愛齊科技 (ALGN) 2018 Q4 法說會逐字稿

Greetings, and welcome to the Align Technology Q4 Full Year Earnings Call.

(Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to Shirley Stacy with Align.

Thank you.

Please begin.

Good afternoon, and thank you for joining us.

I'm Shirley Stacy, Vice President of Corporate Communications and Investor Relations.

Joining me for today's call is Joe Hogan, President and CEO; and John Morici, CFO.

We issued fourth quarter and full year 2018 financial results today via GlobeNewswire, which is available on our website at investor.aligntech.com.

Today's conference call is also being audio webcast and will be archived on our website for approximately 12 months.

A telephone replay will be available today by approximately 5:30 p.m.

Eastern time through 5:30 p.m.

Eastern time on February 12.

To access the telephone replay, domestic callers should dial (877) 660-6853 with conference number 13685779 followed by #. International callers should dial (201) 612-7415, with the same conference number.

As a reminder, the information that the presenters discuss today will include forward-looking statements, including statements about Align's future events, product outlook and the expected financial results for the first quarter and full year outlook for 2019.

These forward-looking statements are only predictions and involve risks and uncertainties that are set forth in more detail in our most recent periodic reports filed with the Securities and Exchange Commission.

Actual results may vary significantly, and Align expressly assumes no obligation to update any forward-looking statement.

We have posted historical financial statements, including the corresponding reconciliations and our fourth quarter and full year 2018 conference call slides on our website, under Quarterly Results.

Please refer to these files for more detailed information.

With that, I'll turn the call over to Align Technology's President and CEO, Joe Hogan.

Joe?

Thanks, Shirley.

Good afternoon, and thanks for joining us.

On our call today, I'll provide some highlights in the fourth quarter and the full year, then briefly discuss the performance of our 2 operating segments: Clear aligners and intraoral scanners.

John will provide more detail on our financial results, discuss our outlook for the first quarter and share our thoughts for 2019.

Following that, I'll come back and summarize a few key points and open up the call to questions.

Our fourth quarter was a strong finish to a great year.

Q4 revenues were better than expected, reflecting higher Invisalign ASPs and volume growth of 31% year-over-year.

As well as another record quarter for iTero scanners with revenue up 55% year-over-year.

Q4 sequential growth was driven by a strong quarter for EMEA with record growth for teens as well as continued traction with Invisalign Lite and iGo.

Q4 operating margin of 22.6% reflects higher doctor training and manufacturing costs as well as higher legal fees than anticipated, partially offset by sequential improvement in Invisalign ASPs.

For the quarter, we trained a record 5,270 new doctors in Q4, which includes about 3,000 international doctors, of which, half were in EMEA and half were in APAC.

For the year, we achieved record revenues of nearly $2 billion and had over 1.2 million people start treatment with Invisalign clear aligners for the first time, resulting in our 6 millionth Invisalign patient, a teenager from China.

These results reflect record revenues and volumes for both Invisalign and iTero.

Across customer channels and country markets and continued strength from teens, which grew 40%.

The total number of teenagers treated with Invisalign this year was over 333,000, representing 27% of our volume.

Finally, in 2018, we trained a record number of new Invisalign doctors, nearly 20,000 worldwide.

And for the first time, more than half of them were international doctors.

Now let's turn to the specifics around our fourth quarter results starting with the Americas region.

For the Americas region, Q4 Invisalign case volume increased 21.7% year-over-year and was down sequentially off a record Q3 volumes, which benefited from strong uptake of promotions last quarter, predominantly by high-volume Invisalign doctors.

On a sequential basis, Q4 reflects growth from the Americas GPs, offset by America's orthos, particularly high-volume doctors.

Year-over-year growth for Q4 reflects continued adoption of Invisalign treatment from both orthodontist and GP channels, which were up 24.7% and 17.3%, respectively.

We also saw good growth from our DSO partners across both GPs and orthos, up nearly 50% year-over-year.

For the full year, Invisalign volume for the Americas region was up 24.2% compared to 2017.

Americas orthos were up 27.2% and Americas GP dentists were up 19.8%, the second highest annual growth rate for orthos and the highest annual growth rate for GPs in 6 years.

For Q4, we trained a record 2,290 new Invisalign doctors in the Americas region, of which, 1,725 were North American doctors and 565 were Latin American doctors.

In total, we trained 7,885 new Invisalign doctors in the Americas in 2018, an increase of 19%.

For our international business, Q4 was a great quarter with Invisalign case volume up 12.2% sequentially, driven by strong growth in the EMEA region, offset somewhat by seasonality in the Asia Pacific region.

On a year-over-year basis, strong Invisalign volume growth of 45.3% reflects increased utilization and continued expansion of our customer base in both EMEA and the Asia Pacific region.

In Q4, we trained nearly 3,000 new Invisalign doctors internationally with roughly 50% in EMEA and 50% in APAC.

In EMEA, Q4 was a strong quarter, up 42.7% year-over-year, driven by record Invisalign volumes in all country markets as well as strong growth in the teen segment, which is up 75.1% from the prior year, reflecting continued success of our Teen 360 program.

For the full year, EMEA was up 38.6% led by Iberia, France and the U.K. as well as our key expansion markets led by Central and Eastern Europe.

During 2018, we went direct in Turkey, Israel and Russia, adding to our expansion country markets.

For APAC, Q4 was down sequentially as expected due to seasonality -- seasonally slower period in the region, up 49.3% year-over-year with record Invisalign volume in almost every country market led by China, Japan, ANZ.

Q4 results reflect continued strong growth from teenage patients as well as adults, with GP dentists up 77.1% year-over-year.

During Q4, we trained 1,530 new doctors in APAC, of which half were in China.

We held several clinical education events across APAC designed to help increase doctor's confidence in adoption in Invisalign treatment, including how critical the iTero scanner is to practice growth.

For the year, Invisalign volume from the international doctors increased 45% led by growth from China and our core EMEA country markets.

In total, international volumes represented 41% of worldwide Invisalign case shipments.

Despite our record results, we're still very clearly underpenetrated in APAC overall and specifically in China.

As the second largest market for Align, China represents enormous growth potential, and our ability to expand and drive penetration across the region relies on our ability to be closer to doctors and their patients, communicate in local language and as much as possible, operate like a local company.

Late in Q4, we began fabricating Invisalign aligners in our new manufacturing facility in Ziyang, China, our first aligner fabrication facility outside of Juarez, Mexico.

There's a temporary facility that will be replaced by our own building in 2020.

Over the next year, we will continue to build our manufacturing capabilities in Ziyang and ramp up production to serve the rapidly growing Chinese market.

However, it would take a couple of quarters to fully transition aligner production from Juarez to Ziyang, and we would expect manufacturing overhead in Ziyang to be underutilized during this period.

Product and technology innovation continues to be a key growth driver across our regions.

Over the past year, we launched several new Invisalign offerings for both comprehensive and noncomprehensive treatment to give doctors more tools and choices to treat a greater range of cases, from adults to teenagers and now even kids as young as 7 years old.

In mid-2018, we launched a new Invisalign Go product with a more user-friendly iTero digital chairside experience and greater flexibility to treat a wider range of mild to moderate cases such as crowded or gapped teeth that require teeth straightening prior to restorative treatments.

We also began offering Invisalign First, designed specifically to address a broad range of younger patients' malocclusions, including shorter clinical crowns, management of erupting dentition and predictable dental arch expansion.

We're pleased with the initial uptake and customer feedback.

In 2018, we shipped nearly 5,000 Invisalign First cases to over 1,300 doctors, primarily in North America, EMEA, Australia, New Zealand, and Japan.

And in October, we received FDA approval for Invisalign with mandibular advancement feature in the U.S., which is the only clear aligner product approved to simultaneously move teeth and the mandible in young patients.

In Q4, we began shipping mandibular advancement in the U.S. Late in the quarter, we are seeing initial uptake along with continued ramp globally.

To date, over 17,000 teenagers have used Invisalign treatment with mandibular advancement, led by China, Canada, France and Spain.

Overall for the teen market, in Q4, over 87,000 teenagers started treatment with Invisalign clear aligners, an increase of 37.3% year-over-year, driven by continued strong adoption across all major regions, driven by both the Americas and EMEA regions.

For Q4, year-over-year Invisalign teen patient growth for North America orthos increased 23.7% and international doctors were up 63.7%.

For the full year, total teen cases worldwide grew 40.3% to a total of 333,000 teenagers, or 27.1% of our total volume.

Our consumer marketing efforts are designed to build the category and drive demand for Invisalign treatment through a doctor's office.

We invest over $100 million each year in consumer marketing and programs, including TV, digital, social media, PR, event marketing and more recently, our patient concierge and Invisalign Experience program.

Our goals are to make the Invisalign brand a household name worldwide and to motivate consumers to seek Invisalign treatment through a doctor's office.

In Q4, we continued to see strong digital engagement with consumers and had nearly 4 million unique visitors on invisalign.com sites for a total of 17 million over the year.

Other key metrics show increased activity and engagement with the Invisalign brand and are included in our fourth quarter slides.

The impact of the digital technology on our world and specifically in our industry is challenging our customers to evolve just about every aspect of their practice, especially how they engage with consumers and turn them into patients.

What worked for doctors in the past from a marketing, conversion or workflow perspective will not work today.

Consumers expect more and are demanding different types of digital-driven experiences.

Many doctors don't know where and how to start.

The work we are doing with our integrated consumer marketing platform, patient concierge service, and Invisalign Experience program has given us better insights and information that we're sharing with doctors to help them reshape their practices.

For example, the Invisalign Experience program is designed to reach consumers in a retail environment where they shop, play and dine and educate them on the benefits of Invisalign treatment and value of getting a better smile and connect them with an Invisalign doctor.

One of the ways we do this is through the Invisalign store, which is owned and operated by Align.

Invisalign stores bring the brand directly to consumers in a contemporary, interactive digital environment.

Consumers can browse, ask questions, learn about Invisalign treatment and technology, and the benefits of straightening their teeth.

Visitors are offered a complimentary iTero intraoral 3D scan and a visual simulation of what their smile might look like after Invisalign treatment.

Interested consumers are connected with a local Invisalign doctor's office of their choice to discuss potential treatment options.

By the end of 2018, we finished with 12 locations in the United States, and these stores are helping us learn more than ever about reducing barriers to treatment for potential patients so that they are excited about getting a better smile with an Invisalign doctor.

In addition to providing potential leads to participating Invisalign practices, we're also seeing a positive halo effect and increased growth rates for all of the Invisalign practices in the surrounding area, whether they participate in the store network or not.

Over the past year, more than 55,000 consumers visited Invisalign store and nearly 10,000 received a complimentary scan.

While we are still early in the development of our Invisalign stores and the overarching Invisalign Experience program, we're excited about its potential and the positive impact we can have on demand creation for Invisalign practices by engaging directly with consumers.

The Invisalign Experience program is just getting started and continues to evolve.

In October, we announced that we were partnering with a few Invisalign doctors in selected U.S. cities to pilot new ways to reach consumers and connect them directly with doctors to start Invisalign treatment.

These Invisalign Experience locations are owned and operated by doctors under a special license from Align and are intended to help doctors integrate consumer friendly design and consultation workflow into their practices and test new Invisalign Experience branding and explore a consumer focused approach to consultations and Invisalign treatments starts in a variety of settings, including in-office, retail and mobile.

We'll continue to share our learnings as we get more of these pilots up and running.

Finally, I want to spend a few minutes talking about digital technology and the transformation in our industry from an old analog process to an end-to-end digital workflow.

Align is helping doctors on their digital journey, which starts with an iTero scanner and ends with stronger practices and better smiles for their patients.

As a leader in digital orthodontics, we are best positioned to help Invisalign-trained doctors find more efficient ways to drive digitalization in their practices and support those practices and to help them improve their productivity over time.

To that end, last year, we launched project [PNO] we now call -- we have renamed it ADAPT, Align digital and practice transformation, with several small orthodontic clinics across EMEA, APAC and North America with the objective to demonstrate that a fully digital practice can be productive, efficient and profitable.

Process involves detailed analysis of the current practice of data and workflows performed by experts and continuous improvement in workflow.

While it's still early, the initial results from the ADAPT study are incredibly promising.

Based upon the study on practice development, we've come to the conclusion that to benefit fully from technology and to own the digital transformation of their practices, doctors need to organize their workflows and premises so that approximately 80% of their organization is built around this digital transformation with clear aligners.

This means that doctors who commit to digital transformation have the potential to do more, see more patients and expand their practice or take more time off.

Whatever their goals, with Invisalign plus iTero together, we can help them see the benefits they want from a fully end-to-end digital workflow.

For iTero scanner and services business, Q4 was a very strong quarter with better-than-expected revenues, which were up 13% sequentially and 54.8% year-over-year, driven by strength in all regions and customer channels.

Record Q4 volumes reflect continued commercialization of the iTero 2 Element and Element Flex scanners, especially for restorative GP dentists in North America, the continued rollout of our major DSO partners and increased sales internationally, including Italy, Japan and China, where we began manufacturing the iTero Element this past year.

For 2018, we had an outstanding year for iTero scanners with volumes up 77.2% year-over-year.

Cumulatively, over 11.5 million orthodontic scans and 3.2 million restorative scans have started with iTero scanners.

Use of the iTero scanners for Invisalign case submission continues to grow and remains a positive catalyst for Invisalign utilization.

For Q4, total Invisalign cases submitted with digital scanner in the Americas increased 72.6% from 65.3% in Q4 last year.

International scans increased 57.5%, up 41.4% in the same quarter last year.

What's really exciting to see is that within the Americas, 88.7% of cases submitted by North American orthos were submitted digitally.

And China went from 0 to 45.9% in 1 year.

This means that within 1 year or 2, nearly all Invisalign cases will be submitted digitally, primarily through an iTero scanner.

We're very excited about the continued progress we've made with iTero business overall, and remain confident that we'll continue to help drive our overall growth and help increase adoption of Invisalign treatment.

With that, I'll now turn the call over to John.

Thanks, Joe.

Now for our Q4 financial results.

Total revenue for the fourth quarter was $534 million, up 5.7% from the prior quarter and up 26.7% from the corresponding quarter a year ago.

For the full year, revenue of about $2 billion was up 33.5% year-over-year, reflecting a record 1.2 million Invisalign shipments and 31.9% year-over-year growth, with strength across all regions and customer channels as well as record iTero scanners volume, which was up 77.2%.

For clear aligners, Q4 revenue of $445.6 million was up 4.3% sequentially on higher-than-expected Invisalign ASPs and strong Invisalign volume from EMEA.

Year-over-year clear aligner revenue growth of 22.4% reflected strong Invisalign shipment across all customer channels and geographies.

Q4 Invisalign ASPs were up sequentially by approximately $5 to $1,235, reflecting price increases and lower discounts, partially offset by higher growth on noncomprehensive cases and includes $10 of unfavorable foreign exchange.

On a year-over-year basis, Q4 Invisalign ASPs were down approximately $70, reflecting promotional discounts, higher growth on noncomprehensive cases and includes $25 of unfavorable foreign exchange, partially offset by price increases.

Total Q4 Invisalign shipments of 333,800 cases were up 4.5% sequentially and up 30.9% year-over-year.

For Americas orthodontists, Q4 Invisalign case volume was slightly lower than our Q4 outlook, primarily due to longer cycle times in Latin America, and was down 2.9% sequentially and up 24.7% year-over-year.

For Americas GP dentists, Invisalign case volume was up 3.2% sequentially and up 17.3% year-over-year.

For international doctors, Invisalign case volume was up 12.2% sequentially and up 45.3% year-over-year.

Our scanner and services revenue for the fourth quarter was $88.4 million, up 13% sequentially due to volume increases in Americas and EMEA.

Year-over-year revenue was up 54.8%, primarily due to higher scanner units across regions.

Moving on to gross margin.

Fourth quarter overall gross margin was 71.7%, down 1.9 points sequentially and down 3.8 points year-over-year.

Clear aligner gross margin for the fourth quarter was 74.1%, down 1.2 points sequentially, primarily due to higher number of aligners per case, higher freight cost, reflecting faster international growth, higher training cost due to more doctors trained in the quarter and manufacturing spend driven by operational expansion in China, which was partially offset by slightly higher Invisalign ASPs.

Clear aligner gross margin was down 3.5 points year-over-year, primarily due to higher number of cases per -- aligners per case, lower ASPs, higher training costs and freight charges and regional expansion of our manufacturing-related activities in China and EMEA.

Scanner gross margin for the fourth quarter was 59.9%, down 4 points sequentially and down 2.1 points year-over-year, primarily due to manufacturing and freight costs and lower ASP.

Q4 operating expenses were $262.6 million, up sequentially 6.5% and up 26.1% year-over-year.

The sequential increase in operating expenses primarily reflects our continued investment in sales and R&D activities along with higher legal, consulting expenses, partially offset by seasonality lower advertising spending.

Year-over-year, the increase in operating expenses reflects higher spending commensurate with growth.

Our fourth quarter operating income was $120.5 million, down 3.8% sequentially and up 9.9% year-over-year.

The sequential decrease in operating income is primarily attributed to lower gross margin and higher operating expenses as mentioned earlier.

On a year-over-year basis, the increase in operating income primarily reflects higher revenue offset by higher sales and marketing, R&D, legal/consulting spending and unfavorable foreign exchange.

Our fourth quarter operating margin was 22.6%, down 2.2 points sequentially and down 3.4 points year-over-year.

The sequential decrease in operating margin is primarily due to lower gross margin, as mentioned earlier.

On a year-over-year basis, the decrease in operating margin is primarily due to lower gross margin as described earlier and about 0.5 points impact from unfavorable foreign exchange.

With regards to fourth quarter tax provision, our tax rate was 8.5% (sic) [18.5%], which includes approximately $1.9 million in excess tax benefits related to stock-based compensation.

Fourth quarter diluted earnings per share was $1.20, down $0.04 sequentially and up $1.07 compared to the prior year.

Moving on to the balance sheet.

As of the fourth quarter, cash, cash equivalents and marketable securities, including both short and long-term investments, were $744.5 million, an increase of approximately $131.3 million from the prior quarter, which is primarily due to higher cash flow from operations.

Of our $744.5 million of cash, cash equivalents and marketable securities, $432.5 million was held in the U.S. and $312 million was held by our international entities.

Q4 accounts receivable balance was $439 million, up approximately 4.5% sequentially.

Our overall day sales outstanding was 74 days, down 1 day sequentially and up 5 days as of Q4 last year.

Cash flow from operations for the fourth quarter was $241.3 million, up $79 million compared to the prior year.

Free cash flow for the quarter, defined as cash flow from operations less capital expenditures, amounted to $187 million.

Capital expenditures for the fourth quarter were $54.3 million, primarily related to our continued investment in increasing aligner capacity and facilities.

During Q4, we repurchased $50 million of stock against our stock buyback authorizations and have $500 million still available for repurchase under the May 2018 repurchase program.

Before we move to the Q1 outlook, I would like to make a few comments on our full year 2018 results.

In 2018, we shipped a record 1.2 million Invisalign cases, up 31.9%.

This reflects 45% volume growth for our international doctors and 24.2% volume growth from our Americas doctors.

Shipments of our iTero scanner were up 77.2% versus 2017.

Total revenue was a record $2 billion, up 33.5% year-over-year with Invisalign revenues of $1.7 billion.

Full year operating income of $466.7 million, up 31.9% versus 2017 and operating margin at 23.7%.

Free cash flow was $331.4 million.

For the year, we repurchased 1.1 million shares of Align stock for $300 million.

2018 diluted earnings per share was $4.92.

With that, let's turn to our Q1 outlook and the factors that inform our view, starting with the demand outlook.

For international, we expect Q1 to be up sequentially as the EMEA market maintains momentum from Q4 and APAC is seasonally flat sequentially as some markets observe the Lunar New Year holiday.

For Americas, we expect Q1 to also increase sequentially with strong growth from North America orthos and a slight increase in North America GPs.

We expect Latin America to be down sequentially given this is their summer holiday season.

We expect our iTero business to be down slightly from a record Q4, consistent with seasonal trends and capital equipment market.

And we continue to expect minimal volume from SmileDirectClub.

With this as a backdrop, we expect the first quarter to shape up as follows.

Invisalign's case volume is expected to be in a range of 340,000 to 345,000 cases, up approximately 25% to 27% year-over-year.

We expect Q1 revenues to be in the range of $525 million to $535 million, reflecting increased volume and flat ASPs versus Q4 2018.

We expect Q1 gross margin to be in the range of 70.3% to 71%, reflecting our higher start-up costs in China and increased doctor training expenses.

We expect Q1 operating expenses to be in a range of $290 million to $294 million, which reflects our sales force expansion and increased legal expenses.

Q1 operating margin should be in a range of 15.1% to 16.1%.

Our effective tax rate should be approximately 16%, which is higher than 2018 due to nondeductible officer stock compensation based on recent IRS guidance and a lower stock price.

We expect approximately $3 million to $4 million equity loss related to our share of SmileDirectClub's net losses.

And diluted shares outstanding should be approximately $80.9 million, exclusive of any share repurchases.

Taken together, we expect our Q1 diluted earnings per share to be in a range of $0.78 to $0.84.

In addition, as we continue our operational expansion efforts, we expect CapEx for Q1 to be approximately $60 million to $65 million.

And we expect depreciation and amortization to be $19 million to $20 million.

Now let me turn to our view for the full year 2019, notwithstanding the impact of foreign exchange rates.

We expect total revenue growth for the company, Invisalign and iTero, to be in the middle range of our long-term operating model of 20% to 30%.

We anticipate Invisalign ASPs to be flat from Q4 2018, reflecting continued growth from international regions, increased share of the teen segment and uptake of noncomprehensive products.

We anticipate Invisalign volume to be in the middle of the range of our long-term model target of 20% to 30%.

We anticipate gross margin and operating margin to improve over the course of the year.

We anticipate gross margin to approach our long-term model target of 73% to 78% by Q4.

We will continue to fuel growth globally and expect to invest in international and operational expansion as well as sales and marketing initiatives, including nearly 100 new sales reps in Americas hired at the end of Q4 and an additional GP sales reps in EMEA beginning in Q1.

These investments also include continued litigation expenses to protect our intellectual property and extend our competitive advantage.

Given our continued growth and expansion internationally, during the year, we intend to reorganize our corporate structure and intercompany relationships to more closely align with the international nature of our business activities.

The proposed corporate structure may also allow us to obtain financial and operational efficiencies after they are implemented.

As a result, we will incur expenses in the near term and expect to realize the related benefits in subsequent years.

We expect our operating margin for the second half to be in the long-term model of 25% to 30%.

For the full year, we anticipate operating margin to be below our long-term target as it includes approximately 1.5 to 2 points impact from increased legal fees and the planned corporate structure reorganization.

We expect the equity loss for our investment in SmileDirectClub to be $3 million to $4 million per quarter.

We expect our tax rate for 2019 to be approximately 24%, which includes about $8 million of excess tax benefits.

2019 tax rate is higher than 2018 primarily due to a release of unrecognized tax benefits that will not repeat.

We expect our earnings power in the second half of the year to be stronger than the first half with second half operating results to account for somewhere in the range of 50% to 55% of our full year results.

We expect capital expenditures for 2019 to be in the range of $250 million to $260 million.

With that, I'll turn it back over to Joe for final comments.

Joe?

Thanks, John, and thanks to those who joined our call today.

Overall, 2018 was a great year for Align, and I'm very pleased with the strong performance for Invisalign and iTero across all key regions, customers, channels and products.

This year, not only do we celebrate our 21st year in business, we also achieved several major milestones, including our 6 millionth Invisalign patient and $2 billion in revenue for the first time.

It took nearly 20 years to reach our first $1 billion in sales and only 2 years to reach our second billion dollars.

We also delivered on our strategic growth drivers with new product and technology innovation, expansion of our manufacturing and treatment planning operations, and raising awareness of Invisalign treatment with consumers and engaging with them in more innovative ways than ever before.

As I step back and look ahead to 2019 and beyond, I want to reinforce the importance of the investments we're making to drive growth globally.

The underlying opportunity for doctors and their patients is expanding based on digital technology that Align has spent over 21 years developing.

And while we have a huge amount of accumulated expertise and knowledge in digital technology and orthodontics, we have to ensure that we have the capabilities to further expand and regionalize our operations, extend our competitive lead and protect our business from companies willing to take shortcuts with respect to intellectual property.

It is incumbent upon us to drive the transition to a fully digital workflow and continue to deliver new products and services that not only benefit Invisalign doctors but their patients and consumers alike.

Following our Ortho Summit in November, I met with hundreds of Invisalign doctors and their staff, I had the opportunity to travel to our regional kickoff meetings and connect with Align team members at every level of our organization to hear their detailed plans of the upcoming year.

While I spent more of my time at the Americas kickoff because of my interim role as Americas leader, I can say unequivocally that across the company, the excitement and level of engagement surrounding our business and market opportunity was palpable.

Overall, the demand profile globally is solid and nothing we see in the environment suggest otherwise.

We're running the plays we know and are confident we can bring greater efficiencies, economies of scale and know that adding sales training to get closer to customers in local markets creates sustainable competitive advantage.

Finally, as most of you know, one of the key orthodontic journals in North America is the Journal of Clinical Orthodontics, and I often flip through it and ask why there aren't more clear aligners profiled.

This week, I was caught off guard when I opened the December issue and found it dedicated entirely to clear aligner therapy.

Bob Keim is the editor of the JCO and has been to many of our Invisalign Summits.

In meetings with him and reading his editorials, I knew he supported Invisalign treatment and clear aligners in general, but it was never clear to me to the extent he believed in clear aligner technology as we've seen in the most recent issue of the JCO, especially the editor's column, "The End of Braces?" If you haven't had a chance to read the JCO, you should.

Bob could not take a stronger position for clear aligners.

He acknowledges that he may take some flak for being so bold, but I believe his strong endorsement is a major breakthrough for Align and digital orthodontics.

With that, I want to thank you, again for joining our call.

I look forward to updating you on our progress as the year unfolds.

We'll see many of you at the Chicago Midwinter Meeting next month as well as industry and financial conferences throughout the year.

Now I'll turn the call over to the operator for questions.

Operator?

(Operator Instructions) Our first question comes from the line of Robert Jones with Goldman Sachs.

I guess, just to start on ASPs.

Joe, could you maybe talk through the progression of ASPs that you saw over the quarter?

On a worldwide basis, certainly seems like you guys were able to stabilize ASPs in 4Q relative to 3Q and looking at the implied guidance from 1Q, seems like that's expected to continue, and in the full year, you're calling for that to be at the kind of level we should look for.

So I guess, just how did they progress throughout 4Q?

And then just related to that, what are the major pushes and pulls as you think about ASPs over the course of '19?

Bob, that's a big question, but I'll make it simple, okay?

We had an issue in the third quarter in the Americas with our Advantage Program that I think kicked off this ASP concern.

As we said we would do, we retracted that $300 that we offered on teens and also adults at that point in time.

After that, basically, out ASPs are what they normally are, in the sense of mixes and matches across the spectrum of EMEA in different places.

So I mean, that's the total -- you want to talk about we had an exchange hit this quarter also but again, I think we prepared you for that in the last quarter.

So overall, the only change is we didn't have an advantage issue in the third quarter as in the fourth quarter.

Yes.

I guess just to follow on, on that, Joe.

I mean, I think the question really is as you think about '19, obviously, those programs go away.

I guess, the expectation looks like here in the slides that you're still thinking that it's going to be flat to the 4Q level.

So just trying to understand a little bit better what could move the ASPs up over the course of the year as we think about some of the things that hopefully, would not reoccur in '19 as happened in '18.

Yes, John will jump in on this.

Bob, this is John.

So the couple of positive mix that we talk a lot about, the international growth, we continue to see strong growth internationally.

Mandibular advancement in the U.S. contributes overall to our teen growth, which are comprehensive cases and does help.

And we are also seeing growth on the noncomprehensive side.

So we think those 3, we've seen some balance and that's what we would expect for 2019.

Great.

And then I guess just a follow-up from me, John, while I have you.

If you think about the margin outlook for the year, it looks like you guys are calling for the growth in operating margins to get into the long-term ranges in the back half.

Just at a high level, I guess, how much visibility and control do you guys have over that trajectory into the back half of '19 around the margins?

Yes, Bob.

It really starts with some of the manufacturing efficiencies that we expect to get as we start to ramp up in China and continue to ramp up with our treatment planning.

We'll see that continue to ramp as we move through the year.

We have other products and programs that will also help us from a mix standpoint as well.

So we feel really good about how we're -- how we view the year and the expectation of margin improvement throughout the year.

Our next question comes from the line of Elizabeth Anderson with Evercore ISI.

I was wondering if you could talk to us a little bit more about the reorganization expenses.

Are you sort of thinking of those on an ongoing basis or more onetime?

I guess, my question stems in part because I was wondering if you were thinking about perhaps potentially backing those out of your 2019 results?

Elizabeth, this is John.

This is a onetime.

I mean, it's -- as the company expands and grows internationally, it's looking at some of the efficiencies that we can gain through that change.

And we report numbers on a GAAP basis.

We'll continue to do so, but we'll give you highlights as the year goes on as update.

Okay.

That's helpful.

And I guess, also can you just talk a little bit more about the sales investments that you guys are making into the Americas in terms of any particular details you could provide on that?

That would be helpful.

Yes, Elizabeth.

It's Joe.

Look, in Americas, we're still really underpenetrated in the marketplace, particularly on the GP segment, and so we decided we'd add 100 salespeople.

We feel really good about that investment giving us good short-term returns.

We've done this before almost in every cycle since I've been here.

It's a play we know how to run, and we know the importance of it overall.

So don't look at it as an anomaly.

It's just a continuation of building out our sales force and taking advantages of some of the man out there.

Elizabeth, I'll also tell you.

It's a high touch thing.

You have to touch doctors in this business to drive sales.

It's really -- and it -- this doesn't happen on itself.

It's -- there's a constant touch to it.

So we're really aware of that.

Often, our treatment is much different than what these doctors have done before.

Our salespeople, we train them well clinically but also from a business standpoint so that they can talk about clinically how to use a product line but also from a business standpoint how you integrate it into the practice.

So adding salespeople is really important.

Our next question comes from the line of Jonathan Block with Stifel.

I think the paranoia is going to sort of move from ASPs to volumes and margins tomorrow.

So maybe on the margin side, John, for '19, you mentioned expectations to be below your long-term op margin goal of 25% to 30%.

Specifically, you called out 150 to 200 bps from increased legal fees in the reorg.

So a couple of questions there.

Is that reorg all specific to '19?

And then if we were to normalize for the 150 to 200 bps, would your '19 op margin approach the lower band of your long-term 25% to 30% goal?

And then I got a quicker follow-up.

Yes, that's the right way to look at it, Jon.

So this is 2019 expenses.

And these expenses, we think we would have been in the long-term range that we have of 25% to 30% if we didn't have these expenses.

Okay.

Long question, short answer.

I'll take it.

And then maybe, Joe, for you, on the vols.

Just any more color.

I mean, any thoughts on the North American ortho weakness?

I do have a hard time believing that all the weakness was Latin America just looking at the size of that business.

But anything more North American ortho weakness?

Is this a pause before mandibular and Invisalign First take greater hold in 2019?

And maybe, if you don't mind, any thoughts on what MAF and First could contribute to North America this year?

Jon, look, I -- the America's growth this year, I know we had the blip in the third quarter overall, but 2018 is a good year for us.

If you look at the last 6 years, this is actually the second highest growth profile we've had.

America's grows about 17% on an average over those 6 years.

The orthos grew -- this is the only -- this is the second -- from a percentage standpoint, best year we've had from an ortho standpoint.

What happened between the third and fourth quarter, again, we think it was a -- that I mentioned on my opening, was the uptake that we have with that Advantage Program in the third quarter.

And that was repeated in the fourth quarter, and we think we have this quarter-over-quarter kind of discrepancy.

GP is at an all-time high from a growth standpoint overall.

And then obviously, from a Brazil standpoint, too, it's starting to become material in the sense of the size of that business, and we're looking for good contributions this year.

So Jon, I don't know if I've answered your question.

But I'd say then if you look at the volume overall, you see how strong EMEA has been.

The expansion of EMEA, into areas like Turkey and Russia and the Middle East, has been important to us.

But also France is growing well.

Spain has been strong.

Italy came back.

We saw it.

We've had great success with Go in -- with the GPs out of the U.K. but also in Germany, too.

So we really feel great about that region.

And then APAC, again, we see strength.

We've seen strength in China.

We see strength in APAC overall.

Japan's growth has been phenomenal.

And then bleed that in with our iTero growth, too, that you've seen across the spectrum.

Overall, we feel good about volume.

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

Just a couple of housekeeping items, John, in terms of the fourth quarter.

Could you quantify the impact in Latin America from the longer cycle times?

And you expect that to normalize in the first quarter?

And then in terms of the fourth quarter OpEx, it looks like it was about $12 million above your guidance, which is very atypical and unusual.

Can you point us to the areas of spend that -- were perhaps accelerated or brought you in above your plan?

Yes.

So for the fourth quarter in Latin America, I mean, it's a growing business, as Joe said, and it's a couple of thousand cases that were kind of in transition on a -- from -- right at the end of the fourth quarter.

And then as far as spend, were you specifically talking about spend in fourth quarter or compared to the guide in the first quarter?

Yes, the fourth quarter OpEx relative to your guidance.

Yes.

We saw added litigation expenses as we've been going -- as a part of our process that we have on the legal side.

There's some added costs that we're showing there.

And as Joe said, we added some salespeople, and some of that, those hires and those expenses came into fourth quarter.

But we wanted people on the ground and ready to be able to sell and give us volume as soon as possible into 2019.

So some of those costs hit there as well.

And coming back to ASPs for 2019.

It would seem to imply that worldwide ASPs for the year would be down about 3% year-over-year.

I understand currency is probably half of that.

Mix is another dynamic.

But would it be your expectation that promotional activity would be sort of consistent year-over-year?

Or is there some cushion built in perhaps for more, I guess, promo activity in '19 relative to last year?

I would say there's nothing that specifically that we're looking at additional promotions or others.

We look at the business as we have various products and new products that come out, changes that we make.

We look at promotions to be able to drive volume and drive uptake across the regions.

So they vary by region, but nothing out of the ordinary.

And we were pleased to see where ASPs finished and have a good expectation of -- given the positive growth internationally, the positive growth that we see on teens, and we're seeing strong noncomprehensive growth.

All that taking into account keeps us flat for ASPs.

Our next question comes from the line of Steve Beuchaw with Morgan Stanley.

I wanted to focus on how you thought about incorporating any potential contribution from the sales force additions in the outlook for 2019.

If I think back to -- in past years where there had been substantial adds to the sales force, something like 6 months after those feet hit the street, we saw a benefit.

So in 2019, are you modeling in any benefit from these rep adds that you made already?

If so, can you give us a sense for how big those might be?

And I'm just curious.

As we think about the outlook for the year, let's call it 25% on volumes, 25%, 27% in the first quarter, it just doesn't look like there's any anticipation of acceleration or benefit from those hires.

Yes, Steve.

This is John.

Yes, 6 months to 9 months is kind of the range you would expect to really start seeing those salespeople that you add once they're fully trained and have their territories and can kind of hit.

So we should see an acceleration in the second half given the adds that we have.

And as we see, we factored in into our guide as much as we can see now based on those adds.

Okay.

And then I would agree with the comment that was made earlier about where the paranoia is going to shift.

And so I just wanted, given in part in response to the many e-mails I've gotten here in the last 45 minutes or so, give you a chance to just comment on your thinking on competition.

Is there any sign of competition being relevant in the field that you can pick out at this point or still the view that it's just not material, not something that people ought to be thinking about?

Steve, it's Joe.

We -- obviously, we've seen Ormco down in ANZ, and I think we saw a recent announcement that they are going to kind of pace themselves as they go through 2019.

I think you're seeing the same thing out of 3M, too.

So honestly, Steve, we know you guys do surveys, and we read your surveys.

We do our own or whatever.

We know some of the docs out there are trying these product lines.

And we have access to some of the software that's going on out there and the product lines that they're representing or whatever.

But I don't want to -- I don't diminish it.

But as far as 2019 goes, we're not thinking about any major competitive issues that we're going to face in any of our key areas or key geographies right now.

We think this will take some time for them to ramp.

We've talked about this before.

This business is not easy.

You have to be able to hit on a lot of cylinders.

You got to have a good sales force that touches the customers and can make that doctor feel really strong about the product line.

Secondly, you have to have really good treatment planning and consistent treatment planning that can deliver.

And third, you got to have an operation organization that can deliver these things in sequence and on time and high quality.

And putting those things together is difficult.

And so 2019, we're not factoring in a huge amount of what we think is competitive pressure.

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

A couple of international ones here.

I guess, can you speak to the dynamics in terms of fundamental demand trends in China given the broader macro dynamics?

And could you also speak to the competitive landscape and how that's evolving there?

And then also on Brazil, just as you build out that market, any sort of surprises there that you're seeing in the broader traction in Brazil?

Yes.

Erin, it's Joe.

From a China standpoint, look, our demand there has been great.

I think as I talked about in my opening, it's a really underpenetrated marketplace.

And so -- and there's a lot of demand for our product line.

So our manufacturing investments we're making there, our treatment planning, all those things that make us a local company, we think will allow us to really penetrate that market at a higher rate.

So look, I mean, we're not numb to the international scene right now, where people are concerned about China demand.

We don't have anything to report right now that would say that we have a diminishing or a paranoia over China demand as we go into 2019.

As far as competition over there, Erin, Angel Align is the most credible competitor that we have there.

I would say that Angel has really focused on kind of Tier 3 cities in areas of China where we've really focused on in the first 5 years or so of our existence in China in Tier 1 or 2 cities, and we've moved into Tier 3. We don't feel that Angel is throttling our growth there at all.

They are a fast follower.

We see them in different areas that come after us.

But we -- there's not a whole lot of head-to-head competition we feel right now, and I think that reflects not a whole lot about Angel being either good or bad.

It just reflects the size of this marketplace and the investments you have to make in the sales force, how you really have to service that marketplace.

There's a lot of work that you have to do.

The channels just don't exist right now in the sense that you have to build those channels and really make them viable.

So right now, we consider them a competitor and our largest competitor, I'd say, in the world, in the sense of a number of clear aligners that they supply.

We don't look at them right now as slowing us down in China.

And the Brazil surprise.

I'd say that the surprise for all of us in Brazil is the incredible uptake of our product line there.

You saw the 1,300 doctors that we've trained there recently.

They're so excited about the product line.

It's -- we talk about Spain often in the sense of the uptick of our product in Spain and the growth there.

We see the same kind of enthusiasm and the same kind of, what I would call, Latin enthusiasm for what our product can do and really bring to that area.

So we look to make major investments there in increasing our sales force and our presence in the Brazilian area.

We really feel good about Brazil from a standpoint of future growth of our product line there.

Okay.

Great.

And a broader question on promotional activity.

I'm just curious kind of what other promotional activity could you implement that isn't necessarily price-driven, whether it be comarketing arrangements or other types of incentives.

Is this something that is in your game plan for 2019 or something that you're planning?

Erin, there's no lack of creativity in our commercial forces as promotions go, so there's a lot of adult supervision that we have to supply as we do those things.

And what -- look at our ADAPT program as a good one.

That's a program where we're trying to take doctors to 80% Invisalign and really demonstrate, as I mentioned in my opening, is that when you get to a digital practice, when you get to 80%, first of all, no one goes back, no one goes back to wires and brackets.

You really set a precedent that you have control over your practice.

You don't have 30% of your cases resulting in emergencies.

Doctors aren't spending 45 minutes a day with patients.

It's just a much -- but you have to get to 80% to make that work.

We'll continue to put money into that.

That's not like a promotional program that we would offer at a lower price.

That's just a program we work with docs who really want to get there.

There's always promotional programs that we do that we offer aligners to staff at orthos that are starting up with us or also with GPs or whatever so that they can understand the product and have that experience and be able to communicate that well to patients.

They come into the practice.

Those are ongoing promotions that we do in all 3 geographies, too.

We do have seasonal promotions at times in different countries and different areas.

But I'd say that we have a -- this is outside of the third quarter issue obviously we reported on kind of ad nauseam over the last 6 months.

We have a good handle right now on what promotions that we'll offer throughout the year.

Our next question comes from the line of Ravi Misra with Berenberg Capital Markets.

So I wanted to get into the kind of the gross margin outlook in the commentary that you were providing.

Can you help us understand maybe what the pushes and takes are between the 1Q guidance and kind of the 4Q guidance ramp?

And especially in terms of what's that fixed overhead that's strapped there, kind of in the ball park?

Is that somewhere around $10 million, $15 million a quarter right now that's annualized into your COGS on that that's going to fall off once the China sales ramp?

Yes.

Ravi, it's John.

It's not that high.

But when we think of our operation that we've had to date, really it's been a -- it's treatment planning in Costa Rica, and it's been manufacturing in Mexico.

We are now -- as we've been expanding our treatment planning and now expanding out to China manufacturing, it's -- we want volume.

We want to better push volume through those centers and get as much productivity as possible.

So as we see some of the volume in -- the margin impact in the fourth quarter, that continues a bit into the fourth quarter.

But as that volume comes through and as you don't have to add as much overhead, you see more and more productivity to be able to come through those whether treatment planning or the China manufacturing.

And so we expect to see this kind of quarter-over-quarter of improvement through 2019 as we get more and more productive at these facilities.

So it sounds like that's really going to be led by a step-up in the clear aligner gross margin versus the scanners?

Yes, definitely.

When you look at kind of where we're seeing that volume leverage as we expand out globally, it'll be on the clear aligners side, and we should see that progress through the year.

Great.

And then maybe just 2 more questions.

Just on the -- one on the orthodontics and then another kind of just on the consultations through the Invisalign brand experience.

So just on these orthodontics step-down.

I'm curious.

That's the first time in, gosh, I think about 12, 14 quarters.

I've seen that number stepped down.

Any kind of impact -- I know you're saying that the impact from Ormco.

3M was kind of limited.

But how about some of the other direct-to-consumer manufacturers there?

Is that playing into that at all?

And in the sense that, that end-user volume might actually be going down?

And then second, you talk about the 85 -- I think the 85,000 people that have visited the store and gotten a consult.

What's the conversion rate on that?

Are those getting scans to actually becoming consumers of your product?

Ravi, Joe again.

From a standpoint of Americas and orthodontics standpoint, again, I'll tell you we had our second best year in history following from the standpoint of overall orthodontic growth.

When you talk about SDC, my feeling on SDC is they don't really take orthodontic cases.

Remember, the normal orthodontist in the United States is 75% to 80% teen.

You won't see many teens being done by SDC, and so those cases would primarily come out of GPs.

Adults, kind of simple cases that are going on.

As I mentioned, we had our highest GP sales rate ever in North America in 2018.

So neither of those dimensions do I think that we have our experience competition enthralling the business in some way whether or will affect us in 2019.

As far as the Invisalign stores and the scan ratios, all those things, look, we just -- we're still working through these [12].

We haven't released that information from an overall standpoint yet, and at some point in time when we think we're ready and we really have that ironed out.

And I'd say that, Ravi, not that we're hiding anything.

It's just we found that when you look at CCAs, we call it clear order in this business, this can take anywhere from 4 to 6 months to 7 months to really iron itself out.

We see patients go in and get scanned.

And then there's this huge halo effect because when we do this local advertising, that benefits not just the doctors in the program but also in a broader sense, any doctor that's within that 10-mile or 15-mile range.

So when we're really -- when we're ready to report this, we'll report it in a broad sense to that halo effect, the whole, what you talked about, the conversion rate and also what that means from a timing standpoint, okay?

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

Joe, a few times on the call, I think you talked about your view that it's sort of critical to get your customers to really make the digital conversion of their practices.

Can you just talk a bit more about what that really means?

And is that an expense on your part?

Obviously, it's got some positive implications for volumes if and when it happens.

But what are the sort of practical implications of getting an ortho practice to make that transition?

John, that's a good question.

There's 3 key parameters, right, is first of all, there's extended payment terms that you have to deal with.

Because when you go with a clear aligner product versus wires and brackets, their cost overall are about 4x from a variable cost standpoint of which you'd have with wires and brackets.

So you just have to get ready for that cash play and try in some way to extend them those kinds of payments.

Secondly, you have to look at their workflows.

Because when you really go to a full digital practice, it changes completely really.

We find out in our ADAPT program that you need fewer chairs but you'd need more consultation rooms to put people in, to show them simulations, to talk them through what it would be.

With no emergency cases, it completely redefines in the sense of how a day goes in a doctor's office.

It's not 30% of the time are people scrambling around trying to find someone that can fix something that occurred with the wires and brackets in some way.

And then third is a demand component, is you're going to have to drive more demand within that practice, which Invisalign does.

And so obviously, with $100 million spend that we do a year in attracting patients and moving them into doctors, how we pipe those patients into doctors, how they prepare themselves for both teens and adults to do that.

So it's on those 3 dimensions.

And John, specifically on the ADAPT program, we're just going through that program right now and how we'll offer that to customers and what it will cost to actually do that to customers at that point.

And after we've done probably 5 to 8 of these and have them complete, we'll have a better story in the sense of -- a more complete story in the sense of here is how we'll do it, what those costs will be.

But don't look at those as being overly broad.

Remember, we have iPro today that we basically use to take customers through clinical kind of episodes.

So we have our concierge service that grabs patients to move them through doctors, too.

So the big components of operations that you need to work around the ADAPT, we have those in place.

We just have to modify them more for this 80% or digital treatment play.

Very helpful.

One quick one, John.

As you think about the '19 outlook that you described for us, what sort of number of stores does that envision by year-end?

Yes, we have 12 as we noted now.

It's really not a material change from that.

We're evaluating what's best locations, what makes sense for us.

But we really want to drive productivity and conversion at the stores we have before we go on a larger scale.

Okay.

So we shouldn't expect that to be materially different by December of '19?

That's correct.

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

So I guess just given the ramp in investments in 2019, with likely some slower EPS growth.

I kind of feel that 2019 is maybe somewhat similar to what Align went through back in 2015, where that was, let's call it, somewhat of a throwaway year for earnings growth because of heavy spending.

But then the company came out of that and really had 3 strong years of growth in 2016 through 2018.

I know it's a different management team back in 2015.

But should we draw really any sort of parallels for 2019 where maybe you're just setting yourself up for another strong earnings growth cycle in the next couple of years beyond 2019 with the investments that you're making this year?

Steve, it's Joe.

I think first of all, I feel we play offense in this business.

So even though we talk about restructuring or if we talk about adding salespeople, when we talk about defending our IP, all of those things are, to me, setting a foundation for future growth in the business.

When you sit back and you look at this business, we're incredibly underpenetrated based on consumer preference for clear aligners to move teeth and also the size of the market that digital opens up even beyond, the 12 million orthodontic case starts that we talk about globally.

So please don't call 2019 a throwaway year.

Hopefully, the earnings and the growth that we're projecting here are substantial.

And we haven't even mentioned the law of large number on you guys over the last 3 years, right?

Because we continue to build these huge percentages over top incredibly larger numbers than what we had previously.

So I look at this as -- don't -- look at it as these are aggressive investments in a young business to lay a foundation to allow us to be better in the future.

And that's -- we have to take these.

Yes.

I guess a quick follow-up to that, would just be how important is consistent EPS growth at Align at this stage of the corporate life cycle?

Or is this still mainly about driving top line growth for all the things that you just mentioned?

Steve, this is John.

It's both.

I mean, we want to drive top line.

We want to be able to grow this business.

As Joe mentioned, we're vastly underpenetrated, and we have products and technology to be able to increase that market.

But at the same time, we want to be able to grow profitably.

And as we layer on some of these investments, we expect -- whether it's China or sales force addition or others that we're adding in, over time, we'll be able to see those benefits.

And that over time, as we laid out, is over 2019.

We should see that sequential improvement quarter-over-quarter as those investments start to pay off as we move forward.

But we want to make sure that we're returning the most back to our shareholders, and that comes from revenue growth and the volume that we drive as well as doing this from a profitability standpoint.

And we're very aware of the long-term growth model, and we stick with that.

Our next question will come from the line of Richard Newitter with SVB-Leerink.

Joe, I was just wondering -- I know you guys are still -- it's still really, really early days in China, and the opportunities are enormous, including your growth rate in that region, haven't really shown any slowdown.

But can you just talk a little bit about what -- we've seen some headlines and some other companies talking about the macro slowdown in China in the consumer discretionary realm.

Can you give us your thoughts from the way you see things?

Clearly, you're investing, so I would imagine there's nothing there that would suggest there's any slowing growth.

But what are you seeing kind of at the ground level in terms of the macro?

I mean, we -- like I mentioned before, Richard, this is -- the growth that we saw throughout 2018 was really strong in China.

I mean, obviously, we're making these investments in China.

It's a commitment.

They are our second largest country in the world right now.

The underpenetration, the opportunity there is huge.

Look, I mean, we're up with global events.

We see the issues going on with China and United States.

And hopefully, they'll come to a trade deal sooner or later.

I look at that investment.

When I talked about manufacturing there, it is moving closer and having a Chinese business and being able to operate in that country with a lot of fluidity.

But it also makes me feel good that we have a good insurance policy in the sense of the trade dynamics between the 2 countries, too.

So right now, again, we haven't seen what other companies are reporting.

I think the penetration piece we're talking about is probably maybe the variable of difference between the 2. We're not saying that we're recession-proof ever.

I think that's a ridiculous position to take.

But what we've seen right now in the growth rates and what we've been experiencing, right now, we're looking for a good 2019 in China.

Excellent.

And just if you could maybe just -- maybe you mentioned it earlier, mandibular advancement.

What's contemplated?

Or how are you thinking about the contribution in 2019?

Should we think of that launch kind of hitting the ground running right off the bat?

Is that more of a gradual cadence?

And what's contemplated in the outlook?

I'll take a high level and let John, take the specific level.

But remember, MAF was just approved in November of 2018.

As [this year] -- I expect our normal uptake in the United States, which is -- orthos will do 2 or 3 cases and get used to it.

It's a phenomenal product.

It really is.

To think you straighten your teeth.

It can move your mandible forward in that sense and build bone.

It's just -- it's incredible.

But when it's something that big and that revolutionary, doctors -- orthos are conservative anyway.

And obviously, they're going to take their time in the sense of proving it.

Now (inaudible) MAF has been outside the United States for a while, too.

So we have, I think, 17,000 cases we talked about that we've gone through it.

What's really interesting, too, is we have several updates from [Jelco] and the engineering team on MAF also.

When teeth are shorter, how you arrange the aligners to make it work, making sure the wings are a lot stronger than before.

So as this is approved in the United States.

We think we've significantly improved the product over the last 12 months, too.

Now we find, too, is just the great halo effect around MAF and Teen.

If you start to do more MAF, you do more Teen.

And so we're looking forward to that.

But again, it's new days in the United States, and we'll give you updates as we go through the year.

And so when we look at our forecast and we think about flat ASPs, this is one that helps us.

This is a positive move back to our ASPs because it's a full case, it's a teen case, it's complicated.

Like Joe said, it gives us more and more teen volume, and we look at that as favorable mix and favorable growth for us.

Okay.

Well, thank you, everyone, for joining us on the call today.

We look forward to catching up with you at subsequent conferences.

And if you have any questions, please contact Investor Relations.

Have a great day.

Thank you.

This concludes today's conference.

You may disconnect your lines at this time, and thank you for your participation.