Align Technology Announces Record Third Quarter 2017 Results

SAN JOSE, CA--(Marketwired - October 26, 2017) -

• Q3 revenues up 38.3% year-over-year, up 8.1% sequentially to a record $385.3 million
• Q3 total Invisalign case shipments up 32.8% year-over-year to 236.1 thousand
• Q3 Invisalign case shipments to teenage patients up 46.3% year-over-year, up 26.5% sequentially
• Q3 scanner and services revenues up 25.0% year-over-year, up 23.2% sequentially to $43.7 million
• Q3 diluted EPS $1.01, up 60.3% year-over-year

Align Technology, Inc. (NASDAQ: ALGN) today reported financial results for the third quarter ended September 30, 2017. Invisalign case shipments in the third quarter of 2017 (Q3'17) were 236.1 thousand, a 32.8% increase year-over-year. North America and International case shipments were up year-over-year 25.0% and 47.4%, respectively. Q3'17 Invisalign case shipments to teenage patients were 69.8 thousand, a 46.3% increase year-over-year. For Q3'17, revenues were $385.3 million, a 38.3% increase year-over-year, and net profit was $82.6 million, or $1.01 per diluted share, up 60.3% per diluted share compared to the same period in the prior year.

Commenting on Align's Q3 2017 results, Align Technology President and CEO Joe Hogan said, "I'm pleased to report another strong quarter and results that exceeded our expectations across our key financial metrics including revenue, volume, margins, and EPS. Third quarter revenues increased 38.3% year-over-year driven by increased Invisalign volumes across all our geographies, as well as strong growth from iTero scanners. Our strong third quarter results also reflect accelerated growth from teenager patients in both North America and the Asia Pacific region, with total Invisalign shipments up 46.3% year-over-year and up 26.5% from the second quarter. On a sequential basis, revenues increased 8.1% driven by continued strength across Asia Pacific, which offset expected seasonality in Europe, as well as higher than expected revenues from shipments to SmileDirectClub."

GAAP Summary Financial Comparisons
Third Quarter Fiscal 2017

			Q3'17		Q2'17		Q3'16		Q/Q Change		Y/Y Change
Invisalign Case Shipments*			236,065		231,890		177,755		+1.8%		+32.8%
Net Revenues			$385.3M		$356.5M		$278.6M		+8.1%		+38.3%
	Clear Aligner**		$341.6M		$321.0M		$243.7M		+6.4%		+40.2%
	Scanner & Services		$43.7M		$35.4M		$34.9M		+23.2%		+25.0%
Net Profit			$82.6M		$69.2M		$51.4M		+19.3%		+60.7%
Diluted EPS			$1.01		$0.85		$0.63		+$0.16		+$0.38

Note: Changes and percentages are based on actual values and may affect totals due to rounding
* Invisalign Shipment figures do not include SmileDirectClub aligners
** Clear aligner revenue includes revenues from Invisalign clear aligners and SmileDirectClub aligners

As of September 30, 2017, Align had $737.9 million in cash, cash equivalents and marketable securities compared to $676.6 million as of June 30, 2017. During Q3'17, Align concluded its previously announced $50.0 million accelerated stock repurchase program (ASR) receiving a total of 0.4 million shares at a weighted average share price of $146.48 under the ASR. We have $250.0 million remaining available for repurchases under the existing stock repurchase authorization.

Q3 2017 Business Highlights

• Align Technology Introduces a New Brand Identity for iTero® Scanning System and Tools: Align announced a new global brand identity for the company's leading iTero® scanning system and innovative tools at the recent bi-annual Invisalign GP Summit customer event. The introduction of a new, vibrant brand identity for the iTero scanner reflects its critical and central role in digital treatment and the practice of the future.

• Patterson Dental and Align Technology Announce Distribution Agreement for iTero® Element Intraoral Scanning System: Align announced a distribution agreement for Align's iTero Element intraoral scanning system. This agreement provides access to Patterson's sales force and general dentist customers who are looking to grow their business through practice digitization. The iTero scanner enables dentists to scan in as little as 60 seconds, visualize changes in dentition, and perform restorative and orthodontic workflows that enhance their patient care and help them grow their practice.

• Align Technology Moves Corporate Headquarters to New Buildings in San Jose, California: In August, Align relocated its corporate headquarters to a new location at 2820 Orchard Parkway, San Jose, CA. The Company had purchased the new buildings in January 2017 in anticipation of the lease expiration for its prior location.

• Align Technology Expands Its Presence in Raleigh, North Carolina with Larger Office to Support Continued Headcount Growth: Align has opened a larger office in Raleigh, North Carolina to accommodate headcount growth and leverage the area's diverse and broad-based talent resources. Align intends to hire more than 200 employees over the next several years in Raleigh in various areas illustrating its commitment to driving continued innovation and supporting its expanding customer base globally.

• Align Technology Opens First Office in Canada to Support Continued Growth: In August, Align opened its' first office in Canada to support continued growth across the region. Canada is Align's second largest country market and has a large opportunity for expansion and accelerated growth. Sian Roberts, who joined Align earlier this year as VP and General Manager, will lead the strategy and execution for Canada.

Q4 2017 Business Outlook
For the fourth quarter of 2017 (Q4'17), Align provides the following guidance:

• Invisalign case shipments in the range of 245 thousand to 250 thousand, up approximately 29% to 32% over the same period a year ago.
• Net revenues in the range of $391 million to $398 million, up approximately 33% to 36% over the same period a year ago.
• Diluted EPS in the range of $0.92 to $0.95.

Align Web Cast and Conference Call
Align will host a conference call today, October 26, 2017 at 4:30 p.m. ET, 1:30 p.m. PT, to review its third quarter 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 13671493 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 November 9, 2017.

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 fourth quarter of 2017, 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 June 30, 2017, which was filed with the SEC on August 3, 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						Nine Months Ended
				September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Net revenues				$	385,267		$	278,589		$	1,052,090		$	786,671
Cost of net revenues					92,779			69,387			253,060			191,626
Gross profit					292,488			209,202			799,030			595,045
Operating expenses:
	Selling, general and adminstrative				169,524			126,708			483,636			360,385
	Research and development				24,201			20,415			71,389			54,111
		Total operating expenses			193,725			147,123			555,025			414,496
Income from operations					98,763			62,079			244,005			180,549
Interest and other income (expense), net					3,750			1,463			8,607			1,161
Net income before provision for income taxes and equity in losses of investee					102,513			63,542			252,612			181,710
Provision for income taxes					18,344			11,698			26,508			39,172
Equity in losses of investee, net of tax					1,614			477			4,950			477
Net income				$	82,555		$	51,367		$	221,154		$	142,061
Net income per share:
	Basic			$	1.03		$	0.64		$	2.76		$	1.78
	Diluted			$	1.01		$	0.63		$	2.71		$	1.74
Shares used in computing net income per share:
	Basic				80,163			79,977			80,086			79,920
	Diluted				81,789			81,466			81,757			81,523

ALIGN TECHNOLOGY, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
				September 30, 2017			December 31, 2016
ASSETS
Current assets:
	Cash and cash equivalents			$	362,613		$	389,275
	Marketable securities, short-term				316,454			250,981
	Accounts receivable, net				321,328			247,415
	Inventories				36,941			27,131
	Prepaid expenses and other current assets				63,667			38,176
		Total current assets			1,101,003			952,978
Marketable securities, long-term					58,842			59,783
Property, plant and equipment, net					295,901			175,167
Equity method investments					52,875			45,061
Goodwill and intangible assets, net					90,070			81,998
Deferred tax assets					73,532			67,844
Other assets					25,400			13,320
		Total assets		$	1,697,623		$	1,396,151
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable			$	45,942		$	28,596
	Accrued liabilities				173,851			134,332
	Deferred revenues				241,576			191,407
		Total current liabilities			461,369			354,335
Income tax payable					45,375			45,133
Other long-term liabilities					8,921			1,294
		Total liabilities			515,665			400,762
Total stockholders' equity					1,181,958			995,389
		Total liabilities and stockholders' equity		$	1,697,623		$	1,396,151

ALIGN TECHNOLOGY, INC.

INVISALIGN BUSINESS METRICS*

					Q1			Q2			Q3			Q4			Fiscal			Q1			Q2			Q3
					2016			2016			2016			2016			2016			2017			2017			2017
Invisalign Average Selling Price (ASP):
	Worldwide ASP				$	1,255		$	1,285		$	1,285		$	1,230		$	1,265		$	1,270		$	1,285		$	1,310
	International ASP				$	1,315		$	1,345		$	1,365		$	1,315		$	1,335		$	1,325		$	1,335		$	1,390
Invisalign Cases Shipped by Geography:
	North America					110,500			114,855			115,900			122,555			463,810			132,885			146,510			144,870
	International					53,195			62,140			61,855			67,500			244,690			75,175			85,380			91,195
		Total Cases Shipped				163,695			176,995			177,755			190,055			708,500			208,060			231,890			236,065
			YoY % growth			25.2%			22.4%			20.5%			18.5%			21.5%			27.1%			31.0%			32.8%
			QoQ % growth			2.1%			8.1%			0.4%			6.9%						9.5%			11.5%			1.8%
Number of Invisalign Doctors Cases Were Shipped To:
	North America					22,355			22,575			22,570			23,265			34,065			23,910			24,695			24,845
	International					11,280			12,485			12,720			13,635			20,415			14,955			16,570			17,760
		Total Doctors Cases Shipped To				33,635			35,060			35,290			36,900			54,480			38,865			41,265			42,605
Invisalign Doctor Utilization Rates*:
	North America					4.9			5.1			5.1			5.3			13.6			5.6			5.9			5.8
		North American Orthodontists				10.4			10.7			11.1			11.3			36.6			12.6			13.6			13.8
		North American GP Dentists				3.0			3.1			3.0			3.2			7.6			3.1			3.3			3.1
	International					4.7			5.0			4.9			5.0			12.0			5.0			5.2			5.1
		Total Utilization Rates				4.9			5.1			5.0			5.2			13.0			5.4			5.6			5.5
* # of cases shipped/# of doctors to whom cases were shipped
Number of Invisalign Doctors Trained:
	North America					875			1,125			1,300			1,420			4,720			980			1,620			1,460
	International					1,605			1,760			1,315			2,280			6,960			2,280			3,255			2,820
		Total Doctors Trained Worldwide				2,480			2,885			2,615			3,700			11,680			3,260			4,875			4,280
		Total to Date Worldwide				106,270			109,155			111,770			115,470			115,470			118,730			123,605			127,885

Note: Historical public data may differ due to rounding. Additionally, rounding may affect totals.

*Invisalign business metrics exclude SmileDirectClub aligners.

ALIGN TECHNOLOGY, INC.

STOCK-BASED COMPENSATION

(in thousands)

				Q1			Q2			Q3			Q4			Fiscal			Q1			Q2			Q3
				2016			2016			2016			2016			2016			2017			2017			2017
Stock-based Compensation (SBC)
	SBC included in Gross Profit			$	961		$	932		$	995		$	1,078		$	3,966		$	925		$	768		$	833
	SBC included in Operating Expenses				11,563			12,767			12,716			13,136			50,182			13,887			13,477			14,134
		Total SBC Expense		$	12,524		$	13,699		$	13,711		$	14,214		$	54,148		$	14,812		$	14,245		$	14,967

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)
		Q4'17 Guidance
		GAAP
Net Revenues		$391 - $398
Gross Margin		75.0% - 75.5%
Operating Expenses		$198 - $202
Operating Margin		24.3% - 24.8%
Net Income per Diluted Share		$0.92 - $0.95		(1)
Business Metrics:		Q4'17
Case Shipments		245K - 250K
Capital Expenditure		$55M - $60M
Depreciation & Amortization		$10.5M - $11M
Diluted Shares Outstanding		81.9M		(2)
Stock Based Compensation Expense		$15.3M
Effective Tax Rate		22%		(1)
(1) Includes the benefit from the adoption of the new accounting standard update for share-based compensation
(2) Excludes any stock repurchases during the quarter

Investor Relations Contact
Yin Cantor
Align Technology, Inc.
[phone]
[e-mail]

Press Contact
Shannon Mangum Henderson
Ethos Communication, Inc.
[phone]
[e-mail]