what behavior participation is with the product. But that's the best we know how to peg it right now.

Okay, fair enough. And then just one last one, on the litigation front. I understand there's still a handful of patents, maybe five other patents which are still being reviewed by the patent office. Is that true and is there any sort of timing on when you might expect a resolution on that?

There are actually three that are still pending reexamination, determination by the patent and trademark office and we should know something in the next four to six months.

And without knowing the specifics of those is it fair to assume that if you get a positive resolution of that, those will be added to the current complaints against OrthoClear?

No, that's not necessarily the case.

I guess we'll just have to wait and see what the patent trademark office comes back with.

Yes.

Okay, fair enough. Thank you.

Thank you Raj.

Our next question comes from the line of Tom Bundock of Ram Partners. Please proceed with your question.

Yes, hi. Congratulations on filing of the ITC complaint. My question related to that, I saw in the complaint a mention of the computer codes being utilized by OrthoClear in the Pakistani facilities. I understand that those Pakistani facilities that OrthoClear is operating with were purchased by the -- from Align, and I'm just wondering whether the contract for the sale of those assets in Pakistan spoke to the trade secrets or the intellectual property of Align and protected that intellectual property in the sale?

Yes, there was no sale of any intellectual property at all.

Okay -- so I just want to be [inaudible - technical difficulties] was there anything in the contract for the sale that prohibited use of the assets or trade secrets that -- by the purchaser?

I frankly don't have the contract in front of me, but our agreement with them had nothing to do with anything in soft form. It was simply about office equipment. Nothing more.

Okay. All right. Thank you, very much.

We have a follow up question coming from the line of Kevin Kotler of Broadfin. Please proceed with your question.

Yes, hi. Just curious, did you give the number for litigation expense for 2006?

We talked about a range of OrthoClear related expenses, Kevin of $10 to $12 million.

Okay, and then sales force, did you give an update on just -- I know you said you're not going to add any more people, but in terms of turnover, any comment about that in the fourth quarter?

We had no turn over in the fourth quarter, even after the order expired. I think, as I said, we've had some outlandish offers from some of our reps and we've had a very aggressive posture by this competitor to continue to try and go after our people and its almost a point of honor now for the members of our team that they've gotten these ridiculous offers. So, at this point in time we're mindful of that. We want to make sure that our team knows what we're about and how we're going to win, and why they're on the right team. And focus is to help their customers have great success. And as that happens, they're going to have great careers here. So again, we -- I'm not going to say never, and I certainly hope we don't lose anybody, but at this point it's been -- we've been just fine.

And the last point, the competitor --if the strategy for them is to get into the GP office, could they disrupt you like they did in the orthodontics market?

The reason why they created such disruption was because they took our most experienced reps with all those relationships. And in fact, even before they started shipping product they got those customers to back off their effort and energy and investment. And so the simple fact is, we keep our field team intact, we keep running forward with our business, we keep taking care of our customers, it's going to be very difficult for them to do that.

The second element is many of these GPs rely very heavily on our clinical support. Our customer support and our whole infrastructure to be successful. They have much less experience than the orthodontist. They can't get cases finished because they cant rely on their fixed appliance capabilities. And so, if anything, these customers will place a greater premium on any company's ability to support, train and help them get success. So as they reach out to less and less experienced, less intense users, I think it will put more of a premium on their ability to build the capabilities to provide customer support and clinical support and real training.

Okay.

And I guess that's their choice.

Okay, thank you.

So we're going to end the call right now as I know you guys have other calls to get on, but Tom do you want to say a few last comments?

Yes, I just -- thank you for taking time today and for your support and we're continued -- our commitment is continued to try and turn Align into the company we believe it all can be, and we're going to look forward to updating you in coming quarters on our progress. Thank you, very much.

Ladies and gentlemen, this concludes Align Technology's teleconference. You may disconnect your lines at this time, and we thank you for your participation.