Align Technology Inc
NASDAQ:ALGN
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Align Technology Inc
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Greetings and welcome to Align Technology's Third Quarter 2021 Earnings Conference Call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Shirley Stacy, Vice President of Corporate Communications. Thank you, you may begin.
Good afternoon, and thank you for joining us. Joining me today for our conference call is Joseph Hogan, President and CEO, and John Morici, CFO. We issued third quarter 2021 financial results today via GlobeNewswire, which is available on our website at investor. aligntech.com Today's conference call is being audio webcast and will be archived on our website for approximately 1 month. A telephone replay will be available today by approximately 5:30 PM Eastern Time through 5:30 PM Eastern Time on November 10th. To access the telephone replay, domestic callers should dial 877-660-6853 with conference number 13723267 followed by [Indiscernible]. International caller should dial 201-612-7415 with the same conference number.
As a reminder the information provided and discussed today will include forward-looking statements, including statements that aligns future events and product outlook. These forward-looking statements are only predictions and Involve risks and uncertainties described in more detail in our most recent periodic reports filed with the Securities and Exchange Commission available on our website and@scc.gov. Actual results may vary significantly and align expressly assumes no obligation to update any forward-looking statements.
We have posted historical financial statements, including the corresponding reconciliations on our -- on our GAAP -- of our GAAP and non-GAAP reconciliation if applicable. And our third quarter 2021 conference call slides are on our website under Quarterly Results. Please refer to these files for more detailed information. With that, I'd like to 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 third quarter, then briefly discuss the performance of our 2 operating segments, system services, and Clear Aligners. John will provide more detail on our financial results and discuss our outlook. Following that, I'll come back and summarize a few key points and open the call to questions. I am pleased to report strong third quarter results with revenue growth of 38.4% year-over-year on top of a record third quarter last year, driven by the strength across all regions, customer channels, and products.
For Q3 we shipped to a record 85,500 doctors in the quarter and reached 11.6 million Invisalign patients cumulatively. On a sequential basis, Q3 results reflect continued adoption of iTero scanners and increased utilization of Invisalign Clear Aligners in the Americas and APAC regions, as well as the growth in teen segment, especially in the North America orthodontics channel. Our third quarter revenues reflect a growing confidence of doctors and patients with Invisalign treatment, iTero scanners and Exocad software, as more doctors discover the benefits of digital treatment and transform their practices with the Align Digital Platform.
For Q3, Systems and Services revenues were up 57.3% year-over-year, with strong revenue growth across all regions, and up 5% sequentially, primarily in North America. Q3 results reflect the continued adoption of iTero Element 5D Plus Series, our next-generation scanners and imaging system, which launched earlier this year and feature innovative technology like Near Infrared technology we call NIRI, which aid in detection and monitoring of interproximal caries lesions or cavities above the gingiva without harmful radiation. For Q3, Clear Aligner revenues were up 34.9% year-over-year, with strong revenue growth across all regions and across the portfolio, including comprehensive and non-comprehensive products, as well as Invisalign moderate and Invisalign Go.
On a sequential basis, Q3 Clear Aligners revenues were down very slightly from record Q2 reflecting more pronounced summer seasonality than last year, especially in EMEA, were practices and patients appear to have taken extended holidays and where offices were impacted due to resurgence of COVID-19 cases and restrictions especially in some markets in Asia-Pacific. And the team segment Q3 '21 Invisalign Clear Aligner volumes for teens were strong, up 13.8% sequentially, and 26.6% year-over-year to a record 206,000 teens, representing approximately 1/3 of total cases shipped, with strong shipment growth from North American orthodontists and a record quarter for teen and APAC.
Our third quarter revenues also include non-case revenue for clinical training and education, and doctor prescribed retainer products. Retention is a critical part of creating and maintaining a beautiful new smile. Retainers prevent teeth from gradually shifting back to their initial positions after treatment ends. Studies show that without retention, even perfectly aligned teeth can gradually revert to their pre -treatment state. And that dentition continues to change as patients age, often requiring limited treatment, also known as touch-up treatment, if not properly retained. Our retention products are designed to maintain teeth that have been aligned by Invisalign Aligners, braces, or other aligners. These retainer products can accommodate lingual bars, wires, also known as a permanent retainer, missing teeth that require an artificial tooth, and bite ramps, also known as turbos or blocks.
While our retainer business continues to deliver solid revenue growth, our share of retention market is significantly under-penetrated. Even more so than in our share of the orthodontic case starts. We've been developing a robust retainer strategy, including a separate marketing team focused solely on driving adoption, and increasing market share in the United States.
Our objective is to build brand awareness for Vivera retainers, and driving engagement with doctors through clinical education and sales initiatives, while connecting consumers to doctors through demand creation programs and our concierge service. We've also recently implemented social media campaigns featuring the benefits of Vivera from the makers of Invisalign Clear Aligners. We believe that incremental investments will provide increased value for Invisalign practices, and drive growth consistent with our long-term financial model target.
In addition, we successfully rolled out a limited pilot program to participate in Invisalign Providers in the United States and Canada, that offers a monthly targeted subscription program to address the unmet patient demand for retention or touch-up cases. Our goal is to encourage experienced high-volume Invisalign practices, who regularly treat patients with our comprehensive products to offer premium retention or entry-level products for the long-term health of their patients, and to grow their businesses. Practices in this pilot program can purchase a monthly subscription at a fixed price, based on their monthly needs for retention or limited treatment. The program allows doctors the flexibility to order both touch-up or retention Aligners with their tier subscription.
The program is designed for a segment of experienced Invisalign doctors, who are now regularly using our retainers or low stage Aligners. The positive feedback from our doctors have been encouraging. For instance, the doctors at [Indiscernible] told us the program is very straightforward and easy to understand, and they've been hoping Align would do something like this. Doctor Jonathan Nicozisis at Princeton Orthodontics called the program a home run.
We went on to -- he went to predict it should replace the idea that doctors invest in 3D printing and the additional complications and expenses it requires. Including the need for a full-time employee and additional overhead costs, particularly because he believes h is treatment outcomes are always better with Align. Q3 non-case revenues also included accessories and consumables such as aligner cases called Clam Shells, cleaning crystals, and other oral health products that are available on our e-commerce channels in the U.S. only, including the Invisalign accessories store, Walmart, and Amazon.
In Q3, we announced an exclusive supply distribution agreement with Ultradent Products, Incorporated, a leading developer and manufacturer of high-tech dental materials, devices and instruments worldwide. The Invisalign Professional whitening program powered OpEx essence is optimized for Invisalign aligners and Vivera Retainers and is available only through Invisalign trained doctors. Also in Q3, we launched the Invisalign whitening pen through an e-commerce channels in the U.S. only. The whitening Pen is over-the-counter retail product for consumers seeking quick tooth whitening at a lower price and is not intended to be used with aligners. The whitening Pen complements the other accessory products that Align already marks to consumers through its existing e-commerce channels and is a key addition to our consumable product portfolio.
Now let's turn to the specifics around our third quarter results, starting with the Americas. With Americas, Q3 results reflected strong performance, including record revenues for Latin America, as well as summer seasonality for adult case starts in North America that primarily impacted GP practices, strong ortho performance, especially in the teen market that included increased utilization from the orthodontic channel.
Invisalign Case volume was up 0.7% sequentially, and up 36.4% year-over-year, reflecting growth across the region especially in Latin. DSO utilization continued to be a strong growth driver as well, led by Heartland and Smile Docs. For our international business, Q3 Invisalign case volume was up 27% year-over-year on top of record growth in the same quarter last year. On a sequential basis, international shipments were down sequentially 4.3%, primarily as a result of greater seasonality in COVID related shutdowns in APAC markets.
For EMEA, Q3 Invisalign case volumes were up 49.6% year-over-year, with broad-based growth across all markets led by the U.K. and Iberia, along with continued growth in our expansion markets in Central and Eastern Europe and the Benelux. For Q3 year-over-year Invisalign volume in EMEA was driven by increased submitters from both orthodontics and GPEs and increase utilization primarily from orthos. On a sequential basis, EMEA was down sequentially 60.5% following a record Q2, primarily as a result of the extended seasonality we had anticipated, primarily from summer holidays and vacations across the region. For APAC, Q3 volumes were up 4.2% compared to a record Q3 last year in APAC. On a year-over-year basis, growth was uneven. The market as APAC, the first region to emerge from the depths of the COVID lockdown in 2020.
Additionally, we saw COVID resurgences and lockdowns sporadically impact various APAC countries in Q3. On a sequential basis, Q3 Invisalign volumes were up 21.2%, reflecting growth across the region led by a record quarter in China, especially from teen cases, as well as strong growth in Japan, and A&G. In Q3 growth from both channels was strong with ortho growth driven by increased Invisalign utilization and cheapy growth, channel growth driven by increased Invisalign submitters. APAC teen shipments reached an all-time high in Q3, at the recent 10th China Finance Summit Awards, Align was recognized as the 2021 most innovative enterprise for its advancements and outstanding contributions in the field of Digital orthodontics.
This award builds on our prior recognition of Align's leadership in the digital orthodontics industry and its efforts to promote the modernization of orthodontics. Our consumer marketing focuses on educating consumers about the Invisalign system, to drive demand to Invisalign doctors offices, ultimately capitalizing on the massive market opportunity to transform 500 million smiles. In Q3, we expanded a next-generation of the Invis Is media campaign across EMEA, APAC, and Brazil to increase awareness with adult, mom, and teen consumers.
Globally, we delivered 6.45 billion impressions, growing 42% year-over-year, resulting in a 70% year-over-year increase in unique visitors to our websites. In the U.S., we connected with teens on Snapchat, YouTube, and Twitch, with our Invis is Not Your Parents Braces campaigns. These campaigns continue to feature some of the largest teen influencers from our Invisalign SmileSquad, like Charlie D'Amelio, Marci Martin, Michael Leon Collins, and Devin Key.
These influencers share their personal experience with Invisalign treatment, including why they chose Invisalign treatment to shape their smiles. As part of our focus on teens, with our Invisalign teens makers program, we hold a recognition event hosted by Marcel Martin with teens across the country to celebrate and recognize 100 teens across the country who drove positive change within their communities. To continue growing for our young adult businesses, we expanded the Invis is a powerful thing campaign, which highlights how powerful the smile transformation with Invisalign treatment can be for their self confidence.
In U.S we expanded our Invisalign smile squad to include young adult influencers such as Cody Rigsby, Lana Candor, and Emily Hampshire, who help to deliver over 405 million impressions. Additionally, our influencer partnerships with TikTok creators helped increase traffic to our sites, with a 127% increase in click-through rates. In Brazil, we launched the Invis is a Powerful Thing campaign, and teamed up with mega influencer [Indiscernible] to increase website traffic by 30%.
In the EMEA region, we expanded into new media channels such as TikTok and Snapchat across the UK, Germany, and France to drive engagement. These efforts led to more than a 153% increase in unique visitors. We also started consumer advertising in Russia, which resulted in more of a 1000 increase in unique visitors to our website.
In Q3, we continue to expand our consumer advertising across the APAC region, experienced a 132% increase in unique visitors to our websites. And Australia, we expanded our media mix to include partners such as TikTok and Snapchat. Which resulted in 250% -- 250% growth year-over-year in unique visitors to our website. In Japan, we continue to see a strong response from consumers to our [Indiscernible] campaign, resulting in more than an 800% increase year-over-year in unique visitors to our website. Adoption of our consumer in patient app, my Invisalign continued to increase in Q3 with 1.2 million downloads to date.
Usage of our 4 digital tools also continued to increase. For example, our Invisalign virtual appointment tool was used over 15,000 times and our insurance verification feature was used 14,000 times in Q3. Furthermore, we received more than 1.5 million patient photos in our Virtual Care feature today globally, which continues to provide us with rich data to leverage our AI capabilities and improve our services for doctors that is used to enhance their patients care. For our systems and services business, Q3 revenues grew 57.3% year-over-year, reflecting strong scanner shipments and services, and was up 5% sequentially.
This is the fifth consecutive quarter of sequential revenue growth for our systems and services business. The iTero Element 5D Plus Imaging system continued gaining traction across all regions, with the most recent launch in Japan in Q3. The iTero Element 5D Plus Imaging System will be available in China in Q4 of this year. Additionally, The iTero Element Plus Series was launched in Korea in Q3.
The series expands the portfolio of iTero Element Scanners and Imaging Systems to include new solutions that serve the needs of a broader range of doctors and patients in the dental market. Moreover, I'm proud to say that in a recent clinical study, the iTero Element 5D Intraoral Scanner was found to be more sensitive than bitewing radiology. in detecting early enamel lesions, providing further evidence of the benefits of iTero 5D Scanner in detection and monitoring of interproximal caries lesions or cavities above the gingiva, without exposing patients to harmful ionizing radiation.
This is great news for our iTero business, as a study further supports the diagnostic ability of Near-Infrared imaging technology offered by the iTero 5D Scanner for early proximal caries detection. The findings also underscore the valuable role that NIRI technology can have in dental health assessment and early detection of cavities, which is important to the overall oral healthcare treatment options. And a comfortable, safe experience for a broad population of patients.
A strong indicator of the digital acceleration with dental offices is a number of intraoral digital scans used for Invisalign case submissions. Total worldwide intraoral digital scans used to start an Invisalign case in Q3 increased 84.2% from 78.3% in Q3 last year. International intraoral digital scanners for Invisalign case submissions increased 79.3% up from 72.1% in the same last year. For the America's, 88% of cases were submitted using an intraoral digital scan compared to 83.2% a year ago.
Cumulatively, over 44.9 million orthodontics scans and 9.3 million restorative scans have been performed with iTero scanners. Our Q3 systems and services revenues also includes Exocad, CAD CAM products and services. Exocad expertise -- expertise in restorative dentistry, implantology, guidance surgery and smile design, extends our digital -- our digital dental solutions and broadens Align digital platform towards fully integrated into disciplinary and workflows, we remained excited about our continued integration progress and product plans with Exocad. During the quarter, Exocad launched, chair-side CAD 3.0 Galloway.
The next-generation of Exocad, easy-to-use CAD software for single-visit dentistry. The software has improved automation for fast crown design enables users to integrate open hardware and material s of choice. Exocad, chair-side CAD received 2021 seller best-of-class technology award for the third consecutive year. Also during the quarter, Exocad has its largest ever presence at IDS, International Dental Show, where they showcased their seamless digital workflows, and the simplicity of the use of Exocad Galway software release.
Exocad was the only Company at IDS to showcase live patient treatment with a smile creator experience station, featuring iTero scans, instant smile makeovers, and production of clip on smiles. With that, I will now turn it over to John.
Thanks, Joe. Now for our Q3 financial results. Total revenues for the third quarter were $1.016 billion, up 0.5% from the prior quarter and up 38.4% from the corresponding quarter a year-ago. For Clear Aligners, Q3 revenues $837.6 million were down 0.4% sequentially, and up 34.9% year-over-year, reflecting Invisalign volume growth across all geographies. In Q3, we shipped 655,100 Invisalign cases, a decrease of 1.6% sequentially with an increase of 32.1% year-over-year. In addition, we shipped to a record 85,500 Invisalign doctors worldwide, of which approximately 7200 were first-time customers.
Q3 Clear Aligner revenues reflect strong growth across the Invisalign portfolio, led by comprehensive products. Q3 comprehensive volume increased 1.3% sequentially, and 30.3% year-over-year. And Q3 non-comprehensive volume decreased 8.1% sequentially, and increased 36.8% year-over-year. Q3 adult patients decreased 7.3% sequentially, and increased 34.7% year-over-year.
In Q3, teens or younger patients increased 13.8% sequentially and 26.6% year-over-year. Clear Aligner revenues were unfavorably impacted by foreign exchange of approximately $1.5 million or approximately 0.2 points sequentially. On a year-over-year basis. Clear Aligner revenues were favorably impacted by foreign exchange of approximately $16.1 million or approximately 2.6 points. For Q3 Invisalign comprehensive ASPs increased sequentially and year-over-year. On a sequential basis, Invisalign comprehensive ASPs reflect higher additional aligners.
On a year-over-year basis, comprehensive ASPs reflect favorable foreign exchange, partially offset by the increase in net revenue deferrals for new Invisalign cases versus additional Aligner shipments. Q3 Invisalign non-comprehensive ASPs increased sequentially and year-over-year.
On a sequential basis, Invisalign non-comprehensive ASPs reflect higher additional Aligners, partially offset by higher discounts. On a year-over-year basis, Invisalign non-comprehensive ASPs were favorably impacted by foreign exchange, higher additional Aligners, and lower discounts. Clear Aligner deferred revenues on the balance sheet increased $84 million or 9.3% sequentially, and $347.3 million or 53.9% year-over-year, and will be recognized as the additional Aligners are shipped.
Our Systems and Services revenues for the third quarter were a record $178.3 million, up 5% sequentially, and up 57.3% year-over-year. This marks the fifth quarter in a row of sequential revenue increase. The increase sequentially can be attributed to increased scanner shipments, and increased services revenues from our larger installed base. The increase year-over-year can be attributed to increased scanner shipments, increased service revenues from our larger installed base, as well as higher ASPs from a favorable mix shift towards higher price iTero 5D scanners and imaging systems.
Our systems and services deferred revenue on the balance sheet was up $27.2 million or 17% sequentially, and up $100.1 million or a 115.2% year-over-year, primarily due to the increase in scanner sales and deferral of services revenue, which we recognized ratably over the service period. Moving on to gross margin. Third quarter overall gross margin was 74.3% down 0.7 points sequentially, and up 1.6 points year-over-year.
On a non-GAAP basis, excluding stock-based compensation and amortization of intangibles related to our 2020 Exocad acquisition, overall gross margin was 74.7% for the third quarter, down 0.7 points sequentially, and up 1.4 points year-over-year.
Overall, gross margin was favorably impacted by approximately 0.5 points on a year-over-year basis, due to foreign exchange and relatively unchanged sequentially. Clear Aligner gross margin for the third quarter was 76.2%, down 0.7 points sequentially due to higher manufacturing costs, and higher additional Aligners, partially offset by higher ASPs and lower freight. Clear Aligner gross margin was up 1.5 points year-over-year due to improved manufacturing efficiencies from higher production volume, partially offset by higher ASPs.
Systems and services gross margin for the third quarter was 65.6% down 0.3 sequentially, primarily due to lower ASPs and higher manufacturing variances, partially offset by higher service revenue. Systems and services gross margin was up 3.6 points year-over-year due to higher ASPs from product mix shift to iTero 5D and 5D Plus series and service revenues, partially offset by higher freight costs.
Q3 operating expenses were $494 million up sequentially, 0.9% and up 38.4% year-over-year. On a sequential basis, operating expenses were up slightly by $4.4 million. Year-over-year, operating expenses increased by $137 million, reflecting increased headcount in our continued investment in marketing, sales, and R$D activities. and invents -- investments commensurate with business growth. On a non-GAAP basis, excluding stock-based compensation, and amortization of intangibles and acquisition costs related to our 2020 Exocad acquisition, operating expenses were $466.1 million up sequentially 1% and up 40.3% year-over-year due to the reasons described earlier.
Our third quarter operating income of $261.1 million resulted in an operating margin of 25.7%, down 0.9 points from the prior quarter, and up 1.6 points year-over-year. The sequential decrease in operating margin was attributable primarily to lower gross margin. The year-over-year increase in operating margin was primarily attributed to higher gross margin and operating leverage, as well as the favorable impact from foreign exchange by approximately 0.7 points, partially offset by continued investment as mentioned earlier.
On a non-GAAP basis, which excludes stock-based compensation and amortization of intangibles and acquisition-related costs, the operating margin for the third quarter was 28.8%, down 0.9 points sequentially, and up 0.8 points year-over-year. Interest and other income and expense, net for the third quarter was a gain of $0.8 million up sequentially by 0.9 million and down year-over-year by $6.6 million.
On a year-over-year basis, interest and other income and expense decreased primarily due to net foreign exchange losses in the 3 months ended September 30th, 2021, as compared to net foreign exchange gains in the same period in 2020, which was partially offset by an unrealized gain and an investment held in a private Company recognized in the three months ended September 30th 2021. The GAAP effective tax rate for the third quarter was 30.9%, compared to 25.7% in the second quarter, and 24.5% in the third quarter of the prior year. On an non-GAAP -- our non-GAAP effective tax rate was 22.2% in the third quarter, compared to 19.5% in the second quarter, and 16.6% in the third quarter of the prior year.
The third quarter GAAP and non-GAAP effective tax rates were higher than the second quarter, primarily due to our foreign income being taxed at different rates and tax true-ups. Our GAAP and non-GAAP third quarter effective tax rates were higher than the third quarter of the prior year, primarily due to lower tax benefits from foreign income tax at lower rates and a tax benefit recognized last year resulting from an income tax audit settlement.
Third quarter net income per diluted share was $2.28, down sequentially $0.23 and up $0.52 compared to the prior year. On a non-GAAP basis, net income per diluted share was $2.87 for the third quarter, down $0.17 sequentially and up $0.62 year-over-year. Moving onto the balance sheet. As of September 30th, 2021, cash and cash equivalents were $1.2 billion, up sequentially $151.5 million, and up $622.3 million year-over-year. Of our 1.2 billion of cash and cash equivalents, $607.5 million was held in the U.S., and $630.3 million was held by our international entities.
Q3 accounts receivable balance was $855 million, up approximately 5.8% sequentially, our overall days sales outstanding was 75 days, up approximately three days sequentially, and down approximately two days as compared to Q3 last year. Cash flow from operations for the third quarter was $355 million. Capital expenditures for the third quarter were $124.3 million. As we continue to invest in increased in the liner capacity and facilities. Free cash flow defined as cash flow from operations, less capital expenditures amounted to $230.7 million. We also have $300 million available under our untapped revolving line of credit.
Under our $1 billion repurchase program announced in May of 2021, we have $825 million remaining available for repurchase of our common stock. Now let me turn to our outlook and the factors that inform our view for the remainder of the year. We're very pleased with our Q3 results and strong year-over-year growth, which reflects continued customer adoption of the iTero scanners and increased Invisalign utilization across customer channels, including teens, adults, and young patients.
Over the last 18 months, our investment decisions have helped drive and capture demand across all regions and customer channels. We continued spending in many areas, and have seen good return on our investments and strong revenue growth.
Consumer interest in improving smiles is high, and doctor acceptance into Align Digital Platform is helping drive growth across all regions and market segments. As anticipated in our Q3 outlook, we experienced more pronounced summer seasonality, more noticeably in September and continued into October as practices took more extended vacations, and patient traffic low was sporadically interrupted by regional COVID resurgence, restrictions, and other lockdowns. We anticipate these COVID challenges and the general macroeconomic uncertainties to continue into Q4.
Taking this all into account, as we look at the remainder of 2021, we expect revenues for the year to be in the range of $3.9 billion to $3.95 billion, at the high end of our original guidance range. We also expect our outlook in revenue growth for the second half of 2021 to be in the high end of our long-term operating model of 20% to 30%.
On a GAAP basis, we anticipate our 2021 operating margin to be around 25%. On a non-GAAP basis, we expect 2021 operating margin to be approximately 3 points higher than our GAAP operating margin, after excluding stock-based compensation and intangible amortization from our 2020 Exocad acquisition. We remain confident in the huge market opportunities for our business, our industry leadership, and our ability to execute.
We will continue to invest in sales, marketing, innovation, and manufacturing capacity to drive our growth and accelerate adoption in a huge under-penetrated market. In addition, during Q4 2021, we expect to repurchase up to $100 million of our common stock through either a combination of open market repurchases or an accelerated stock repurchase agreement.
For 2021 we expect our investments in capital expenditures to be above $400 million. Capital expenditures primarily relate to building construction improvements, as well as additional manufacturing capacity to support our international expansion. This includes our planned investment in our new work -- our new facility in Wroclaw, Poland, the first in the EMEA region. With that, I'll turn it back over to Joe for final comments. Joe.
Thanks, John. Summary, Q3 was a strong quarter and we're pleased with our performance across the business. Align is uniquely positioned. We have a clinical capability and product portfolio supported by doctor and patient workflows only accessible through the proprietary Align Digital Platform, to address the broadest range of orthodontic cases with the Invisalign system through a network of trained Invisalign doctors who had the expertise to reach more than the 500 million potential global patients.
As we develop our annual plan for 2022 over the next few months, it's important that we continue to expand our commercial manufacturing, R&D clinical treatment planning and manufacturing operations, and continue to leverage our global quality and regulatory muscles in existing and emerging markets. Which millions of consumers who want to transform their smile with the most advanced Clear Aligner systems in the world.
Through advertising, PR, digital, social media, and influencer marketing to drive demand and conversion through Invisalign trained doctors. Increased ortho adoption and team utilization of Invisalign treatment, and train and educate GP Dentist on how the iTero Element family of inter-oral scanners in imaging systems propel today's dental practice into the future by enhancing patient experience and elevating clinical precision, and in the benefits of digital dentistry with the Invisalign system, trusted by more than 11 million people worldwide to improve their smiles.
Remained focused on strategic execution, accountability, agility, customer service excellence, and continuing to make investments to grow our business. This is a multi-variable equation that we continue to talk about, and that in combination where we remain uniquely able to offer.
As we continue to stay the course with our strategic initiatives, we also continue to navigate the COVID-19 environment and the challenges and uncertainty that go with it. Throughout the pandemic, our top priority has been consistent. The health and safety of our employees and their families, doctors and their staff. And that has not changed. The situation with COVID remains very fluid, and with the rise of the Delta variant, many cities, states, and countries have issued or planned to issue new guidance, including mass requirements, regular testing, capacity limits, and vaccination mandates.
Operating in this evolving environment is challenging for everyone, and we're staying as close as we can to the situation. The shift from traditional analog wires and brackets to a fully end-to-end digital platform is not easy and cannot be done without very complex and industry-leading technology, and talented passionate people. But the digital transformation in orthodontics is inevitable. Our technology is prevalent, touching every aspect of what we do from manufacturing excellence, where we currently produce over 750,000 unique Aligners a day, to expanding our geographic footprint to over a 100 markets, to building a network of over 210,000 trained Invisalign doctors, and providing a technology to our doctors and a complete digital system, the Align Digital Platform.
As the inventor of the leading Clear Aligner system, we've been investing in this therapy for over 24 years to get it to where it is today, and yet the majority of the market opportunity remains largely untapped. with over 500 million potential cases starts globally. Align is in a rare position to address this market with the Align Digital Platform, powered by two decades of research and development, manufacturing excellence clinical data based on more than 11 million patients, with AI machine learning and digital tools to help our doctors efficiently communicate with our patients, show and explain any issues and visualize potential treatment options.
And together with doctors, we're going to unleash the power of digital for dentistry in orthodontics more than ever. Thank you for your time today. I look forward to speaking with you on Friday at our Investor Day where we'll share more details on the Align Digital Platform and our vision and strategy to make Clear Aligner treatment available to everyone through doctors. Now I will turn the call over to our operator for your questions. Operator?
Thank you. At this time, we'll be conducting a question-and-answer session. [Operator instructions]. We ask that you please limit to 1 question and 1 follow-up. [Operator instructions]. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Our first question comes from Nathan Rich with Goldman Sachs. Please proceed with your question.
Hi, good afternoon. Hey, Joe. Joe and John, you highlighted the seasonal softness in September and that extended into October. I wonder if you could maybe just provide a little bit more detail on what you've seen in October so far, maybe how that compared to September. And then as we've seen the latest COVID case spikes subside in recent weeks, have you seen -- the patient traffic flow that you mentioned, has that started to pick up as COVID cases have ticked down?
Yes. Hi, Nate. This is John. As we said, the extended seasonality continued into September and October. And then some of the COVID uncertainty still remains. And some places more back to normal than others, and -- but that uncertainty remains. Taking all that together, our forecast reflects that. So the total year -- the remaining for total year reflects everything that we've seen to this date.
Okay. That's fair, I guess. Joe, maybe a follow-up. I mean, you've continued to have confidence in that 20% to 30% long-term range. Maybe we'll hear more on Friday at the Analyst Day. But do you have an initial view on growth for next year, and do you feel like once this period of more pronounced seasonality is behind you, we get back to a more normalized trajectory for the business as we head into next year. Thanks for the questions.
Well, Nathan we are growing at a pretty good pace right now. So it's actually above our long-term growth model, which is 20% to 30%. And as we move into 2022, we'll retain that 20% revenue growth target, and we're happy to discuss it more in detail on Friday.
Thanks, Nathan. Next question, please.
Our next question is from John Block with Stifle. please proceed with your question.
Thanks, guys. Good afternoon. John, I just might follow in Nathan's path, but let me take a different approach. The new rev range that you gave for this year, you clearly brought it up a little bit, it seems to imply a bit over a billion dollars for the fourth quarter. If I assume the scanner up sequentially from the 178, and 55 million - ish give or take in non-case revenue. And it looks like case volume is expected to be flat to maybe even down low-to-mid-single-digits sequentially. So a couple of things there, is that the right way to think about things specific to case volumes? And if so, I know you touched on this a little bit, but why sort of the different trend line versus prior to COVID, if you would, where that was more up mid-single-digit plus?
Yeah, Jon. I think when you look at prior years with COVID not in the mix, things were maybe more seasonal. And you could see some of the standard patterns from let's say a Q3 to Q4, given COVID and given some of the uncertainties that you have. And certain economies and how they are responding and opening up, Things don't always apply to mainly what's happened in the past. So that guidance that we gave is a reflection of what we've seen.
Okay. Got it. And Joe, just a follow-up, we keep on hearing about the iOS changed from Apple on privacy and you guys have such a broad reach in terms of marketing. But I am curious if you're seeing any impact? Is it impacting leads? Yes or no, and if so, could that actually continue into 2022? We'd love your feedback there. Thanks.
John, it's a good question we've seen an impact on it. The thing is a lot of other media you can -- you can pivot to in order to find those patients. So have we seen it and have we had to do a certain amount of pivot to do that? Yes. But you know as far as our marketing efforts, I wouldn't discount them in any way in this sense of that change being material in some sense in the near future.
Fair enough. See you on Friday.
[Indiscernible]
Our next question comes from John Kreger with William Blair. Please proceed with your question.
Hey, guys. Thanks. I'm curious now that you've exited another typical teen season what penetration do you think Invisalign has of total teens starts at this point?
Well, I mean globally -- hey John, it's Joe. Globally, it's less than 5%. When you look at -- we'll show on Friday exactly what we think that is. In United States, I think our current number is the mid-teens. Yes. John, I think that too. We have so far to go, right. This is a superior treatment, like I said in our script, we can do 90% of the orthodontic cases that are out there. It's just us continuing to work really closely with the orthodontist, and advertise to consumers to explain the benefits of digital orthodontics and move this forward.
But like I said, this is inevitable. Digital is better. We know it's better. We've made it better. It's more comprehensive than it was before, it's faster, less invasive. I could go on all day. And that's what drives this Company, that's our purpose. We know we'll hit it. It's just -- there's just a lot of work to get from here to there.
Thanks.That was Joe, that was my follow-up. As you talk to your power users or maybe people that are just getting started. You've made the product better. You made the software better. What do you think is the key point of friction at this point to get that adoption rate up where I think most of us on this call assume it can get to longer-term?
But John, I think it's the classic early adopter syndrome. The doctors who use our product almost exclusively 100% can't imagine not using our product line. But they're early adopters in the classical sense. There's 2 things; 1, there's the clinical confidence people, people that are out there that we have to convince. It's much easier that it is today than it was five years ago. Given products like first giving products like [Indiscernible] those kind of things that extend it. And then the predictability of our products.
Secondly, it's the business equation inside the orthodontic practices that they're convinced they can actually keep up the margins and the growth capability they have for their practices, we understand that. And that's why we have programs like adapt that we put together, John, that orthodontist who want to engage with us we can show them how to really operate in a digital environment and actually exceed from a margin standpoint, and growth standpoint.
Sounds good. Thank you.
Yes. Thanks, John.
The next question comes from Jason Bednar with Piper Sandler. Please proceed with your question.
Thanks for taking the questions and congrats on the record quarter here.
Thanks Jason.
A couple of questions from our side. One big picture. First for you, Joe. One of the key drivers of growth, the past year has been really the adult category outpacing that of teens. It really seemed like heading into this quarter could be the proof-point quarter and whether that growth would flip back to teen, but adult was again stronger than teens here. It seems like some good staying power. So I guess Joe, how do you think about these -- how these 2 segments play out from Here, both obviously have a ton of growth potential, but as the business for Align shifted to where we should be thinking about adult growth, outpacing that of teens. As we look forward to the coming quarters and years?
Yes. Jason, it's a good question, but I think it's -- and you'll hear a lot about it this Friday, is the demand equation on this business is incredible, right. The 500 million patients we've talked about, they'll primarily be serviced at the general dentistry area, and then the over 20 million, that's on the -- in the orthodontics side.
That mean -- that's -- you look at that. It's a wide open marketplace. Adults have done well, teens will do well. I just think you have to have them both go up. And remember their dealer from different basis in the sense of, traditionally, 75% of our cases have been adults and 25% teens, so there is a large number on the adult side, but the growth potential is amazing. And we'll just going to go after both ends of that equation as aggressively as we can.
Got it. Okay, that's helpful. I look forward to more on Friday then. And then maybe some more of a real-time look and also following up on Nate's question there to start out, but asking also a different way. Maybe wonder if you could talk about how utilization trends have gone here month-to-month on a regional basis, September, October, and then maybe based on the treatment plans and missions, other measures of your funnel. What does the utilization look like as we shift from October and November? Thanks.
Yes, Jason, this is John. We've seen some improvements in utilization and it's a reflection of kind of coming out of that seasonality piece of what we've talked about and kind of navigating through COVID. But we've been happy with the utilization that we've seen as of late.
All right. Thanks so much.
Thanks, Jason.
Our next question comes from Elizabeth Anderson with Evercore. Please proceed with your question.
Hi, Elizabeth.
Hi, guys. Thanks so much for the question. I had a question on the gross margin line. I think you guys talked about how you're seeing maybe slightly higher manufacturing costs in Clear Aligners and then lower freight and higher freight in iTero that has other -- the higher freight costs there. So I was just wondering, as we think about some of the global supply chain issues that we've been reading about and hearing about from other companies, if you could just elaborate a little bit on what you're seeing in both of those areas. Thanks.
Hi, Elizabeth. This is John. I can take that. I think when you look at our overall gross margin, broadly impacted as we've talked about. Additional liners, as we now have ramped up and we've seen those cases from the last several quarters as doctors make refinements and get patiently in to make refinements to the care. We see an improvement there in ASPs, but there's some offset in gross margin.
But broadly, when we look at some of the inflationary [Indiscernible] and so on, we have long term contracts, we have got a supply chain where we're driving a lot of productivity and efficiencies through. So, we feel we're pretty well balanced as we see some of these inflationary headwinds, not that it's not a challenge out there for everybody, but we feel that between the contracts we have and the efficiencies we can drive, we balance it.
That's really helpful and maybe I saw that in your outlook, you're obviously talking about around a $100 million in share repurchases in the fourth quarter. But your cash balance is moving up nicely and I was wondering if you could comment on what you see sort of how preferred level of cash balance and if there's any potential for acceleration on the share repurchase line or, things that we should consider in thinking that should be a little bit higher than where it's been traditionally.
Yeah, I think when you look at -- I'm balanced, Elizabet, we're very pleased with the cash generation, almost 900 million of CFOA, 3 quarters of the year. It's phenomenal cash. A lot going back into the business to grow our business, make investments in some of the operating expenditures to grow our business, continue to make investments in capacity and adding capacity, getting closer to our customers.
And then as we've said with our cash, we'll give back to shareholders through repurchase. So we're very happy with how things have progressed. We don't have a magical number in terms of how much cash we should have, but all things in balance. We feel like we're executing to our strategy.
Perfect, thanks.
Our next question comes from Jeff Johnson with Baird, please proceed with your question.
Thanks. Good afternoon, guys. Joe, I wanted to start maybe on system and services, or maybe John this is for you, but where are at, as what portion of that revenue is the recurring services' side as opposed to system sales? And in 4Q, we're still hearing about a decent amount of PPP money floating around. Obviously, you've got the incremental launch coming in China and that of 5D. Should we think of 4Q being a better system quarter sequentially again, just with seasonality there?
Yeah, Jeff, this is John. We've been very pleased with our sequential improvements that we've seen in the systems and services -- in scanner services business. When we look at five quarters in a row of kind of really helping us lead the recovery out of COVID. And a lot of investments that doctors are making -- our doctors are making in the Digital Platform, there's an excellent reflection of that, we have a lot of new doctors that started Invisalign this quarter with us and many of them start with getting an iTero and being able to utilize that within their practice. So we feel very good about the scanner and services business.
About a third of that business is services. So that's the reoccurring. And as we improve and have more of an installed base, that just grows that business. So you got a very big and growing installed base coupled with great products that are really driving that adoption. And especially among newer doctors coming in, they're coming in with that scanner to really incorporate that digital technology into their practice.
Yeah. Understood. And then Joe, maybe bigger picture question just on the return in the chair and what docs are seeing for Clear Aligner and this a line of specialty relative to braces. But we've talked more and more docs just even over the last maybe few months who seem to be really spacing those follow-up visits in Invisalign out to 3 or even 4 months. It's cutting the chair time even in half relative to pre - COVID levels and well below braces.
Are you seeing the same thing? I know virtual is helping that a little bit. I think some docs even doing it without virtual, just given their confidence and outcomes. But how much is that driving the argument in that secular push into Clear Aligner, especially with staffing issues that maybe you guys are hearing about at some of the offices, things like that?
Yeah, Jeff, that's one of the key ingredients, is the productivity of a doctor's time and the productivity of the real estate within that office. And in digital kind of situation, you can remote monitor like you do on Virtual Care, some other products that are out there and doctors are taking advantage of that. But also there's a lot of confidence doctors have too if their patients are using the Aligners they will bring them back every so often and take a look to that. That's a big part of it. Secondly, Jeff, is it -- you can actually work with less labor content, and less doctor content and people in the office.
And also size of the office too. You see a whole lot of orthodontists understanding that, and really embracing it. There's a whole referral aspect to Invisalign, is once a patient has an experience with Invisalign, they are often ready to refer another patient to that doctor much more so than wires and brackets. And they said they benefit from that because they see an increase in their sales too. And we see that constantly and adapt and we focus on that, and can actually predict it to a certain extent of time.
So I hope I'm answering your question, Jeff, but that is the whole idea of Digital. And then we keep talking about our Align Digital capability, and being able to service a doctor through iTero, being -- having Virtual Care on both ends, and having the kind of capability and horsepower that we can provide with our algorithms in the extent of our clinical capability, is just -- it gives us a huge amount of breadth and capability at orthodontist.
Sure. I understood. Thanks, guys.
Thanks [Indiscernible]
Our next question comes from Brandon Couillard with Jeffrey's, please proceed with your question.
Thanks.Good afternoon. I actually want to switch gears, you talked quite a bit about the non-case business and the retainer business. Can you help us understand why your share has historically lagged there? Maybe a sense of what your capture rate is today in terms of the cases that also have a follow-on retainer. And how would you frame the revenue opportunity from these newer initiatives?
Brian, it's a good -- it's why we highlighted it and it's obviously why we've put money into this thing and our focus on it over the last years. There's certain things in this business that we all know, but there's so many things to do and focus on it. Sometimes something it's so obvious like that, lacks the attention that you want to give to it. And we've been talking about this over time. So, beginning of this year, put a team together to really go after those things. It's hard to say the reason why. It's just we haven't been as focused on retention as we need to be. And many orthodontists, they make their own retainers.
They do it because we just haven't been competitive in the sense of how we can deliver, how fast we can deliver, how easy we make it for them. But I guarantee you if you go out Brandon and you query even orthodontist that seldom use our retainers, they'll tell you we make the best retainers in the world. And we should when we make a 750,000 unique parts a day, right? We know what we're doing. The fits are exquisite. When you have an iTero scanner, it'd be able to do that.
And we've set this thing up as a play for doctors that they can feel confident that we'll get these retailers to them in a quick amount of time. They're going to be terrific retainers, something they are proud to really get to their patients. And we've had great feedback on this so far. So I can't apologize for the past or give you the whole history why we haven't done it, but I feel really good about the progress we've made so far.
Fine. And then just a question on scanner business. I mean, pretty remarkable strength for a while now. Can you just help us understand where the sources of this momentum, and is the NIRI study the type of data set that can move the needle with GP that?yield loss? can talk about clinical studies, especially within?Joel's? beginners, but just trying to get a sense of how significant you'll be able to go in and have this data there might be for a GP that doesn't use digital impressioning today, or might be on the fence.
Yeah. I think NIRI really helps. I really do. It's one of those -- you know in electronics we all know there's killer apps, right? Killer applications. When you can see?carriers?, cavities, right? We use the clinical term, but when you can see cavities without ionizing radiation and Brand of what's amazing when you see this to what happens is the enamel almost becomes invisible, it's almost translucent. You can see through the enamel right to where the carriers is. And there's certain amount of training that has to be done in order to do it and -- look, I grew up in ionizing radiation business.
I know what it is and CT and x-ray and it's that radiation component is better today than it used to be, but it's still exist and patients are still concerned with it over time and to be able to do this in a sense, in a safe way, and as a quick way like we do it. You know what it is to put bitewings in a chair. I mean, it's terrible in a dentist chair, right. Bite down, turn your head sideways. I could go through it all day. And this is a quick scan, one minute scan. minute and a half scan. It pops up on the screen. You can have a conversation with a patient, say there it is, what he deals with.
So yes, I think it's a killer application. We'll convince all GPs to buy iTero, no. But then you have to look at Exocad, that critical workflow between labs and GPs really sets us up nicely for restorative pieces. Soon to announce [Indiscernible] architect, which really allows doctors to use restored of Orthodontics as a standard of care, we'll talk about that more Friday. Look, I'm biased. I've been in the -- I'd say the medical imaging equipment business for 15 years of my life count, and iTero, this is the best scanner in the marketplace. And we're just out to show it and to prove it.
Thank you.
Thank you.
Our next question is from Chris Cooley with Stephens, please proceed with your question.
Good afternoon and thanks for taking the questions. Congratulations on the record quarter.
Thanks, Chris.
Just from me as we all start looking forward to upcoming event here this Friday, and Saturday maybe a bigger picture question. As we think about the business you've made significant investments in technology, not only pioneering the category, but expanding its indications for use. You subsequently invested in chair-side, really facilitating the diagnostic aspect. And as the businesses now kind of inflecting here, two straight quarters of a billion dollars plus, do we think about the next stage of investment really kind of going back to a prior question being tools that enable or enhance the productivity of the clinician or patient flow. more to marketing at the consumer and clinical level? I'm just thinking about how the business now pivots for that next stage of continued growth at this greater scale. And I have just one quick follow-up after that, if I may.
Chris, it's really good question, because obviously as we're going through our AOP for next year and putting those things together. But when you say pivot.I wouldn't use the word pivot. I'd say that we extend to what we're doing. And then we place bets accordingly and where we think we'll get the best return. We -- I got to continue advertising. We have a superior system. We have a wonderful brand. We have to leverage that piece. But specifically, and this goes to last questions we had too, doctor productivity is a big deal.
And when you look at our Align Digital Platform, inherently that's what it's about. It's how do you make doctors more productive to make sure that we don't go back and forth with 8 clean checks, or how do we make sure that from our standpoint that we can respond quickly to customer issues. And we're investing heavily in all those things and making good progress. It's expensive, the lot of things that you have to do when you really grounded in software and making those changes. We have really great talent here that knows how to do that. We've been actually working the productivity of clean checking those things for 3 to 4 years. And it's just starting to bring technology to the marketplace. So you're right. We're not pivoting toward that. We've been investing in it, but you'll see the combination of that more and more as we enter next year in the second half of next year too. John, anything to add?
No. I think that's the investments that we continue to make. It's about productivity. It's about growing in this Digital orthodontics, and our doctors expected and our tools will provide that.
That's great. And if I could just squeeze in a quick follow-on, just want to make sure, doesn't look out of proportion, but I just want to make sure we didn't miss something there on the deferred piece in the quarter, I think was approximately 84 million. Anything just COVID-related that we should be mindful of there is that just normal course of business when we look at the deferred revenue component for the 3Q. Thanks so much for wrapping the quarter.
Thanks, Chris.
Thanks, Chris.
It's completely normal course of business, nothing COVID related within there, just deferred revenue that we'll recognize in future periods.
Thanks.
Thanks, Chris.
Our next question comes from Michael Ryskin with Bank of America. Please proceed with your question.
All right. Thanks for taking the question, guys. Couple of quick ones from me, but I'll try to tie them together into one. On the scanners and service revenue, I've noted that your digitally submitted cases continues to grind higher, pretty close to hitting 90%, maybe in a year or 2. I am just wondering as you continue to play iTero into the field, How often are you surplacing a second or third unit, versus getting a new one out there, versus a competitor placement where you're displacing someone else potentially. And then as a follow-on to that, sort of building off of I think Elizabeth question earlier on the supply chain. Any specific to semis that we should be thinking about, this is the question that's come up a lot some of other names, and want to make sure we tie that off as far as it relates to scanners. Thanks.
Hey, Mike. From a scanner standpoint is -- obviously we have a great scanner, and I think your question asked more about saturation, more than anything. Our feeling is you got 2 million dentists out there and orthodontist. And each of them actually, if you're going to run a digital practice, you need more than one scanner, you need a scanner per chair. You think, let's just say the average doctor has three chairs and there's 2 million doctors out there, we're just touching this thing. We got a 50 thousand unit installed base. And obviously this is a growth equation. It's not one where we're looking to playing out in some time, and obviously it's a portfolio insurance over time, because the technology moves fast too. So, it creates some of its own demand through our solar system. John, I'm done.
And from a supply standpoint, obviously, we're mindful of concerns and things that go on from a global supply chain. But we feel comfortable that between the inventory we have and some of the things that we've been able to do that we can manage to, in a supply chain concerns that are out there.
All right. Thanks a lot.
Our next question is from Devin Misra with Birenberg, please proceed with your question.
Hey Devin, Doug here for Ravi from Berenberg. Thanks for taking my question. I want to revisit the marketing side. I think you guys have been ramping up marketing spending and there was a long list of things with very large percentage increases noted earlier. Where are you seeing a higher ROI in regards to marketing? Are there any specific regions? And then also just going back to a question on growth of teens versus adults, if we look at the marketing spend on things that you noted, it seems like a focus is on the teen side, which is indicative that that's where you see more growth and stronger returns. So any color around that and then I have a quick follow-up.
First of all, from a marketing spend standpoint, we really do understand by region our return on investment and what we get. I'm not going to share that over the phone but we're very aware of that and what it is. We also -- when you asked about the teen advertisements, there's a seasonality for teams around the world too. So you'll see like in the quarter we just came out of and the second quarter we were going into, that's teen season.
It's big in China, big in the States. And so you'll see a larger part of our advertising budget go towards that in order to capture that demand. This is part of how we go-to-market. We have a great brand. That brand needs to be enhanced with patients and we want those patients go into doctors asking for Invisalign. We have some very good capability here from a marketing standpoint to exercise that. John?
And what we've learned over time is, we're -- it's not one size fits all across all the markets. You're trying to maximize return on investment and in certain markets you are doing things that are different than others. Maybe more established markets, you try something different. Maybe other markets that we have where we can advertise. we try different things. But I think the key is we understand what levers to pull.
We've learned a lot over the last several years. We're very excited about these opportunities. And as Joe said, we have the best brand -- best global brand out there, and we want to be able to reach those potential patients in the way that they are living their lives. That's the philosophy that we have, and we talked a lot about that front-end at top of the funnel metrics, and we're very excited about what we're seeing as we've gone due to the last several quarters.
Okay, great. And then kind of following up on that direct-to-consumer focus question early on, there was launch of that team -- of teeth whitening solution and hopefully they would go to their Align shops that be litigation with the SCE. it's a focus point there. As we envision where the direct-to-consumer side of Align business goes, how does that teeth whitening solution, and -- how does that fit in? I'm trying to see -- it seems like there's a big push to a dredge consumer with the -- with that side coming up. So any color on that would be helpful.
Well, if your question implies a direct-to-consumer kind of a mode, that's not us, it's not what we do. It's not what -- but you know, we obviously have an e-commerce site. We have a great brand called Invisalign. Patients ask us all the time for whitening, cleansers, chewys, things associated with it. And what is exercising that capability? It's one with the whitening standpoint, we probably should have been more aggressive on before. But again, it's one of those things that we decided to focus on recently. And we're getting great feedback from the doctors in doing that. It only makes sense. It's classic brand extension, and we're going to leverage that and use Align brand as well as we can.
Great, thanks.
Thank you.
We have reached the end of the question-and-answer session. At this time, I'd like to turn the call over to Shirley Stacy for closing comments.
Thank you, Operator. And thank you everyone for joining us today. This concludes our conference call. We look forward to speaking to you again on Friday at the Align 2021 Investor Day, in conjunction with our GP Growth Summit here in Las Vegas. If you have any future questions, please contact Investor Relations. And thank you for your time and have a great day.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.