Align Technology, Inc. Announces Second Quarter Fiscal 2013 Results

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SAN JOSE, CA--(Marketwired - July 18, 2013) -

Align Technology, Inc. (NASDAQ: ALGN)

  • Q2 net revenues of $163.8 million increased 6.7% sequentially and 12.5% year-over-year
  • Q2 Invisalign clear aligner shipments of 106.1 thousand increased 8.1% sequentially and 11.4% year-over-year
  • Q2 Invisalign clear aligner revenue of $153.3 million increased 8.3% sequentially and 14.7% year-over-year
  • Q2 GAAP earnings per diluted share (EPS) was $0.36

Align Technology, Inc. (NASDAQ: ALGN) today reported financial results for the second quarter ended June 30, 2013.

Total net revenues for the second quarter of fiscal 2013 (Q2 13) were $163.8 million. This is compared to $153.6 million reported in the first quarter of 2013 (Q1 13) and compared to $145.6 million reported in the second quarter of 2012 (Q2 12). Q2 13 Invisalign clear aligner revenue was $153.3 million, compared to $141.6 million in Q1 13 and $133.7 million in Q2 12. As expected, 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. Q1 13 clear aligner revenue includes $4.4 million from the planned consolidation of Vivera Retainer product shipments, as well as a $2.7 million decrease in revenue due to the change in our mid-course correction policy. Q2 13 Invisalign clear aligner case shipments were a record 106.1 thousand, compared to 98.2 thousand in Q1 13 and 95.3 thousand in Q2 12. Q2 13 scanner and CAD/CAM services revenue was $10.5 million, compared to $12.0 million in Q1 13 and compared to $11.9 million in Q2 12. Q1 13 scanner and CAD/CAM services revenue includes $1.4 million that was deferred in Q3 and Q4 2012 for the new iTero scanner upgrade program which was launched in Q1 13.

"I'm pleased to report another good quarter with better than expected revenues, gross margins and earnings," said Thomas M. Prescott, Align president and CEO. "Strong second quarter results were driven by higher Invisalign volumes and ASPs, with sequential growth across all customer channels."

Net profit for Q2 13 was $29.3 million, or $0.36 per diluted share. This is compared to net loss of $42.0 million, or $(0.52) per diluted share in Q1 13 and net profit of $28.5 million, or $0.34 per diluted share in Q2 12. Net loss for Q1 13 includes an impairment of long-lived assets of $26.3 million and a goodwill impairment charge of $40.7 million. Net profit for Q2 12 includes pre-tax acquisition and integration related costs of $0.3 million, pre-tax severance and benefit costs of $0.2 million with a total income tax-related adjustment of $0.8 million.

As previously announced, beginning May 1, 2013 the six indirect country markets of Australia, New Zealand, Hong Kong, Singapore, Macau and Malaysia reverted back to a direct Invisalign sales region for us. We have completed the transition and began to recognize direct sales at our full Invisalign average sales price (ASP), rather than the significantly discounted ASP under the distribution agreement.

As of June 15, 2013, we no longer charge a fee associated with mid-course correction orders. Mid-course correction provides Invisalign customers with the option of ordering a treatment adjustment during active treatment if the case is not tracking to the original treatment plan or goals, giving doctors the ability to "adjust course" based on the needs of the individual patient. We now include up to three free mid-course correction orders per case in our list prices for Invisalign Full and Invisalign Teen products. As a result, Invisalign clear aligner revenue for Q2 13 was decreased by $1.2 million, which reflects the revenue deferred to provide free mid-course corrections for open cases shipped between April 1 through June 15, 2013 that are now eligible for the new mid-course correction policy. In Q1 13, Invisalign clear aligner revenue was decreased by $2.7 million, which reflected the estimated deferred revenue for open cases as of March 31, 2013 that were expected to be eligible for the new policy.

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. Starting in fiscal year 2013, amortization of acquired intangible assets is no longer excluded as a non-GAAP measure. This expense is included in GAAP gross profit, operating expenses, profit (loss) from operations and net profit (loss) for the periods presented below and therefore is no longer a reconciling item.

Q2 13 Operating Results ($M except for per share amounts and percentages)

                                                                            
Key GAAP Operating Results                   Q2 13      Q1 13       Q2 12   
                                           ---------  ---------   --------- 
Revenue                                    $   163.8  $   153.6   $   145.6 
- Clear Aligner                            $   153.3  $   141.6   $   133.7 
- Scanner and CAD/CAM Services             $    10.5  $    12.0   $    11.9 
                                                                            
Gross Margin                                    75.5%      73.5%       74.7%
- Clear Aligner                                 78.4%      77.2%       79.0%
- Scanner and CAD/CAM Services                  33.9%      29.3%       26.6%
                                                                            
Operating Expense                          $    85.8  $   150.9   $    72.8 
Operating Margin                                23.1%     (24.8)%      24.7%
Net Profit (Loss)                          $    29.3  $   (42.0)  $    28.5 
Earnings (Loss) Per Diluted Share (EPS)    $    0.36  $   (0.52)  $    0.34 
                                                                            
Key Non-GAAP Operating Results                Q2 13      Q1 13       Q2 12  
Non-GAAP Gross Margin                           75.5%      73.5%       74.9%
- Non-GAAP Clear Aligner                        78.4%      77.2%       79.0%
- Non-GAAP Scanner & CAD/CAM Services           33.9%      29.3%       28.4%
                                                                            
Non-GAAP Operating Expense                 $    85.8  $    83.9   $    72.5 
Non-GAAP Operating Margin                       23.1%      18.8%       25.1%
Non-GAAP Net Profit                        $    29.3  $    21.2   $    28.2 
Non-GAAP Earnings Per Diluted Share (EPS)  $    0.36  $    0.26   $    0.34 
EBITDA (Loss)                              $    41.4  $   (34.2)  $    40.8 
Adjusted EBITDA                            $    41.4  $    32.9   $    41.3 
                                                                            

Total stock-based compensation expense included in Q2 13 was $7.3 million compared to $6.4 million in Q1 13 and $5.3 million in Q2 12. Stock based compensation expense included in GAAP gross margin in Q2 13 was $0.6 million, and Q1 13 and Q2 12 was $0.5 million. Stock-based compensation expense included in GAAP operating expense in Q2 13 was $6.7 million compared to $5.8 million in Q1 13 and $4.8 million in Q2 12.

Liquidity and Capital Resources
As of June 30, 2013, Align Technology had $341.3 million in cash, cash equivalents, and short and long-term marketable securities compared to $356.1 million as of December 31, 2012. During Q2 13, with the purchase of 2.6 million of our common stock at an average price of $35.02 per share for a total of approximately $92.7 million, we completed the remaining authorized repurchases under our stock purchase program.

Q3 Fiscal 2013 Business Outlook
For the third quarter of fiscal 2013 (Q3 13), Align Technology expects net revenues to be in a range of $154.9 million to $160.0 million. Invisalign clear aligner case shipments for Q3 13 are expected to be in a range of 103.6 to 106.1 thousand cases, which reflect a year-over-year increase of 12% to 15%. Earnings per diluted share for Q3 13 is expected to be in a range of $0.28 to $0.30.

Align Web Cast and Conference Call
Align Technology will host a conference call today, July 18, 2013 at 4:30 p.m. ET, 1:30 p.m. PT, to review its second quarter 2013 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 417357 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 26, 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 the iTero 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, severance and benefit costs, impairment of goodwill, impairment of long-lived assets 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 third 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 scanner and the CAD/CAM 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, 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, 2012, which was filed with the Securities and Exchange Commission on March 1, 2013. 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,     June 30,    June 30,     June 30,   
                              2013         2012        2013         2012    
                          -----------  ----------- -----------  ----------- 
                                                                            
Net revenues              $   163,828      145,626 $   317,408      280,705 
                                                                            
Cost of revenues               40,137       36,826      80,868       71,145 
                          -----------  ----------- -----------  ----------- 
                                                                            
Gross profit                  123,691      108,800     236,540      209,560 
                          -----------  ----------- -----------  ----------- 
                                                                            
Operating expenses:                                                         
  Sales and marketing          47,847       39,087      90,128       77,804 
  General and                                                               
   administrative              27,027       23,021      57,375       46,532 
  Research and                                                              
   development                 10,916       10,680      22,198       21,206 
  Impairment of goodwill            -            -      40,693              
  Impairment of long-                                                       
   lived assets                     -            -      26,320              
                          -----------  ----------- -----------  ----------- 
Total operating expenses       85,790       72,788     236,714      145,542 
                                                                            
Profit (loss) from                                                          
 operations                    37,901       36,012        (174)      64,018 
                                                                            
Interest and other income                                                   
 (expense), net                  (335)         541      (1,323)        (271)
                          -----------  ----------- -----------  ----------- 
                                                                            
Profit (loss) before                                                        
 income taxes                  37,566       36,553      (1,497)      63,747 
                                                                            
Provision for income                                                        
 taxes                          8,246        8,061      11,166       14,271 
                          -----------  ----------- -----------  ----------- 
                                                                            
Net profit (loss)         $    29,320  $    28,492 $   (12,663) $    49,476 
                          ===========  =========== ===========  =========== 
                                                                            
Net profit (loss) per                                                       
 share                                                                      
  - basic                 $      0.36  $      0.35 $     (0.16) $      0.62 
                          ===========  =========== ===========  =========== 
  - diluted               $      0.36  $      0.34 $     (0.16) $      0.60 
                          ===========  =========== ===========  =========== 
                                                                            
Shares used in computing                                                    
 net profit (loss) per                                                      
 share                                                                      
  - basic                      80,576       80,384      80,909       79,810 
                          ===========  =========== ===========  =========== 
  - diluted                    82,149       82,954      80,909       82,446 
                          ===========  =========== ===========  =========== 
                                                                            
                                                                            
ALIGN TECHNOLOGY, INC.                                                      
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS                             
(in thousands)                                                              
                                                                            
                                                  June 30,     December 31, 
                                                     2013           2012    
                                                -------------  -------------
                    ASSETS                                                  
                                                                            
Current assets:                                                             
  Cash and cash equivalents                     $     164,497  $     306,386
  Restricted cash                                         516          1,575
  Marketable securities, short-term                   113,933         28,485
  Accounts receivable, net                            112,367         98,992
  Inventories                                          15,704         15,122
  Other current assets                                 35,076         35,233
                                                -------------  -------------
    Total current assets                              442,093        485,793
                                                                            
Marketable securities, long-term                       62,885         21,252
Property and equipment, net                            76,932         79,191
Goodwill and intangible assets, net                    87,028        145,013
Deferred tax assets                                    30,622         21,609
Other long-term assets                                  4,673          3,454
                                                -------------  -------------
                                                                            
    Total assets                                $     704,233  $     756,312
                                                =============  =============
                                                                            
      LIABILITIES AND STOCKHOLDERS' EQUITY                                  
                                                                            
Current liabilities:                                                        
  Accounts payable                              $      21,556  $      19,549
  Accrued liabilities                                  75,776         74,247
  Deferred revenue                                     63,322         61,975
                                                -------------  -------------
      Total current liabilities                       160,654        155,771
                                                                            
Other long term liabilities                            23,042         19,224
                                                -------------  -------------
                                                                            
      Total liabilities                               183,696        174,995
                                                                            
Total stockholders' equity                            520,537        581,317
                                                -------------  -------------
                                                                            
    Total liabilities and stockholders' equity  $     704,233  $     756,312
                                                =============  =============
                                                                            

Starting in fiscal year 2013, amortization of acquired intangible assets is no longer excluded as a non-GAAP measure. This expense is included in GAAP gross profit, operating expenses, profit (loss) from operations and net profit (loss) for the periods presented below and therefore is no longer a reconciling item.

                                                                         
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        
                                       --------------------------------- 
                                        June 30,   March 31,   June 30,  
                                          2013       2013        2012    
                                       ---------- ----------  ---------- 
                                                                         
GAAP Gross profit                      $  123,691 $  112,849  $  108,800 
  Acquisition and integration costs                                      
   related to cost of revenues (1)              -          -          72 
  Severance and benefit costs related                                    
   to cost of revenues (2)                      -          -         135 
                                       ---------- ----------  ---------- 
Non-GAAP Gross profit                  $  123,691 $  112,849  $  109,007 
                                       ========== ==========  ========== 
                                                                         
Reconciliation of GAAP to Non-GAAP                                       
 Gross Profit Scanner and CAD/CAM                                        
 Services                                                                
(in thousands)                                                           
                                               Three Months Ended        
                                       --------------------------------- 
                                        June 30,   March 31,   June 30,  
                                          2013       2013        2012    
                                       ---------- ----------  ---------- 
                                                                         
GAAP Scanner and CAD/CAM Services                                        
 gross profit                          $    3,567 $    3,522  $    3,183 
  Acquisition and integration costs                                      
   related to cost of revenues (1)              -          -          72 
    Severance and benefit costs                                          
     related to cost of revenues (2)            -          -         135 
                                       ---------- ----------  ---------- 
Non-GAAP Gross profit                  $    3,567 $    3,522  $    3,390 
                                       ========== ==========  ========== 
                                                                         
Reconciliation of GAAP to Non-GAAP                                       
 Operating Expenses                                                      
(in thousands)                                                           
                                               Three Months Ended        
                                       --------------------------------- 
                                        June 30,   March 31,   June 30,  
                                          2013       2013        2012    
                                       ---------- ----------  ---------- 
                                                                         
GAAP Operating expenses                $   85,790 $  150,924  $   72,788 
  Acquisition and integration costs                                      
   related to operating expenses (1)            -          -        (261)
  Severance and benefit costs related                                    
   to operating expenses (2)                    -          -         (49)
  Impairment of goodwill (3)                    -    (40,693)          - 
  Impairment of long-lived assets (4)           -    (26,320)          - 
                                       ---------- ----------  ---------- 
Non-GAAP Operating expenses            $   85,790 $   83,911  $   72,478 
                                       ========== ==========  ========== 
                                                                         
Reconciliation of GAAP to Non-GAAP                                       
 Profit from Operations                                                  
(in thousands)                                                           
                                               Three Months Ended        
                                       --------------------------------- 
                                        June 30,   March 31,   June 30,  
                                          2013       2013        2012    
                                       ---------- ----------  ---------- 
                                                                         
GAAP Profit (loss) from operations     $   37,901 $  (38,075) $   36,012 
  Acquisition and integration costs                                      
   (1)                                          -          -         333 
  Severance and benefit costs (2)               -          -         184 
  Impairment of goodwill (3)                    -     40,693           - 
  Impairment of long-lived assets (4)           -     26,320           - 
                                       ---------- ----------  ---------- 
Non-GAAP Profit from operations        $   37,901 $   28,938  $   36,529 
                                       ========== ==========  ========== 
                                                                         
Reconciliation of GAAP to Non-GAAP Net                                   
 Profit                                                                  
(in thousands, except per share                                          
 amounts)                                                                
                                               Three Months Ended        
            


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