Align Technology Inc 10-Q for FY2020 Q1

Align Technology Inc (ALGN)

10-Q 2020-05-05 For: 2020-03-31

Added on April 11, 2026

About this 10-Q

Align Technology Inc filed this 10-Q on May 5, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $550.96M; up 0.4% from $548.97M a year earlier
Net income: $1.52B; up 2013.0% from net income of $71.85M a year earlier
Diluted EPS: $19.21; up 2058.4% from $0.89 a year earlier

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Delaware			94-3267295
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.0001 par value	ALGN	The NASDAQ Stock Market LLC
		(NASDAQ Global Market)



PART I	FINANCIAL INFORMATION	3
ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED):	3
	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS	3
	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	4
	CONDENSED CONSOLIDATED BALANCE SHEETS	5
	CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	6
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	7
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	8
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	26
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37
ITEM 4.	CONTROLS AND PROCEDURES	38
PART II	OTHER INFORMATION	38
ITEM 1.	LEGAL PROCEEDINGS	38
ITEM 1A.	RISK FACTORS	39
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	55
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	55
ITEM 4.	MINE SAFETY DISCLOSURES	55
ITEM 5.	OTHER INFORMATION	55
ITEM 6.	EXHIBITS	56
SIGNATURES			57


	Three Months Ended March 31,
	2020		2019
Net revenues	$	550,963	$	548,971



Cost of net revenues	156,607		146,875



Gross profit	394,356		402,096
Operating expenses:
Selling, general and administrative	282,906		247,110

Research and development	41,532		37,503
Impairments and other charges	—		29,782

Total operating expenses	324,438		314,395
Income from operations	69,918		87,701
Interest income and other income (expense), net:
Interest income	1,986		2,633
Other income (expense), net	(18,549)		(5,746)
Total interest income and other income (expense), net	(16,563)		(3,113)
Net income before provision for (benefit from) income taxes and equity in losses of investee	53,355		84,588
Provision for (benefit from) income taxes	(1,464,776)		8,796
Equity in losses of investee, net of tax	—		3,944
Net income	$	1,518,131	$	71,848

Net income per share:
Basic	$	19.32	$	0.90
Diluted	$	19.21	$	0.89
Shares used in computing net income per share:
Basic	78,592		79,860
Diluted	79,028		80,687


	Three Months Ended March 31,
	2020		2019
Net income	$	1,518,131	$	71,848
Net change in foreign currency translation adjustment	689		409
Change in unrealized gains (losses) on investments, net of tax	(194)		84
Other comprehensive income	495		493
Comprehensive income	$	1,518,626	$	72,341


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	March 31, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	790,696	$	550,425
Marketable securities, short-term	—		318,202
Accounts receivable, net of allowance for doubtful accounts of $11,057 and $6,756, respectively	533,004		550,291
Inventories	120,977		112,051
Prepaid expenses and other current assets	131,848		102,450

Total current assets	1,576,525		1,633,419

Property, plant and equipment, net	663,491		631,730
Operating lease right-of-use assets, net	70,366		56,244

Goodwill and intangible assets, net	73,751		75,692
Deferred tax assets	1,551,141		64,007
Other assets	29,566		39,610
Total assets	$	3,964,840	$	2,500,702

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	72,690	$	87,250
Accrued liabilities	259,459		319,958
Deferred revenues	578,537		563,762
Total current liabilities	910,686		970,970
Income tax payable	109,128		102,794
Operating lease liabilities	53,745		43,463
Other long-term liabilities	38,292		37,306
Total liabilities	1,111,851		1,154,533
Commitments and contingencies (Notes 8 and 9)
Stockholders’ equity:
Preferred stock, $0.0001 par value (5,000 shares authorized; none issued)	—		—
Common stock, $0.0001 par value (200,000 shares authorized; 78,759 and 78,433 issued and outstanding, respectively)	8		8
Additional paid-in capital	895,131		906,937
Accumulated other comprehensive income (loss), net	(193)		(688)
Retained earnings	1,958,043		439,912
Total stockholders’ equity	2,852,989		1,346,169
Total liabilities and stockholders’ equity	$	3,964,840	$	2,500,702


	Common Stock					Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss), Net		Retained Earnings		Total
Three Months Ended March 31, 2020	Shares	Amount
Balance as of December 31, 2019	78,433	$	8	$	906,937	$	(688)	$	439,912	$	1,346,169
Net income	—	—		—		—		1,518,131		1,518,131
Net change in unrealized gains (losses) from investments	—	—		—		(194)		—		(194)
Net change in foreign currency translation adjustment	—	—		—		689		—		689
Issuance of common stock relating to employee equity compensation plans	326	—		10,662		—		—		10,662
Tax withholdings related to net share settlements of equity awards	—	—		(45,395)		—		—		(45,395)

Stock-based compensation	—	—		22,927		—		—		22,927
Balance as of March 31, 2020	78,759	$	8	$	895,131	$	(193)	$	1,958,043	$	2,852,989


December 31, 2019	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate bonds	210,891		142		(27)		211,006
U.S. government treasury bonds	70,587		65		(2)		70,650
U.S. government agency bonds	22,085		17		(1)		22,101
Commercial paper	14,426		—		—		14,426
Certificates of deposit	19		—		—		19
Total marketable securities, short-term	$	318,008	$	224	$	(30)	$	318,202


Description	Balance as of March 31, 2020		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	36,683	$	36,683	$	—	$	—























Prepaid expenses and other current assets:
Israeli funds	3,293		—		3,293		—


Current unsecured promissory note	27,914		—		—		27,914


	$	67,890	$	36,683	$	3,293	$	27,914


	March 31, 2020
	Local Currency Amount	Notional Contract Amount (USD)
Euro	€67,500	$	74,274
Chinese Yuan	¥517,000	72,825
Canadian Dollar	C$47,000	33,103
British Pound	£23,200	28,894
Brazilian Real	R$150,000	28,765
Japanese Yen	¥2,685,000	24,916
Israeli Shekel	ILS26,000	7,349
Mexican Peso	M$160,000	6,840
Australian Dollar	A$5,500	3,375
		$	280,341


	March 31, 2020		December 31, 2019
Raw materials	$	59,136	$	54,947
Work in process	35,627		30,974
Finished goods	26,214		26,130
Total inventories	$	120,977	$	112,051


	March 31, 2020		December 31, 2019
Tax related receivables	$	50,866	$	41,252
Prepaid software and maintenance	29,182		7,128
Current promissory note ¹	27,914		25,005
Other prepaid expenses and current assets	19,624		24,637
Other current receivables	4,262		4,428
Total prepaid expenses and other current assets	$	131,848	$	102,450


	March 31, 2020		December 31, 2019
Accrued payroll and benefits	$	87,526	$	162,486
Accrued expenses	50,669		55,529
Current operating lease liabilities	20,225		15,737
Accrued fixed assets	18,781		9,167
Accrued income taxes	15,324		14,130
Accrued professional fees	12,738		10,410
Others	54,196		52,499
Total accrued liabilities	$	259,459	$	319,958


	Three Months Ended March 31,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,518,131	$	71,848
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes	(1,487,154)		7,586
Depreciation and amortization	20,738		18,316
Stock-based compensation	22,927		21,044
Non-cash operating lease cost	5,546		4,362
Impairments on equity investments	2,900		3,975

Impairments on long-lived assets	—		28,498





Equity in losses of investee	—		3,944
Other non-cash operating activities	12,566		5,101
Changes in assets and liabilities:
Accounts receivable	13,761		(42,743)
Inventories	(10,496)		(13,280)
Prepaid expenses and other assets	(37,244)		(35,033)
Accounts payable	(12,034)		1,470
Accrued and other long-term liabilities	(69,103)		(5,183)
Long-term income tax payable	6,354		4,808
Deferred revenues	22,892		42,494
Net cash provided by operating activities	9,784		117,207
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment	(46,085)		(35,261)
Purchase of marketable securities	(5,341)		(125,823)
Proceeds from maturities of marketable securities	42,641		80,306
Proceeds from sales of marketable securities	278,817		8,727

Repayment on unsecured promissory note	4,419		—

Other investing activities	1,760		(2,367)
Net cash provided by (used in) investing activities	276,211		(74,418)
CASH FLOWS FROM FINANCING ACTIVITIES:


	Three Months Ended March 31,
	2020		2019
Balance at beginning of period	$	11,205	$	8,551
Charged to cost of net revenues	3,724		3,133
Actual warranty expenditures	(3,140)		(1,451)
Balance at end of period	$	11,789	$	10,233


	Weighted Average Amortization Period (in years)	Gross Carrying Amount as of March 31, 2020		Accumulated Amortization		Accumulated Impairment Loss		Net Carrying Value as of March 31, 2020
Trademarks	15	$	7,100	$	(2,080)	$	(4,179)	$	841
Existing technology	13	12,600		(5,972)		(4,328)		2,300
Customer relationships	11	33,500		(18,870)		(10,751)		3,879
Reacquired rights	3	7,500		(7,500)		—		—
Patents	8	6,796		(3,377)		—		3,419
Other	2	618		(590)		—		28
Total intangible assets		$	68,114	$	(38,389)	$	(19,258)	$	10,467


	Weighted Average Amortization Period (in years)	Gross Carrying Amount as of December 31, 2019		Accumulated Amortization		Accumulated Impairment Loss		Net Carrying Value as of December 31, 2019
Trademarks	15	$	7,100	$	(2,045)	$	(4,179)	$	876
Existing technology	13	12,600		(5,831)		(4,328)		2,441
Customer relationships	11	33,500		(18,405)		(10,751)		4,344
Reacquired rights	3	7,500		(7,059)		—		441
Patents	8	6,796		(3,165)		—		3,631
Other	2	618		(583)		—		35
Total intangible assets		$	68,114	$	(37,088)	$	(19,258)	$	11,768


	March 31, 2020		December 31, 2019
Deferred revenues - current	$	578,537	$	563,762
Deferred revenues - long-term ¹	$	36,628	$	35,503


	Total
Balance as of December 31, 2019	$	63,924

Adjustments¹	(640)
Balance as of March 31, 2020	$	63,284


Fiscal Year Ending December 31,	Amortization
Remainder of 2020	$	2,544
2021	3,372
2022	2,116
2023	1,495
2024	555
Thereafter	385
Total	$	10,467


	Number of Shares Underlying RSUs (in thousands)	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Unvested as of December 31, 2019	696	$	190.60
Granted	251	272.24
Vested and released	(259)	145.91
Forfeited	(11)	233.45
Unvested as of March 31, 2020	677	$	237.27	1.8	$	117,738


	Number of Shares Underlying MSUs (in thousands)	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Unvested as of December 31, 2019	244	$	331.35
Granted	156	242.04
Vested and released	(173)	120.39

Unvested as of March 31, 2020	227	$	430.50	1.9	$	39,529


	March 31, 2020		December 31, 2019
Long-lived assets¹:
Switzerland²	$	229,010	$	7,755
United States	182,131		164,451
Costa Rica	85,573		82,083
China	84,127		73,174
The Netherlands²	1,504		226,286
Other International	151,512		134,225
Total long-lived assets	$	733,857	$	687,974


	Three Months Ended March 31,
Region	2020	2019	Net Change	% Change
Americas	213.5	213.2	0.3	0.1	%
International	145.9	146.3	(0.3)	(0.2)	%
Total case volume	359.4	359.5	—	—	%



	ALIGN TECHNOLOGY, INC.

May 5, 2020	By:	/s/ JOSEPH M. HOGAN
		Joseph M. Hogan President and Chief Executive Officer

	By:	/s/ JOHN F. MORICI
		John F. Morici Chief Financial Officer and Senior Vice President, Global Finance


1. Definitions			5
2. Current Status			5
3. Sale and Transfer of the Sold Shares and the Shareholder Loan Receivable			7
4. Purchase Price			8
5. Preliminary Purchase Price			9
6. 2019 Financial Statements and Share Purchase Price Determination			10
7. Repayment of Bank Debt			14
8. Payments and Default			14
9. Closing Condition			15
10. Closing Date; Closing; Closing Actions			16
11. Seller’s Guarantees			18
12. Seller’s Covenants			23
13. Remedies			26
14. Limitation of the Seller’s Liability			31
15. Tax Warranties and Tax Indemnity			35
16. Purchaser's and Guarantor's Representations and Warranties			41
17. Purchaser’s Covenants			42
18. Purchaser’s Indemnity			43
19. Seller’s Remedies			45
20. Guarantor’s Undertaking			45
21. Exit Bonuses			45
22. Confidentiality			46
23. Miscellaneous			47
24. Governing Law and Place of Jurisdiction			50
25. Severability			50
Exhibit 1 Definitions			51


Exhibit 1			Definitions
Exhibit 2.1(d)			Subsidiaries
Exhibit 2.2(a)			Facilities Agreement
Exhibit 2.2(b)			Financing Collateral
Exhibit 2.3(a)			Shareholder Loan
Exhibit 2.4-1			Advisory Board Resignation Letter
Exhibit 2.4-2			Shareholders’ Resolution exocad Group GmbH
Exhibit 2.5(a)			International Managers
Exhibit 2.5(b)-1			Shareholders’ Resolutions Company
Exhibit 2.5(b)-2			Shareholders’ Resolutions Subsidiaries
Exhibit 2.6			Related Party Agreements
Exhibit 3.2(b)			Shareholder Loan Termination Agreement
Exhibit 3.3			Certain Seller’s Shareholders’ Consent
Exhibit 4.1(b)-1			Effective Date Cash
Exhibit 4.1(b)-2			Effective Date Debt
Exhibit 4.1(b)-3			Effective Date Working Capital
Exhibit 5			Sample Purchase Price Calculation
Exhibit 6.2			Form of Adjusted Purchase Price Statement
Exhibit 6.3			Accounting Standards
Exhibit 10.2(c)			Closing Disclosure Letter
Exhibit 10.3			Closing Confirmation
Exhibit 11.6			Further Seller’s Guarantees
Exhibit 11.7			List of Knowledge Bearers
Exhibit 12.1-1			Conduct of Business
Exhibit 12.1-(a)			Shareholders’ Resolution regarding Conduct of Business - Company
Exhibit 12.1-(b)			Shareholders’ Resolution regarding Conduct of Business - Group Companies
Exhibit 12.2(b)			Permitted Leakage: Arms’ Length Consideration
Exhibit 12.2(e)			Permitted Leakage: Service / Advisory Agreements
Exhibit 12.2(f)			Permitted Leakage: Otherwise Disclosed
Exhibit 12.3			Related Party Agreements
Exhibit 14.7			Copy of executed W&I insurance
Exhibit 18.2(b)			Waiver


Schedule 15.2			Tax Disclosures
Schedule 2-1 to the Exhibit 11.6			2018 Financial Statements
Schedule 2-2 to the Exhibit 11.6			2018 Holding Financial Statements
Schedule 3 to the Exhibit 11.6			Material Agreements
Schedule 4 to the Exhibit 11.6			Leased Real Estate
Schedule 5(a) to the Exhibit 11.6			Key Employees
Schedule 5(d) to the Exhibit 11.6			Pensions
Schedule 5(g) to the Exhibit 11.6			Freelancer
Schedule 6(a) to the Exhibit 11.6			Owned IP Right(s)
Schedule 6(b) to the Exhibit 11.6			Disclosure regarding Other IP Rights
Schedule 6(f)to the Exhibit 11.6			Distributed Main Products
Schedule 6(g)(ii) to the Exhibit 11.6			Fraunhofer Licenses
Schedule 6(g)(iv) to the Exhibit 11.6			Black Duck Report
Schedule 6(l) to the Exhibit 11.6			Judgements, Challenges regarding IP Rights
Schedule 6(m) to the Exhibit 11.6			Employee Inventions
Schedule 7(a) to the Exhibit 11.6			Insurances
Schedule 8 to the Exhibit 11.6			Litigation
Schedule 9(a) to the Exhibit 11.6			Permits
Schedule 9(b) to the Exhibit 11.6			Disclosure regarding Administrative Proceedings
Schedule 11 to the Exhibit 11.6			Disclosure regarding Conduct of Business since Effective Date


/s/ JOSEPH M. HOGAN
Joseph M. Hogan
President and Chief Executive Officer


/s/ JOHN F. MORICI
John F. Morici
Chief Financial Officer and Senior Vice President, Global Finance



By:			/s/ JOSEPH M. HOGAN
Name:			Joseph M. Hogan
Title:			President and Chief Executive Officer