Align Technology reports 28.5% increase year-over-year in first-quarter revenues

• Q1 revenues of $90.1 million increase 4.0% sequentially and 28.5% year-over-year
• Q1 Invisalign case shipments of 63.6 thousand increase 4.2% sequentially and 27.1% year-over-year

Align Technology, Inc. (Nasdaq:ALGN) today reported financial results for the first quarter of fiscal 2010, ended March 31, 2010.

Total net revenues for the first quarter of fiscal 2010 (Q1 10) were $90.1 million compared to $86.6 million reported in the fourth quarter of 2009 (Q4 09) and compared to $70.1 million reported in the first quarter of 2009 (Q1 09). Invisalign case shipments for Q1 10 were a record 63.6 thousand, compared to 61.1 thousand in Q4 09 and compared to 50.1 thousand in Q1 09.

Gross margin for Q1 10 was a record 77.4%, compared to 73.7% in Q4 09 and 75.2% in Q1 09. The increase in Q1 gross margin primarily reflects the manufacturing efficiencies associated with higher case volumes. These efficiencies were somewhat offset by $630 thousand of continuing education (CE) training costs that have been re-classified from sales and marketing expense. Historically, with the exception of initial training classes (CE1), continuing education fees and costs for educational programs were charged to sales and marketing expense. As a result of the Proficiency Program annual CE requirement, all training and education fees and costs, in which CE credit is provided, will now be charged to revenue and costs of sales, respectively.

Net profit for Q1 10 was $14.9 million, or $0.19 per diluted share. This is compared to net profit of $11.5 million, or $0.15 per diluted share in Q4 09 and net profit of $2.6 million, or $0.04 per diluted share in Q1 09. Stock-based compensation expense included in Q1 10 was $3.5 million compared to $3.1 million in Q4 09 and $3.7 million in Q1 09.

"I'm pleased to report strong results for our first quarter," said Thomas M. Prescott, president and CEO. "Record revenues and case shipments combined with lower spending resulted in better than anticipated earnings."

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 and non-GAAP earnings per share. 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 Q1 10 was $15.5 million, or $0.20 per diluted share. This is compared to non-GAAP net profit of $12.1 million, or $0.16 per diluted share in Q4 09 and non-GAAP net profit of $3.2 million, or $0.05 per diluted share in Q1 09.

Q1 10 Operating Results

Liquidity and Capital Resources

As of March 31, 2010, Align had $205.4 million in cash, cash equivalents, and short-term marketable securities compared to $186.5 million as of December 31, 2009.

Key Business Metrics

The following table highlights business metrics for Align's first quarter of 2010. Additional historical information is available on the Company's website at http://investor.aligntech.com.
 

Q2 Fiscal 2010 Business Outlook

For the second quarter of fiscal 2010 (Q2 10), Align Technology expects net revenues to be in a range of $88.0 million to $91.0 million. GAAP earnings per diluted share for Q2 10 is expected to be in a range of $0.12 to $0.14. Stock-based compensation expense for Q2 10 is expected to be approximately $4.4 million. A more comprehensive business outlook is available following the financial tables of this release.

Commenting on Align's business outlook for the second quarter of 2010, Kenneth Arola, vice president and CFO made the following statement:

There are several factors that contribute to our outlook:

• With the change we have made to the Proficiency Program, it is uncertain how doctors, particularly lower volume doctors, will respond. It is likely that some practices that have been working hard to accelerate adoption will want to take a breather, while others who started to get that acceleration and enjoying the progress they made may want to continue at their new pace.
   
• In Q2, we will introduce a consumer rebate program that will run through the end of the quarter, as well as an additional volume rebate for the Elite and Premier providers. This is expected to have some negative impact on ASPs and gross margin during the quarter.
   
• For our International business, Q2 is historically a seasonally stronger sequential quarter and we expect it to be the same again this year. We do business in Euros and therefore major changes quarter-to-quarter in foreign exchange rates can impact top-line revenues and gross margin.
   
• June marks the beginning of the summer and we are looking forward to participating in another full season of teen orthodontic case starts and continue gaining share of chair – both at the tail end of Q2 and into Q3.

Other Announcements

In a separate announcement today Align also announced a significant change to the Invisalign proficiency program launched in June 2009 by eliminating the annual case start requirement in order for doctors to maintain their active Invisalign provider status. Doctors are still required to complete a minimum of ten Invisalign continuing education (CE) hours per year. For more information, please see Align's press release titled, "Align Technology Eliminates Annual Case Requirement for Invisalign Providers."