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Align Technology Announces Second Quarter 2020 Financial Results

July 22, 2020 4:00 PM

SAN JOSE, Calif., July 22, 2020 (GLOBE NEWSWIRE) -- Align Technology, Inc. (Nasdaq: ALGN) today reported financial results for the second quarter of 2020 (“Q2’20”). Q2’20 total revenues were $352.3 million, down 41.3% year-over-year. Q2’20 Clear Aligner revenues were $298.3 million, down 39.9% year-over-year and Q2’20 Imaging Systems and CAD/CAM Services (formerly Scanner and Services) revenues were $54.0 million, down 48.1% year-over-year. Q2’20 Invisalign volume was 221.9 thousand cases, down 41.2% year-over-year. For the Americas and International regions, Q2’20 Invisalign volume was down 52.2% and down 27.1% year-over-year, respectively. Q2’20 Invisalign volume for teenage patients was 70.6 thousand cases, down 31.9% year-over-year. We had an operating loss of $73.0 million in Q2’20, down 141.4% year-over-year from an operating profit of $176.5M, resulting in a Q2’20 operating margin of (20.7)%. Q2’20 GAAP net loss was $40.6 million, or $(0.52) per diluted share. On a non-GAAP basis, Q2’20 net loss was $27.6 million, or $(0.35) per diluted share.

On April 1, 2020, we acquired privately held exocad Global Holdings GmbH (exocad) for a cash purchase price of $430 million. In recognition of the acquisition, as of Q2’20, we have renamed the Scanner and Services segment to Imaging Systems & CAD/CAM Services (ISCCS) or “Systems and Services.”

Commenting on Align’s Q2’20 results, Align Technology President and CEO Joe Hogan said, “I’m pleased to report Q2 results and continued progress across all regions and customer channels that reflect our COVID-19 recovery efforts and those of our customers. Practices across every region have reopened and are seeing patients, and many of those practices are embracing digital treatment in new ways and more purposefully than ever before. In particular, Invisalign providers are using the virtual tools we expedited over the last few months to minimize in-office appointments and deliver doctor-directed, personalized treatment that meets the needs of the moment – trusted, safe, convenient, and reflecting digital adoption. We have received consistently positive reactions and feedback from doctors in support of our efforts over the last few months. While it is too early to know for sure how extensive and sustainable the digital transition will be, interest in digital solutions is building, even among doctors who were not early adopters or advocates prior to the pandemic. This positive feedback and momentum is not just around Invisalign treatment – it includes digital workflow around iTero scanners and general dentistry. Doctors are telling us that the iTero imaging system is central to their practice and to their practice workflows, and it is key to driving digital treatment.”

Continued Hogan, “We’re also pleased to announce that during the quarter we reached another major milestone with our 1 millionth Invisalign patient in APAC, an adult patient from Tokyo, Japan. Ms. Ayuma Saito, an athlete in modern pentathlon and fencing, is being treated by Dr. Koji Yokoya, Head Director at Aoyama Gaien Orthodontics Dental Offices, who is a certified orthodontist of the Japanese Orthodontic Society, Doctor of Medical Dentistry.”

Financial SummarySecond Quarter Fiscal 2020

Q2’20Q1’20Q2’19
Invisalign Case Shipments 1221,880359,440377,145
GAAP
Net Revenues$352.3M$551.0M$600.7M
Clear Aligner 2$298.3M$481.6M$496.7M
Imaging Systems & CAD/CAM Services$54.0M$69.4M$104.0M
Net Profit (Loss)$(40.6)M$1,518.1M$147.1M
Diluted EPS$(0.52)$19.21$1.83
Non-GAAP
Net Profit (Loss)$(27.6)M$57.9M$120.0M
Diluted EPS$(0.35)$0.73$1.49

1 Invisalign shipments do not include SmileDirectClub (“SDC“) aligners.

2 Clear aligner revenues include Invisalign clear aligners and SDC aligners. The supply agreement with SDC terminated December 31, 2019 and was not renewed.

As of June 30, 2020, Align had $404.4 million in cash and cash equivalents compared to $790.7 million as of March 31, 2020. Additionally, we have $100.0 million remaining available for repurchase of our common stock under our May 2018 Repurchase Program.

Align Announcement Highlights:

Corporate

Product

Business OutlookDue to the uncertain scope and duration of the pandemic, and uncertain timing of the global recovery and economic normalization, we cannot at this time reasonably estimate the future impact on our operations and financial results. Accordingly, we are not providing guidance for the third quarter of fiscal year 2020.

Align Web Cast and Conference CallAlign will host a conference call today, July 22, 2020 at 4:30 p.m. ET, 1:30 p.m. PT, to review its second quarter 2020 results, discuss future operating trends and the business outlook. The conference call will also be web cast live via the Internet. To access the webcast, 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. An archived audio web cast will be available beginning approximately one hour after the call's conclusion and will remain available for approximately one month. Additionally, a telephonic replay of the call can be accessed by dialing 877-660-6853 with conference number 13705887 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 August 5, 2020.

About Non-GAAP Financial MeasuresTo supplement our condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we may provide investors with certain non-GAAP financial measures including, non-GAAP gross profit, gross margin, operating expenses, income (loss) from operations, operating margin, interest income and other income (expense), net, provision for (benefit from) income taxes, effective tax rate, net income (loss) and diluted net income (loss) per share, which exclude certain items that may not be indicative of our fundamental operating performance including discrete cash and non-cash charges or gains that are included in the most directly comparable GAAP measure. Non-GAAP measures will exclude the effects of stock-based compensation, amortization of acquired intangibles, non-cash deferred tax assets and associated amortization related to intra-entity transfer of non-inventory assets, acquisition related costs, impairments and other (gains) charges, and litigation settlement gains, and, if applicable, any associated tax impacts.

We use 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 recurring core operating performance. 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 will be provided to and used by our institutional investors and the analyst community to help them analyze the performance of our business.

There are limitations to using non-GAAP financial measures, though, because they are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. The non-GAAP financial measures are limited in value because they exclude certain items that may have a material impact upon our reported financial results. In addition, they are subject to inherent limitations as they reflect the exercise of judgments by management about which charges are excluded from the non-GAAP financial measures. We compensate for these limitations by analyzing current and future results on a GAAP as well as a non-GAAP basis and also by providing GAAP measures in our public disclosures. The presentation of non-GAAP financial information is meant to be considered in addition to, not as a substitute for or in isolation from, the directly comparable financial measures prepared in accordance with GAAP. We urge investors to review the reconciliation of our GAAP financial measures to the comparable Non-GAAP financial measures included in this presentation, and not to rely on any single financial measure to evaluate our business. For more information on these non-GAAP financial measures, please see the table captioned "Unaudited GAAP to Non-GAAP Reconciliation."

About Align Technology, Inc.Align Technology designs and manufactures the Invisalign® system, the most advanced clear aligner system in the world, iTero® intraoral scanners and services, and exocad CAD/CAM software. Align has helped treat over 8 million patients with the Invisalign system and is driving the evolution in digital dentistry with the iTero intraoral scanner and exocad CAD/CAM software − modernizing today’s practices by enabling enhanced digital orthodontic and restorative workflows to improve patient outcomes and practice efficiencies. Visit www.aligntech.com for more information.

For additional information about the Invisalign system or to find an Invisalign doctor in your area, please visit www.invisalign.com. For additional information about the iTero digital scanning system, please visit www.itero.com. For additional information about exocad dental CAD/CAM offerings and a list of exocad reseller partners, please visit www.exocad.com.

Forward-Looking StatementsThis news release, including the tables below, contains forward-looking statements, including quotations from management regarding the COVID-19 pandemic, its impact on our business and results of operations, our beliefs regarding our recovery and recovery efforts, our expectations for digital adoption in dentistry and the potential impact of our products in the transition, and future progress, our expectations regarding the acquisition of exocad and its expected impact, and our expectations for our new product releases. 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:

The foregoing and other risks are detailed from time to time in our periodic reports filed with the Securities and Exchange Commission, including, but not limited to, our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission (SEC) on February 28, 2020 and its latest Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, which was filed with the SEC on May 5, 2020. Align undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

Align TechnologyMadelyn Homick(408) 470-1180[email protected]Zeno GroupSarah Johnson(828) 551-4201[email protected]

ALIGN TECHNOLOGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Ended June 30, Six Month Ended June 30,
2020 2019 2020 2019
Net revenues$352,314 $600,697 $903,277 $1,149,668
Cost of net revenues 127,986 168,408 284,593 315,283
Gross profit 224,328 432,289 618,684 834,385
Operating expenses:
Selling, general and administrative 256,967 267,948 539,873 515,058
Research and development 40,361 38,851 81,893 76,354
Impairments and other charges - - - 29,782
Litigation settlement gain - (51,000) - (51,000)
Total operating expenses 297,328 255,799 621,766 570,194
Income (loss) from operations (73,000) 176,490 (3,082) 264,191
Interest income and other income (expense), net:
Interest income 473 3,465 2,459 6,098
Other income (expense), net (966) 13,892 (19,515) 8,146
Total interest income and other income (expense), net (493) 17,357 (17,056) 14,244
Net income (loss) before provision for (benefit from) income taxes and equity in losses of investee (73,493) 193,847 (20,138) 278,435
Provision for (benefit from) income taxes (32,891) 43,121 (1,497,667) 51,917
Equity in losses of investee, net of tax - 3,584 - 7,528
Net income (loss)$(40,602) $147,142 $1,477,529 $218,990
Net income (loss) per share:
Basic$(0.52) $1.84 $18.78 $2.74
Diluted$(0.52) $1.83 $18.70 $2.71
Shares used in computing net income (loss) per share:
Basic 78,769 79,943 78,681 79,901
Diluted 78,769 80,590 79,016 80,665

ALIGN TECHNOLOGY, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, 2020 December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents$404,359 $550,425
Marketable securities, short-term - 318,202
Accounts receivable, net 473,314 550,291
Inventories 131,276 112,051
Prepaid expenses and other current assets 140,295 102,450
Total current assets 1,149,244 1,633,419
Property, plant and equipment, net 668,951 631,730
Operating lease right-of-use assets, net 68,578 56,244
Goodwill and intangible assets, net 543,211 75,692
Deferred tax assets 1,568,293 64,007
Other assets 27,580 39,610
Total assets$4,025,857 $2,500,702
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$94,987 $87,250
Accrued liabilities 244,774 319,958
Deferred revenues 601,831 563,762
Total current liabilities 941,592 970,970
Income tax payable 115,257 102,794
Operating lease liabilities 50,619 43,463
Other long-term liabilities 73,344 37,306
Total liabilities 1,180,812 1,154,533
Total stockholders' equity 2,845,045 1,346,169
Total liabilities and stockholders' equity$4,025,857 $2,500,702

ALIGN TECHNOLOGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended June 30,
2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities$69,684 $294,561
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used in investing activities (172,326) (321,020)
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used in financing activities (36,376) (188,381)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash (7,172) 1,467
Net decrease in cash, cash equivalents, and restricted cash (146,190) (213,373)
Cash, cash equivalents, and restricted cash at beginning of the period 551,134 637,566
Cash, cash equivalents, and restricted cash at end of the period$404,944 $424,193

ALIGN TECHNOLOGY, INC.
INVISALIGN BUSINESS METRICS*
Q1 Q2 Q3 Q4 Fiscal Q1 Q2
2019 2019 2019 2019 2019 2020 2020
Invisalign Average Selling Price (ASP):
Worldwide ASP$1,245 $1,230 $1,260 $1,240 $1,245 $1,255 $1,255
International ASP$1,330 $1,305 $1,330 $1,300 $1,315 $1,340 $1,285
Invisalign Cases Shipped by Geography:
Americas 202,935 211,360 215,355 225,925 855,575 213,505 100,995
International 146,260 165,785 170,005 187,790 669,840 145,935 120,885
Total Cases Shipped 349,195 377,145 385,360 413,715 1,525,415 359,440 221,880
YoY % growth 28.3% 24.6% 20.7% 23.9% 24.2% 2.9% -41.2%
QoQ % growth 4.6% 8.0% 2.2% 7.4% -13.1% -38.3%
Number of Invisalign Doctors Cases Were Shipped To:
Americas 30,200 31,445 31,975 33,130 47,130 32,315 22,165
International 26,510 28,970 30,980 33,720 48,650 28,535 25,945
Total Doctors Cases Shipped To 56,710 60,415 62,955 66,850 95,780 60,850 48,110
Invisalign Doctor Utilization Rates**:
North America 7.0 7.0 7.0 7.2 19.4 6.9 4.8
North American Orthodontists 18.3 18.9 19.1 19.3 65.0 18.9 11.0
North American GP Dentists 3.6 3.6 3.5 3.8 9.5 3.6 2.5
International 5.5 5.7 5.5 5.6 13.8 5.1 4.7
Total Utilization Rates 6.2 6.2 6.1 6.2 15.9 5.9 4.6
Number of Invisalign Doctors Trained:
Americas 1,840 3,070 2,760 2,095 9,765 2,035 1,140
International 2,410 3,520 3,135 3,445 12,510 2,600 2,350
Total Doctors Trained Worldwide 4,250 6,590 5,895 5,540 22,275 4,635 3,490
Total to Date Worldwide 156,205 162,795 168,690 174,230 174,230 178,865 182,355
* Invisalign business metrics exclude SmileDirectClub aligners.
** # of cases shipped / # of doctors to whom cases were shipped. LATAM utilization rate is not separately disclosed, but included in the total utilization rates.
ALIGN TECHNOLOGY, INC.
STOCK-BASED COMPENSATION
(in thousands)
Q1 Q2 Q3 Q4 Fiscal Q1 Q2
2019 2019 2019 2019 2019 2020 2020
Stock-based Compensation (SBC)
SBC included in Gross Profit$1,112 $1,278 $1,354 $1,410 $5,154 $1,347 $891
SBC included in Operating Expenses 19,932 21,189 22,822 19,087 83,030 21,580 24,116
Total SBC$21,044 $22,467 $24,176 $20,497 $88,184 $22,927 $25,007

ALIGN TECHNOLOGY, INC.
UNAUDITED GAAP TO NON-GAAP RECONCILIATION
(in thousands except per share data)
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
GAAP gross profit$224,328 $432,289 $618,684 $834,385
Stock-based compensation 891 1,278 2,238 2,390
Amortization of intangibles (1) 1,650 - 1,650 -
Non-GAAP gross profit$226,869 $433,567 $622,572 $836,775
GAAP gross margin 63.7% 72.0% 68.5% 72.6%
Non-GAAP gross margin 64.4% 72.2% 68.9% 72.8%
GAAP income (loss) from operations$(73,000) $176,490 $(3,082) $264,191
Stock-based compensation 25,007 22,467 47,934 43,511
Amortization of intangibles (1) 3,245 - 3,245 -
Acquisition related costs (2) 5,968 - 7,307 -
Impairments and other charges (3) - - - 29,782
Litigation settlement gain (4) - (51,000) - (51,000)
Non-GAAP income (loss) from operations$(38,780) $147,957 $55,404 $286,484
GAAP operating margin (20.7)% 29.4% (0.3)% 23.0%
Non-GAAP operating margin (11.0)% 24.6% 6.1% 24.9%
GAAP interest income and other income (expense), net$(493) $17,357 $(17,056) $14,244
Acquisition related costs (2) 1,012 - 10,187 -
Non-GAAP interest income and other income (expense), net$519 $17,357 $(6,869) $14,244
GAAP net income (loss) before provision for (benefit from) income taxes and equity in losses of investee$(73,493) $193,847 $(20,138) $278,435
Stock-based compensation 25,007 22,467 47,934 43,511
Amortization of intangibles (1) 3,245 - 3,245 -
Acquisition related costs (2) 6,980 - 17,494 -
Impairments and other charges (3) - - - 29,782
Litigation settlement gain (4) - (51,000) - (51,000)
Non-GAAP net income (loss) before provision for (benefit from) income taxes and equity in losses of investee$(38,261) $165,314 $48,535 $300,728
GAAP provision for (benefit from) income taxes$(32,891) $43,121 $(1,497,667) $51,917
Tax impact on non-GAAP adjustments 19,702 (1,356) 19,838 20,778
Tax related non-GAAP items 2,555 - 1,496,049 -
Non-GAAP provision for (benefit from) income taxes$(10,634) $41,765 $18,220 $72,695
GAAP effective tax rate 44.8% 22.2% 7,437.0% 18.6%
Non-GAAP effective tax rate 27.8% 25.3% 37.5% 24.2%
GAAP net income (loss)$(40,602) $147,142 $1,477,529 $218,990
Stock-based compensation 25,007 22,467 47,934 43,511
Amortization of intangibles (1) 3,245 - 3,245 -
Acquisition related costs (2) 6,980 - 17,494 -
Impairments and other charges (3) - - - 29,782
Litigation settlement gain (4) - (51,000) - (51,000)
Tax impact on non-GAAP adjustments (19,702) 1,356 (19,838) (20,778)
Tax related non-GAAP items (5) (2,555) - (1,496,049) -
Non-GAAP net income (loss)$(27,627) $119,965 $30,315 $220,505
GAAP diluted net income (loss) per share$(0.52) $1.83 $18.70 $2.71
Non-GAAP diluted net income (loss) per share$(0.35) $1.49 $0.38 $2.73
Shares used in computing diluted net income (loss) per share 78,769 80,590 79,016 80,665
Notes:
(1) During the three months ended June 30, 2020, we recorded amortization of intangible assets related to our Q2'20 exocad acquisition.
(2) During the three and six months ended June 30, 2020, we recorded certain incremental expenses related to our Q2'20 exocad acquisition including third party advisory, legal, tax, accounting, banking, valuation, and other professional or consulting fees and foreign exchange losses related to a forward contract for the purchase commitment.
(3) During the six months ended June 30, 2019, we recorded $29.8 million of impairments and other charges as a result of closing our Invisalign Stores due to the arbitrator's decision regarding SDC including operating lease right-of-use asset impairments, store leasehold improvement and fixed asset impairments and employee severance and other charges.
(4) During the three and six months ended June 30, 2019, we recorded a $51.0 million gain from the settlement of the Straumann litigation.
(5) During the three months ended March 31, 2020, we recorded a one-time net tax benefit for the deferred tax asset and certain costs associated with the intra-entity transfer of certain intellectual property rights and assets to our Swiss subsidiary. During the three months ended June 30, 2020, we reversed the quarterly impact of the estimated annual 2020 tax benefit associated with amortization of the transferred intangibles.
Refer to "About Non-GAAP Financial Measures" section of press release.

Align_Digital_Primary.jpg

Source: Align Technology, Inc.

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