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Align Technology Inc. F1Q 2010 (Qtr. End 03/31/2010) Earnings Call Transcript

Align Technology Inc. F1Q 2010 (Qtr. End 03/31/2010) Earnings Call Transcript

Align Technology Inc. (ALGN)

F1Q 2010 (Qtr. End 03/31/2010) Earnings Call

April 22, 2010, 4:30 PM ET


Shirley Stacy – Senior Director, Investor Relations

Tom Prescott – President and CEO

Ken Arola – Vice President and CFO


Shawn Fitz - Stephens Incorporated

Tao Levy - Deutsche Bank

Matt Dolan - Roth Capital Partners

Jonathan Block - SunTrust Robinson Humphrey

Ben Forrest - Summer Street Research


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… Technology First Quarter 2010 Financial Results. 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 Technology. Ms. Stacy, you may begin.

Shirley Stacy

Thank you. Good afternoon. Thank you for joining us everyone. I’m Shirley Stacy, Senior Director of Investor Relations. Joining me today is Tom Prescott, President and CEO; and Ken Arola, Vice President and CFO.

Before we begin, let me cover some house-keeping item. We issued two press releases today via global newswire and first call regarding our first quarter fiscal 2010 financial results, and a strategic change in the proficiency program. Both press releases are available on our website at

Today’s conference call is being audio webcast 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 May 5th.

To access the telephone replay, domestic callers should dial 877-660-6853 with account number 292, followed by pound, and conference number 348442, 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 second quarter of fiscal 2010.

These forward-looking statements are only predictions that involve risks and uncertainties such that actual results may vary significantly. These and other risks are set forth in more detail in our form 10-K for the fiscal year ended December 31, 2009. These forward-looking statements reflect beliefs estimates and predictions as of today. And Align expressly assumes no obligation to update any such forward-looking statements.

Please also note on this conference call we’ll 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 were practical, are contained in today’s financial results press release, which have been posted on our website, at under financial releases and 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 first quarter conference call slides on our website under quarterly results. Please refer to these files for more detailed information.

With that, I’d like to turn the call over to Align Technology’s President and CEO, Tom Prescott. Tom?

Tom Prescott

Thanks, Shirley. On the call today, I’ll cover some highlights from the first quarter, briefly comment on today’s announcement regarding a change in the proficiency program and provide an update on our strategic initiatives. Ken’s going to follow with some detail on our first quarter financials and outlook for the second quarter. I’ll come back with some closing comments and open the call up to your questions.

The first quarter was a strong one, representing the second consecutive quarter for record revenues, case shipments and gross margins. Combined with lower than anticipated spending, Q1 earnings were significantly better than our outlook.

As usual, let’s start with our key adoption metrics, the number of new doctors trained and utilization rates or what we call same practice sales of our product. During Q1, we trained 915 new doctors, up slightly from 870 in Q4 and down from Q1 last year. Of those, 390 were North American doctors and 525 were international doctors.

As expected, fewer doctors attended our CE1 course, due to their evolving understanding of the proficiency program and the commitment required to ramp activity and effort in their practice to meet those requirements.

If you recall last quarter, we indicated that the program would likely cause some doctors to put off attending our CE1 training course until they are really ready to begin using Invisalign.

Compare that to the past when many doctors would take CE1 for general information on Invisalign or for marketing benefits while potentially not yet being really committed to shifting a significant effort into practice.

In Q1, total utilization increased sequentially and year-over-year to 3.5 cases -- 3.5 cases per quarter up from 3.3 in Q4 and 2.9 in the same quarter of last year. Q1 utilization rates for international doctors decreased slightly around 3%, sequentially in line with expected seasonality in Europe and yet increased 14% from the same quarter last year. Reflecting continued strong adoption and growth outside North America.

The first quarter was a strong one for our North American orthodontist customers. Q1 utilization increased substantially approximately 11.5% sequentially and 20% from the same quarter last year, to a record 5.5 cases per orthodontist.

In the ortho channel, sequential case growth was driven by higher volume doctors. Q1 was softer overall for our North American GP Dentist customers with fewer submitters in the quarter and volumes up slightly sequentially.

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