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Align Technology (ALGN) Up 2.9% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Align Technology (ALGN). Shares have added about 2.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Align Technology due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Align Technology Q2 Earnings Top Estimates, 2021 View Up

Align Technology second-quarter 2021 adjusted earnings per share were $3.04 against the loss of 35 cents per share a year ago. The metric surpassed the Zacks Consensus Estimate by 20.6%.

GAAP earnings per share in the quarter were $2.51 against the year-ago loss per share of 52 cents.

Revenues

Revenues surged 186.9% year over year to a record $1.01 billion in the quarter, beating the Zacks Consensus Estimate by 7.3%.

Continued momentum in Invisalign Clear Aligners and iTero scanners sales volumes during the second quarter drove the top line.

Segments in Detail

In the first quarter, revenues at the Clear Aligner segment rose 181.9% year over year to $841 million due to strength in both adult and teen market segments as well as across products and customer channels, especially in the Americas and the EMEA region. Within the segment, Invisalign case shipments amounted to 666 thousand, up 200% year over year.

During the quarter, Clear Aligner volumes rose 260.7% and 149.2% year over year in the Americas and International regions, respectively.

Clear Aligner volume for teenage patients was 181 thousand cases, up 156.3% year over year, representing one-third of total cases shipped, with strong growth from North America and EMEA orthodontists.

Revenues from Imaging Systems & CAD/CAM Services surged 214.7% to $169.8 million in the quarter due to product mix, and increased services revenues from the company’s larger installed base and exocad's CAD/CAM services. Sequentially, the company’s revenues recorded an uptick of 20%. The company also recorded continued momentum with the iTero Element 5D Imaging System Plus Series of next-generation scanners and imaging systems (launched in February 2021).

Margins

Gross profit in the second quarter was $758.5 million, reflecting an improvement of 238.1% year over year. Gross margin in the quarter under review expanded 1137 basis points (bps) year over year to 75% despite a 97.1% uptick in cost of net revenues.

During the quarter, Align Technology witnessed a 68.1% year-over-year increase in selling, general and administrative expenses to $431.9 million and a 42.9% rise in research and development expenses to $57.7 million.

Operating income in the quarter under review was $268.9 million against operating loss of $73 million in the year-ago quarter.

Financial Details

Align Technology exited the second quarter of 2021 with cash, cash equivalents of $1.09 billion compared with $1.13 billion at the end of the first quarter.

Cumulative net cash provided by operating activities at the end of the second quarter of 2021 was $544.7 million compared with $69.7 million a year ago.

Under the $1-billion repurchase program announced in May 2021, the company has $900 million remaining available for repurchase of common stock.

2021 Guidance

Align Technology, on the back of its impressive performance, has raised its financial outlook for 2021.

The company now expects revenues for the year in the range of $3.85 billion to $3.95 billion, reflecting a rise of 56-60% from 2020. The previous provided guided range was $3.7-$3.9 billion. The Zacks Consensus Estimate for the same is pegged at $3.80 billion.

The company expects revenue growth in the second half of 2021 to exceed the mid-point of its long-term operating model target of 20% to 30%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Align Technology has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Align Technology has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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