Align Technology, Inc. (Nasdaq: ALGN), a leading global medical device company that designs, manufactures, and sells the Invisalign® System of clear aligners, iTero™ intraoral scanners, and exocad™ CAD/CAM software for digital orthodontics and restorative dentistry, today reported financial results for the first quarter (“Q1’23”). Q1’23 total revenues were $943.1 million, up 4.6% sequentially and down 3.1% year-over-year. Q1’23 Clear Aligner revenues were $789.8 million, up 7.9% sequentially and down 2.5% year-over-year. Q1’23 Clear Aligner volume was down 1.4% sequentially and down 3.9% year-over-year. Q1’23 Imaging Systems and CAD/CAM Services revenues were $153.3 million, down 9.7% sequentially and down 6.2% year-over-year. Q1’23 Clear Aligner revenues were favorably impacted by foreign exchange of approximately $21.8 million or 2.8% sequentially and unfavorably impacted by approximately $29.1 million or 3.6% year over year.(1) Q1’23 Imaging Systems and CAD/CAM Services revenues were favorably impacted by foreign exchange of approximately $4.0 million or 2.7% sequentially and unfavorably impacted by approximately $5.8 million or 3.6% year over year.(1) Q1’23 operating income was $133.5 million resulting in an operating margin of 14.2%. Q1’23 operating margin was favorably impacted by foreign exchange of approximately 1.5 points sequentially and unfavorably impacted by approximately 2.0 points year over year.(1) Q1’23 net income was $87.8 million, or $1.14 per diluted share. On a non-GAAP basis, Q1’23 net income was $140.6 million, or $1.82 per diluted share.
“Overall, I’m pleased to report better than expected first quarter revenues and earnings. Our first quarter revenues of $943.1 million, a sequential increase, reflect stability across all regions for our Clear Aligner business and favorable average selling price ”.
(1) Non-GAAP measure
Commenting on Align’s Q1’23 results, Align Technology President and CEO Joe Hogan said, “Overall, I’m pleased to report better than expected first quarter revenues and earnings. Our first quarter revenues of $943.1 million, a sequential increase, reflect stability across all regions for our Clear Aligner business and favorable average selling price (“ASP”) for the Clear Aligner and Systems and Services segments. Q1 sequential growth reflects an increase in Non-Case revenues which also increased year over year, driven by continued growth from our Invisalign® Doctor Subscription Program (“DSP”) and Vivera™ retainers. In the teen segment, which represents the largest portion of the 21 million annual orthodontic case starts, 182 thousand teens and kids started treatment with Invisalign clear aligners during the first quarter, increasing both sequentially and year over year, which is encouraging as we head into the important summer season for teens and kids. Overall, we remain confident in our large underpenetrated market opportunity globally and our ability to deliver digital products and technology that are helping doctors transform smiles and change lives for millions of people.”
Financial Summary – First Quarter Fiscal 2023
| Q1’23 | Q4’22 | Q1’22 | Q/Q Change | Y/Y Change | ||||||||||||||
| Clear Aligner Shipments | 575,395 | 583,720 | 598,835 | (1.4 | )% | (3.9 | )% | |||||||||||
| GAAP | ||||||||||||||||||
| Net Revenues | $ | 943.1M | $ | 901.5M | $ | 973.2M | +4.6 | % | (3.1 | )% | ||||||||
| Clear Aligner | $ | 789.8M | $ | 731.7M | $ | 809.7M | +7.9 | % | (2.5 | )% | ||||||||
| Imaging Systems and CAD/CAM Services | $ | 153.3M | $ | 169.9M | $ | 163.5M | (9.7 | )% | (6.2 | )% | ||||||||
| Net Income | $ | 87.8M | $ | 41.8M | $ | 134.3M | +110.2 | % | (34.6 | )% | ||||||||
| Diluted EPS | $ | 1.14 | $ | 0.54 | $ | 1.70 | +$0.60 | ($ | 0.56 | ) | ||||||||
| Non-GAAP | ||||||||||||||||||
| Net Income | $ | 140.6M | $ | 134.2M | $ | 178.0M | +4.8 | % | (21.0 | )% | ||||||||
| Diluted EPS | $ | 1.82 | $ | 1.73 | $ | 2.25 | +$0.09 | ($ | 0.43 | ) | ||||||||
| Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding. | ||||||||||||||||||
As of March 31, 2023, we had over $921.4 million in cash, cash equivalents and short-term and long-term marketable securities compared to over $1.0 billion as of December 31, 2022. As of March 31, 2023, we had $300.0 million available under a revolving line of credit which was amended during Q4 2022 to extend the term through 2027. During Q1’23, we purchased approximately 942 thousand shares of our common stock at an average price of $307.74 per share, completing a $200.0 million Accelerated Share Repurchase (“ASR”) from Q4’22, a $250.0 million ASR from Q1 2023, and our May 13, 2021 $1.0 Billion Stock Repurchase Program. During Q1’23, we announced that our Board of Directors authorized a new $1.0 Billion Stock Repurchase Program to succeed the 2021 $1 billion program. Currently $1.0 billion remains available for repurchases under the 2023 $1.0 Billion Stock Repurchase Program.
Q1’23 Announcement Highlights
- On February 6, 2023, we announced that we entered into a new ASR agreement with Citibank, N.A., to repurchase $250.0 million of our common stock under our May 13, 2021, $1.0 Billion Stock Repurchase Program. In addition to the ASR, Align announced that Joe Hogan, president and CEO and John Morici, CFO and executive vice president, global finance intended to personally purchase $1.0 million and $0.2 million, respectively, of Align’s common stock.
- On February 8, 2023, we announced the appointment of Karim Boussebaa as executive vice president and managing director of iTero scanner and services business. Mr. Boussebaa is an experienced healthcare executive with more than 28 years of industry leadership and a proven track record of innovation and organizational development, and extensive regulatory experience.
Fiscal 2023 Business Outlook
For 2023, Align provides the following business outlook:
- For Q2’23, we anticipate Clear Aligner volume and ASP to be up sequentially. We also anticipate Systems and Services revenue to be up sequentially. We anticipate Q2’23 revenues to be in the range of $980 million to $1,000 million. We expect our Q2’23 GAAP and Non-GAAP gross margin to be flat to slightly up from Q1’23, and our Q2’23 GAAP and Non-GAAP operating margin to be up by approximately 1 point sequentially, as we continue to strategically prioritize our investments in go-to-market activities and R&D to drive growth.
- For full year 2023, assuming no circumstances beyond our control occur, we are reiterating our 2023 GAAP operating margin to be slightly above 16% and our 2023 Non-GAAP operating margin to be slightly above 20%.
- For 2023, we expect investments in capital expenditures to exceed $200 million. Capital expenditures are expected to primarily relate to building construction and improvements as well as additional manufacturing capacity in support of our continued international expansion.
Align Web Cast and Conference Call
We will host a conference call today, April 26, 2023, at 4:30 p.m. ET, 1:30 p.m. PT, to review our first quarter 2023 results, discuss future operating trends, and our business outlook. The conference call will also be webcast live via the Internet. To access the webcast, go to the “Events & Presentations” section under Company Information on Align’s Investor Relations website at http://investor.aligntech.com. To access the conference call, please dial 833-470-1428 with access code 282632. An archived audio webcast will be available beginning approximately one hour after the call’s conclusion and will remain available for approximately one month. Additionally, a telephonic replay of the call can be accessed by dialing 929-458-6194 with access code 635629. For international callers, please dial 44-204-525-0658 and use the same access code referenced above. The telephonic replay will be available through 5:30 p.m. ET on May 10, 2023.
About Non-GAAP Financial Measures
To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we may provide investors with certain non-GAAP financial measures which may include constant currency net revenues, constant currency gross profit, constant currency gross margin, constant currency income from operations, constant currency operating margin, gross profit, gross margin, operating expenses, income from operations, operating margin, interest income and other income (expense), net, net income before provision for income taxes, provision for income taxes, effective tax rate, net income and/or diluted net income per share, which excludes certain items that may not be indicative of our fundamental operating performance including, foreign currency exchange rate impacts and discrete cash and non-cash charges or gains that are included in the most directly comparable GAAP measure. In Q4’22, we changed to a long-term non-GAAP effective tax rate in our computation of the non-GAAP income tax provision to provide better consistency across reporting periods. Our previous methodology for calculating our non-GAAP effective tax rate included certain non-recurring and period-specific items, that produced fluctuating effective tax rates that management does not believe are reflective of the Company’s long-term effective tax rate. This new methodology became effective January 1, 2022 and we recast prior periods in 2022. Unless otherwise indicated, when we refer to non-GAAP financial measures they will exclude the effects of stock-based compensation, amortization of certain acquired intangibles, restructuring and other charges, acquisition-related costs, and arbitration award gain, and associated tax impacts.
Our management believes that the use of certain non-GAAP financial measures provides meaningful supplemental information regarding our recurring core operating performance. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the performance of our business.
There are limitations to using non-GAAP financial measures as they are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. The non-GAAP financial measures are limited in value because they exclude certain items that may have a material impact upon our reported financial results. In addition, they are subject to inherent limitations as they reflect the exercise of judgments by management about which charges are excluded from the non-GAAP financial measures. We compensate for these limitations by analyzing current and future results on a GAAP as well as a non-GAAP basis and by providing GAAP measures in our public disclosures. The presentation of non-GAAP financial information is meant to be considered in addition to, not as a substitute for or in isolation from, the directly comparable financial measures prepared in accordance with GAAP. We urge investors to review the reconciliation of our GAAP financial measures to the comparable non-GAAP financial measures included herein and not to rely on any single financial measure to evaluate our business. For more information on these non-GAAP financial measures, please see the tables captioned “Unaudited GAAP to Non-GAAP Reconciliation.”
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