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Align Technology (ALGN) Beats on Q1 Earnings, Margins Down

Zacks Equity Research

Align Technology, Inc.’s ALGN first-quarter 2019 earnings per share (EPS) came in at 89 cents, reflecting a 23.9% decline from a year ago. EPS faced an impact of $29.8 million owing to impairments and other charges related to Invisalign store closures.

However, the figure beat the Zacks Consensus Estimate by 7.2%.

Revenues

Revenues grew 25.7% year over year to $548.9 million in the quarter, surpassing the Zacks Consensus Estimate by 3.5%.

Per management, the top line gained from a double-digit increase in Invisalign case shipments from the year-ago quarter. Moreover, increased revenues from iTero scanner contributed substantially.

Segments in Detail

In the first quarter, revenues at the Clear Aligner segment (85.5% of total revenues) rose 21.7% year over year. Within the segment, Invisalign case shipments amounted to 349,195, up 28.3% year over year. The upside was primarily driven by growing volumes in America and international regions as well as continued expansion of customer channels.

 

Align Technology, Inc. Price, Consensus and EPS Surprise

 

Align Technology, Inc. Price, Consensus and EPS Surprise | Align Technology, Inc. Quote

 

During the quarter, Align Technology Invisalign cases were shipped to 56,710 doctors worldwide, of which 30,200 were in North America and 26,510 in international regions.

Revenues from Scanner and Services (14.5% of total revenues) improved a significant 55.2% to $79.8 million on increased scanner units across several regions.

Margins

Gross margin in the quarter under review contracted 169 basis points (bps) year over year to 73.2% on account of a 34.1% rise in cost of net revenues.

During the quarter, Align Technology witnessed a 23.8% year-over-year increase in selling, general and administrative expenses to $247.1 million and a 26.7% rise in research and development (R&D) expenses to $37.5 million. Accordingly, adjusted operating margin contracted 107 bps to 21.4%.

Financial Details

At the end of the first quarter, Align Technology had cash, cash equivalents and short-term marketable securities of $732.5 million, compared with 744.5 million at the end of fourth-quarter 2018.

In the reported quarter, Align Technology repurchased $50 million of stocks under its buy-back authorization. The company currently has approximately $450 million left under the May 2018 Repurchase Program.

Q2 Guidance

For the second quarter of 2019, the company projects EPS of $1.47-$1.54 on revenues of $590-600 million (indicating 20-22% growth from a year ago). The company estimates Invisalign case shipments in the band of 380,000-385,000, suggesting 20-22% rise from a year ago.

Meanwhile, the Zacks Consensus Estimate for second-quarter EPS is pinned at $1.21 on revenues of $592.5 million. The earnings estimate is below the guided range while that for revenues is slightly above the low end of the projected band.

Our Take

Align Technology exited the first quarter of 2019 on a solid note. We are upbeat about the continued momentum in Invisalign volumes across all geographies. We are also encouraged by the solid adoption of Invisalign treatment registered with record utilization. The expansion of Invisalign customer base, which totaled 57,000 active doctors worldwide in the first quarter, also buoys optimism. The company is witnessing solid worldwide Invisalign volume growth for teenage patient cases.

On the flip side, margins contracted on escalating costs and expenses.

Zacks Rank and Key Picks

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

Some better-ranked stocks which posted solid results this earning season are Stryker Corporation SYK, Abbott Laboratories ABT and CONMED Corporation CNMD, each carrying a Zacks Rank of 2 (Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Stryker delivered first-quarter 2019 adjusted EPS of $1.88, beating the Zacks Consensus Estimate by 2.2%. Revenues of $3.52 billion were in line with the Zacks Consensus Estimate.

Abbott reported first-quarter 2019 adjusted EPS of 63 cents, surpassing the Zacks Consensus Estimate by 3.3%. Worldwide sales totaled $7.54 billion, beating the Zacks Consensus Estimate of $7.47 billion.

CONMED’s first-quarter 2019 adjusted EPS of 57 cents beat the Zacks Consensus Estimate of 54 cents. Revenues of $218.4 million also surpassed the Zacks Consensus Estimate of $213 million.

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