Align Technology, Inc. ( ALGN )

Q2 2010 Earnings Call Transcript

July 22, 2010 4:00 pm ET


Shirley Stacy – Senior Director, IR

Tom Prescott – President & CEO

Ken Arola – VP of Finance & CFO


Derek Leckow – Barrington Research Associates

Matt Dolan – Roth Capital Partners

Jose Haresco [ph] – JMP Securities [ph]

Jonathan Block – SunTrust

Robert Gold – Brigantine Advisors



Ladies and gentlemen, thank you for standing by and welcome to the Align Technology second 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. Thank you 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 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 second quarter fiscal 2010 financial results press release today via GlobeNewswire and FirstCall which is available on our Web site at

Today’s conference call is being audio webcast and will be archived on our Web site for approximately 12 months. A telephone replay will be available today by approximately 5:30 PM Eastern Time through 5:30 PM Eastern Time on August 4th. To access the telephone replay, domestic callers should dial 877-660-6853 with account number 292 followed by pound and conference number 353357 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 of Align’s future events, product outlook and expected financial results for the third 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 details in our Form 10-Q for the fiscal quarter ended March 31, 2010. 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 that 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, where practical, are contained in today’s financial results press release, which we posted on our Web site under Financial Releases and have 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 second quarter conference call slides on our Web site under quarterly results. Please refer to these files in more detail for information.

And 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 second quarter and provide an update on our strategic initiatives. Ken will follow with some detail on our second quarter financials and outlook for the third quarter. I’ll come back with some closing comments and open the call up to your questions.

Q2 was an outstanding quarter for Align. Our Invisalign business continues to outperform our expectations resulting in our third consecutive quarter for record revenues and case shipments even without the positive effects from the release of 14.3 million of previously deferred revenue for Invisalign Teen as well as a credit of 8.7 million from an insurance settlement related to the OrthoClear litigation.

Overall, Q2 volumes were strong, particularly for our international channel which helped drive sequential and year-over-year growth for Align. We are pleased to see continued strong interest among our leading customers.

At key customer events including the AAO and CDA in North America and several smaller meetings in Europe, we’ve had a chance to spend time with many of our customers and gain a current view of how they’re doing and what we can do to help continue or we can continue to help to them grow their businesses.

On a sequential basis, we also saw improvement with our lower volume customers. Field sales reps in North America continue to focus their efforts on helping those doctors that want to increase their confidence in treating with Invisalign and grow their practices.

A significant number of our lower volume customers are very interested in increasing their use of Invisalign and practice development programs such as Invisalign days in which a full day is allocated for Invisalign consultations in case management have been particularly helpful for those practices.

The primary way we’re building our business is to continue driving adoption of Invisalign into existing practices while expanding our customer base by training the right practices in North America and internationally.

We made progress in both these areas in Q2, so let’s review the key metrics that measure our performance. Utilization rates are what we call same practice sales of our product and the number of new doctors trained. In Q2, total utilization increased across our customer base and was up again both sequentially and year-over-year to 3.7 cases per quarter. This is compared to 3.5 in Q1 and 3.0 in the same quarter last year and reflects an increase of 6% and 23% respectively.

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