Q2 2019 Earnings Call
Greetings and welcome to the life technologies second quarter 2019 earnings Conference call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
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Please note this conference is being recorded.
I'll now turn the conference over to your host Shirley Stacy Vice President Communications.
Stacy you may begin.
Good afternoon, and thank you for joining us.
Joining me today for todays call is Joe Hogan, President and CEO and John Ricci CFO , We issued second quarter 2019 financial results today via Globe Newswire, which is available on our website at investor <unk> Dot align chek Dot com.
Today's conference call is being audio webcast and will be archived on our website for approximately 12 months a telephone replay will be available today by approximately 530 P.M. eastern time through 530, P.M. Eastern time on August seven.
To access the telephone replay domestic callers should dial 87766, 06853 with conference number 13691835, followed by pound.
International callers should dial 20161 to 7415 with the same conference number as a reminder, the information that the presenters discuss today will include forward looking statements, including statements about aligns future events product outlook and the expected financial results for the third quarter of 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 SEC.
Actual results may vary significantly and align expresses expressly assumes no obligation to update any forward looking statements.
We've posted historical financial statements, including the corresponding reconciliations and our second quarter 2019 conference call slides on our website under quarterly results. Please refer to these files for more detailed information with that I will turn the call over to align technology's President and CEO , Joe Hogan Joe.
Thanks, Shirley good afternoon, and thank you for joining us on our call today I'll provide some highlights from the second quarter, then briefly discuss the performance of our two operating segments clear Aligners and scanners, John will provide more detail on our financial results and discuss our outlook for the third quarter.
Following that I'll come back and summarize a few key points and open up the call to questions. Our second quarter revenues were at the high end of our guidance, reflecting invisalign volume growth, primarily from international doctors as well as very strong sales from Itero scanner and services.
Sure Tuna. This line volumes were 24.6% year over year compared to 30.5% year over year in the second quarter 2018.
Reflecting continued adoption from teenage younger patients as well as increased utilization and expansion of our customer base with total over 60000 active doctors worldwide.
For a part product perspective, we had good growth across the invisalign portfolio with non comprehensive products outpacing comprehensive.
Led by Invisalign go globally.
Total just like the shipments for Q2 were lower than expected, primarily due to softness in China related to a tougher consumer environment and slower growth in young adult cases in North America.
Now, let's turn to the specifics around our second quarter results, starting with the Americas regions.
The Americas region Q2, Invisalign case volume was up 4.2% sequentially.
16.5% year over year, compared to 22% year over year and and two in Q2 2018, reflecting growth both in the orthodontist and GP channels as well as continued strength from teenage patients and Invisalign go.
In Q2, we trained approximately 3000, new Invisalign doctors in the Americas region, which more than half are north American doctors.
On a sequential basis Q2, invisalign volume growth reflects increased utilization for the Americas region overall.
Driven by North American Orthos at 18.9 cases per Doc with continued adoption of Invisalign with Mandibular advancement and design first used to treat patients as young as six years old. We also had solid performance from GP dentists with continued momentum from baseline light and Invisalign go.
Invisalign go is uniquely designed for GPS and features a digital chairside experience using the Itero interoil scanner and streamline tooth movement capabilities, It's a really great product and we're very pleased with its performance, including with our DSL partners, who are using it to help their providers introduce invisalign treatment into practice.
Invisalign go integrates well with the DSO model, which remains a very important part of our overall business as we continue to see DSL growth rates outpacing the 90 or so dr. significantly.
Year over year Q2, Invisalign volume growth the Americas region was driven can continue to strengthen the ortho channel with 19.7% growth.
I compared to 25% year over year as well as increase of 11.6% from the GP channel in Q2.
We saw adult case growth from North American orthodontist, reflecting a more crowded competitive environment, especially for young adults in the 20 to 29 year old demographic.
Really value convenience and cost.
We know there is about a 10% overlap with our adult demographic with SDC.
Given increased awareness for the direct to consumer clear Aligners and heavy advertising spend from DTC players K starts may be shifting away from traditional practices. We also believe that doctors are sampling alternative products and are taking advantage of wires and brackets bundles.
That essentially gave clear aligners away for free or at very low prices.
These competitive dynamics are not surprising and were validated during our recent customer visits nonetheless, they appear to be working themselves out in the first few weeks of Q3, we've seen improving trends in North America.
In July our executive team and I spent a week meeting with over 200 orthodontists in four major U.S. cities Fort Lauderdale, Dallas, Denver, and L.A. and did not hear anything that gave me pause about a competitive performance standpoint.
That's not to say that we didn't get feedback about how to make things better, especially around the help doctors compete more effectively against DTC offerings, but doctors consistently told us that the Invisalign system is the best product there is hands down technically and clinically.
Given the changing DTC landscape, we're focused on further differentiation of invisalign treatment for both consumers and doctors.
In Q3 were increasing investment in consumer demand with a new advertising campaign for North America, and expanding marketing programs, such as our currency or service, which connects pets potential patients with invisalign doctors, increasing conversion and stickiness.
In addition, we are launching new sales tools and professional marketing materials will also expect to see increased productivity from the hundred plus sales representatives, we added in Q1.
We'll also look for opportunities to leverage the invisalign product portfolio to doctors to treat patients as needed and compete with DTC offerings expanding on products like Invisalign go in light will help close the gaps many doctors see with DTC patients who are looking for price and convenience.
Finally in Latin America, we continue to make great progress led by Brazil, and developing the emerging clear aligner segment, and the world's leading market for beauty and cosmetic procedures in Q2 Invisalign volume in Latin America was up significantly year over year, reflecting our ongoing investments as we continue to build our business in the region trading approximately 1300 invisalign doctors during the quarter.
For our international business Q2 was a good quarter with strong invisalign volume growth of 36.7% year over year.
Reflecting increased invisalign utilization and continued expansion of our customer base in both EMEA and the Asia Pacific region.
On a sequential basis international volume was up nicely, reflecting growth in both the EMEA and Asia Pacific regions. In Q2, we trained approximately 3500, new invisalign doctors internationally over half of which were in the Asia Pacific region.
In EMEA Q2 was another strong quarter with volumes up 39%.
Year over year, driven by growth across the region with record Invisalign volumes at all but one country market led by Iberia, we saw strength across the Invisalign product portfolio with continued momentum from Invisalign go.
We also continue to see strong growth across our key expansion markets as well led by central and Eastern Europe .
APAC Q2, Invisalign volume increased 33.1% year over year, reflecting continued growth from nearly all country markets led by China, Japan and Andy.
We also had strong growth from GP dentist, which were up 52.4% year over year.
On a sequential basis Q2, invisalign volume for APAC was up nicely led by Japan.
Southeast Asia, Hong Kong and Taiwan, We also had an uptick in adult patients in Q2, following a very strong quarter for teen cases in Q1 in conjunction with a teenage promotion to help drive trial and adoption in the very important teen segment.
During Q2, we trained over 900, new doctors in APAC over 40% were in China.
Notwithstanding current consumer sentiment remained confident in the long term opportunity in China will continue to invest in our manufacturing operations and training centers to ensure that we operate like a local company and have the capabilities to expand and scale our business and he is as the environment improves.
We're also focusing on what we can influence directly to help mitigate consumer sentiment in China, we're expanding our reach and scope in tier three and tier four cities across China, including investment in the GP dentists, Salesforce and sales programs centered on Invisalign go.
And the last year since the launch of Invisalign go into APAC, we have learned that doctors benefit from a differentiated approach in training and support and we'll align our resources accordingly.
We're also increasing consumer marketing spend and APAC, including new advertising like our doctor centered AD that is launching in North American next week.
Finally in the second half of this year, we expect to have dozens of Invisalign pop up centers in China to ensure we educate consumers and connect more with Invisalign doctors.
Outside of China, we have strong growth across APAC, including Japan Pan and Z Hong Kong, Taiwan, We will continue to drive adoption and utilization by investing.
Through sales and marketing programs in clinical education with new training centers like the one we just announced in Taiwan.
Through this center, we have also launched the first integrated post graduate Invisalign training program in Asia.
With National Taiwan University Hospital.
Clinical education and peer to peer learning is one of the most impactful ways, we help drive adoption of Invisalign treatment.
During Q2, we engage directly with thousands of Invisalign trained doctors around the world providing them with the ability to learn from clinical experts and practice development leaders and share their experience and insights and with each other.
In April we held the 2019, Invisalign, China form an xeon, attracting 1300 and industry practitioners and gathering together over 40 experienced orthodontist from all over the country.
During the two day foreign participants held in depth discussions on frontier topics, such as adolescent orthodontics extraction, and orthodontic treatment and digital dentistry.
In May 300 high volume Dennis from 37 countries across the Americas, EMEA and APAC participated in the inaugural edition of the Invisalign Symposium on digital practice in London.
The two the two day Dr. event featured especially designed sessions, combining plenary interaction small group of working sessions covering such topics as understanding consumers practice optimization challenges of building a digital practice among others.
I was able to address specifically on the digital practice and driving the evolution of digital Orthodontics was supporting talks on digital transformation in health care.
In the power of digital treatment planning, along with the practice optimization with adapt.
Adapters aligns Consultive program to provide practices with personalized support to help doctors and staff navigate the journey from abrasives model to an aligner model in a timely efficient and profitable manner.
Emphasis is on digital workflow finances, and consumer acquisition and early results from test sites in the Americas, EMEA and APAC show significant improvements in conversion revenue growth practice profits and other key metrics as practices shift to a digital model and increase their invisalign share chair.
In June we hosted the first Invisalign scientific symposia in EMEA located in Valencia, Spain.
The scientific symposium focused on evidenced based success cases for invisalign treatment and growing patients with dedicated focus on treatments with Invisalign first and then Gibler advancement feature bringing together nearly 200, if I may as most experienced and Biz line doctors.
In July more than a 175 general dentists are all across Europe attended the second annual Invisalign GP growth summit in Berlin focused on peer to peer learning in emerging industry trends. We also just hosted our first Invisalign teen summit with about 300 doctors and staff in Los Angeles. The Summer program was focused completely on treatment and team culture and included a tie in with Midcon. The top team culture and community event were aligned held a multi year relationship and strong brand presence team summit is designed to turn low teen submitters into high teens emitters by combining invisalign specific clinical and practice, how twos with an immersive team culture experience, social media support and training and insight from teen influences.
Speaking of teens in Q2 over 100000 teenagers started treatment the invisalign clear aligners, an increase of 32.2% year over year, driven by continued strong adoption across all major regions.
For Q2 year over year, Invisalign teen patient growth for North America, Orthodontist increased 25% and international doctors were up 44.4%.
Invisalign first invisalign treatment within digital advancement continued to ramp globally.
And are helping to increase our share of teenagers in younger patients worldwide.
Overall, we are very pleased to see the use of invisalign treatment among teenagers continues to outpace adults.
And then Invisalign first is driving really strong growth in the Kid Tween segment. In fact, we reached our seven millionth invisalign patient during the quarter a child in the United States being treated with Invisalign onest since its launch of this line first a year ago kids under 10 years old have become our fastest growing demographic.
Up 140% year over year, which also bodes well for the continued adoption of teams to.
Our consumer marketing efforts are designed to build the category and drive demand for Invisalign treatment through a doctor's office.
We invest over $120 million, each year, and consumer marketing programs, including TV digital and social media PR event marketing.
And our patient Conti or service.
Our goals are to make Invisalign brand, a household name worldwide and to motivate consumers, who seek invisalign treatment through a doctor's office.
In Q2, we continue to see strong digital engagement with consumers, reaching nearly 4.3 million unique visitors on invisalign dotcom sites worldwide.
For a total of 57.5 million visitors to date.
Our other key metric show increased activity engagement with Invisalign brand and are included in our Q2 quarterly slides.
During the quarter, we develop the new consumer advertising campaign.
For three largest markets the U.S. candidate in China.
This new multichannel campaign.
Which launches across North America. This Monday educate consumers on the significant benefits of Invisalign treatment.
Highlighting our patented Smarttrack technology based on years of research, which moves these more predictably and comfortably combined with a personalized care of a doctor.
We are more than doubling our media investment behind this new multichannel campaign to extend our reach across adults and parents of teens, increasing our reach frequency from 50% over 70% in order to capture even more of our target audiences.
In the U.S., our new campaign will run across all media channels, including broadcast in TV networks.
Connected TV, such as Hulu and other streaming services digital media and all social media channels in Canada, Our new AD will go live on digital channels first and then we will land layer in TV in the coming weeks and China will follow suit in the second half.
Q2 was another outstanding quarter for our tier Itero scanner and services business with revenues up 82.4% year over year, reflecting continued strength across all regions and customer channels.
Putting large account dsos.
On a sequential basis revenues were up 30.4% sequentially, reflecting higher scanner sales falling with seasonally weaker Q1, especially in North America and Asia Pacific.
Increased services revenues reflect higher subscriptions from installed base growth and multi year deals during the quarter. We saw continued adoption of the Itero element five D imaging system in EMEA.
APAC in Canada.
Since its commercial launch at ideas in the first quarter of the year.
Cumulatively cumulatively over 13.7 million orthodontic scans and $3.6 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 Q2 total Invisalign cases submitted with digital scanner in the Americas increased to 77.3% from 69.6% in Q2 last year.
International scans increased 60.8% to 60.8% up from 47.8% same quarter last year within the Americas, 92.3% of cases submitted by North American Orthos were submitted digitally.
We continue to expand the itero portfolio to address doctors need to enable them to more easily adopt invisalign treatment in their practices.
In June we announced the Itero element foundation, extending the portfolio to offer Dennis digital workflow capabilities to address their restorative and patient monitoring and in oral scanning needs.
The streamlined workflows to dental laboratories includes an option for on demand Chairside milling and exclusive time lapse technology for patient communication and monitoring with the Itero element foundations, which provides dentists with capabilities beyond basic STL support scanners.
Software upgrade path pathways are also available for Invisalign clear Aligners.
The Itero scanner and services business has become an integral part of our business and is key to our end to end digital workflow. We believe that every exam should begin with an itero digital scan because its a better experience and improved treatment outcomes and provides doctor with chairside tool that enables patients to visualize their falls the future smiles at chair side in less than a minute without any group.
Which increases treatment acceptance and drive practice growth.
Before I turn the call over to John I want to mention decision to terminate discussions regarding the possible development and distribution agreement that was disclosed as part of the patent settlement agreement with Straumann as part of the settlement align and strong and signed a non binding letter of intent to assess the possibility of a five year global development and distribution agreement whereby strong we distribute 5000 itero element scanners.
Additionally, we considered exploring the possibility of offering existing itero users access to straumins for static in surgical planning workflows.
In June after months of deliberation, we announced the decision to terminate these discussions and as a result, we received an additional 16 million from Straumann for a total of 51 million settlements with that ill now turn the call over to John .
Thanks, Joe now for our Q2 financial results total revenue for the second quarter was $600.7 million up 9.4% from the prior quarter and up 22.5% from the corresponding quarter a year ago.
Year over year revenue growth includes approximately $19 million or four points of unfavorable foreign exchange.
For clear Aligners Q2 revenue of $496.7 million was flat sequentially due to invisalign volume growth in most geographies, partially offset by lower Invisalign asps and lower STC volume.
Year over year clear aligner revenue growth of 14.6% reflects strong invisalign shipment growth across all customer channels and geographies, partially offset by lower asps.
On June 1st we had a minor issue with a standard software release that impacted some clincheck modifications. It was addressed and communicated to customers quickly. However, it required some invisalign doctors to review their treatment plant.
This disrupted the work flow for many doctors, which was compounded by an increase in call volumes to our treat operations and customer care center that degraded service levels and customer experience.
While it's impossible to quantify on the margin probably didn't help.
To help the quarter.
Q2, Invisalign asps were down sequentially by approximately $15 to $1230, primarily due to unfavorable foreign exchange and discounts.
On a year over year basis, Q2, Invisalign asps were down $85, primarily reflecting promotional discounts unfavorable foreign exchange higher deferrals related to additional aligners.
And product mix shift, partially offset by price increases.
Total Q2, Invisalign shipments of 377.1 thousand cases were up 8% sequentially and up 24.6% year over year.
For America's Orthodontists, Q2, Invisalign case volume was up 3.7% sequentially and up 19.7% year over year.
For our Americas, GP dentist, Invisalign case volume was up 4.9% sequentially and up 11.6% year over year.
For International Doctors, Invisalign case volume was up 13.4% sequentially and up 36.7% year over year.
Our scanner and services revenue for the second quarter was $104 million up 30.4% sequentially, reflecting growth across all regions and channels, including Dsos.
Partially offset by lower ASP.
Year over year revenue was up 82.4%, primarily due to higher scanner units across regions and related services revenues, partially offset by lower ASP.
Moving onto gross margin second quarter overall gross margin was 72% down 1.2 points sequentially and down 2.6 points year over year gross margin was impacted by approximately one point.
Year over year due to unfavorable foreign exchange.
Clear aligner gross margin for the second quarter was 73.7% down 1.2 points sequentially, primarily due to costs from seasonally higher.
Dr Training and freight clear Aligner gross margin was down 2.8 points year over year, primarily due to increased aligners per case and lower ASP has just described.
Scanner gross margin for the second quarter was 63.6% flat sequentially and up four points year over year, primarily due to increased manufacturing efficiencies, partially offset by lower ASP driven by mix.
Q2, operating expenses were $255.8 million down sequentially, 18.6% and up.
5.3% year over year, the sequential decrease in operating expenses reflects a benefit of $51 million related to the Straumann litigation settlement, partially offset by our continued investment in sales and R&D activities. Additionally, Q1 operating expenses included.
$29.8 million related to envisage line store closure costs on a year over year basis operating expense.
Increased due to sales and R&D activities and was partially offset by the Straumann settlement.
Second quarter operating expense included at 51 million dollar benefit from the strong man litigation settlement, which increased Q2 operating margin by approximately eight points and diluted earnings per share by 57 cents respectively.
This settlement was higher than anticipated in our Q2 guidance because it included an additional $16 million benefit from the termination.
Of development and distribution agreement, along with $5 million that would have been.
Would have been incurred for development.
Our second quarter operating income was $176.5 million up 101.2% sequentially and up 43.8% year over year.
Our second quarter operating margin was 29.4% up 13.4 points sequentially and up 4.4 points year over year. The sequential increases in both operating income and operating margin I, primarily attributed to that $51 million benefit related to the Straumann settlement recorded in the second quarter and the Invisalign store closure costs recorded in Q1 of 2019.
On a year over year basis, the increases in operating income and operating margin primarily reflect the benefit from the Straumann settlement, partially offset by lower gross margin and continued investments in sales and R&D.
Interest other income and expense of $17.4 million includes the $15.8 million gain that is related to our sale of equity investment in smile direct club during the second quarter.
With regards to second quarter tax provision our tax rate was 22.2%.
Which includes approximately $10 million of tax expense related to gains from the Straumann settlement and the sale of the SDC equity investment.
Second quarter diluted earnings per share was one dollar and 83 cents up 94 cents sequentially and up 53 cents compared to the prior year.
Moving onto the balance sheet.
As of June Thirtyth, 2019, cash cash equivalents and marketable securities, including both short and long term investments were $765.9 million, an increase of $33.4 million from the prior quarter, which is primarily due to higher cash flow from operations, partially offset by $49.5 million used to repurchase approximately 161000 shares of our stock.
Of our $765.9 million of cash cash equivalents and marketable securities $580 million to $582.4 million was held in the U.S. and $183.5 million was held by our international entities.
Q2 accounts receivable balance was $520.1 million up approximately 8.5% sequentially.
Our overall day days sales outstanding DSO.
Was 77 days down one day sequentially and up nine days from Q2 last year.
Cash flow from operations for the second quarter was $177.4 million up $37.6 million compared to the prior year.
Capital expenditures for the second quarter were $45.3 million, primarily related to our continued investment in increasing the liner capacity and facilities free cash flow for the second quarter defined as cash flow from operations less capital expenditures amounted to $132 million.
During Q2 2019, we purchased on the open market approximately 161000 shares of our common stock at an average price of $307.48 per share, including commission for an aggregate purchase price of $49.5 million.
We have $400.5 million remaining available for repurchase under the May 2018 repurchase program.
With that let's turn to our Q2 Q3 outlook and the factors that inform our view starting with the demand outlook.
As we exited Q2.
And now into the first weeks of Q3, we are seeing improving volume trends for international we expect Q3 volumes to be down sequentially, reflecting a seasonality.
Slower period for EMEA, partially offset by seasonally stronger period for the APAC regions. However, given the uncertainty in China, we are reflecting a more cautious outlook.
For APAC growth.
For the Americas, we expect Q3 volumes to be up sequentially, reflecting growth across all key country markets as well as a seasonally stronger period for North America.
Orthodontists as with the peak of the summer.
Teams season, along with increased media spend.
And the launch of our new customer advertising campaign as Joe described earlier.
As we typically see we expect overall invisible line volume to be flat to slightly up from Q2.
We expect our itero business to be down sequentially coming off of another very strong quarter and record growth in Q2.
Year over year, the Itero business continues to grow across all regions.
And regarding Smile direct club, we expect no clear aligner volume from STC in Q3.
With this as a backdrop, we expect the third quarter to shape up as follows.
Invisalign case volume is expected to be in the range of 370 to 380000 cases up approximately 16% to 19% year over year on a tough comp from Q3 last year, which had record shipments that benefited from the teen and adult promotions by approximate.
2% higher growth rate.
We expect Q3 revenue to be in the range of $585 million to $600 million up approximately 16% to 19% year over year.
Our Q3 revenue outlook assumes no smile direct club volume compared to the same quarter, a year ago go where aligner supply to SDC contributed about $8 million to revenue.
In addition, as just mentioned in Q3 2018, we had higher invisalign volumes due to promotion.
But lower Asps.
We expect Q3 gross margin to be in a range of 71.9% to 72.5% Q3 gross margin is up slightly compared to Q2, as we expect improvement due to price increases and manufacturing productivity.
We expect Q3 operating expenses to be in the range of $305 million to $312 million.
Our Q3 operating expenses are expected to be significantly higher sequentially. As a result of the benefit of $51 million Straumann settlement in Q2, which reduced operating expenses. We are very pleased with the settlement and are putting the funds to work by stepping up our investment in consumer advertising with a brand new campaign and stepping up our reaching coverage the new ads focused on the significant technical and clinical advantages of our Invisalign system and differentiates our Doctor Center model for consumers. It will launch next week in North America and soon after in China.
These ads will carry on throughout the second half of 2019.
Q3 operating margin should be in the range of 19.8% to 20.5% our effective tax rate is expected to be approximately 24%.
Diluted shares outstanding is expected to be approximately $80.6 million exclusive of any share repurchases.
Taken together, we expect our Q3 diluted earnings per share to be in the range of $1.90 cents to $1.16 cents. In addition, we expect to repurchase at least $100 million of our stock in the open market in Q3.
As we continue our operational expansion efforts, we expect capital expenditures for Q3 to be approximately $50 million to $55 million, and we expect depreciation and amortization to be.
$24 million to $26 million.
Given our Q3 outlook I want to make a few comments on the full year.
Based on the current growth rates in our business to date and our planned investments for the remainder of the year. We now anticipate 2019 total revenue growth rate to be at the low end of our long term operating model target of 20% to 30%.
We also expect Invisalign revenue and volume growth to be at the low end of our long term operating model target.
We anticipate operating margin to be.
Below the low end of our long term model at approximately 22%, which reflect the impact from increased legal fees and the planned corporate structure reorganization as well as increased investment in consumer marketing Invisalign store closure costs, partially offset by the benefit from the strong and settlement.
Now I will turn the call back to Joe for closing comments.
Thanks, John and thanks for joining our call today before we close I want to comment on a few things I think are important to remember given our lower than expected invisalign volumes. This quarter were more cautious outlook for China in Q3.
First our fundamentals are squarely in place and our outlook for the remainder of the year is clearly within our long term model on top of a record 35% last year, we don't believe the second and third quarter in any way reflects our full potential.
Our product technology operational scale and consumer brand awareness are all significant advantages in a huge market that were addressing with only 10% share today.
The opportunity to bring better smiles to millions is not a zero sum game, we're working hard to ensure that we continue to gain share. So while we acknowledge competition. We also embrace it because it drives our own innovation, which ultimately is great for millions of global patients who have yet to reap the benefits of this.
Finally, before I open the call for questions I want to take a minute to congratulate Simon Beard, who has taken on a new role as senior VP for the Americas.
I also want to welcome Mark is Sebastian to our executive management team as a new senior VP of EMEA.
As many of you know Simon was responsible for the market development and operational execution of all products and services in EMEA region since 2014.
Under Simon's leadership, the EMEA region has consistently grown more than 30% compound annual growth rate with strong performance across the entire region and customer base.
His knowledge of the market and ability to drive strategic programs and initiatives across the region has delivered exceptional results and make him an ideal leader for the Americas region.
Mark has also joined the line a year ago and has been responsible for lines core European commercial organization focused on the orthodontic channel. He has also served as the interim GM.
Germany, and France, a country markets.
Markers as an experienced leader in general manager with a proven track record and global commercial operations and sales strategic marketing product development and change management processes. His deep understanding of the healthcare markets in EMEA Asia Pacific in the us or an asset to a line. We're very glad to have Mark has assumed responsibility for the EMEA region.
With that I want to thank you again for joining our call.
I look forward to seeing many of you at upcoming financial conferences and meetings, including the Invisalign GP summit in November in Las Vegas.
We will host an analyst meeting stay tuned for more information with that I will turn the call over to the operator for questions.
Operator.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes the line of Erin Wright from Credit Suisse.
Please proceed with your question.
Great. Thanks can you parse out some of the components of the sequentially slower growth in Americas, where maybe there were pockets of stronger growth that you could call out that we're obviously off set by some of those competitive dynamics that you were speaking to you and how should we be thinking about the quarterly progression Marin and also where are you seeing most of the competition coming from is it mostly DTC or is it some component of the GP offerings, as well and and how do you expect that to progress.
Yes.
Hi, Aaron.
First of all when you look at the Americas. This is split up as the Americas side includes Latin American, Brazil, which is growing over 100% is terrific growth down there. So our focus is mainly when we talk about a little bit of a slowdown has been in the north American marketplace in the us and Canada.
When you talk about segments that have done well is you know what I read my script too is when you look at.
Teens recall him tweens between seven and 10.
They are up 140% year on year in the Americas, It's our fastest growing group and that reflects the technology being put in place around Invisalign first which is made for dental expansion in that age of patients and also our mandibular advancement product also that I think you know about too. So that's been a terrific segment for us.
Our adult segment two it's been strong it's at 20% to 29 year old that we saw some amount of slowdown overtime, but when you get into the older classifications were still seeing really good strong growth in those areas. So.
Yeah, I feel I feel well, but our portfolio that I talked about in my script, which as I go and also our light product.
I can address that segment of 20% to 29 that we think is looking for a price point and also can some convenience that we're sure that we can offer through our ortho channels and also our.
Our our GP channels too.
On the.
The competition in general is how I frame. Your second part of your question. When you think about DTC versus I. I would interpret that as just enter competition.
It's really hard to say exactly how to break this up but in general we feel that when you look at that specific consumer segment. It's more of a DTC segment, it's not necessarily a traditional segment.
I think that they would be appealing to so in general.
I feel good about our positioning I think you know.
Our position with Orthophos and GPS continues to be strong I mean look at our most it was great to be in the field. We were in Asia last week were also in.
In North America that I mentioned, the previous week and we've been involved with a lot of customers and just what I said in my script I mean, there's we know that things are being trout out there from a consumer standpoint, we feel so good about the feedback we get about the clinical capabilities of Invisalign. The consistency of it its interaction with Itero, which is it's really unmatched in the marketplace and then all of them reaching out to say how they want to compete against that DTC segment and we're the only company that can really join hands with them and help them to compete in that area.
Thanks, Aaron next question. Please thanks.
Our next question comes line of Jon Block from Stifel. Please proceed with your question.
Great guys are going to try to ask too.
Awesome one at a time so the first.
Long term guidance is 20% to 30% Rev Guide, but the guide for next quarter, 17% at the midpoint looks like high teens, Joe for the back half of 19, I know you had some commentary, but I guess the real question is one or two quarters don't make a trend, but how do we fill it sort of that high teens to each year over year growth guide versus the long term of 20% to 30% and what would drive the re acceleration and then I'll ask hopefully a tighter follow up thanks.
Yeah, Hey, John .
General from a team standpoint, you know what our product portfolio is and how well it competes in that sense.
When we talk about the slowdown right now.
Part of it is.
A huge part of it is China and China, obviously is a big teen season, as we roll into China, now and we're confident we'll be able to perform in that marketplace. Two Jon there's still demand there theres just after what we saw in the in the second quarter, we have some basic uncertainty there and that's reflected in what and what our guidance is but it certainly doesn't decrease our confidence in a sense of our portfolio our positioning in the movements that were making in the tier three and tier four cities that I mentioned in my script. Its a really important part of us expanding in that geography, and just giving us more mass in the sense of.
Being exposed a broader patients across that area. So overall I feel good about that.
Okay, and then just the follow up there.
Can you just expand a little bit a little bit on the competitive dynamics, you said things seem to work itself out in early Threeq use what was that Joe was that commentary specific more into the traditional ortho channel where there might have been some trialing and then they said hey, we don't have a comparable product or maybe you can just split what those comments were specific to.
Whether specific there specifically in North America in the Ortho channel that you mentioned, John and we see in the first year basic 24 days in July we're seeing a significant uptick in that part of the marketplace. So we say work that out. It's just it just seems that we've had doctors tell us give trial. This try these products they haven't been satisfied with the software the results that they've had to date or whatever and.
And then we see a inflection point from a growth standpoint, as we move into July Thats significant secondly is when we look at Asia in the July orders also including China, We've seen an uptick in China also so just in general on talking about and we're talking about as a team as from a volume standpoint, we've seen an increase in that sense. It gives us confidence that those things are working themselves out.
Okay. Thank you.
Our next question comes offline, Glenn Glenn sense tend to low sorry, Sir from Guggenheim Securities. Please proceed with your question.
Honours.
No Joe I, just wanted to talk to you about clearly the competitive landscape seems like it's getting worse, but yet you raise your prices on July Onest. I mean are you are you seeing any price sensitivity.
In the market and then when you think about the competitive landscape put the DTC channel aside for a second but when you think about the traditional players that are also now selling into.
The the GP and the ortho market are you seeing any sort of price sensitivity from your customer base at all.
Hi, Glenn you might start to see our markets always been price sensitive and when you look at our portfolio in a sense of how we put things together with our comprehensive product and then our light products products like a five and seven in VI go that I talked about to these have all been position to hit a certain price point not just for doctors, but for doctors with their patients too.
When you talk about competition, increasing whatever again, it's out there the traditional players that we know about I will talk about the DTC channel in the second.
But in general what we find is theres no scale, yet theres no scale on the software side. There is no scale on the supply side.
There is a ways to go there is no challenge in the chain Teen segment as all its primarily simple cases on the adult side.
And so it's not that we don't take it seriously. It's just that we feel that we have a really strong salesforce. The itero integration with our product line is so strong in that way. It makes it easier for doctors to work with us and to work with patients also.
Our operations are unmatched in the sense of now we produce half a million to 600000 Aligners a day, it's not easy to do those things so.
Overall as the landscape changing sure it is I mean.
Our key patents ran off at the end of 2017 as you know we're you know we're in the 2019 and we're seeing competition. So the ramp up but we're not seeing that it's been material. This quarter were just recognizing that it's been out there.
On the DCC channel price again, I'll go back to our portfolio the products like light products like I'd go.
Our simpler products like E. Seven specifically those are designed for simple cases, basically with DTC does they do.
Social six lower crowding things that are orthodontically simple these products have been aligned for that too.
Our job to get those products in our doctor's hands and to get in front of the patients and shown when an opportunity to work with a doctor in its product line to getting the kind of outcomes that they expect and also they give me a chance to be able to work as a doctor hand in hand that they don't like the treatment at some point in time, they can continue to progressive that doctor to make it better too.
I appreciate those I appreciate those comments anything regarding ASP slate.
Downtick sequentially was it mix was a discounting 80 to anything you can add on that front.
But primarily it was exchange rate and that's what we're leaning into.
John you Yeah, I mean, it's like you said glance down about $15 $10 of that was exchange and then the rest of it was mix so nothing material from from the previous quarter.
Thank you very much.
Our next question comes line of Brandon Couillard from Jefferies. Please proceed with your question.
Thanks, Good afternoon.
Joe trend Arden.
In the Americas region, why do you think the DTC channel. The DTC channel is having a negative impact now can you kind of talked about perhaps having a positive halo effect.
And then could you speak to the productivity of the 100, new reps that youve hired and whether or not those are ramping.
In line with your expectations or not.
Hey, Brandon.
First of all on the on the DTC piece is look I think it's there is light and dark in that right I do feel that.
Smile direct club and candid they've raised a category or where to significantly and we hear throughout our doctor base, whether the orthodontic side or GP side, the patients come in asking about clear aligners much more than they have before so it it forces that conversation that gives them an opportunity to engage at a level that I feel with just our advertising alone. It would have never gotten to that level. So thats a positive sign.
On the negative side is its theres some price competition. The that segment offers a 2000 dollar or less kind of the case for simple case and its push some of the Doctor office models and its pushed our portfolio to and what we're saying is we've always known there is a 10% overlap into.
Educating our customers, having customers be able to which is our doctors and this customers be able to use an itero scanner to help to communicate and visualize exactly at the treatment plan would be giving patients some off ramp in the sense that they have issues. During the treatment time that they can be addressed by a doctor directly all those things are things that we just have to make sure we take better advantage of with our.
With our doctors and the channels that we work with in order to take advantage of that increase interest that we see out there.
From a new Rep standpoint was second part of your question Brandon.
We put roughly 100 in North America last year, we watch these statistics I do really closely and it's amazing the wassa productivity what happens it's almost like Clockwork. It takes nine months were certain before they are really up to speed and you can see the productivity versus what our normal territory managers would have and as we move into the third quarter right now and looking at those statistics, we see there almost we call it breadth and reach and the number of accounts there, they're calling on and the depth of those accounts are almost equal today. So.
You know as we go into the second half of this year, we're really confident about higher productivity with these reps and combine that with our new consumer AD campaign, and the breadth of that consumer AD campaign that John talked about we think will help to drive that demand and with the concierge service increase also which is significant will allow us to be able to take advantage of that demand and the way, we really couldn't in the past without those resources.
Thanks for the follow up John could you help us reconcile some of the components of the.
The higher opex outlook or the reduced operating margin outlook for the second half and.
Is the legal and corporate reorganization spend still a 150 to 200 basis points.
As a headwind for the year now is there any reason that that extends perhaps into.
2020.
No brand. It is a 100, it's the one and a half to two points of of expenses. That's for the full year for that legal and reorganization and we don't expect that to continue into next year.
Thanks.
Our next question Brandon next question.
Thanks, Brandon Confining Ravi Misra from Barrington Capital. Please proceed with your question.
Hi, good morning, Thanks for taking the question.
Two quick ones on our number one.
I think you had said on the last call. The gross margin profile at the end of the year, you still be kind of towards the low end of that.
Greed.
Than the 8% range is that still the case and then secondly, just a little bit more detail if I may.
As for on the dynamics in your North American business. Just curious are you seeing the detailing more on your lower volume GPS or or those are really feeling the the most.
Competitive pressure in terms of your customer base. Thanks.
So on your first question Ravi on the gross margin improvement, we still expect to see sequential improvement so.
We guided up.
From from Q2 for gross margin in the third quarter, and we expect that improvement to continue into the fourth quarter.
Hey, Rob it's Joe on your second questions dynamics.
That.
It's a really good question.
When we look at that on the GP side, I mean is hitting us both on the ortho is in the GP side, our orthodontic data.
For the second quarter indicated there was really a reduction in number of adults that were going through orthodontists in Reno, we recognize that on a GP side. It hits the GP side also but what we see with our Dsos specifically as they are up significantly in growth I mean, there have been focused on invisalign and hit harder. So within that segment is GP I think the individual practices, it's hit a little bit harder. The dsos have really grabbed products like CGI goal and institute that an organization in them done much better with it.
Our next question, Okay, Ron Elizabeth Anderson.
Please proceed with your question.
Hey, Elizabeth.
We can barely hear you Oh, sorry about that can you give me that.
That's better if we got it now yes.
Thanks.
So just in terms of mix.
In between your comp.
Comprehensive product can you talk about if there were certain.
Like areas in particular, the non comprehensive products.
Like a shift between the first and second quarters.
You know as Elizabeth out when you look at that our comprehensive held in there really well.
You remember with its really important remember the comprehensive.
Our larger size docs like Diamond Diamond plus platinum rely almost exclusively on those product lines because the discount that we give them really it makes it easier for them to be able to move up and down the portfolio they like that product line.
The comprehensive side only because you get the five year additional liners. So when you move to the non comp and that increase.
Our light product line stood out really well our E. Seven did extremely well and also I go by far was a real winner and that piece. So it's never a product like I go to has.
One individual additional aligner, that's offered with a too so.
For those kind of simple cases that also gives the doctors confidence to be able to attack those things with.
More of a middle range kind of a product.
And it comes from an R&D perspective over time.
Steady.
Jeff of new products.
Anything you could sort of talk about what you guys are working on in terms of further clinical advancement.
We'd have to tell you Elizabeth if we told you that.
Pop secret Okay.
It's no it's no.
No mystery that we've been working on what's called a rapid pilot expander. So when we talk about on design first think about that's a dental arts expansion product. So you take your teeth that are in your arch and you basically expand those teeth a pilot expander actually takes more from a morphological standpoint. It just widens your mouth completely that is something we've been working on.
I feel we have a good line of sight on how to get that done.
But it'll be several that will be several more quarters before we introduced or anything like that.
Thats helpful. Thank you.
Our next question comes the line of John Kreger from William Blair. Please proceed with your question.
Hi, Thanks, very much Joe can you just expand a little bit more on what you're seeing in China.
If you're willing how much is it slowing are you seeing any signs of market maturation and are there any competitive pressures that you're seeing there are you seeing it just in terms of a little bit more reticence on the part of the consumer to spend.
Can I start with the onto your question, it's a little more reticence on consumers to spend I mean, you've seen that another consumer channels. You know when you look at what's going on.
Particularly with some us based companies and obviously the issues that we have between the United States in China right now.
As far as the competition goes John I'd say annual line is a very competent competitor in China from a.
Overall standpoint, it's not that we feel that there's been any dramatic change in the sense of their competitive positioning or their ability to do certain cases or others, but.
We recognize them as a comp a competitor.
It's just.
When you look at the different cities to tier three tier four there's a huge GP area in the tier three and tier four cities. That's why we put I go and the GP Salesforce to go into it the tier one cities are more orthodontic and so we do segment and that way when you talk about maturation or some kind of saturation, we just don't feel that.
Again, we're moving into the teen season in China in the third quarter is normally the biggest quarter.
Obviously, there's still a lot of spending that goes on in China around the teen side.
And so no I honestly feel that this is consumer sentiment in general it's reflected another consumer base businesses.
Thats not to your point.
Broadly driven by competition or by any kind of I'd say saturation of clear aligners in that marketplace. I think we still have a long way to go before we'd ever reach a point.
Great. Thanks, and maybe one quick follow up for this young adults.
Demographic that you've been talking about what other levers do you have to really in kind of improve the convenience that they perceive within this line versus other options beyond sort of that classic price trade off.
Well you know I'd say young adults is it's how many doctor visits that they have to make John and there are some technologies I don't want to get into right now, but they are more remote technologies will allow doctors to see these patients.
Less frequently from an office standpoint to be able to monitor their progress remotely.
And I think those kind of things that hit the convenience side, but also has the cost side because the last time, they spend and an office there is less docker time associated with it so it's lower cost too so.
There is a convenience and a price point, we think the technology.
And dr. understanding of specific kind of products and when and where to use them will allow us to be able to get us that segment better.
Great. Thank you.
All right John Thanks. Our next question comes line of Steve Beuchaw from Wolfe Research. Please proceed with your question.
Hi, Scott.
These first and just one more clarification on on China embedded in the outlook for the back half am I hearing you right that you assume China actually.
Gets worse and then I know John Kreger asked this but could you put any numbers around China into Q and what you're assuming for the balance of the year.
Yes, Steve this is John .
We assume China kind of stays as as Weve seen so.
We saw we saw some of that.
That slowdown in in that the second half of the quarter and second quarter, and we assume that that that continues not knowing how that consumer consumer sentiment is going to change over over the next few months.
Okay, and then the email that I'm getting most frequently here.
Is.
How are they thinking now about the L.R.P. the 20 to 30 growth range.
Beyond the next couple of quarters and what are the drivers there Joe I. Appreciate you called out that the competitive trialing might might face in China. We all would imagine gets better is that the whole story, we feel good about the L.R.P. because of those two things.
Yeah, we're sticking to the 20, 30% with competence, Steve is nothing it really change in that sense.
John .
Thats, how we are that's how we're allocating resources and investing for that that long term growth model of of revenue, 20% to 30%, we're making investments where where they're appropriate and looking for return on those investments too.
To work with our long term growth model.
So does that mean, it's Steve I see about just reemphasize, China is not going away right. I mean, that's a big market. It's phenomena. The other part that I think we talked about it but it's not.
We just got back where we are in Asia last weeks, it's not necessarily apparent is the rest of them. The rest of when you look at APAC is so strong you have Japan.
Approaching 50% growth rates or more.
You have just incredibly strong region overall, we think that we will get through this China situation is going to continue to be our second biggest marketplace and.
I feel really good about our investments over there too because I think it addresses this consumer sentiment piece.
That we can be more like a Chinese company than be viewed as a just an American company.
Okay.
Okay. Thanks, a bunch.
All right. Our next question comes the line of Jeff Johnson from Baird. Please proceed with your question.
Thank you. Good afternoon, guys can you hear me okay.
Yes.
Hi, Jeff.
Hey, Hey, John I want to go back to Brandon's question just on margins. Obviously, you reiterated the 150 to 200 basis point impact from the legal and the Reorg and what have you for the year.
But the rest of the take down kind of in the second half guidance from a margin perspective.
Ending up around 20% or so is that just the increased spend to try to reinvigorate topline or what other kind of levers.
Get you to that 20% operating margin instead of kind of the mid Twentys, we were thinking.
Yes that gets us that get this low Brandon.
Jeff from the investments that we're making in marketing. So we're we're we're making those those media investments in the third quarter, we expect that to continue into the fourth quarter and Thats a reflection in the overall op margin rate that I gave.
All right fair enough and Joe maybe just a question on Clincheck.
In kind of your confidence that those software glitches issues, whatever the saving issues, where all of that rolled into one.
Confidence that you're past that number one and then maybe talk about your employee base in Costa Rica, obviously, you've had a couple of competitors go down there.
And opened treatment planning facilities up in pretty close locations was that impacting in the second quarter at all does that impact over the short term going forward just how to think about that.
Yes, Jeff on the software release, we had I mean, it was unfortunate, but we it's contained and we know exactly what happened and thats been cleaned up.
Broadly across the world.
On the when you think about Costa Rica, too we've had a lot of pressure on that organization is not necessarily because.
Competitors have moved down there and we have lost some employees.
To them, it's just been our capacity we've had our growth has been phenomenal you still look at the stack rates there are huge.
It takes us I think I've mentioned before Jeff It takes us about six months to add capacity basically people technicians to Costa Rica, they're really get them up to speed, where they can deal with customers and we are a little bit behind the curve on that end customers felt it the software that we released that you referenced put did put pressure on them.
Because they we had to go back and redo some redo some cases and that obviously put pressure on them put pressure across our whole consumer customer base. When we did that but it has nothing to do with SDC, obviously has treatment planning down there and some of our more traditional competitors have moved people down there, but we havent had an attrition rate that is significantly different in that area and what we've had before so we've added capacity there we're going to add more capacity in the second half of this year. So that we can take care of.
Some of the increases in volume, we see at times, because if you do when you do see these increases in volume it's not like they go away in two weeks. They ripple through this organization for 30, or 40 days and we need to be able to have some little extra capacity to allow us to be able to address that.
Thank you.
Our next question comes line of Matthew O'brien from Piper Jaffray. Please proceed with your question.
All right. Thanks afternoon, Thanks for taking my questions Joe.
As I think about about the quarter and and the outlook for the business I continually hear that align has better products from clinicians. That's clear. It's just it seems like in the marketplace that message is being heard so I'm wondering what you can do to turn things around there and I know there's some of these investments, but can you be more specific on how you turn things around in North America somewhat quickly with these investments and the same goes for China, where it's a consumer product is not an medically necessary product versus us encountering kind of a slow bleed as you have more competition in both geographies over the next several years.
Matthew I am not sure how to talk about the competition part more than what I have so far right. We I think we've categorized them, while we know what their capabilities are it's somewhat limited.
When you say how to get at that you know when some of these cases are offered for free or they're offered for $800 or $750. Some more of those are going to try it and if I was an ortho I tried to.
Given where we've been in the marketplace and where our prices are or whatever and so.
I think thats just part of.
The competitive environment or whatever but.
But we're being very clear about we don't see a systemic loss to our traditional competitors in any way. So I don't want to infer that at all either.
From a.
From a from a China standpoint.
You know look China is again I think we talked about that.
And a few other calls.
Few seconds ago channel continued to be strong.
Consumer sentiment there is consumer sentiment, we're going to continue to invest there are going to put more salespeople in place will follow through with.
Our continuing our training centers are manufacturing centers, all put in place and we expect to China continue to grow and be it for the foreseeable future. The second largest area that we.
You know that we sell to.
Giant then.
All right.
Okay.
Okay and then.
Now everybody is focusing on the negatives and theirs.
I get that but there was some positives in the quarter I'd love to hear a little bit more about you sort of touched on it a bit but the itero number and I know there was some seasonality to it was just.
Phenomenal again.
Some of that's DSL related to love to hear a little bit more about outside the dsos, what was driving that and when when we expect to see a lot more of that volume that from all the itero placements and same thing goes with Doc training I think those are some of the best numbers that we've seen in a while.
When when.
Some of that training may manifest into higher volumes.
For the entire organization.
Yeah, Matt we appreciate a positive comment like because there were a lot of good things of this quarter I. Once that you missed as you look at EMEA up 39% in the consistency of the growth across EMEA region is really been amazing in that sense I mentioned the other parts of APAC too is this strong growth that we saw and again, we verified that last week when we were over to see the team.
And then the North America side I mean, when you look at these tween seven to 10 and up a 140% in some of our other age groups they've been very extremely strong DSO marketplace has been great force in GP still growing double digits in is not taken for granted in this business because we've had some terrible you go back years ago of GP growth that were sub double digits would continue to do well in that segment.
But you put you pointed to Itero specifically in I mean, it was a really an amazing quarter for Itero. So you have world, leading technology and Itero and with our five D. launch it wasnt available in the United States, It's not yet we're still working through the FDA, but in other parts of the world. It hasn't made available we're seeing.
Both portfolios and dental dentist or.
General practitioners are really interested in that product line. Two we have good salesforce combined with our Taro Salesforce, it's direct but also with our Invisalign salesforce to and.
More and more as it's no secret that dental is going digital.
To start the whole digital piece the front end of it is a scanner having that kind of technology. We have its itero you can see in some of the statistics that I mentioned in my opening.
13.7 billion scans done I think you know 3.8 that were done for restorative scans, meaning they had really nothing to do for the most part with Invisalign in that sense kind of shows you the versatility that product line too so.
So those areas are very you know are very strong in the area talked about Doc training. We did have some terrific numbers across all geographies for the quarter. That's always a strong leading indicator of docs interest in future Invisalign cases, it breaks down differently by different regions or how fast will go but as an overall no signal in the sense of what's in front of us and the interest from a doctor standpoint, the Doctor training thing is good I'm glad you picked up on it.
Thank you.
Our next question comes line of Steven Valiquette from Barclays. Please proceed with your question.
Hi, Thanks, good afternoon everybody.
So.
Hi, guys, so not to get too granular on what transpired over the past three four months, but just coming back to the June quarter case volume for a moment.
I guess when you guys provided guidance for Twoq, obviously that was in late April you. Then you guys read a lot of conferences through mid June that you on that with the message and everything seemed okay. I guess I'm just wondering if most of these negative pressure points hit you maybe late in the quarter and in the month of June in particular, and when we come back to your comment that in North America, you are seeing improving trends in the first few weeks of Q3 are you just comparing July to June in particular, just curious to kind of getting a little more color of how things kind of transpired throughout the quarter as we think about some of these.
Pros and cons and that results. Thanks.
Hey, Steve you know not like you said not to be over granular, though I think China by far was one where you know when you've got the June in all it was more difficult than what we had anticipated.
Our China team has terrific too so you to count on these guys to be able to deliver toward it and then for a quarter and we see that time and time again, it just didnt materialize and that consumer sentiment piece became more and more visible to US you know as we got through the quarter in that way.
In North America, I would say in general we're good with the teen volume was up 24% same as what we had in the.
In the previous quarter up 24% to so there wasn't really a teen issue from a North America standpoint.
But we did see some slowdown as we went into the quarter also as you think about July in general and we talk about that increase we're not just comparing it to June we're talking about the entire quarter. The first quarter, the first and second quarters and what we look at when we talk about that increase we would mention it.
Okay, Great and I appreciate the extra color. Thanks.
Yes. Our next question comes line of Michael Risking from Bank of America Merrill Lynch. Please proceed with your question.
Hey, guys. Thanks for squeezing me in.
Quick one on the following quarter and then one just to follow up again on something that Steve just touched on with the last one.
For starters for Threeq you. If you just sort of look at your commentary on international.
Sequentially down with the China pressures could use North America, even if you account for the.
2%.
Impact you have to be Q last year.
It seems like it's a pretty aggressive Cott North America outlook I'm, just wondering how much conservative as bill for that especially since your point on improving trends in the first part of July I guess I'm, saying is.
It wasn't really kitchen sink guide or sort of what's your outlook there.
Mike. This is John it really is there is no change in how we how we guide we look at a lot of factors and and understanding of the market being a few weeks into the quarter.
So were no change in terms of how we guide we're just trying to.
Put the pieces that we see and as we mentioned with QQ we had.
Some slowdown primarily China in in June and we want to be.
Reflective of what we see so no change in how we guide we gave our best estimate at a point in time and that's what we've done.
All right I appreciate and a quick follow up again just go into the.
Sort of the bridge into Q if you.
If you look at where international came in versus expectations.
It may have been a little bit light, but if you look the majority of the Delta was actually in North America, and especially on your comments on just June softness in China, We know roughly how big your China businesses for you. So it shouldn't have been that meaningful of an impact, especially if it was only one month dynamic so is there anything going on.
Outside of China, I mean is there anything that you can comment on in terms of your local presence. There you know you've got the manufacturing site built out you've got some of your other facilities that you are establishing there.
Any other dynamics in play besides just the June consumer sentiment.
No nothing that we that we saw out of the ordinary Mike It was.
We looked at the demand that we saw some of the.
The pressure that we saw in June .
But it was it was around the consumer sense sentiment.
Like Joe said that China team delivers quarter after quarter. So.
We have felt very confident that we've got a great business. There in terms of the investments that we've made in treatment planning and and now manufacturing and training centers and so on so we're continuing to invest and grow just calling a number that that we see.
Thanks, Mike operator, well take one more question. Please.
Our next question comes line of Nathan Rich from Goldman Sachs. Please proceed with your question.
Thanks for fitting me in.
John I actually just had a question on the ASP outlook and how we should be thinking about that sequentially.
And as you look going forward.
Do you have any change in kind of promotional activity or discounts kind of baked into how youre thinking about.
Where ASP trend from here.
Yes.
When we think about ASP is and really what we saw at the end of <unk>.
We guided for at the end of last year was essentially flat Asps. We have we have puts and takes as as you know with our business between international growth and and comprehensive versus non comprehensive, but what we've seen through this year and and our our Q3 guide is consistent to the fact that notwithstanding FX, we expect it to be about flat as we go through so.
We have puts and takes to it but from an overall ASP that.
That is flat and the promotions that that we have like we have every quarter.
No different in terms of how were thinking we're trying to drive increased utilization trying to drive growth in our business and.
Promotions continue as usual.
Okay I appreciate that.
And then just with the case guidance for Threeq Q.
Is it possible to just kind of give us a sense in terms of orders of magnitude in the step down in the growth rate you know how much was from the slowdown that you saw in China versus maybe a more competitive environment in North America, just as we think about.
The relative impact of those factors.
Yes, they'd most most of what we saw it.
That slowdown or the the guidance that we gave was related to China.
Like you said we saw this in June .
And Thats, a reflection of how weve guided so the majority of that was related to China.
Great. Thanks, a lot.
All right. Thanks, Nate and thank you everyone for joining US. This concludes our conference call. Today. If you have further questions. Please contact myself for Madeleine I'll make an investor relations.
Thanks, and have a great day.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.