July 24, 2014

Align Technology Announces Second Quarter 2014 Results

-- Record revenues of $192.5 million, up 17.5% year-over-year
-- Clear aligner revenues up 17.2% and Scanner and Service revenues up 21.6% year-over-year
-- Operating margins of 25.3%, compared to 23.1% in Q2 a year-ago
-- Earnings per diluted share (EPS) of $0.43, compared to $0.36 in Q2 a year-ago


SAN JOSE, Calif., July 24, 2014 /PRNewswire/ -- Align Technology, Inc. (Nasdaq: ALGN) today reported financial results for the second quarter ended June 30, 2014.

Total revenues for the second quarter of 2014 (Q2'14) were a record $192.5 million, a 17.5% increase year-over-year. Clear aligner case shipments in Q2'14 were 119.3 thousand, a 12.4% increase year-over-year. Net profit for Q2'14 was $35.6 million, or $0.43 per diluted share, an increase of 21.4% year-over-year from $29.3 million, or $0.36 per diluted share for Q2'13.

"Our second quarter results were good and we're pleased to get the important summer Teen season off to a solid start," said Thomas M. Prescott, Align president and CEO.  "Record revenues, which increased 17.5% year-over-year, were driven by increased Invisalign volume across North America, EMEA and the Asia Pacific regions, as well as higher Invisalign ASPs. We also had a record quarter for scanner and services revenues with unit volume up over 50% year-over-year."


Summary Financial Comparisons

(In millions except for shipments and per share amounts)



Q2'14

Q1'14

Q2'13


Q/Q

Y/Y

GAAP







Clear Aligner Shipments

119,300

112,180

106,135


+6.3%

+12.4%

Net Revenues

$192.5

$180.6

$163.8


+6.6%

+17.5%

    Clear Aligner

$179.7

$168.2

$153.3

1

+6.8%

+17.2%

    Scanner and Services

$12.8

$12.4

$10.5


+3.1%

+21.6%

Net Profit

$35.6

$32.4

$29.3


+9.7%

+21.4%

Earnings Per Share

$0.43

$0.39

$0.36


+$0.04

+$0.07


Notes:


(1)

Q2'13 clear aligner revenue includes a $1.2 million decrease in revenue due to the change in our mid-course correction policy effective June 15, 2013.

As of June 30, 2014, Align had $502.7 million in cash, cash equivalents and short-term and long-term marketable securities compared to $472.0 million as of December 31, 2013. During Q2'14, we paid $70 million under an accelerated stock repurchase plan ("ASR") in which we received an initial delivery of approximately 997,000 shares of its common stock. The final number of shares repurchased will be determined at completion of the ASR based on Align's volume-weighted average stock price during the term of the ASR, less an agreed upon discount. The ASR is expected to be completed by July 29, 2014.  There remains approximately $230 million available for repurchases under the existing stock repurchase authorization, of which $30 million is expected to be used for repurchases over the next nine months.

We also announced today the appointment of Simon Beard as vice president and managing director of Europe, Middle East and Africa (EMEA) effective November 3, 2014 reporting directly to Raphael Pascaud, vice president, international. Mr. Beard assumes the position vacated by Mr. Pascaud in January, 2014.  He is currently regional director for Smith & Nephew's South East Asia business.  Mr. Beard has an extensive background in the medical industry where he has held multiple commercial, strategic, and general management positions in companies such as DePuy, Johnson & Johnson, Sankyo and Sanofi Aventis.

In addition, we announced further expansion in the EMEA region with 14 additional European countries moving from distributor coverage to our direct sales organization beginning in Q3 14.  These new countries include; Faroe Islands, Albania, Kosovo, Poland, Czech Republic, Slovakia, Hungary, Slovenia, Croatia, Bosnia & Herzegovina, Serbia, Romania, Bulgaria, and Macedonia. As with the Q1'14 integration of 11 countries, we do not expect a material impact from these countries for some time. In the near term we will leverage our existing infrastructure in adjacent country markets as we build local sales organizations to drive long-term market penetration.

Q3 Fiscal 2014 Business Outlook

For the third quarter of 2014 (Q3'14), Align provides the following guidance:

  • Clear aligner case shipments in a range of 118.1 thousand to 120.5 thousand.
  • Net revenues in a range of $186.3 million to $190.2 million, which reflects a year-over-year increase of 13.2% to 15.6%.
  • EPS in a range of $0.41 to $0.44.

Align Web Cast and Conference Call

Align Technology will host a conference call today, July 24, 2014 at 4:30 p.m. ET, 1:30 p.m. PT, to review its second quarter 2014 results, discuss future operating trends and the business outlook. The conference call will also be web cast live via the Internet.  To access the web cast, go to the "Events & Presentations" section under Company Information on Align's Investor Relations web site at http://investor.aligntech.com.  To access the conference call, please dial 201-689-8261 approximately fifteen minutes prior to the start of the call. An archived audio web cast will be available beginning approximately one hour after the call's conclusion and will remain available for approximately 12 months. Additionally, a telephonic replay of the call can be accessed by dialing 877-660-6853 with conference number 13585899 followed by #. For international callers, please dial 201-612-7415 and use the same conference number referenced above. The telephonic replay will be available through 5:30 p.m. ET on July 31, 2014.

About Align Technology, Inc.

Align Technology is the leader in modern clear aligner orthodontics that designs, manufactures and markets the Invisalign system, which provides dental professionals with a range of treatment options for adults and teenagers. Align also offers the iTero 3D digital scanning system and services for orthodontic and restorative dentistry. Align was founded in March 1997 and received FDA clearance to market Invisalign in 1998. Visit www.aligntech.com for more information.

For additional information about Invisalign or to find an Invisalign provider in your area, please visit www.invisalign.com. For additional information about iTero, please visit www.itero.com.

About Non-GAAP Financial Measures

While there are no non-GAAP adjustments to the three months ended June 30, 2014 we may use from time to time the following non-GAAP financial measures to supplement our consolidated financial statements: non-GAAP net profit and non-GAAP earnings per share, which exclude, as applicable, impairment of goodwill, impairment of long-lived assets, and any related income tax adjustments. The presentation of this financial information is not intended to be considered in isolation, or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our "core operating performance." Management believes that "core operating performance" represents Align's performance in the ordinary, on-going and customary course of its operations. Accordingly, management excludes from "core operating performance" certain expenditures and other items that may not be indicative of our operating performance including discrete cash and non-cash charges that are infrequent, or one-time in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management's internal evaluation of period-to-period comparisons. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision making, and (2) they are provided to and used by our institutional investors and the analyst community to facilitate comparisons with prior and subsequent reporting periods. A reconciliation of the GAAP and non-GAAP financial measures for the six months ended June 30, 2013 and a more detailed explanation of each non-GAAP financial measure and its uses are provided in the footnotes to the table captioned "Reconciliation of GAAP to non-GAAP Key Financial Metrics" included at the end of this release.

Forward-Looking Statement

This news release, including the tables below, contains forward-looking statements, including statements regarding certain business metrics for the third quarter of 2014, including, but not limited to, anticipated net revenues, gross margin, operating expenses, operating profit, diluted earnings per share, case shipments, additional common stock repurchases and cash, cash equivalents and short-term and long-term investments.  Forward-looking statements contained in this news release and the tables below relating to expectations about future events or results are based upon information available to Align as of the date hereof. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. As a result, actual results may differ materially and adversely from those expressed in any forward-looking statement. Factors that might cause such a difference include, but are not limited to, difficulties predicting customer and consumer purchasing behavior, the willingness and ability of our customers to maintain and/or increase product utilization in sufficient numbers, the possibility that the development and release of new products does not proceed in accordance with the anticipated timeline, the possibility that the market for the sale of these new products may not develop as expected, the risks relating to Align's ability to sustain or increase profitability or revenue growth in future periods while controlling expenses, growth related risks, including capacity constraints and pressure on our internal systems and personnel, our ability to successfully achieve the anticipated benefits from the scanner and services business, continued customer demand for our existing and new products, changes in consumer spending habits as a result of, among other things, prevailing economic conditions, levels of employment, salaries and wages and consumer confidence, the timing of case submissions from our doctors within a quarter, acceptance of our products by consumers and dental professionals, foreign operational, political and other risks relating to Align's international manufacturing operations, Align's ability to protect its intellectual property rights, continued compliance with regulatory requirements, competition from existing and new competitors, Align's ability to develop and successfully introduce new products and product enhancements and the loss of key personnel. These and other risks are detailed from time to time in Align's periodic reports filed with the Securities and Exchange Commission, including, but not limited to, its Annual Report on Form 10-K for the fiscal year ended December 31, 2013, which was filed with the Securities and Exchange Commission on February 28, 2014.  Align undertakes no obligation to revise or update publicly any forward-looking statements for any reason.


ALIGN TECHNOLOGY, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

(in thousands, except per share data) 










Three Months Ended


Six Months Ended


June 30,
2014


June 30,
2013


June 30,
2014


June 30,
2013









Net revenues

$192,531


$163,828


$373,177


$317,408









Cost of revenues 

47,055


40,137


90,450


80,868









Gross profit

145,476


123,691


282,727


236,540









Operating expenses:








Sales and marketing

56,386


47,847


109,274


90,128

General and administrative

27,069


27,027


56,248


57,375

Research and development

13,289


10,916


26,669


22,198

Impairment of goodwill

-


-


-


40,693

Impairment of long-lived assets

-


-


-


26,320

Total operating expenses

96,744


85,790


192,191


236,714









Operating profit (loss)

48,732


37,901


90,536


(174)









Interest and other income (expense), net

(93)


(335)


508


(1,323)









Profit (loss) before income taxes

48,639


37,566


91,044


(1,497)









Provision for income taxes

13,039


8,246


23,000


11,166









Net profit (loss)

$  35,600


$  29,320


$  68,044


$ (12,663)









Net profit (loss) per share








     - basic

$     0.44


$     0.36


$     0.84


$    (0.16)

     - diluted

$     0.43


$     0.36


$     0.82


$    (0.16)









Shares used in computing net profit (loss) per share








     - basic

81,027


80,576


81,073


80,909

     - diluted

82,341


82,149


82,651


80,909


ALIGN TECHNOLOGY, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS 

(in thousands) 






June 30,
2014


December 31,
2013

ASSETS








Current assets:




Cash and cash equivalents

$167,471


$ 242,953

Marketable securities, short-term

198,059


127,040

Accounts receivable, net

131,028


113,250

Inventories

13,115


13,968

Prepaid expenses and other current assets

44,839


47,465

   Total current assets

554,512


544,676





Marketable securities, long-term

137,148


101,978

Property, plant and equipment, net

81,312


75,743

Goodwill and intangible assets, net

83,795


85,362

Deferred tax assets

20,456


15,766

Other assets

8,210


8,622





     Total assets

$885,433


$ 832,147





LIABILITIES AND STOCKHOLDERS' EQUITY








Current liabilities:




Accounts payable

$  20,939


$   17,718

Accrued liabilities

81,049


80,345

Deferred revenues

85,125


77,275

   Total current liabilities

187,113


175,338





Other long term liabilities

22,524


22,839





    Total liabilities 

209,637


198,177





Total stockholders' equity

675,796


633,970





      Total liabilities and stockholders' equity   

$885,433


$ 832,147


ALIGN TECHNOLOGY, INC.

RECONCILIATION OF GAAP TO NON-GAAP KEY FINANCIAL METRICS





Reconciliation of GAAP to Non-GAAP Operating Expenses




(in thousands) 

 Six Months Ended 


June 30, 2014


June 30, 2013





GAAP Operating expenses

$      192,191


$      236,714

Impairment of goodwill (1)

-


(40,693)

Impairment of long-lived assets (2)

-


(26,320)

Non-GAAP Operating expenses

$      192,191


$      169,701













Reconciliation of GAAP to Non-GAAP Operating Profit (Loss)




(in thousands)

 Six Months Ended 


June 30, 2014


June 30, 2013





GAAP Operating profit (loss)

$        90,536


$            (174)

   Impairment of goodwill (1)

-


40,693

   Impairment of long-lived assets (2)

-


26,320

Non-GAAP Operating profit

$        90,536


$        66,839













Reconciliation of GAAP to Non-GAAP Net Profit (Loss)




(in thousands, except per share amounts) 

 Six Months Ended 


June 30, 2014


June 30, 2013





GAAP Net profit (loss)

$        68,044


$       (12,663)

Impairment of goodwill (1)

-


40,693

Impairment of long-lived assets (2)

-


26,320

Income tax-related adjustments (3)

-


(3,788)

Non-GAAP Net profit 

$        68,044


$        50,562





Diluted Net profit (loss) per share:




GAAP

$            0.82


$           (0.16)

Non-GAAP

$            0.82


$            0.61





Shares used in computing diluted GAAP Net profit (loss) per share

82,651


80,909

Shares used in computing diluted Non-GAAP Net profit per share (4)

82,651


82,717

Notes:

There were no Non-GAAP adjustments for the three months ended June 30, 2014 or 2013.

(1) Impairment of goodwill. These costs represent non-cash write-downs of our goodwill generally related to negative trends in market and economic conditions, termination of relationships with distributors, or the increase in competitive environment related to our Scanner and Services reporting unit. We remove the impact of these charges to our operating performance to assist in assessing our ability to generate cash from operations. We believe this may be useful information to users of our financial statements; therefore, we have excluded these charges for purposes of calculating these non-GAAP measures to facilitate an evaluation of our current operating performance, particularly in terms of liquidity.

(2) Impairment of long-lived assets. These costs represent non-cash write-downs of our long-lived assets generally related to the increase in competitive environment related to our Scanner and Services reporting unit. As a result of these conditions, we have assessed that our asset group within the reporting unit was not recoverable and, therefore, recorded an impairment charge. We remove the impact of these charges to our operating performance to assist in assessing our ability to generate cash from operations. We believe this may be useful information to users of our financial statements; therefore, we have excluded these charges for purposes of calculating these non-GAAP measures to facilitate an evaluation of our current operating performance, particularly in terms of liquidity.

(3) Income tax-related adjustments. Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for discrete tax items and items excluded from GAAP income in calculating the non-GAAP financial measures presented above. Our estimated tax rate on non-GAAP income is determined annually and may be re-calculated during the year to take into account events or trends that we believe materially impact the estimated annual rate.

(4) Shares used in computing diluted Non-GAAP Net profit per share. As we had a net loss for the six months ended June 30, 2013 but have a net profit on a Non-GAAP basis, the shares used in computing diluted Non-GAAP Net profit per share has been adjusted from GAAP to include the dilutive effect of potential common stock.


ALIGN TECHNOLOGY, INC.

Q2 2014 FINANCIAL AND BUSINESS METRICS

(in thousands except utilization and doctors trained)


















Q1


Q2


Q3


Q4


FISCAL


Q1


Q2



2013


2013


2013


2013


2013


2014


2014

Invisalign Clear Aligner Net Revenues by Geography:















North America

$   97,045


$ 102,217


$ 103,888


$ 105,059


$ 408,209


$ 107,910


$ 111,648


International 

31,818


40,320


38,983


50,595


161,716


49,848


55,988


Non-case*

12,709


10,766


10,679


10,570


44,724


10,481


12,099


   Total Clear Aligner Net Revenues

$ 141,572


$ 153,303


$ 153,550


$ 166,224


$ 614,649


$ 168,239


$ 179,735


       YoY % growth

14.8%


14.7%


21.2%


25.1%


19.0%


18.8%


17.2%


       QoQ % growth

6.6%


8.3%


0.2%


8.3%




1.2%


6.8%


*includes Invisalign training, ancillary products, and retainers














Invisalign Clear Aligner Net Revenues by Product:















Invisalign Full Products

$ 112,780


$ 123,379


$ 125,169


$ 136,179


$ 497,507


$ 138,133


$ 147,158


Invisalign Express Products

16,083


19,158


17,702


19,475


72,418


19,625


20,478


Non-case*

12,709


10,766


10,679


10,570


44,724


10,481


12,099


   Total Clear Aligner Net Revenues

$ 141,572


$ 153,303


$ 153,550


$ 166,224


$ 614,649


$ 168,239


$ 179,735
















Average Invisalign Selling Price (ASP):















Worldwide ASP(1)

$1,315


$1,345


$1,335


$1,400


$1,350


$1,405


$1,405


Worldwide ASP, adjusted (2)

$1,340


$1,355


$1,335


$1,400


$1,360


$1,405


$1,405


International ASP

$1,355


$1,480


$1,455


$1,630


$1,490


$1,620


$1,625


(1) Invisalign case net revenues / Invisalign case shipments















(2) Adjusted for one-time adjustments (eg. Q1'13 and Q2'13 grandfathered mid-course correction deferrals)





























Invisalign Clear Aligner Cases Shipped by Geography:















North America

74,730


78,865


80,130


80,120


313,845


81,420


84,850


International 

23,445


27,270


26,770


31,010


108,495


30,760


34,450


   Total Cases Shipped

98,175


106,135


106,900


111,130


422,340


112,180


119,300
















Invisalign Clear Aligner Cases Shipped by Product:















Invisalign Full Products

79,235


84,850


87,670


91,605


343,360


92,335


98,565


Invisalign Express Products

18,940


21,285


19,230


19,525


78,980


19,845


20,735


   Total Cases Shipped

98,175


106,135


106,900


111,130


422,340


112,180


119,300
















Number of Invisalign Doctors Cases Shipped To:















North America

17,280


18,070


18,140


18,495


27,330


19,015


19,505


International 

5,840


6,355


6,510


6,925


10,800


7,185


7,685


   Total Doctors Cases Shipped To

23,120


24,425


24,650


25,420


38,130


26,200


27,190
















Invisalign Doctor Utilization Rates*:















North America

4.3


4.4


4.4


4.3


11.5


4.3


4.4


 North American Orthodontists

8.0


8.0


8.4


8.0


26.4


8.1


8.4


 North American GP Dentists

2.9


3.0


2.9


3.0


7.3


2.9


2.9


International 

4.0


4.3


4.1


4.5


10.0


4.3


4.5


   Total Utilization Rates

4.3


4.4


4.3


4.4


11.1


4.3


4.4


*  # of cases shipped/# of doctors to whom cases were shipped














Number of Invisalign Doctors Trained:















North America

755


1,130


795


1,460


4,140


630


920


International 

970


1,020


875


1,060


3,925


1255


1,380


   Total Doctors Trained Worldwide

1,725


2,150


1,670


2,520


8,065


1,885


2,300


   Total to Date Worldwide

78,220


80,370


82,040


84,560


84,560


86,445


88,745
















Scanner and Services Net Revenues:















North America Scanner and Services

$   11,952


$   10,454


$   10,875


$   11,980


$   45,261


$   12,313


$   12,698


International Scanner and Services

56


71


81


88


296


94


98


   Total Scanner and Net Revenues

$   12,008


$   10,525


$   10,956


$   12,068


$   45,557


$   12,407


$   12,796
















Total Net Revenues by Geography:















Total North America Net Revenues

$ 108,997


$ 112,671


$ 114,763


$ 117,039


$ 453,470


$ 120,223


$ 124,346


Total International Net Revenues

31,874


40,391


39,064


50,683


162,012


49,942


56,086


Total Non-case Net Revenues

12,709


10,766


10,679


10,570


44,724


10,481


12,099


   Total Worldwide Net Revenues

$ 153,580


$ 163,828


$ 164,506


$ 178,292


$ 660,206


$ 180,646


$ 192,531


       YoY % growth

13.7%


12.5%


20.5%


24.8%


17.9%


17.6%


17.5%


       QoQ % growth

7.5%


6.7%


0.4%


8.4%




1.3%


6.6%
















Stock-based Compensation (SBC)















SBC included in Gross Profit

$        600


$        600


$        700


$        700


$     2,600


$        800


$        940


SBC included in Operating Expenses

5,800


6,700


6,900


4,500


23,900


8,300


9,370


   Total SBC Expense

$     6,400


$     7,300


$     7,600


$     5,200


$   26,500


$     9,100


$   10,310
















Note: Historical public data may differ due to rounding. Additionally, rounding may effect totals.














ALIGN TECHNOLOGY, INC.

BUSINESS OUTLOOK SUMMARY

(unaudited)






The outlook figures provided below and elsewhere in this press release are approximate in nature since Align's business outlook is difficult to predict.  Align's future performance involves numerous risks and uncertainties and the company's results could differ materially from the outlook provided.  Some of the factors that could affect Align's future financial performance and business outlook are set forth under "Forward Looking Information" above in this press release.  






Financial Outlook

(in millions, except per share amounts and percentages)








Q3'14 Guidance










GAAP 








Net Revenues


$186.3 - $190.2








Gross Margin


75.1% - 75.6%








Operating Expenses


$96.7 - $97.4








Operating Margin


23.2% - 24.3%








Net Income per Diluted Share


$0.41 - $0.44













Business Metrics:


Q3'14








Case Shipments


118.1K  - 120.5K



Cash, Cash Equivalents, and Marketable Securities


$525M - $535M



Capital Expenditure


$15.0M - $17.0M



Depreciation & Amortization


$4.5M - $5.0M



Diluted Shares Outstanding


82.1M



Stock Based Compensation Expense


$11.3M



Tax Rate


23.0%



Investor Relations Contact

Press Contact

Shirley Stacy

Shannon Mangum Henderson

Align Technology, Inc.

Ethos Communication, Inc.

(408) 470-1150

(678) 261-7803

sstacy@aligntech.com  

align@ethoscommunication.com

SOURCE Align Technology, Inc.

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