Align Technology (ALGN) Beats On Earnings And Revenues In Q1

Align Technology, Inc.’s (NASDAQ:ALGN) first-quarter 2018 adjusted earnings per share (EPS) came in at $1.17, up 37.6% year over year. Earnings were also higher than the company’s guided range of 94-98 cents. The figure comfortably beat the Zacks Consensus Estimate of 98 cents as well.

Revenues

Revenues grew 40.8% year over year to $436.9 million in the quarter, surpassing the Zacks Consensus Estimate of $408.3. million. Revenues were well ahead of the company’s guided range of $400-$410 million.

Per management, the top line was driven by a 30.8% year-over-year increase in Invisalign case shipments to 272,235 in the quarter. The upside was supported by growth in North America and international regions on an expanded customer base and increased utilization along with a solid worldwide teen case growth. Moreover, increased revenues from iTero scanner contributed majorly.

Segments in Detail

Revenues at the Clear Aligner segment (88.2% of total revenues) soared 36.5% year over year to $385.5 million in the reported quarter, primarily driven by continued strong Invisalign case volume growth across all customer channels and geographical regions.

In the first quarter, Invisalign case shipments amounted to 272,235, up 30.8% year over year, aided by growth across all regions as well as expansion of customer base. During the quarter, Align Technology Invisalign cases were shipped to 46,805 doctors worldwide, of which 27,105 were to North America and 19,700 to international regions.

Align Technology, Inc. Price, Consensus and EPS Surprise

Revenues from Scanner and Service (11.8%) improved a significant 84% to $51.4 million.

Margins

Gross margin in the quarter under review was down 100 basis points (bps) year over year to 74.9% on a 46.6% rise in cost of net revenues.

During the quarter, Align Technology witnessed a 32.1% year-over-year increase in selling, general and administrative expenses to $199.6 million and a 29.8% rise in research and development (R&D) expenses to $29.6 million. The operating margin expanded 260 bps to 22.5%.

Financial Details

Align Technology exited the first quarter with cash and cash equivalents and short-term marketable securities of $662.7 million, compared with $721.5 million at the end of 2017.

In the reported quarter, Align Technology repurchased 0.4 million shares of stock for $100 million under the April 2016 stock repurchase program. The company currently has approximately $100.0 million left under the buy-back program.

Guidance

For the second quarter of 2018, the company projects EPS of $1.02-$1.06 on revenues of $460-$470 million. The company projects Invisalign case shipments in the band of 296,000-301,000, up 28-30% from a year ago. Meanwhile, the Zacks Consensus Estimate for second-quarter 2018 EPS is $1.03 on revenues of $452.4 million. While the earnings estimate is within the projected range, the estimate for revenues falls below the same.

Our Take

Align Technology ended the first quarter on a solid note. We are upbeat about the continued strength in Invisalign volumes. In North America, the company continued to witness an expanding GP Dentist customer base along with sustained strength in Invisalign utilization by orthodontists. We are also encouraged by the solid performance in the EMEA and Asia Pacific markets.

Within Scanners and Service, the company witnessed rapid uptake of iTero scanners across all geographies. Moreover, the company continues to see increased adoption of iTero scanners for Invisalign case submissions instead of PVS impressions, thereby driving Invisalign utilization. Further, Align Technology recently announced the receipt of China Food and Drug Administration (CFDA) approval for the commercial launch of the iTero Element intraoral scanner.

We are also upbeat about the company expanding the iTero Element portfolio with the lauch of iTero Element 2 and iTero Element Flex scanners in the United States and majority of European countries, covering France, Germany, Italy, Spain, and the United Kingdom.

Align Technology has a strong cash balance that enables it to carry out share repurchases and in turn provide solid returns to investors.

On the flip side, the company is exposed to foreign exchange fluctuations, seasonal demand fluctuations, higher operating expenses pertaining to increased head count along with higher investments targeted toward expansion of geographical presence and portfolio.

Zacks Rank & Key Picks

Align Technology currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical space, which reported solid earnings this season, are Laboratory Corporation of America Holdings (NYSE:LH), Chemed Corporation (CHE) and Intuitive Surgical, Inc. (NASDAQ:ISRG). While Intuitive Surgical currently sports a Zacks Rank #1 (Strong Buy), LabCorp and Chemed carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported first-quarter 2018 adjusted earnings of $2.44 per share, which beat the Zacks Consensus Estimate by 22.6%. Revenues totaled $848 million, also surpassing the Zacks Consensus Estimate by 10.6%.

LabCorp reported first-quarter 2018 adjusted earnings per share of $2.78, beating the Zacks Consensus Estimate by 5.3%. Revenues came in at $2.85 billion, exceeding the consensus estimate of $2.78 billion.

Chemed posted first-quarter 2018 adjusted earnings per share of $2.72, beating the Zacks Consensus Estimate of $2.37. Revenues came in at $439.2 million, steering past the Zacks Consensus Estimate of $420 million.

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