Align Technology, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted. Align sells clear aligners, intraoral scanners, and digital dentistry/CAD-CAM solutions.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1,010.8 | $352.3 | $1,905.6 | $903.3 |
| Gross profit / margin | $758.5 / 75.0% | $224.3 / 63.7% | $1,435.6 / 75.3% | $618.7 / 68.5% |
| Operating income (loss) / margin | $268.9 / 26.6% | $(73.0) / (20.7)% | $494.3 / 25.9% | $(3.1) / (0.3)% |
| Net income (loss) | $199.7 | $(40.6) | $400.1 | $1,477.5 |
| Diluted EPS | $2.51 | $(0.52) | $5.02 | $18.70 |
| Operating cash flow | $317.5 | Not stated separately | $544.7 | $69.7 |
- Q2 revenue rose 186.9% year over year; first-half revenue rose 111.0%. Comparisons are affected by the pandemic-driven weakness in 2020 and may not indicate future growth.
- Q2 Clear Aligner revenue was $841.0 million, up 181.9%; Systems and Services revenue was $169.8 million, up 214.7%. Clear Aligner case volume increased 200.0% to 665,600 cases.
- Q2 gross margin improvement reflected higher production volumes and manufacturing efficiencies, partly offset by lower clear-aligner average selling prices. Operating leverage also supported operating margin recovery.
- Q2 net income includes no comparable exceptional gain identified in the filing; first-half 2021 other income includes a $43.4 million SDC arbitration award gain. First-half 2020 net income included a one-time $1,493.5 million deferred-tax benefit from an intra-entity intellectual property transfer.
- Cash and cash equivalents were $1,086.4 million at June 30, 2021, versus $960.8 million at year-end 2020. Current assets were $2,231.8 million and current liabilities $1,696.6 million. The company had no borrowings on its $300 million unsecured revolving credit facility and reported compliance with its requirements.
- First-half cash flow from investing was $(123.9) million, including $167.7 million of property and equipment purchases; financing cash flow was $(291.8) million, including $200 million of accelerated repurchases and $104.9 million of payroll taxes on equity awards. First-half capital expenditures were $167.7 million.
- Deferred revenue totaled $1,067.3 million, including current and long-term balances. Unfulfilled performance obligations, including deferred revenue and backlog, were $1.1 billion, expected to be recognized over one to five years.
Changes, outlook, and management commentary
- Management attributed the strong year-over-year rebound to higher clear-aligner case volume, more scanners recognized as revenue, and increased iTero service and exocad CAD/CAM revenue. Americas clear-aligner revenue also faced lower average selling prices from higher deferrals and promotional discounts.
- Management expects approximately $500 million of 2021 capital expenditures, primarily for facilities and manufacturing capacity, including a planned Poland facility. It also expects continued investment in sales, marketing, and innovation. The filing provides no specific revenue or earnings guidance.
- Management said cash, operating cash flow, and available credit should fund the business for at least the next 12 months. The board authorized a $1.0 billion repurchase program in May 2021, with $900 million remaining at June 30; a further $75 million accelerated repurchase was entered into after quarter-end.
- COVID-19 effects remain uncertain, including possible effects from variants, regional restrictions, changing consumer spending, and the pace of dental-practice recovery. Management cautioned that recent growth may not be indicative of future performance.
- Key risks include competition and pricing pressure; reliance on Invisalign and iTero; international, currency, and capacity risks; single-source suppliers and material commitments; cybersecurity, privacy, and regulatory exposure; and ongoing intellectual-property and antitrust litigation.
- Legal matters include a proposed $16 million securities class-action settlement funded by insurance, subject to court approval; related derivative actions remain stayed. A separate securities action was dismissed with prejudice and appealed. Patent and antitrust disputes with 3Shape and antitrust class actions remain unresolved; the company says it cannot estimate potential loss. The SDC supply-agreement arbitration also remains unresolved.
- The company amended a single-source supplier agreement to add approximately $348 million of minimum aligner-material purchases from 2023 through 2026, on top of approximately $425.9 million of minimum purchases through 2022.
- Management reported effective disclosure controls as of June 30, 2021, with no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether post-pandemic demand, case volume, utilization, and scanner sales sustain growth as comparisons normalize.
- Whether lower average selling prices, promotions, and revenue deferrals affect margins and cash conversion as sales mix changes.
- Execution, timing, and returns on the planned $500 million capital program and international manufacturing expansion.
- Cash generation, working-capital trends, repurchase pace, and compliance with the revolving-credit facility.
- Developments in COVID-19 conditions, supplier commitments, and litigation—particularly antitrust and intellectual-property cases—and the tax treatment and utilization of deferred tax assets.