Align Technology, Inc. (ALGN) Earnings Call Transcript & Summary

Greetings, and welcome to the Align conference call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the call over to your host, Shirley Stacy. Please go ahead.

Good afternoon, and thank you for joining us. I'm Shirley Stacy, Vice President of Corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO; and John Morici, CFO. Today, we issued a press release via GlobeNewswire announcing that we have signed an agreement to acquire global dental CAD/CAM software leader exocad. The press release 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 p.m. Eastern Time, March 4, through 5:30 p.m. Eastern Time on March 18. To access the telephone replay, domestic callers should dial (877) 660-6853 with conference number 13699954 followed by pound. International callers should dial (201) 612-7415 with the same conference number. As a reminder, the information that the presenters discuss today will include forward-looking statements, including statements about our expectations concerning the acquisition and its impact on our business, future events and our expected financial results for the first quarter of 2020. These forward-looking statements are only predictions and involve risks and uncertainties that are set forth in more detail in our most recent periodic and current reports filed with the Securities and Exchange Commission available on our website at sec.gov. Actual results may vary significantly, and Align expressly assumes no obligation to update any forward-looking statement. We have posted corresponding conference call slides on our website. Please refer to these files for more detailed information. With that, I'll turn the call over to Align Technology's President and CEO, Joe Hogan. Joe?

Thanks, Shirley. Good afternoon, and thanks for joining us. I'm very excited to talk to you today about our intent to acquire privately held exocad, the significant opportunity we see for Align with the strategic acquisition. If you're not familiar with exocad, they're a 10-year-old innovative software company based in Darmstadt, Germany, growing approximately 20% annually. Their visionary founders, Tillmann Steinbrecher and Maik Gerth, have cultivated an incredible team of experienced, passionate software developers steeped in restorative dentistry, which enables and enhances the technical skills and software-driven innovation. exocad has a global footprint of over 200 partners and more than 35,000 installed software licenses around the world. Like Align, they are leading the way in the digital transformation of dentistry. exocad is the best-in-class provider of integrated open-source CAD/CAM software solutions for dental equipment manufacturers. Their OEM-branded dental CAD/CAM software is used extensively by dental labs and dental practices. They have one of the largest end user installed base of any lab site CAD software in dentistry. exocad CAD/CAM software has a very strategic role in digital dentistry because restorations flow through their software and workflows. Lab CAD sits at the nexus of digital workflow where upstream imaging devices and downstream production and milling machines must work closely with it to ensure their equipment is seamlessly integrated in order to produce high-quality, high-precision restorations efficiently. There's a significant rise in consumer awareness around dentistry, and the benefits of straight teeth isn't limited to orthodontics. There's a huge opportunity for all kinds of treatment, limited tooth movement or simple cosmetic fixes, to comprehensive treatment to orthodontic restorative. exocad has a proven restorative experience, expertise and functionality to help us accelerate growth of our digital solutions for ortho-restorative cases and really drive growth and adoption of the Invisalign and iTero digital platform. Specifically, exocad strengthens Align's digital platform by addressing restorative needs in our end-to-end digital platform to facilitate ortho-restorative and comprehensive dentistry and accelerate adoption of Invisalign treatment with the 300 million consumers worldwide that want straight teeth. exocad restorative CAD/CAM capabilities, both chair side and lab side, allow us to seamlessly integrate into various GP and orthodontic workflows. Integration with exocad significantly increases the relevance of iTero scanners and Invisalign treatment, particularly among GP dentists. exocad's lab site access is adopted by over 50% of the labs worldwide and can be seamlessly integrated into Align's ortho-restorative ecosystem. exocad is not new to us, and this acquisition is a natural next step. We've had technology integration and collaboration between iTero scanners and exocad software for several years. exocad will continue to operate as it exists today, enabling it to support a broad ecosystem of partners and end users and continue to deliver hardware-independent software solutions. exocad co-founders, Tillmann Steinbrecher and Maik Gerth, along with their team, will remain after the transaction closes and will report to John Morici, our Senior Vice President and CFO. We expect to move quickly to close this acquisition, which should occur during the second quarter of 2020. We anticipate the acquisition of exocad is expected to be gross margin accretive, reflecting the strength of its software business. We expect GAAP EPS to be dilutive for the full year due to the acquisition-related costs. In terms of our Q1 '20 outlook, at this time, there's no change to our Q1 '20 outlook. As you may recall, when we gave guidance in Q1, news for the novel coronavirus outbreak in China had just begun, and we stated that we had factored it into our guidance for the first quarter. The virus is now called COVID-19, and the situation in China and other affected countries remains very fluid. News reports reflect increases in reported cases in other countries, including South Korea, Japan, some parts of Southeast Asia and Italy and United States. We continue to monitor all impacted markets very carefully, are in close contact with all our relevant agencies globally. The safety and well-being of our employees remains our top priority. And thankfully, none of our employees or their immediate family members have been infected with COVID-19. In closing, we're very excited about exocad software, their culture and their team. Our companies have a shared commitment to innovation and a vision of what digital transformation can mean for doctors and their patients. There's a lot of potential in this new venture, and I look forward to updating you on our progress as the year unfolds. With that, I'll go back to Shirley, and we'll call for any questions.

Operator, we'll take questions now.

[Operator Instructions] Our first question comes from Nathan Rich with Goldman Sachs.

Maybe just wanted to start on one of your comments around increasing the relevance of iTero with GP dentists. Could you maybe just expand on that? And how this could maybe accelerate the adoption of iTero and eventually Invisalign?

Yes, Nate, when you look at the ecosystem of how GPs work around the world, labs become incredibly important. They're a big part of the ecosystems. And that lab software piece is where exocad really stands out in the whole marketplace. And so you can imagine, if you go to a GP, you have a GP episode, Nate, you might have a cap or a crown that needs to be done. You take an image of that. You send it to a lab. The lab will then mill that and bring it back to that. That software, remember, there's 2 parts to that software: one is the communications part that gets to the lab; and secondly, there's a control software that's very fine and specific in a sense of how you would actually mill that crown to. And that's where exocad is really incredibly strong.

Great. And then, I guess, just a quick follow-up. I mean I think more often, people who get clear aligner treatment also need to get restorative work done. I mean can you maybe give us a sense of how big of a population that is? And do you see the treatment model sort of evolving and more people first doing restorative before kind of moving on to clear aligners, especially in the GP channel?

Nate, it's a really good question. I think you could take the 300 million patients we talk about that want straight teeth, many of those want restorative also. There's a vision about this, and a lot of it is about how a doctor will approach this. So when we talk about products like Smile Architect or different kinds of products that exocad bring together, you would start with -- if you had a patient who is looking for an implant, you actually might have aligners to actually move their teeth first to allow more space for that implant to actually occur. In that case, what you're doing, you're saving enamel in that sense as you don't have to carve it off the other teeth that might have moved into that space where someone had lost a tooth. And then after that restoration is in, you could again use clear aligners in order to straighten what the remaining teeth or any kind of crowding or things could be going on. So if doctors are looking at saving enamel, you might use aligners upfront to start. If they're not and they just do the implant, then you could use aligners after that in order to straighten the teeth properly. So it's the whole idea that we have around, first of all, Nate, having a digital platform from a dentistry standpoint and having different parts of that platform. And ortho-restorative, what we call Smile Architect here, is a big part of that.

Our next question comes from Elizabeth Anderson with Evercore.

I have a couple of questions. In terms of the integration process, I'd be curious about, a, sort of what is the -- you said -- you made a comment about how some of your technology was already integrated. So I just wanted to understand that and sort of what remains post. And then as a follow-up to that, what sort of drove you to the decision that this was an asset that you wanted to own versus continuing a partnership?

Elizabeth, this is Joe again. Look, I think you have to look at degree of integration. What we've learned with our iTero scanners, when you look at Invisalign, you can have a communication integration between anything. It becomes -- it can be kludgy at time or whatever if things can communicate. But if you really want to deliver value and go deep into that kind of value equation, you really want to put applications and more specificity into that kind of a transaction. So what we felt like is -- we started our relationship with exocad back in 2017, and like many other OEMs, we can have that relationship with their software. But to really deliver value from a workflow standpoint, we felt that we really had to get closer through the acquisition. And Elizabeth, the best way I can explain this thing, I think, is if you ever had a home entertainment system and you try to use it, you say you want to interface with Amazon or Netflix or whatever, sometimes you just -- you can interface with them. But the ability for you to really build out that kind of a thing to be able to dig down into that application, whatever, it really becomes frustrating. We're really feeling by close together, writing the APIs, writing this kind of control software together between our different devices, we just have much better workflow and much better specificity.

Okay. Perfect. That's very helpful. And I was wondering, I know you said -- you mentioned that it's sort of growing 20% and you made the comments that you did in the press release. But is there any sense -- a better sense you can give us on the revenue contribution you're expecting from the business, either as a run rate for 2020? Or if anything else?

Elizabeth, this is John. Being a public -- being a private company like this, we're not going to give out any of that information at this point. After the deal closes, as we look to talk to the year and beyond, we'll give out more details.

Next question comes from Jon Block with Stifel.

Maybe the first one for me, Joe. You mentioned, hey, this is going to accelerate the adoption of Invisalign. And sorry, if I missed it, but just maybe if you can be a little bit more specific, exactly how? So is it the visualization tools that will be furthered post the exocad acquisition? Is it, hey, this is essentially going to get more iTeros in more docs hands and with that, becomes accelerated Invisalign utilization? Maybe if you can just talk through that a little bit more.

Well, I think the -- visualization tools and all, Jon, are really important to us. And when we talk about Smile Architect, that's a big part of it. There's a visualization tool for a doctor there that would actually be able to visualize on a screen exactly how the restorative would go, how exactly the liners and those kind of things, which I think you know pretty well. Secondly, Jon, I think you also -- the visualization opportunity we have with patients, right, the patients can actually see what some very expensive treatments could actually lead to and how their smile looks. So that's a big part of it, too. So it's a visualization from a workflow standpoint, but it's also we know how important visualization is from a consumer standpoint and then making a decision. On the iTero side, remember, iTero started off years ago as a GP scanner. But as we purchased them, that's often thought of as an orthodontic scanner. And as we move more and more into the general dentistry marketplace, these lab workflows become critical. And doctors have to be sure that when they need iTero that they can use it for a broad number of aspects of what they would do from a restorative standpoint within their dental office. exocad software really facilitates that communication piece, not just with labs but also when things are like in office milling and things that will be done more and more in offices, we think, going forward.

Okay. So maybe just as a follow-up question. So where does the success of this deal show up in terms of the P&L? Maybe this will be flushed out more at the Investor Day. But I'm just -- where I'm going with this is, within your scanner business, Joe, I think you have a much bigger software piece than people realize, the recurring there. It's not all just the actual equipment, if you will. There's a good-sized software business in there that you can sort of tease out through filings, et cetera. But so is this -- does this accelerate that because of the utilization of iTero and you're going to see a bunch of other features and functionality that broadens iTero's usage? Just really where it would show up when we look out a couple of years post this deal?

It would show up in iTero, for sure, Jon. You articulated as well as I could, okay? That's -- this makes it a much better tool in the hands of a general dentist. But secondly, you'll see it in Invisalign, right, because from an Invisalign standpoint, you just have doctors that have the capability through iTero, and they'll be confident in their ability to communicate through labs in the sense of how we integrate into their workflow in a dentistry office. And I think, Jon, you know this as well as anybody, too, is that, our problem with trying to sell through GPs often is not the orthodontic capability of our product line. It's just how do you fit into a workflow of a general dentist. And those workflows are complicated, they're specific, and we have to be able to -- we have to have a workflow that's very efficient and one that worked with their partners. And exocad really gives us another dimension in that as we integrate it with our business.

Next question comes from Richard Newitter with SVB Leerink.

This is Jaime on for Rich. I guess just quickly on -- you guys are guiding to dilutive on GAAP EPS. But looking back at the fourth quarter earnings call, you guys were actually transitioning to a non-GAAP reporting structure. So I was just curious in the context of that, how should we be thinking about the impact on non-GAAP EPS in 2020, if at all? And then same thing, just with respect to gross margins and also on operating margins, is this -- are you expecting this to be accretive?

Yes, Jaime, this is John. On a non-GAAP basis, we expect gross margin to be accretive, OP margin to be accretive and EPS in 2020 to be about flat.

Got it. Okay. That's helpful. And then just noting something that you guys had mentioned in the press release about just the seamless cross-discipline dentistry and lab and at the chair side. I was just wondering if you could expand upon this a little bit and talk about what you mean by this and kind of the future of maybe what you see there.

We've talked about in the press release, too, and what we're doing here at Align, Jaime. We're building a digital platform from a dentistry standpoint. That platform has a lot of different components to it. Most people know our digital platform from the standpoint of Invisalign and the algorithms and things that we use in order to drive plastic aligners. And also iTero in the sense of how iTero front ends that in the sense of scans. And doing things like simulation or time-lapse and those kinds of things. But part of that digital platform also has to be how it interfaces with GPs because GPs are obviously a big component of our future growth. And iTero has to be a good tool in that sense. So what exocad does from both dimensions, it really helps iTero become a more effective tool from a workflow standpoint with labs, inside labs, in their offices but also with the dentist community. And then secondly, it helps us from a standpoint of getting Invisalign inside the workflow for GPs, too. So there's just a lot of synergy in a sense across the portfolio, particularly on the GP side, that exocad offers to us.

Next question comes from Michael Ryskin with Bank of America.

A quick one for me. I think you called out that the business will continue to operate as it exists today, and that there's a broad ecosystem of partners and users. I'm just wondering, looking through the slides, some of those you could consider to be competitors or sort of nascent competitors in the clear aligner space, and I just want to make sure, how are you thinking about their view on potentially seeing this down inside of Align? And how do you have confidence that that's not going to hurt the relationship between some of these other companies and exocad?

Well, exocad's been committed to an open format, an open code, and we're going to keep it that way. They do have relationships in different ways with different companies, and we respect that. What we feel, though, is, as we get together, we'll have a much deeper integration, a much better workflow and more seamless workflow as we go down several layers in the sense of how that would actually operate, Michael. So this is why we're reporting this into John, too. John has great general management experience before he came here. But secondly is, we want this company to be able to keep their independence and the open protocols and direction that they've had as a company going forward, it's one of the strengths of the company. So in this way, too, that we can use it throughout the company, too, in the sense of picking the best opportunities we have from a software engineering standpoint on specific programs you want to develop.

And a quick follow-up, if I can. Sorry if I missed this in the prepared remarks, but did you say anything in terms of how you're funding it? Is it going to be sort of all cash on the balance sheet? Or is there any debt raise here? And sort of any updated thoughts on share buybacks and other use of free cash flow throughout 2020?

Hey, Mike, this is John. This is all cash, and it's all self-funded with cash that we have on our books. And as we've said many times, we invest in this business to continue our growth, and investing in exocad helps us continue the growth for the reasons that we've said. And then any excess cash that we have goes back to our shareholders and share buybacks. So no change in our overall philosophy around that.

Next question comes from Jeff Johnson with Robert W. Baird.

So let me ask one question first that nobody else has asked, so I'm assuming I must have misunderstood or misheard what you said, but it sounded to me like you reiterated 1Q guidance. And the reason I ask is I think embedded within that guidance was a 50% haircut to your China volumes. Since then, we've heard a lot of companies talking about February and March being down 80%, 90% in China. Obviously, we're seeing spread beyond China to Japan, Italy, some of these other markets where you do have business. So did you reiterate guidance and maybe an update on what you're seeing in those China volumes and how you're holding guidance in light of kind of what seems to be a spread here at the end of February and into the early part of March?

Hey, Jeff, this is John. I'll take that one. You're right, we wanted to update based on what we have seen to date. And at the time of our Q1 guide, we gave our best guidance, and we're reiterating that we see no change to the guidance that we had given back in January.

All right. That's helpful, John. And Joe, I know the prior question basically hit on this, but I just want to maybe pin you down a little bit. Your commitment to staying open, both for the upstream scanning and imaging companies and the downstream milling and printing companies, just commitment is to stay open on both ends of that, number one. And number two, does this at all change the likelihood that you'd maybe look to acquire or move in the direction of a piece of machinery, a piece of equipment on the back end of things for either a 3D printer, a milling machine, something like that, so you could offer a full end-to-end solution in a lab or dental office setting?

Yes. Jeff, I'll just take the last part of your question first. Look, I want everybody know, I think that this is all about clear aligners. This is not about a general dentistry diversification. We're staying with our 20% to 30% revenue, which primarily is driven by clear aligners and scanners that support that. Keep in mind, too, that we talk about those 300 (sic) [ 300 million ] consumers around the world that want straight teeth. Many of them will go through GPs. Many of them will have restorative work and things like that. I don't want to be in the implant business. I don't want to be in the gap business or anything like that. But I certainly want software that facilitates workflow that allows us to be meaningful in those workflow situations. Does that make sense?

Okay. That's helpful. It does, Joe. Your commitment on that open, both upstream and downstream partners?

Yes. I mean that's the power of this company, and that's what they've done from an open standpoint. Now obviously, we've been incremental in the sense of who we have said we'll allow different STL files from different scanners around the world, and we'll keep that. But as far as exocad goes and their commitment to open protocols, we're completely backing that.

Next question comes from Steven Valiquette with Barclays.

So also in relation to that disclosure in the slide deck that exocad will operate as it exists today, something from what you're describing there will likely be a decent revenue synergy opportunity as part of the merger of the companies. I'm just kind of curious more on the cost side. Is there any notable cost synergy opportunity to either consolidate sales efforts or R&D divisions? Or are these variables not really sort of do happen in any material way post merger?

Yes, this is Joe. Steve, this is not about cost out in this sense. And so when we talk about synergies, synergies are often talked about with cost. This is actually just about volume and how we drive volume. And again, it's clear aligner volumes. That's what we're talking about and how we think it can help us.

Okay. And I know the financial info is limited, but are you at least able to disclose whether exocad is profitable on its own right now on the bottom line?

Yes, this is John. It's very profitable on its own.

As a software business should be, okay?

I would hope so, yes, exactly.

Next question comes from Ravi Misra with Berenberg Capital Markets.

A question on the software licenses that you mentioned in the deck, that 35,000. Just curious as to what kind of overlap that you see right now with your existing accounts and any detail on that you can give. And then maybe building on Jeff's question around kind of the full-on production stream. How does this fit in, if at all, maybe thinking 10, 15, 20 years down the road with the potential for potentially designing aligners in-house and how Align fits into that paradigm?

Ravi, first of all, from an overlap standpoint, we don't think there's going to be a whole lot of overlap in the sense of where we are. But the great thing about exocad again is not just the ability of the software that they write and what goes -- the global aspect of this business is terrific. We run into them all around the world, and they're well-known. So there's a lot of diversification geographically with this business, too. Maik and Till have really done a great job in that sense. When you talk about what the future holds from an in-office standpoint, I mean, obviously, in-office milling is a big deal and a growth area that's going on around the world. And that makes sense in a lot of cases. Again, we don't -- I don't want to be selling milling machines. It just is not what I think we do as a company. But we certainly would facilitate aligner sales through the integration that we'll have with exocad. As far as in the future, as far as us printing aligners in-office or whatever, I think at some point in time when you can 3D print an aligner, and obviously, we're working pretty hard on that, I think you do think about the logistics of where do you want to print those aligners. But I honestly think, Ravi, long term, doctors thinking they want to print like 20 aligners in their office, it's crazy. It's not what you want to do. I don't care what the equipment is. It takes a lot of time. It's arduous. I'd tell you, it's really arduous because you're printing molds and then you're doing vacuum forming over top of it, and then you're using scissors to cut it. It's just something that I don't think scales well in an office. It could scale in a lab at some point in time, too, I think. But as any kind of quantity fabrication of lab software, even in a direct 3D-printed aligner environment, I think it's still tough from an office standpoint to do that, even 10 years from now.

Great. And then just on the top line, if I could just sneak one more in. You said it was growing 20%. Just getting any sort of sense of size-wise for the potential revenue accretion that's coming, anything that you are willing to give beyond that?

Hey, Ravi, this is John. We'll update as we go forward after the deal closes and give more perspective on it.

Next question comes from Steve Beuchaw with Wolfe Research.

A couple of really basic questions just as we try to understand the growth potential and trajectory of the business. Could you help us just to break down the business on a couple of basic metrics? Maybe one is, what's the geographic mix of the business? And number two is, should we think about the different customer categories, maybe it's lab, GP, orthodontists, what's the distribution of revenue in those different customer categories? And then I have a couple of follow-ups.

Yes, Steve, I can give you the specific break. I'd tell you, this is not -- there's some ortho lab plays that exist in this, but this is broadly a GP. And it's a -- there's an office piece to this, but there's a larger lab piece that actually exists. And a lot -- some of the future growth is going to migrate towards in-office kind of work like we've been talking about. But primarily, that customer base today has to do with labs that primarily serve GPs but also serve some orthos in some applications.

And then from -- I was going to say, from a geographical mix, big presence in Europe, very strong in Europe and Latin America.

Okay. And then if I were to look at this at the customer level and say, okay, we think that this type of software, maybe if we focus on GPs, is penetrated in Europe at x level and in the U.S. at y level, what do you think those might be, those statistics? And what would you imagine a typical customer of exocad at the GP level is spending with them in a given year? And then I'll drop back in queue.

Steve, I'd say that kind of granular information, I don't know if I want to go that far at this point in time. Again, it's mainly a lab kind of an interface today. You see it more and more going to offices and offices being aware of things. But the overall trend that we're really addressing here, Steve, is a whole idea of digital dentistry and how dentists are really reaching out, whether they reach out to their lab partners, whether they reach out to customers or whatever, they're looking for that digital platform that we're talking about. And that digital platform, it has to be broad and wide when you're -- we're a basic GP. And so again, we're not -- I want to emphasize this is not a play for diversification. Some of these questions are saying milling machines and printing machines and things like that, questions on possible implants or whatever, that's -- this is all about how in the future we sell more clear aligners and how we sell more clear aligners through these specific channels. And we think that this deal really helps us to facilitate that in the future.

Our next question comes from Jon Kaufman with William Blair.

On for Kreger. Just trying to get more detail on that 20% growth rate, perhaps in a different way here. So can you talk about the growth in the user base over the past couple of years? Where is that in relation to the company's 20% growth rate overall? And what I'm getting at here is, of that 20% growth, is it coming today from growing the user base? Or is it price increases? And given the strong market share today on the lab side, how quickly can the lab user base grow moving forward in your opinion?

Well, the historical growth of the business has been above 20%. And that's what we reported, and it is what it is. That growth has to do with geographic dispersion and being able to grow in that sense, deeper penetration into labs and also some sales within doctors' offices. So I mean a great thing about this business is it does have a good runway from a growth standpoint. It is diversified geographically. And it's not fully penetrated from a lab standpoint either. And honestly, digital dentistry, I mean, we talk about it, but it's in its infancy still. And these kind of software capability is the foundation of it. I mean the CAD/CAM software piece is key to it. So we feel there's a lot of inherent growth in the business itself. But again, we didn't buy this business just for the inherent growth of this business. We're not buying growth. What we're trying to do is accelerate the growth that we have in this business with clear aligners at 20% to 30%. We feel that this acquisition just puts us in a stronger position to continue to deliver the kind of growth in clear aligners and iTero that we've experienced and we've been forecasting for the investors.

Next question comes from Kevin Caliendo with UBS.

I just wanted to go back to the reiteration of the 1Q guidance because I think it's a relief to a lot of investors that you're able to do that. And as you mentioned in the context from when you gave guidance, you're really the first company to talk about the impact of COVID-19. It would imply if things got worse in Japan, things got worse in Korea, these are key markets for you, things certainly went from 0 to bad in Italy, another market you've called out as being an important growth driver. Are we to assume that either China wasn't as bad as maybe what you originally thought? Or is it just there's strength in other markets that have been able to offset what we would anticipate being sort of less than what you might have guided for in some of those other countries?

Hey, Kevin, it's Joe. Look, we wanted to give you that guidance because we knew that would be top of your mind right now because we were first in, and then we had to take our best estimate in the sense of where we are. And we're really confident in what we told you. As it stands today and what we see, we hold with our first quarter guidance. I don't want to do any more granularity right now about where it's coming from and how it's going on or how we call China or whatever because it's just an incredibly fluid situation. So please just take our forecast for what it is and the confidence we have behind it. And we'll certainly update you as soon as the quarter closes.

Next question comes from Glen Santangelo with Guggenheim Securities.

Just 2 quick follow-ups. Joe, you made it pretty clear, this is not a play on diversification, that you're really just looking to facilitate aligner sales with the integration of the technology. But my question is, once the technology is integrated, would this potentially cannibalize iTero sales, for example, in the future? Or is that not the right way to think about it?

Well, I don't think it's the right way to think about it at all, Glen. I actually think it accelerates iTero sales because when you think about that ecosystem that exists between labs and GPs, labs often specify to GPs what scanners to use because the software that they have in place and how that works. And so as we've gone into the GP segment with iTero, we've been accused at times of just being an orthodontic kind of a device from a scanner standpoint. And there we're not -- we have a historical presence that we're not. But exocad gives us a lot more legitimacy in working with labs and being able to deliver that software with labs and them having confidence that iTero can really be a big part of that workflow. So no, I think this is completely opposite of that. This will not, I think, in any way, pirate iTero sales. It helps to enhance them. But the last thing I'd tell you, Glen, is that, look, I love iTero, and I want to sell more iTeros. But this isn't about selling more iTeros. It's about having more iTeros in GP offices, so we can sell more Invisalign. And that's why we have -- we bought iTero in the first place.

Okay. All right. Maybe I'd just follow up with one financial question for John. John, if I heard you correctly, you seem to suggest that it'd be accretive from a gross and operating margin perspective. And then on a non-GAAP EPS basis, it would be flat. But given the margins and how profitable this company seems at this interest rate environment, if you're paying cash forward off your balance sheet, I'm kind of confused as to why it wouldn't be accretive.

Yes, Glen, you have some other line items below op margin, interest and other income that help offset that. But you're right, on a non-GAAP basis, accretive both in gross margin and op margin. But when you get down to EPS, you have some other offsets before that.

I would like to turn the call over to Shirley for closing comments.

Hi. Before Shirley just gives you a final goodbye here, again, hey, thanks for the call. Thanks for joining us. Look, I know a lot of questions on this deal or whatever, but I don't want anyone to misread this. Since I've been part of this company and people ask me what we're going to do with our cash, and I said, I don't want to be a general kind of a dentistry company. I don't want to compete on that. Clear aligners are so underpenetrated across the world and across applications. This is what this deal is all about. I don't want to be misinterpreted. We're excited about it. We feel it will position us well. We think it would enhance many of the programs that we have going on inside the business. And we're really excited to be able to present to you along the way during the year how it's going and what our programs are going to be in place, and how this will really help to grow the business. So with that, Shirley, any final comments?

Yes. No, thank you. Thank you, Joe. And thank you, everyone, for joining us. If you have any questions or follow-up, please contact Madelyn or myself, and we'll talk to you later. Thanks. Have a great day.

Thank you.

So this concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.