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Align Technology, Inc. (ALGN) Announces Fourth Quarter and Record Fiscal Year 2012 Results



2/1/2013 9:16:39 AM

SAN JOSE, CA--(Marketwire - January 30, 2013) -

Align Technology, Inc. (NASDAQ: ALGN)

  • 2012 net revenues were a record $560.0 million, an increase of 16.7% year-over-year
  • 2012 Invisalign clear aligner case shipments were a record 363.5 thousand, an increase 17.5% year-over-year
  • Q4 net revenues of $142.8 million include the release of $4.9 million of previously deferred revenue for Invisalign case refinement
  • Q4 Invisalign clear aligner revenue of $132.8 million increased 4.8% sequentially and 11.7% year-over-year
  • Q4 Invisalign clear aligner shipments were 90.5 thousand, compared to 92.5 thousand in Q3 12 and 82.6 thousand in Q4 11
  • Q4 diluted GAAP diluted EPS was $0.12, non-GAAP diluted EPS was $0.27

Align Technology, Inc. (NASDAQ: ALGN) today reported financial results for the fourth quarter and fiscal year ended December 31, 2012.

Total net revenues for the fourth quarter of fiscal 2012 (Q4 12) were $142.8 million. This is compared to $136.5 million reported in the third quarter of 2012 (Q3 12) and compared to $128.9 million reported in the fourth quarter of 2011 (Q4 11). Q4 12 net revenues include the release of $4.9 million of revenue previously deferred for Invisalign case refinement. Q4 12 Invisalign clear aligner revenue was $132.8 million, compared to $126.7 million in Q3 12 and $118.9 million in Q4 11. Q4 12 Invisalign clear aligner case shipments were 90.5 thousand, compared to 92.5 thousand in Q3 12 and 82.6 thousand in Q4 11. Q4 12 scanner and CAD/CAM services revenue was $10.0 million, compared to $9.8 million in Q3 12 and compared to $10.0 million in Q4 11.

Align defers revenue for Invisalign case refinement, which is an optional finishing tool used to adjust a patient's teeth to the desired final position that is generally ordered in the last stages of orthodontic treatment. In Q4 12, we determined that the actual usage rate was lower than our estimate and as a result we released $4.9 million of revenue deferred for case refinement.

For fiscal 2012 (FY 12), record net revenues of $560.0 million increased 16.7 percent from $479.7 million reported for fiscal 2011 (FY 11). Record FY 12 Invisalign clear aligner net revenues of $516.6 million increased 14.4% from $451.7 million reported for FY 11. FY 12 Invisalign clear aligner case shipments of 363.5 thousand increased 17.5% from 309.3 thousand reported for FY 11. FY 12 scanner and CAD/CAM services net revenues was $43.4 million compared to $28.0 million in FY 11. FY 11 scanner and CAD/CAM services net revenues reflect eight months of sales resulting from the acquisition of Cadent Holdings, Inc., which closed on April 29, 2011.

"I'm very pleased to report a solid fourth quarter which culminated in a record fiscal year for with over 17 percent growth for Invisalign volume", said Thomas M. Prescott, Align president and CEO. "Despite a soft start this quarter in North America for Align and most of the dental industry, Invisalign case submissions rebounded in December and this trend has continued into the first quarter of 2013. Overall, we've seen an uptick in North American case receipts -- reflecting increased patient traffic in our customers' offices, as well as traction from customer engagement and practice development activities. We've also seen increased customer interest in Invisalign related to the launch of SmartTrack, our next generation aligner material which is commercially available now." Prescott continued, "We had many significant accomplishments in 2012 that contributed to our growth, including entry into new market segments with the launch of Invisalign Express 5 and Invisalign i7 and expansion into new emerging country markets. We are starting off the new year with several new products and feature enhancements including the new iTero scanner, Invisalign Outcome Simulator, and Invisalign G4 enhancements which will contribute to our growth throughout the year."

Net profit for Q4 12 of $9.6 million, or $0.12 per diluted share, includes the release of $4.9 million of revenue previously deferred for Invisalign case refinement. This is compared to net loss of $0.3 million, or $0.00 per diluted share in Q3 12 and net profit of $20.4 million, or $0.25 per diluted share in Q4 11. Net profit for Q4 12 includes a goodwill impairment charge of $11.9 million resulting from finalizing our Q3 12 preliminary estimate and a pre-tax amortization of acquired intangible assets of $1.0 million with a total income tax-related adjustment of $0.2 million. Net loss for Q3 12 includes a preliminary estimate pre-tax goodwill impairment charge of $24.7 million, pre-tax acquisition and integration related costs of $0.2 million, pre-tax amortization of acquired intangible assets of $1.1 million, pre-tax severance and benefit costs of $0.1 million with a total income tax-related adjustment of $2.1 million. Net profit for Q4 11 includes pre-tax acquisition and integration related costs of $1.1 million, pre-tax amortization of acquired intangible assets of $1.3 million, pre-tax severance and benefit costs of $0.8 million with a total tax effect of $0.7 million.

In Q3 12, we determined that there were sufficient indicators of a potential impairment to the goodwill attributed to the scanner and CAD/CAM services reporting unit, therefore we conducted step one of the goodwill impairment analysis and concluded that the goodwill was impaired. Based on our preliminary step two analysis, we recorded an estimated goodwill impairment charge of $24.7 million in Q3 12. In Q4 12, we finalized step two of our analysis and recorded an additional goodwill impairment charge of $11.9 million.

Net profit for FY 12 was $58.7 million or $0.71 per diluted share and includes pre-tax goodwill impairment charge of $36.6 million, pre-tax acquisition and integration related costs of $1.3 million, pre-tax amortization of acquired intangible assets of $4.4 million, pre-tax severance and benefit costs of $0.8 million with a total tax effect of $4.9 million. This compares to net profit for FY 11 of $66.7 million, or $0.83 per diluted share and includes pre-tax acquisition and integration related costs of $10.0 million, pre-tax amortization of acquired intangible assets of $3.2 million, pre-tax severance and benefit costs of $1.1 million with a total tax effect of $2.9 million.

To supplement our consolidated financial statements, we use the following non-GAAP financial measures: non-GAAP gross profit, non-GAAP operating expense, non-GAAP operating margin, non-GAAP net profit, non-GAAP earnings per diluted share, EBITDA and adjusted EBITDA. Detailed reconciliations between GAAP and non-GAAP information are contained in the tables following the financial tables of this release.

Non-GAAP net profit for Q4 12 was $22.3 million, or $0.27 per diluted share. This is compared to non-GAAP net profit of $23.7 million, or $0.28 per diluted share in Q3 12 and non-GAAP net profit of $23.0 million, or $0.28 per diluted share in Q4 11. Non-GAAP net profit for FY 12 was $96.7 million, or $1.17 per diluted share. This compares to non-GAAP net profit for FY 11 of $78.1 million, or $0.97 per diluted share.

                                                                            
Q4 12 Operating Results ($M)                                                
                                                                            
  Key GAAP Operating Results                   Q4 12      Q3 12      Q4 11  
                                            ---------  ---------  --------- 
  Revenue                                   $   142.8  $   136.5  $   128.9 
    Clear Aligner                           $   132.8  $   126.7  $   118.9 
    Scanner and CAD/CAM Services            $    10.0  $     9.8  $    10.0 
                                                                            
  Gross Margin                                   74.5%      73.5%      74.1%
    Clear Aligner                                78.8%      77.6%      78.7%
    Scanner and CAD/CAM Services                 18.5%      20.6%      20.0%
                                                                            
  Operating Expense                         $    89.4  $    95.8  $    69.1 
  Operating Margin                               12.0%       3.3%      20.5%
  Net Profit (Loss)                         $     9.6  $    (0.3) $    20.4 
  Earnings (Loss) Per Diluted Share (EPS)   $    0.12  $   (0.00) $    0.25 
                                                                            
  Key Non-GAAP Operating Results               Q4 12      Q3 12      Q4 11  
                                            ---------  ---------  --------- 
  Non-GAAP Gross Margin                          74.7%      73.7%      74.9%
    Non-GAAP Clear Aligner                       78.8%      77.6%      78.7%
    Non-GAAP Scanner & CAD/CAM Services          20.5%      23.8%      30.0%
                                                                            
  Non-GAAP Operating Expense                $    76.6  $    70.0  $    66.9 
  Non-GAAP Operating Margin                      21.0%      22.4%      23.0%
  Non-GAAP Net Profit                       $    22.3  $    23.7  $    23.0 
  Non-GAAP Earnings Per Diluted Share (EPS) $    0.27  $    0.28  $    0.28 
  EBITDA                                    $    21.7  $     8.5  $    30.7 
  Adjusted EBITDA                           $    33.6  $    33.6  $    32.6 
                                                                            

Total stock-based compensation expense included in Q4 12 was $6.0 million compared to $5.4 million in Q3 12 and $5.0 million in Q4 11. Stock based compensation expense included in GAAP gross margin in Q4 12, Q3 12 and Q4 11 was $0.5 million. Stock-based compensation expense included in GAAP operating expense in Q4 12 was $5.5 million compared to $4.9 million in Q3 12 and $4.5 million in Q4 11.

Liquidity and Capital Resources
As of December 31, 2012, Align Technology had $356.1 million in cash, cash equivalents, and marketable securities compared to $248.1 million as of December 31, 2011. During Q4 12, we purchased approximately 1.4 million shares of our common stock at an average price of $26.41 per share for a total of approximately $37.0 million. There remains approximately $95.5 million available under the Company's existing stock repurchase authorization.

Q1 Fiscal 2013 Business Outlook
For the first quarter of fiscal 2013 (Q1 13), Align Technology expects net revenues to be in a range of $146.0 million to $150.5 million. Invisalign clear aligner case shipments for Q1 13 are expected to be in a range of 95.0 to 97.5 thousand cases, which reflect a year-over-year increase of 11.4% to 14.3%. Earnings per diluted share for Q1 13 is expected to be in a range of $0.21 to $0.23. Starting in fiscal year 2013, amortization of acquired intangible assets will no longer be excluded as a non-GAAP measure. The expense is now included in all periods presented, therefore, excluding it as a non-GAAP measure is no longer meaningful in period-to-period comparisons. A more comprehensive business outlook is available following the financial tables of this release.

Align Web Cast and Conference Call
Align Technology will host a conference call today, January 30, 2013 at 4:30 p.m. ET, 1:30 p.m. PT, to review its fourth quarter and fiscal year 2012 results, discuss future operating trends and 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 Technology'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 406337 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 February 8, 2013.

About Align Technology, Inc.
Align Technology designs, manufactures and markets Invisalign, a proprietary method for treating malocclusion, or the misalignment of teeth. Invisalign corrects malocclusion using a series of clear, nearly invisible, removable appliances that gently move teeth to a desired final position. Because it does not rely on the use of metal or ceramic brackets and wires, Invisalign significantly reduces the aesthetic and other limitations associated with braces. Invisalign is appropriate for treating adults and teens. Align Technology was founded in March 1997 and received FDA clearance to market Invisalign in 1998.The Invisalign product family includes Invisalign, Invisalign Teen, Invisalign Assist, Invisalign Express 10, Invisalign Express 5, Invisalign Lite, and Vivera Retainers. To learn more about Invisalign or to find an Invisalign trained doctor in your area, please visit www.invisalign.com.

Cadent Holdings, Inc. is a subsidiary of Align Technology and is a leading provider of 3D digital scanning solutions for orthodontics and dentistry. The Cadent family of products includes iTero and iOC scanning systems, OrthoCAD iCast and OrthoCAD iRecord. For additional information, please visit www.cadentinc.com.

About non-GAAP Financial Measures
To supplement our consolidated financial statements and our business outlook, we use the following non-GAAP financial measures: non-GAAP gross profit, non-GAAP operating expenses, non-GAAP profit from operations, non-GAAP net profit and non-GAAP earnings per share, which exclude, as applicable, acquisition and integration related costs, amortization of acquired intangible assets, severance and benefit costs, impairment of goodwill, and any related income tax-related adjustments, and EBITDA and adjusted EBITDA. 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, ongoing 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 quarter and year 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" and "Business Outlook Summary" 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 first quarter of 2013, including anticipated net revenue, gross margin, operating expense, operating income, earnings per share, case shipments and cash. 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 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 acquisition of Cadent Holdings, Inc., 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, the loss of key personnel and impairments in the book value of goodwill or other intangible assets. 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, 2011, which was filed with the Securities and Exchange Commission on February 29, 2012. 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                Year Ended          
                 ----------------------------  ---------------------------- 
                  December 31,   December 31,   December 31,   December 31, 
                      2012           2011           2012           2011     
                 -------------  -------------  -------------  ------------- 
                                                                            
Net revenues     $     142,840        128,905  $     560,041        479,741 
                                                                            
Cost of revenues        36,362         33,355        143,653        118,458 
                 -------------  -------------  -------------  ------------- 
                                                                            
Gross profit           106,478         95,550        416,388        361,283 
                 -------------  -------------  -------------  ------------- 
                                                                            
Operating                                                                   
 expenses:                                                                  
 Sales and                                                                  
  marketing             37,769         36,112        152,041        142,174 
 General and                                                                
  administrative        27,166         22,457         95,840         89,152 
 Research and                                                               
  development           11,711          9,568         42,869         37,154 
 Impairment of                                                              
  goodwill              11,926              -         36,591              - 
 Amortization of                                                            
  acquired                                                                  
  intangible                                                                
  assets                   835            983          3,455          2,443 
                 -------------  -------------  -------------  ------------- 
Total operating                                                             
 expenses               89,407         69,120        330,796        270,923 
                 -------------  -------------  -------------  ------------- 
                                                                            
Profit from                                                                 
 operations             17,071         26,430         85,592         90,360 
                                                                            
Interest and                                                                
 other income                                                               
 (expense), net           (672)           (84)        (1,296)          (419)
                 -------------  -------------  -------------  ------------- 
                                                                            
Profit before                                                               
 income taxes           16,399         26,346         84,296         89,941 
                                                                            
Provision for                                                               
 income taxes            6,840          5,897         25,605         23,225 
                 -------------  -------------  -------------  ------------- 
                                                                            
Net profit       $       9,559  $      20,449  $      58,691  $      66,716 
                 =============  =============  =============  ============= 
                                                                            
Net profit per                                                              
 share                                                                      
 - basic         $        0.12  $        0.26  $        0.73  $        0.86 
                 =============  =============  =============  ============= 
 - diluted       $        0.12  $        0.25  $        0.71  $        0.83 
                 =============  =============  =============  ============= 
                                                                            
Shares used in                                                              
 computing net                                                              
 profit per                                                                 
 share                                                                      
 - basic                81,043         78,737         80,528         77,988 
                 =============  =============  =============  ============= 
 - diluted              82,981         80,849         83,040         80,294 
                 =============  =============  =============  ============= 
                                                                            
                                                                            
                                                                            
ALIGN TECHNOLOGY, INC.                                                      
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS                             
(in thousands)                                                              
                                                                            
                                              December 31,    December 31,  
                                                   2012            2011     
                                                                            
                                             --------------- ---------------
                   ASSETS                                                   
                                                                            
Current assets:                                                             
  Cash and cash equivalents                  $       306,386 $       240,675
  Restricted cash                                      1,575           4,026
  Marketable securities, short-term                   28,485           7,395
  Accounts receivable, net                            98,992          91,537
  Inventories                                         15,122           9,402
  Other current assets                                35,233          31,781
                                             --------------- ---------------
    Total current assets                             485,793         384,816
                                                                            
Marketable securities, long-term                      21,252               -
Property and equipment, net                           79,191          53,965
Goodwill and intangible assets, net                  145,013         185,405
Deferred tax assets                                   21,609          22,337
Other long-term assets                                 3,454           2,741
                                             --------------- ---------------
                                                                            
    Total assets                             $       756,312 $       649,264
                                             =============== ===============
                                                                            
    LIABILITIES AND STOCKHOLDERS' EQUITY                                    
                                                                            
Current liabilities:                                                        
  Accounts payable                           $        19,549 $        19,265
  Accrued liabilities                                 74,247          76,600
  Deferred revenue                                    65,239          52,252
                                             --------------- ---------------
    Total current liabilities                        159,035         148,117
                                                                            
Other long term liabilities                           15,960          10,366
                                             --------------- ---------------
                                                                            
    Total liabilities                                174,995         158,483
                                                                            
Total stockholders' equity                           581,317         490,781
                                             --------------- ---------------
                                                                            
  Total liabilities and stockholders' equity $       756,312 $       649,264
                                             =============== ===============
                                                                            
                                                                            
                                                                            
ALIGN TECHNOLOGY, INC.                                                      
RECONCILIATION OF GAAP TO NON-GAAP KEY FINANCIAL METRICS                    
                                                                            
                                                                            
                                                                            
Reconciliation of GAAP to                                                   
 Non-GAAP Gross Profit                                                      
(in thousands)                                                              
                                           Three Months Ended               
                             ---------------------------------------------- 
                              December 31,    September 30,   December 31,  
                                  2012            2012            2011      
                             --------------  --------------  -------------- 
                                                                            
GAAP Gross profit            $      106,478  $      100,350  $       95,550 
  Acquisition and                                                           
   integration costs related                                                
   to cost of revenues (1)                -              55             139 
  Amortization of acquired                                                  
   intangible assets related                                                
   to cost of revenues (2)              201             213             285 
  Severance and benefit                                                     
   costs related to cost of                                                 
   revenues(3)                            -              39             579 
                             --------------  --------------  -------------- 
Non-GAAP Gross profit        $      106,679  $      100,657  $       96,553 
                             ==============  ==============  ============== 
                                                                            
Reconciliation of GAAP to                                                   
 Non-GAAP Gross Profit                                                      
 Scanner and CAD/CAM                                                        
 Services                                                                   
(in thousands)                                                              
                                            Three Months Ended              
                             ---------------------------------------------- 
                               December 31,   September 30,    December 31, 
                                   2012            2012            2011     
                             --------------  --------------  -------------- 
                                                                            
GAAP Scanner and CAD/CAM                                                    
 Services gross profit       $        1,848  $        2,016  $        1,9

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