UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 0-32259
Align Technology, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 94-3267295 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
881 Martin Avenue
Santa Clara, California 95050
(Address of principal executive offices) (Zip Code))
(408) 470-1000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes x No ¨
The number of shares outstanding of the registrant’s Common Stock, $0.001 par value, as of April 30, 2004 was 59,613,665.
Table Of Contents
INDEX
| 3 | ||||
| ITEM 1 |
3 | |||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
10 | ||
| ITEM 3. |
22 | |||
| ITEM 4. |
22 | |||
| 23 | ||||
| ITEM 1. |
23 | |||
| ITEM 2. |
CHANGES IN SECURITIES AND USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES |
23 | ||
| ITEM 3. |
23 | |||
| ITEM 4. |
24 | |||
| ITEM 5. |
24 | |||
| ITEM 6. |
24 | |||
| 25 | ||||
-2-
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 47,816 | $ | 44,939 | ||||
| Restricted cash |
352 | 439 | ||||||
| Marketable securities, short-term |
80 | 2,292 | ||||||
| Accounts receivable, net of allowance |
23,256 | 21,265 | ||||||
| Inventories |
1,272 | 1,395 | ||||||
| Deferred costs |
1,015 | 939 | ||||||
| Prepaid expenses and other current assets |
5,321 | 5,845 | ||||||
| Total current assets |
79,112 | 77,114 | ||||||
| Property and equipment, net |
22,586 | 23,121 | ||||||
| Other assets |
2,006 | 1,967 | ||||||
| Total assets |
$ | 103,704 | $ | 102,202 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 2,307 | $ | 3,095 | ||||
| Accrued liabilities |
16,216 | 19,180 | ||||||
| Deferred revenues |
13,067 | 13,113 | ||||||
| Current portion of equipment-based term loan |
1,667 | 1,667 | ||||||
| Current portion of capital lease obligations |
327 | 322 | ||||||
| Total current liabilities |
33,584 | 37,377 | ||||||
| Equipment-based term loan, net of current portion |
1,250 | 1,667 | ||||||
| Capital lease obligations, net of current portion |
98 | 182 | ||||||
| Total liabilities |
34,932 | 39,226 | ||||||
| Commitments and contingencies (Note 4) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock: $0.0001 par value; Authorized: 5,000 shares; Issued and outstanding: none at March 31, 2004 and December 31, 2003 |
— | — | ||||||
| Common stock: $0.0001 par value; Authorized: 200,000; Issued: 59,601 and 58,793 at March 31, 2004 and December 31, 2003, respectively; Outstanding: 59,561 and 58,753 shares at March 31, 2004 and December 31, 2003, respectively |
6 | 6 | ||||||
| Additional paid-in capital |
371,923 | 368,796 | ||||||
| Deferred compensation |
(3,122 | ) | (5,219 | ) | ||||
| Notes receivable from stockholders |
— | (17 | ) | |||||
| Accumulated other comprehensive income |
— | 2 | ||||||
| Accumulated deficit |
(300,035 | ) | (300,592 | ) | ||||
| Total stockholders’ equity |
68,772 | 62,976 | ||||||
| Total liabilities and stockholders’ equity |
$ | 103,074 | $ | 102,202 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
-3-
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenues |
$ | 39,205 | $ | 22,960 | ||||
| Cost of revenues |
13,393 | 11,924 | ||||||
| Gross profit |
25,812 | 11,036 | ||||||
| Operating expenses: |
||||||||
| Sales and marketing |
13,272 | 10,630 | ||||||
| General and administrative |
8,277 | 7,894 | ||||||
| Research and development |
3,346 | 2,985 | ||||||
| Total operating expenses |
24,895 | 21,509 | ||||||
| Profit (loss) from operations |
917 | (10,473 | ) | |||||
| Interest and other income (expense), net |
(227 | ) | (197 | ) | ||||
| Net profit (loss) before provision for income taxes |
690 | (10,670 | ) | |||||
| Provision for income taxes |
(133 | ) | (1 | ) | ||||
| Net profit (loss) |
$ | 557 | $ | (10,671 | ) | |||
| Net profit (loss) per share, basic |
$ | 0.01 | $ | (0.19 | ) | |||
| Shares used in computing net profit (loss) per share, basic |
59,091 | 57,189 | ||||||
| Net profit (loss) per share, diluted |
$ | 0.01 | $ | (0.19 | ) | |||
| Shares used in computing net profit (loss) per share, diluted |
64,559 | 57,189 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
-4-
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash Flows from Operating Activities: |
||||||||
| Net profit (loss) |
$ | 557 | $ | (10,671 | ) | |||
| Adjustments to reconcile net profit (loss) to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
2,184 | 2,297 | ||||||
| Stock-based compensation expense |
2,217 | 4,263 | ||||||
| Loss on retirement and disposal of fixed assets |
6 | 145 | ||||||
| Provision for doubtful accounts |
86 | (4 | ) | |||||
| Non-cash interest income on notes receivable from stockholders |
— | (20 | ) | |||||
| Non-cash accretion on marketable securities |
(2 | ) | 12 | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(2,077 | ) | (308 | ) | ||||
| Inventories |
123 | (229 | ) | |||||
| Deferred costs |
(76 | ) | 108 | |||||
| Other current assets |
524 | (1,745 | ) | |||||
| Accounts payable |
(788 | ) | (434 | ) | ||||
| Accrued liabilities |
(2,964 | ) | 1,201 | |||||
| Deferred revenue |
(46 | ) | 2,138 | |||||
| Net cash used in operating activities |
(256 | ) | (3,247 | ) | ||||
| Cash Flows from Investing Activities: |
||||||||
| Purchase of property and equipment |
(1,655 | ) | (630 | ) | ||||
| Decrease (increase) in restricted cash |
87 | (4 | ) | |||||
| Maturities of marketable securities |
2,212 | 2,669 | ||||||
| Other assets |
(39 | ) | (147 | ) | ||||
| Net cash provided by investing activities |
605 | 1,888 | ||||||
| Cash Flows from Financing Activities: |
||||||||
| Proceeds from issuance of common stock |
3,007 | 225 | ||||||
| Proceeds from payment on stockholders’ notes receivable |
17 | 120 | ||||||
| Payments on debt obligations |
(496 | ) | (541 | ) | ||||
| Net cash provided by (used in) financing activities |
2,528 | (196 | ) | |||||
| Net increase (decrease) in cash and cash equivalents |
2,877 | (1,555 | ) | |||||
| Cash and cash equivalents at beginning of period |
44,939 | 35,552 | ||||||
| Cash and cash equivalents at end of period |
$ | 47,816 | $ | 33,997 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
-5-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| 1. | Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements have been prepared by Align Technology, Inc. (the “Company” or “Align”) in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company as of March 31, 2004 and December 31, 2003, and its results of operations and cash flows for the three months ended March 31, 2004 and 2003. These unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes as of and for the year ended December 31, 2003 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 9, 2004.
The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004 or any other interim period, and the Company makes no representations related thereto.
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Certain risks and uncertainties
The Company’s operating results depend on, to a significant extent, the Company’s ability to market and develop its products. The life cycles of the Company’s products are difficult to estimate due in part to the effect of future product enhancements and competition. The Company’s inability to successfully develop and market its products as a result of competition or other factors would have a material adverse effect on the Company’s business, financial condition and results of operations.
Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash equivalents and accounts receivable. The Company invests excess cash primarily in commercial paper. The Company provides credit to customers in the normal course of business. Collateral is not required for accounts receivable, but ongoing evaluations of customers’ credit worthiness are performed. The Company maintains reserves for potential credit losses and such losses have been within management’s expectations. No individual customer accounted for 10% or more of the Company’s accounts receivable at March 31, 2004 or at December 31, 2003, or net revenues for the three months ended March 31, 2004 or 2003.
The Food and Drug Administration (“FDA”) regulates the design, manufacture, distribution, preclinical and clinical study, clearance and approval of medical devices. Products developed by the Company may require approvals or clearances from the FDA or other international regulatory agencies prior to commercialized sales. There can be no assurance that the Company’s products will receive any of the required approvals or clearances. If the Company were to be denied approval or clearance or such approval were to be delayed, it may have a material adverse impact on the Company.
The Company has manufacturing operations located outside the United States of America. The Company currently relies on its manufacturing facilities in Costa Rica to create virtual treatment plans with the assistance of sophisticated software. In addition, the Company relies on a third party manufacturer in Mexico to fabricate Aligners and to ship the completed product to the Company’s customers. The Company’s reliance on international operations exposes it to related risks and uncertainties, including: difficulties in staffing and managing international operations, controlling quality of the manufacturing process, political, social and economic instability, interruptions and limitations in telecommunication services, product and/or material transportation delays or disruption, trade restrictions and changes in tariffs, import and export license requirements and restrictions, fluctuations in currency exchange rates and potential adverse tax consequences. If any of these risks materialize, the Company’s international manufacturing operations, as well as its operating results, may be harmed.
The Company receives certain of its components from sole suppliers. Additionally, the Company relies on a limited number of hardware manufacturers. The inability of any supplier or manufacturer to fulfill supply requirements of the Company could materially impact future operating results.
-6-
| 2. | Net Profit (Loss) Per Share |
Basic net profit (loss) per share is computed using the weighted average number of shares of common stock during the year. Diluted net profit (loss) per share is computed using the weighted average number of shares of common stock, adjusted for the dilutive effect of potential common stock. Potential common stock, computed using the treasury stock method or the if-converted method, includes options and unvested shares subject to repurchase.
The following table sets forth the computation of basic and diluted net profit (loss) per share attributable to common shareholders (in thousands, except per share amounts):
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Numerator: |
||||||||
| Net profit (loss) |
$ | 557 | $ | (10,671 | ) | |||
| Denominator: |
||||||||
| Weighted-average common shares outstanding |
59,253 | 57,766 | ||||||
| Less: Unvested common shares subject to repurchase |
(162 | ) | (577 | ) | ||||
| Total shares, basic |
59,091 | 57,189 | ||||||
| Effect of dilutive securities: |
||||||||
| Add: Dilutive common stock equivalents |
5,306 | — | ||||||
| Unvested shares subject to repurchase |
162 | — | ||||||