Align Technology Announces Second Quarter 2020 Financial Results

• Q2 total revenues of $352.3 million, compared to $600.7 million in Q2’19
  
• Q2 GAAP net loss per diluted share of $(0.52), Q2 non-GAAP net loss per diluted share of $(0.35)
• Q2 Invisalign volume of 221.9 thousand cases, compared to 377.1 thousand cases in Q2’19
• Q2 Invisalign cases for teenage patients was 31.8% of total volumes at 70.6 thousand cases, compared to 27.5% of total volumes at 103.7 thousand cases in Q2’19
• Q2 Imaging Systems and CAD/CAM Services revenues of $54.0 million, compared to $104.0 million in Q2’19

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 Summary
Second Quarter Fiscal 2020

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

• Entered into a $300.0 million, three-year unsecured revolving credit facility (“Credit Agreement”) with Citibank, N.A., (“Citibank”), Bank of America, N.A., and HSBC Bank USA, N.A., with Citibank also acting as administrative agent. The Credit Agreement replaces Align’s existing revolving credit facility with Wells Fargo Bank, National Association.
• Closed the acquisition of privately held exocad, a global leader in the dental CAD/CAM software market that offers fully integrated workflows to dental labs and dental practices via a broad customer base of partners and resellers in over 150 countries. The acquisition of exocad broadens Align’s digital platform reach by adding technology that addresses restorative needs in an end-to-end digital platform workflow to facilitate ortho-restorative and comprehensive dentistry. The acquisition brings exocad’s expertise in restorative dentistry, implantology, guided surgery, and smile design to the Align technology portfolio.
• Announced the 2 millionth Invisalign teen patient, reflecting accelerating adoption in the largest segment of the orthodontic market. The 2 millionth teen Invisalign patient, Kaitlynn Ratliff, is a student and athlete who started her Invisalign treatment in January 2020. She’s being treated by Dr. Tom Hartsock of Hartsock and Sword Orthodontics in Pikeville, Kentucky. Dr. Hartsock is an Invisalign provider who specializes in teen treatment with Invisalign aligners and with the iTero scanner.
• Announced that an Administrative Law Judge (ALJ) with the United States International Trade Commission (ITC) issued an Initial Determination regarding her investigation of 3Shape A/S, 3Shape Trios A/S, and 3Shape Inc.’s (“3Shape”) infringement of Align’s patents. The ALJ determined that 3Shape infringes 7 of the 9 patent claims asserted by Align, found valid 6 of the 9 claims asserted by Align, and found a violation of Section 337 stemming from 3Shape’s infringement of 4 claims in 2 of Align’s asserted patents. The ALJ recommended an exclusion order and cease and desist order be entered against 3Shape’s unlawful importation. 
• Announced our partnership with MedTech Innovator Asia Pacific, the premier nonprofit startup accelerator in the medical technology industry. MedTech Innovator matches healthcare industry leaders with innovative medtech startups for mentorship and support. Support for the program underscores Align’s commitment to advancing health solutions and improving the lives of patients in the Asia Pacific Region.

Product

• Introduced virtual solutions to connect doctors and existing Invisalign patients for continuity of care. Invisalign^® Virtual Appointment and Invisalign^® Virtual Care represent the next level in practice and care transformation, enabling doctors to manage a range of practice services even when they are not in the same physical location as their patients. Until recently, both solutions were in pilot phases, but their launch was accelerated to support doctors to manage their practices and continue patient care during the COVID-19 pandemic.
• Introduced the latest version of Align’s proprietary ClinCheck^® treatment planning software at the Invisalign Scientific Symposium on May 15, 2020, a fully digital event for Invisalign-trained orthodontists. ClinCheck software provides doctors with a 3D model of planned tooth movements throughout the Invisalign treatment. ClinCheck Pro 6.0 moves Invisalign digital treatment planning to the cloud, making its robust ClinCheck treatment planning tools and features available to doctors anytime, anywhere, on any laptop, personal computer or tablet. The release included the new ClinCheck “In-Face” Visualization tool, an enhanced doctor-facing digital clinical tool that combines a photo of the patient’s face with their 3D Invisalign treatment plan, creating a personalized view of how their new smile could look.
• Announced that the iTero Element 5D Imaging System was awarded “Best New Technology Solution for Dentistry” from MedTech Breakthrough, an independent market intelligence organization that recognizes the top technology product companies in the global health and medical technology market. The iTero Element 5D, the latest innovation in the iTero product portfolio, is the first integrated dental imaging system that simultaneously records 3D intra-oral optical impressions, 2D color images, and Near Infrared images (NIRI).
  

Business Outlook
Due 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 Call
Align 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 Measures
To 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 Statements
This 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 impact of the COVID-19 pandemic on the health and safety of our employees, customers, patients, and our suppliers as well as the physical and economic impacts of the various recommendations, orders and protocols issued by local and national governmental agencies in light of the evolving situation, including any reimplementation of preventative measures;
• the ability to (i) realize expected benefits in connection with the acquisition of exocad within the expected timeframes or at all, (ii) timely, cost-efficiently and effectively integrate exocad’s business without adversely impacting operations of either Align or exocad, and (iii) avoid or mitigate uncertainties or liabilities in connection with the acquisition or its impacts on the value of our stock;
• difficulties predicting customer and consumer purchasing behavior and changes in consumer spending habits as a result of, among other things, prevailing economic conditions, levels of employment, salaries and wages and consumer confidence;
• expectations regarding the continued growth or declines of our domestic and/or international markets;
• increasing competition from existing and new competitors;
• rapidly evolving and groundbreaking advances that are fundamentally changing the dental industry and the way new and existing participants market and provide products and services to consumers;
• the ability to protect our intellectual property rights;
• continued compliance with regulatory requirements;
• our expectations regarding sales of our intra-oral scanners domestically and internationally and our belief that technology features and functionality of the iTero scanners and exocad technology will increase adoption of Invisalign and increase sales of our intra-oral scanners;
• 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 or enhancements to existing products do not proceed in accordance with the anticipated timeline or may themselves contain bugs or errors requiring remediation and that the market for the sale of these new or enhanced products may not develop as expected;
• a tougher consumer demand environment in China generally, especially for manufacturers and service providers whose headquarters or primarily operations are not based in China;
• the risks relating to our ability to sustain or increase profitability or revenue growth in future periods (or minimize declines) while controlling expenses;
• the impact of excess or constrained capacity at our manufacturing and treat operations facilities and pressure on our internal systems and personnel;
• the compromise of customer and/or patient data for any reason;
• the timing of case submissions from our doctors within a quarter as well as an increased manufacturing costs per case;
• foreign operational, political and other risks relating to our international manufacturing operations; and
• the loss of key personnel or work stoppages.

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.