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 September 30, 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, $0.0001 par value, as of October 31, 2004 was 60,628,658.
ALIGN TECHNOLOGY, INC.
INDEX
| PART I— FINANCIAL INFORMATION |
3 | |||
| ITEM 1 |
FINANCIAL STATEMENTS (UNAUDITED): | 3 | ||
| CONDENSED CONSOLIDATED BALANCE SHEETS | 3 | |||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | 4 | |||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | 5 | |||
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | 6 | |||
| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
11 | ||
| ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 25 | ||
| ITEM 4. |
CONTROLS AND PROCEDURES | 25 | ||
| PART II— OTHER INFORMATION |
27 | |||
| ITEM 1. |
LEGAL PROCEEDINGS | 27 | ||
| ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 27 | ||
| ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES | 27 | ||
| ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 28 | ||
| ITEM 5. |
OTHER INFORMATION | 28 | ||
| ITEM 6. |
EXHIBITS | 28 | ||
| 29 | ||||
-2-
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
| September 30, 2004 |
December 31, 2003 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 63,215 | $ | 44,939 | ||||
| Restricted cash |
281 | 439 | ||||||
| Marketable securities, short-term |
519 | 2,292 | ||||||
| Accounts receivable, net of allowance |
27,663 | 21,265 | ||||||
| Inventories |
2,150 | 2,334 | ||||||
| Prepaid expenses and other current assets |
5,855 | 5,845 | ||||||
| Total current assets |
99,683 | 77,114 | ||||||
| Property and equipment, net |
23,304 | 23,121 | ||||||
| Other assets |
2,197 | 1,967 | ||||||
| Total assets |
$ | 125,184 | $ | 102,202 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 3,899 | $ | 3,095 | ||||
| Accrued liabilities |
21,733 | 19,180 | ||||||
| Deferred revenues |
13,798 | 13,113 | ||||||
| Debt |
1,932 | 1,989 | ||||||
| Total current liabilities |
41,362 | 37,377 | ||||||
| Debt, net of current portion |
428 | 1,849 | ||||||
| Total liabilities |
41,790 | 39,226 | ||||||
| Commitments and contingencies (Note 5) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock: $0.0001 par value; Authorized: 5,000 shares; Issued and outstanding: none at September 30, 2004 and December 31, 2003 |
— | — | ||||||
| Common stock: $0.0001 par value; Authorized: 200,000; Issued: 60,661 and 58,793 at September 30, 2004 and December 31, 2003, respectively; Outstanding: 60,621 and 58,753 shares at September 30, 2004 and December 31, 2003, respectively |
6 | 6 | ||||||
| Additional paid-in capital |
376,528 | 368,796 | ||||||
| Deferred compensation |
(191 | ) | (5,219 | ) | ||||
| Notes receivable from stockholders |
— | (17 | ) | |||||
| Accumulated other comprehensive income |
(4 | ) | 2 | |||||
| Accumulated deficit |
(292,945 | ) | (300,592 | ) | ||||
| Total stockholders’ equity |
83,394 | 62,976 | ||||||
| Total liabilities and stockholders’ equity |
$ | 125,184 | $ | 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 September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Revenues |
$ | 45,766 | $ | 34,038 | $ | 129,175 | $ | 86,223 | ||||||||
| Cost of revenues |
14,922 | 13,446 | 42,565 | 38,639 | ||||||||||||
| Gross profit |
30,844 | 20,592 | 86,610 | 47,584 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Sales and marketing |
13,884 | 10,505 | 40,555 | 32,551 | ||||||||||||
| General and administrative |
8,263 | 8,722 | 25,196 | 25,630 | ||||||||||||
| Research and development |
4,846 | 3,113 | 11,750 | 9,810 | ||||||||||||
| Total operating expenses |
26,993 | 22,340 | 77,501 | 67,991 | ||||||||||||
| Profit (loss) from operations |
3,851 | (1,748 | ) | 9,109 | (20,407 | ) | ||||||||||
| Interest and other income (expense), net |
(217 | ) | (359 | ) | (619 | ) | (129 | ) | ||||||||
| Net profit (loss) before income tax provision |
3,634 | (2,107 | ) | 8,490 | (20,536 | ) | ||||||||||
| Income tax provision |
(316 | ) | (37 | ) | (843 | ) | (38 | ) | ||||||||
| Net profit (loss) |
$ | 3,318 | $ | (2,144 | ) | $ | 7,647 | $ | (20,574 | ) | ||||||
| Net profit (loss) per share, basic |
$ | 0.06 | $ | (0.04 | ) | $ | 0.13 | $ | (0.36 | ) | ||||||
| Shares used in computing net profit (loss) per share, basic |
60,319 | 57,948 | 59,703 | 57,543 | ||||||||||||
| Net profit (loss) per share, diluted |
$ | 0.05 | $ | (0.04 | ) | $ | 0.12 | $ | (0.36 | ) | ||||||
| Shares used in computing net profit (loss) per share, diluted |
64,055 | 57,948 | 64,298 | 57,543 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
-4-
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash Flows from Operating Activities: |
||||||||
| Net profit (loss) |
$ | 7,647 | $ | (20,574 | ) | |||
| Adjustments to reconcile net profit (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
6,628 | 6,925 | ||||||
| Stock-based compensation expense |
5,665 | 11,990 | ||||||
| Loss on retirement and disposal of fixed assets |
63 | 195 | ||||||
| Provision for doubtful accounts |
266 | 229 | ||||||
| Non-cash interest income on notes receivable from stockholders |
— | (43 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(6,664 | ) | (4,257 | ) | ||||
| Inventories |
184 | 326 | ||||||
| Other current assets |
(10 | ) | (846 | ) | ||||
| Accounts payable |
663 | (157 | ) | |||||
| Accrued liabilities |
2,362 | 7,207 | ||||||
| Deferred revenue |
685 | 3,898 | ||||||
| Net cash provided by operating activities |
17,489 | 4,893 | ||||||
| Cash Flows from Investing Activities: |
||||||||
| Purchase of property and equipment |
(7,399 | ) | (4,496 | ) | ||||
| Proceeds from sale of property and equipment |
851 | 42 | ||||||
| Decrease (increase) in restricted cash |
158 | (159 | ) | |||||
| Purchases of marketable securities |
(519 | ) | (5,390 | ) | ||||
| Maturities of marketable securities |
2,292 | 6,069 | ||||||
| Other assets |
(230 | ) | (14 | ) | ||||
| Net cash used in investing activities |
(4,847 | ) | (3,948 | ) | ||||
| Cash Flows from Financing Activities: |
||||||||
| Proceeds from issuance of common stock |
7,095 | 1,799 | ||||||
| Proceeds from payment on stockholders’ notes receivable |
17 | 591 | ||||||
| Repurchase of common stock |
— | (6 | ) | |||||
| Payments on debt obligations |
(1,478 | ) | (1,631 | ) | ||||
| Net cash provided by financing activities |
5,634 | 753 | ||||||
| Net increase in cash and cash equivalents |
18,276 | 1,698 | ||||||
| Cash and cash equivalents at beginning of period |
44,939 | 35,552 | ||||||
| Cash and cash equivalents at end of period |
$ | 63,215 | $ | 37,250 | ||||
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 September 30, 2004 and December 31, 2003, and its results of operations and cash flows for the three and nine months ended September 30, 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 and nine months ended September 30, 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 prior period amounts have been reclassified to conform with current period presentation.
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 receiva