Align Technology, Inc. (ALGN) today reported financial results for the fourth quarter and year ended December 31, 2017. We believe that the quarter was strong, and that shareholders will be rewarded with a nice gain after hours and during tomorrow’s trading session. Below we have the numbers:

 

Invisalign case shipments in the fourth quarter of 2017 (Q4’17) were 255.0 thousand, up 34.2% year-over-year. North America and International case shipments were up year-over-year 24.2% and 52.3%, respectively. Q4’17 Invisalign cases for teenage patients were 63.5 thousand, up 44.1% year-over-year. Q4’17 revenues were $421.3 million, up 43.7% year-over-year with Q4’17 operating income a record $109.6 million, up 60.3% year-over-year resulting in an operating margin of 26.0%. Q4’17 net profit was $10.3 million, or $0.13 per diluted share, which includes an $86.6 million tax expense, or $1.06 per diluted share negative impact due to the new U.S. Tax Cut and Jobs Act, comprised of a $10.0 million non-cash write-down of our deferred tax assets and a mandatory deemed repatriation tax of $76.6 million.

For 2017, record Invisalign revenues were $1.3 billion, up 34.1% year-over-year with Invisalign case shipments of 931.0 thousand, up 31.4% year-over-year. 2017 iTero revenues were $164.2 million, up 35.1% with record volumes, up 37.5% year-over-year. 2017 Invisalign cases for teenage patients were 237.5 thousand, up 40.4% year-over-year. For 2017, revenues were $1.5 billion, up 36.4% year-over-year and net profit was $231.4 million, or $2.83 per diluted share, which includes an $86.6 million tax expense, or $1.06 per diluted share negative impact due to the new U.S. Tax Cut and Jobs Act, comprised of a $10.0 million non-cash write-down of our deferred tax assets and a mandatory deemed repatriation tax of $76.6 million.

Commenting on Align’s Q4 and 2017 results, Align Technology President and CEO Joe Hogan said, “Overall, the fourth quarter was a strong finish to another outstanding year for Align, with better than expected revenues, volumes and operating income. Record Q4 revenues were up 43.7% year-over-year driven by increased Invisalign volumes across all geographies and customer channels, as well as by record iTero scanner revenue. Q4 Invisalign volume was up 34.2% year-over-year reflecting strong international growth from increased utilization and expansion of our customer base which included over 4,000 new customers for the third consecutive quarter. Notwithstanding this strong performance, our Q4 results were impacted by the new U.S. Tax Cut and Jobs Act which reduced our reported net income and EPS. However, Q4 operating income was a record $109.6M or 26.0%.”

Hogan continued, “For the full year, revenues of $1.5 billion increased 36.4% year-over-year driven by both record Invisalign revenue which surpassed the $1 billion mark for the first time ever and record iTero scanner revenues. These results reflect continued progress and execution of our four strategic growth drivers which focus on: driving international expansion; increasing Orthodontists utilization of Invisalign, especially with teenagers; enabling GP dentists to treat or refer more Invisalign cases; and generating consumer demand from millions of people worldwide and connecting them with an Invisalign doctor.”

GAAP Summary Financial Comparisons                                          
Fourth Quarter Fiscal 2017                                                  
----------------------------------------------------------------------------
                     Q4'17      Q3'17     Q4'16     Q/Q Change    Y/Y Change
----------------------------------------------------------------------------
Invisalign Case                                                             
 Shipments(1)       255.0K     236.1K    190.1K          +8.0%        +34.2%
Net Revenues       $421.3M    $385.3M   $293.2M          +9.4%        +43.7%
  Clear                                                                     
   Aligner(2)      $364.2M    $341.6M   $251.5M          +6.6%        +44.8%
  Scanner &                                                                 
   Services         $57.1M     $43.7M    $41.7M         +30.8%        +37.0%
Net Profit(3)       $10.3M     $82.6M    $47.6M        (87.6)%       (78.4)%
Diluted EPS(3)       $0.13      $1.01     $0.59        $(0.88)       $(0.46)
----------------------------------------------------------------------------
Fiscal 2017                                                                 
----------------------------------------------------------------------------
                                            2017         2016     Y/Y Change
----------------------------------------------------------------------------
Invisalign Case Shipments(1)             931,045      708,500         +31.4%
Net Revenues                           $1,473.4M    $1,079.9M         +36.4%
  Clear Aligner(2)                     $1,309.3M      $958.3M         +36.6%
  Scanner & Services                     $164.2M      $121.5M         +35.1%
Net Profit(3)                            $231.4M      $189.7M         +22.0%
Diluted EPS(3)                             $2.83        $2.33         +$0.50
----------------------------------------------------------------------------
Note: Changes and percentages are based on actual values and may effect     
totals due to rounding                                                      
(1) Invisalign Shipment figures do not include SmileDirectClub aligners     
(2) Clear aligner revenue includes revenues from Invisalign clear aligners  
and SmileDirectClub aligners                                                
(3) Q4'17 and 2017 net profit and diluted EPS includes $86.6 million tax    
expense, or $1.06 per diluted share negative impact due to the new U.S. Tax 
Cut and Jobs Act                                                            

As of December 31, 2017, Align had $761.5 million in cash, cash equivalents and marketable securities compared to $700.0 million as of December 31, 2016. We repurchased approximately 0.2 million shares of stock for $50.0 million in Q4’17 under the April 2016 Repurchase Program. We have $200.0 million remaining available for repurchases under the existing stock repurchase authorization.

2017 Business Highlights

The following list highlights Align’s key announcements over the past year:

  • Expanded restorative digital workflow solutions for iTero Element® scanner to include iTero Chairside CAD, a chairside prosthetics design software application that will support same-day dentistry as part of collaboration with Exocad GmbH.
  • Celebrated the 5 millionth Invisalign® patient, a 12-year old Canadian teenager starting Invisalign treatment with mandibular advancement.
  • Signed distribution agreement with Glidewell Dental for the iTero Element®intraoral scanning system in North America with glidewell.io™ In-Office Solution, a chairside restorative ecosystem designed to simplify the process of prescribing and delivering laboratory-quality dental restorations.
  • Opened the first Invisalign® store pilot in San Francisco to help consumers connect with an Invisalign® provider to improve their smile with Invisalign® treatment.
  • Awarded nearly $300,000 to researchers at universities in North AmericaEurope and Asia Pacific as part of the Company’s Research Award Program to support clinical and scientific dental research.
  • Signed distribution agreement Patterson Dental for iTero Element®intraoral scanning system in U.S. and Canada.
  • Opened first Invisalign® Treatment Planning Facility in Chengdu, China.
  • Launched TimeLapse technology for digital scan comparisons and ability to complete a scan in as little as 1 minute as part of a software upgrade for its iTero Element® intraoral scanners.
  • Received U.S. Patents for SmartTrack material, an innovative multi-layer polymer that delivers more gentle, constant force to improve control of tooth movements with Invisalign® clear aligners.
  • Celebrated the 1 millionth Invisalign® Teen patient, an 11 year-old boy from the U.S. starting Invisalign treatment.
  • Launched first global, multi-million dollar Invisalign brand platform and marketing campaign.
  • Achieved over 1 million scans submitted with iTero Element® scanner since its introduction in 2015.
  • Introduced of Invisalign® Teen with mandibular advancement feature, the first clear aligner solution for Class II correction in growing tween and teen patients. (Not yet available in the U.S., pending FDA approval).
  • Expanded digital implant workflow options for the iTero® intraoral scanner with Nobel Biocare implants and ELOS Medtech scan bodies.

Q1 2018 Business Outlook

For the first quarter of 2018 (Q1’18), Align provides the following guidance:

  • Net revenues in the range of $400 million to $410 million, up approximately 29% to 32% over the same period a year ago.
  • Invisalign case shipments in the range of 264 thousand to 269 thousand, up approximately 27% to 29% over the same period a year ago.
  • Operating margin in the range of 18.5% to 19.5%
  • Diluted EPS in the range of $0.94 to $0.98.

Align Web Cast and Conference Call
Align will host a conference call today, January 30, 2018 at 4:30 p.m. ET, 1:30 p.m. PT, to review its fourth quarter and year ended 2017 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 12 months. Additionally, a telephonic replay of the call can be accessed by dialing 877-660-6853 with conference number 13674959 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 13, 2018.

About Align Technology, Inc.
Align Technology designs and manufactures the Invisalign® system, the most advanced clear aligner system in the world, and iTero® intraoral scanners and services. Align’s products help dental professionals achieve the clinical results they expect and deliver effective, cutting-edge dental options to their patients. Visit www.aligntech.com for more information.

For additional information about the Invisalign system or to find an Invisalign provider in your area, please visit www.invisalign.com. For additional information about iTero digital scanning system, please visit www.itero.com.

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 2018 year end, including, but not limited to, anticipated net revenues, gross margin, operating expenses, operating profit, diluted earnings per share, tax rate and case shipments. 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, Align’s ability to protect its intellectual property rights, continued compliance with regulatory requirements, competition from existing and new competitors, 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 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, or that the expected benefits of new or existing business relationships will not be achieved as anticipated, 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, the security of customer and/or patient data is compromised for any reason, 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 develop and successfully introduce new products and product enhancements and the loss of key personnel. 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 year ended December 31, 2016, which was filed with the Securities and Exchange Commission (SEC) on February 28, 2017, and its latest Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, which was filed with the SEC on November 2, 2017. 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,      
                          ------------------------  ----------------------- 
                              2017         2016         2017        2016    
                          -----------  -----------  ----------- ----------- 
Net revenues              $   421,323  $   293,203  $ 1,473,413 $ 1,079,874 
Cost of net revenues          103,406       72,954      356,466     264,580 
                          -----------  -----------  ----------- ----------- 
Gross profit                  317,917      220,249    1,116,947     815,294 
                          -----------  -----------  ----------- ----------- 
Operating expenses:                                                         
 Selling, general and                                                       
  adminstrative               182,141      130,268      665,777     490,653 
 Research and development      26,170       21,609       97,559      75,720 
                          -----------  -----------  ----------- ----------- 
  Total operating                                                           
   expenses                   208,311      151,877      763,336     566,373 
Income from operations        109,606       68,372      353,611     248,921 
Interest and other income                                                   
 (expense), net                 2,581       (7,516)      11,188      (6,355)
                          -----------  -----------  ----------- ----------- 
Net income before                                                           
 provision for income                                                       
 taxes and equity in                                                        
 losses (gains) of                                                          
 investee                     112,187       60,856      364,799     242,566 
Provision for income                                                        
 taxes                        103,654       12,028      130,162      51,200 
Equity in losses (gains)                                                    
 of investee, net of tax       (1,731)       1,207        3,219       1,684 
                          -----------  -----------  ----------- ----------- 
Net income                $    10,264  $    47,621  $   231,418 $   189,682 
                          ===========  ===========  =========== =========== 
Net income per share:                                                       
 Basic                    $      0.13  $      0.60  $      2.89 $      2.38 
                          ===========  ===========  =========== =========== 
 Diluted                  $      0.13  $      0.59  $      2.83 $      2.33 
                          ===========  ===========  =========== =========== 
Shares used in computing                                                    
 net income per share:                                                      
 Basic                         80,080       79,667       80,085      79,856 
                          ===========  ===========  =========== =========== 
 Diluted                       81,863       81,248       81,832      81,484 
                          ===========  ===========  =========== =========== 
ALIGN TECHNOLOGY, INC.                                                      
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS                             
(in thousands)                                                              
                                       December 31,         December 31,    
                                           2017                  2016       
                                  ---------------------- -------------------
              ASSETS                                                        
Current assets:                                                             
  Cash and cash equivalents       $              449,511 $           389,275
  Marketable securities, short-                                             
   term                                          272,031             250,981
  Accounts receivable, net                       322,825             247,415
  Inventories                                     31,688              27,131
  Prepaid expenses and other                                                
   current assets                                 80,948              38,176
                                  ---------------------- -------------------
    Total current assets                       1,157,003             952,978
Marketable securities, long-term                  39,948              59,783
Property, plant and equipment,                                              
 net                                             348,793             175,167
Equity method investments                         54,606              45,061
Goodwill and intangible assets,                                             
 net                                              89,068              81,998
Deferred tax assets                               50,059              67,844
Other assets                                      38,379              13,320
                                  ---------------------- -------------------
    Total assets                  $            1,777,856 $         1,396,151
                                  ====================== ===================
  LIABILITIES AND STOCKHOLDERS'                                             
              EQUITY                                                        
Current liabilities:                                                        
  Accounts payable                $               36,776 $            28,596
  Accrued liabilities                            194,198             134,332
  Deferred revenues                              266,842             191,407
                                  ---------------------- -------------------
    Total current liabilities                    497,816             354,335
Income tax payable                               114,091              45,133
Other long-term liabilities                       15,579               1,294
                                  ---------------------- -------------------
     Total liabilities                           627,486             400,762
Total stockholders' equity                     1,150,370             995,389
                                  ---------------------- -------------------
    Total liabilities and                                                   
     stockholders' equity         $            1,777,856 $         1,396,151
                                  ====================== ===================
ALIGN TECHNOLOGY, INC.                                                      
INVISALIGN BUSINESS METRICS*                                                
                                         -----------                        
                                 Q4        Fiscal        Q1          Q2     
                                2016        2016        2017        2017    
Invisalign Average Selling                                                  
 Price (ASP):                                                               
 Worldwide ASP               $    1,230  $    1,265  $    1,270  $    1,285 
 International ASP           $    1,315  $    1,335  $    1,325  $    1,335 
Invisalign Cases Shipped by                                                 
 Geography:                                                                 
 North America                  122,555     463,810     132,885     146,510 
 International                   67,500     244,690      75,175      85,380 
                             ----------  ----------- ----------  ---------- 
  Total Cases Shipped           190,055     708,500     208,060     231,890 
                             ==========  =========== ==========  ========== 
   YoY % growth                    18.5%       21.5%       27.1%       31.0%
   QoQ % growth                     6.9%                    9.5%       11.5%
Number of Invisalign Doctors                                                
 Cases Were Shipped To:                                                     
 North America                   23,265      34,065      23,910      24,695 
 International                   13,635      20,415      14,955      16,570 
                             ----------  ----------- ----------  ---------- 
  Total Doctors Cases                                                       
   Shipped To                    36,900      54,480      38,865      41,265 
                             ==========  =========== ==========  ========== 
Invisalign Doctor                                                           
 Utilization Rates*:                                                        
 North America                      5.3        13.6         5.6         5.9 
  North American                                                            
   Orthodontists                   11.3        36.6        12.6        13.6 
  North American GP Dentists        3.2         7.6         3.1         3.3 
 International                      5.0        12.0         5.0         5.2 
  Total Utilization Rates           5.2        13.0         5.4         5.6 
 * # of cases shipped/# of                                                  
  doctors to whom cases were                                                
  shipped                                                                   
Number of Invisalign Doctors                                                
 Trained:                                                                   
 North America                    1,420       4,720         980       1,620 
 International                    2,280       6,960       2,280       3,255 
                             ----------  ----------- ----------  ---------- 
  Total Doctors Trained                                                     
   Worldwide                      3,700      11,680       3,260       4,875 
                             ==========  =========== ==========  ========== 
  Total to Date Worldwide       115,470     115,470     118,730     123,605 
                             ==========  =========== ==========  ========== 
                                                             ---------------
                                   Q3              Q4            Fiscal     
                                  2017            2017            2017      
Invisalign Average Selling                                                  
 Price (ASP):                                                               
 Worldwide ASP               $        1,310  $        1,305  $        1,295 
 International ASP           $        1,390  $        1,390  $        1,360 
Invisalign Cases Shipped by                                                 
 Geography:                                                                 
 North America                      144,870         152,245         576,510 
 International                       91,195         102,785         354,535 
                             --------------  --------------  ---------------
  Total Cases Shipped               236,065         255,030         931,045 
                             ==============  ==============  ===============
   YoY % growth                        32.8%           34.2%           31.4%
   QoQ % growth                         1.8%            8.0%                
Number of Invisalign Doctors                                                
 Cases Were Shipped To:                                                     
 North America                       24,845          25,365          36,415 
 International                       17,760          19,620          27,990 
                             --------------  --------------  ---------------
  Total Doctors Cases                                                       
   Shipped To                        42,605          44,985          64,405 
                             ==============  ==============  ===============
Invisalign Doctor                                                           
 Utilization Rates*:                                                        
 North America                          5.8             6.0            15.8 
  North American                                                            
   Orthodontists                       13.8            14.0            46.6 
  North American GP Dentists            3.1             3.3             8.2 
 International                          5.1             5.2            12.7 
  Total Utilization Rates               5.5             5.7            14.5 
 * # of cases shipped/# of                                                  
  doctors to whom cases were                                                
  shipped                                                                   
Number of Invisalign Doctors                                                
 Trained:                                                                   
 North America                        1,460           1,340           5,400 
 International                        2,820           2,745          11,100 
                             --------------  --------------  ---------------
  Total Doctors Trained                                                     
   Worldwide                          4,280           4,085          16,500 
                             ==============  ==============  ===============
  Total to Date Worldwide           127,885         131,970         131,970 
                             ==============  ==============  ===============
Note: Historical public data may differ due to rounding. Additionally,      
rounding may effect totals.                                                 
*Invisalign business metrics exclude SmileDirectClub aligners.              
ALIGN TECHNOLOGY, INC.                                                      
STOCK-BASED COMPENSATION                                                    
(in thousands)                                                              
                       --------                                     --------
                 Q4     Fiscal     Q1       Q2       Q3       Q4     Fiscal 
                2016     2016     2017     2017     2017     2017     2017  
Stock-based                                                                 
 Compensation                                                               
 (SBC)                                                                      
 SBC included                                                               
  in Gross                                                                  
  Profit      $  1,078 $  3,966 $    925 $    768 $    833 $    804 $  3,330
 SBC included                                                               
  in                                                                        
  Operating                                                                 
  Expenses      13,136   50,182   13,887   13,477   14,134   14,026   55,524
              -------- -------- -------- -------- -------- -------- --------
  Total SBC                                                                 
   Expense    $ 14,214 $ 54,148 $ 14,812 $ 14,245 $ 14,967 $ 14,830 $ 58,854
              ======== ======== ======== ======== ======== ======== ========
ALIGN TECHNOLOGY, INC.                                                      
BUSINESS OUTLOOK SUMMARY                                                    
(unaudited)                                                                 
The outlook figures provided below and elsewhere in this press release are  
approximate in nature since Align's business outlook is difficult to        
predict. Align's future performance involves numerous risks and             
uncertainties and the company's results could differ materially from the    
outlook provided. Some of the factors that could affect Align's future      
financial performance and business outlook are set forth under "Forward     
Looking Information" above in this press release.                           
Financial Outlook                                                           
(in millions, except per share amounts and percentages)                     
                                                         Q1'18 Guidance     
                                                        ---------------     
                                                              GAAP          
                                                        ---------------     
Net Revenues                                            $400.0 - $410.0     
Gross Margin                                             74.3% - 75.0%      
Operating Expenses                                      $223.5 - $227.5     
Operating Margin                                         18.5% - 19.5%      
Net Income per Diluted Share                             $0.94 - $0.98 (1)  
Business Metrics:                                            Q1'18          
                                                        ---------------     
Case Shipments                                          264.0K - 269.0K     
Capital Expenditure                                       $65M - $70M       
Depreciation & Amortization                              $10.5M - $11M      
Diluted Shares Outstanding                                   82.0M     (2)  
Stock Based Compensation Expense                             $16.2M         
Effective Tax Rate                                            2.0%     (1)  
(1) Includes the benefit from the adoption of the accounting standard update
2016-09 related to share-based compensation expense                         
(2) Excludes any stock repurchases during the quarter
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