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Align Technology CEO Discusses Q3 2010 Results - Earnings Call Transcript

Align Technology CEO Discusses Q3 2010 Results - Earnings Call Transcript

Align Technology Inc. (

ALGN

)

Q3 2010 Earnings Call Transcript

TST Recommends

October 21, 2010 4:30 pm ET

Executives

Shirley Stacy – Senior Director, IR & Corporate Communications

Tom Prescott – President and CEO

Ken Arola – VP, Finance and CFO

Analysts

Matt Dolan – Roth Capital Partners

Spencer Nam – Madison Williams &Company

Jonathan Block – SunTrust Banks Inc.

Drew Jones – Stephens Inc.

Robert Gold – Brigantine Advisors

Presentation

Operator

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Previous Statements by ALGN
» Align Technology, Inc. Q2 2010 Earnings Call Transcript
» Align Technology Inc. Q1 2010 Earnings Call Transcript
» Align Technology Inc. Q4 2009 Earnings Call Transcript
» Align Technology Inc. Q3 2009 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by and welcome to the Align Technology third quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce, Shirley Stacy of Align Techology. Ms. Stacy, you may begin.

Shirley Stacy

Good afternoon and thank you for joining us. I'm Shirley Stacy, Senior Director of Investor Relations and Corporate Communications. Joining me today is Tom Prescott, President and CEO and Ken Arola, vice president and CFO. Before we begin, let me cover some housekeeping items.

We issued our third quarter fiscal 2010 financial results press release today via Global Newswire and FirstCall which is available on our website at investor.aligntech.com. Today's conference call is being audio web cast and will be archived on our website for approximately 12 months. A telephone replay will be available today by approximately 5:30 p.m. Eastern Time through 5:30 p.m. Eastern Time on November 4. To access the telephone replay, domestic caller should dial 877-660-6853 with account number 292 followed by pound and conference number 358000 followed by pound.

International callers should dial 201-612-7415 with the same account number and conference number. As a reminder, the information that the presenters discuss today will include forward-looking statements including without limitation statements about Align's future events, product outlook and expected financial results for the fourth quarter of fiscal 2010. These forward looking statements are only predictions and involve risks and uncertainties such that actual results may vary significantly. These and other risks are set forth in more detail on our form 10-Q for the fiscal quarter ended June 30th.

These forward-looking statements reflect beliefs, estimates and predictions as of today and Align expressly assumes no obligation to update any such forward-looking statement. Please also note that this conference call will provide listeners with several financial metrics determined on a non-GAAP basis for comparisons to previous quarters. Most of these items together with the corresponding GAAP numbers and a reconciliation to the comparable GAAP financial measures, where practical, are contained in today’s financial results press release, which we’ve posted on our website at investor.aligntech.com under financial releases and have been furnished to the SEC on Form 8-K. We encourage listeners to review these items.

We’ve also posted a set of GAAP and non-GAAP historical financial statements including the corresponding reconciliation and our third quarter conference call with slides on our website under quarterly results. Please refer to these files for more detailed information.

With that, I would like to turn the call over to Align Techology's President and CEO, Tom Prescott. Tom.

Tom Prescott

Thank you, Shirley. On the call today, I will cover some highlights from our third quarter and provide an update in our strategic initiatives. Ken will follow with some detail on our third quarter financials and outlook for the fourth quarter. I will come back with some closing comments and open the call up to your questions.

Q3 was a good quarter for Align with revenues, gross margin, operating margin and EPS, all above our outlook for the quarter. Q3 key shipments were within our guidance, but at the lower end of the range reflecting growth from the North American orthodontist and international doctors offset by greater than expected summer seasonality.

This softness has persisted into the fall, especially among our North American GP customers, who have reported lower dental visits and reduced demand for premium procedures, which we believe contributed to lower than expected case admissions for Invisalign as well.

It also appears the elimination of the case requirements announced in Q2 contributed to lower case submissions among some customers. In high insight, the stronger than expected results we saw in Q2 across our customer channels including low volume GP's masked the slow down among those practices that were striving to reach 10 cases per year.

We were probably too quick to believe that the Proficiency Program was completely behind us. It now appears that the potential impact initially described on the Q1 call in April regarding our uncertainty as to how customers might respond to the elimination of case requirements has taken longer to play out. Having said this, we continue to see interest from many GP's who want to make Invisalign a bigger part of their practices as well as other new GP's who want to add Invisalign to practice.

We will continue to work to expand the GP customer base. As we discussed previously, our strategic focus is on driving adoption Invisalign into existing practices while expanding our customer base in North America and internationally.

Let's review the key metrics that measure our performance. Utilization rates are what we call same-practice sales of our product and a number of new doctors trained. In Q3, total utilization decreased slightly on a sequential basis and increased year-over-year to 3.6 cases per quarter. This reflects a decrease of 1% sequentially and an increase of 18% from Q3 a year ago.

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