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Align Technology (ALGN) Earnings Fall Shy of Estimates in Q2

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Zacks Equity Research
·5 min read
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Align Technology, Inc.’s ALGN second-quarter 2020 loss per share was 35 cents, reflecting a sharp decline from year-ago earnings per share (EPS) of $1.49. The quarter’s loss was wider than the Zacks Consensus Estimate of a loss of a penny. The significantly lower-than-expected revenues of Invisalign Clear Aligners and iTero scanners during the second quarter due to the COVID-19 pandemic resulted in the bottom-line miss.

Revenues declined 41.3% year over year to $352.3 million in the quarter but beat the Zacks Consensus Estimate by 1.9%.

Segments in Detail

In the second quarter, revenues at the Clear Aligner segment fell 39.9% year over year to $298.3 million due to volume decline across most regions. Within the segment, Invisalign case shipments amounted to 221.9 thousand, down 38.3% year over year.

The segment was driven by North America and EMEA and Latin America, which was partially offset by APAC. The segment also affected by foreign exchange fluctuations of approximately $6 million.

Align Technology, Inc. Price, Consensus and EPS Surprise

 

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

Align Technology, Inc. price-consensus-eps-surprise-chart | Align Technology, Inc. Quote

During the quarter, Invisalign volumes were down 52.2% and down 27.1% year over year in the Americas and International regions, respectively.

Invisalign volume for teenage patients was 70.6 thousand cases, down 31.9% year over year. The teen market recorded growth from APAC across comprehensive products. However, on an overall basis, both non comprehensive and comprehensive shipments declined but with increased adoption of the company’s moderate product among the orthodontic portfolio.

Revenues from CAD/CAM Services declined 48.1% to $54 million in the quarter due to COVID-19-led sales decline in most regions, except APAC. Revenues from the exocad Global Holdings GmbH (a global CAD/CAM software leader) partially offset promotional discounts and lower service revenue.

Margins

Gross margin in the quarter under review contracted 829 basis points (bps) year over year to 63.7% despite a 24% decline in cost of net revenues.

During the quarter, Align Technology witnessed a 4.1% year-over-year decrease in selling, general and administrative expenses to $256.9 million and a 3.9% rise in research and development expenses to $40.4 million.

Operating loss in the quarter under review was $73 million compared with operating profit of $125.5 million year over year.

Financial Details

At the end of the second quarter, Align Technology had cash, cash equivalents and short-term marketable securities of $404.4 million compared with $790.1 million at the end of the first quarter of 2020.

Cumulative net cash provided by operating activities was $69.7 million at the end of the second quarter compared with $294.6 million in the year-ago period.

The company currently has approximately $100 million left under its May 2018 repurchase program.

Guidance

The uncertainties regarding the duration and impact of the coronavirus pandemic on the company’s overall business have compelled Align Technologies to refrain from providing any guidance for the third quarter of 2020.

Our Take

Align Technologies exited the second quarter of 2020 on a dismal note, with substantial plunge in quarterly revenues and huge bottom-line debacle. The company saw significantly lower-than-expected sales of Invisalign clear aligners and iTero scanners due to the pandemic. Disappointing international performance in most of the geographies and foreign exchange impacts are other headwinds.

On a positive note, APAC, Japan, Taiwan and South Korea saw successful recovery efforts and performed better than the company’s expectations. APAC’s growth was led by China, Taiwan, Hong Kong and South Korea’s position in the recovery curve.

APAC reflected improving trends as practices reopened and got the Invisalign business back on track along with COVID-19 recovery measures implemented by Align Technologies in China.

On Apr 1, Align Technologies acquired privately-held exocad for $430 million.

Zacks Rank and Key Picks

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

Some better-ranked stocks in the broader medical space are ResMed Inc. RMD, Exact Sciences Corporation EXAS and ViewRay, Inc. VRAY. All the three stocks carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for ResMed’s fourth-quarter fiscal 2020 revenues is pegged at $710.9 million, suggesting a year-over-year improvement of 0.9%. The same for EPS stands at 99 cents, indicating growth of 4.2% from the year-ago reported figure.

The Zacks Consensus Estimate for Exact Sciences’ second-quarter 2020 revenues is $229.6 million, implying a 14.9% increase from the year-earlier reported figure.

The Zacks Consensus Estimate for ViewRay’s second-quarter 2020 bottom line stands at a loss of 16 cents per share, suggesting a 50% improvement from the year-ago quarter.

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