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Align Technology (ALGN) Q1 Earnings Miss, Margins Down

Zacks Equity Research

Align Technology, Inc.’s ALGN first-quarter 2020 earnings per share (EPS) were 73 cents, reflecting a 41.6% decline from the year-ago period. The figure lagged the Zacks Consensus Estimate by a huge margin of 31.8%. The significantly lower-than-expected revenues of Invisalign clear aligners and iTero scanners during the first quarter due to the COVID-19 pandemic outbreak resulted in such a lackluster bottom line.

Revenues edged up 0.4% year over year to $550.9 million in the quarter but missed the Zacks Consensus Estimate by 6.3%.

Segments in Detail

In the first quarter, revenues at the Clear Aligner segment rose 2.6% year over year to $481.6 million. Within the segment, Invisalign case shipments amounted to 359.4 thousand, up 2.9% year over year.

Despite the COVID-19 impact on sales, the company noted solid growth from non-comprehensive products driven by the Invisalign Go system and Invisalign Moderate across all regions. This was offset by a lower mix of comprehensive products primarily due to the shortfall in China.

During the quarter, Invisalign volumes were up 5.2% and down 0.2% year over year in the Americas and International regions, respectively. Invisalign volume for teenage patients was 104,000 cases, up 6.8% year over year.

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

Revenues from Scanner and Services declined 13.1% to $69.4 million in the quarterdue to COVID-19-led lower sales in North America and APAC region, despite increase in revenues in EMEA and Latin America.

Margins

Gross margin in the quarter under review contracted 167 basis points (bps) year over year to 71.6% on a 6.6% rise in cost of net revenues.

During the quarter, Align Technology witnessed a 14.5% year-over-year increase in selling, general and administrative expenses to $282.9 million and a 10.7% rise in research and development expenses to $41.5 million. Operating margin contracted 871 bps to 12.7% in the quarter under review.

Financial Details

At the end of the first quarter, Align Technology had cash, cash equivalents and short-term marketable securities of $790.1 million, compared with $868.6 million at the end of 2019.

Net cash provided by operating activities was $9.8 million in the first quarter, compared with $117.2 million in the year-ago period.

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

Guidance Update

The uncertainties regarding the duration and impact of the coronavirus pandemic on the company’s overall business have compelled Align Technologies to suspend its previously-issued 2020 financial guidance. It did not even provide a guidance for the second quarter.

Our Take

Align Technologies reported lower-than-expected earnings and revenues for the first quarter. As expected, the company registered significantly lower-than-expected sales of Invisalign clear aligners and iTero scanners due to the COVID-19 pandemic.

In APAC, Japan, Taiwan, Korea and India saw continued year-over-year growth in the quarter. Despite this, sales in APAC were down significantly, primarily reflecting a longer duration of COVID-19 measures implemented in China.

On Apr 1, the companyacquired privately held exocad Global Holdings GmbH, a global CAD/CAM software leader for $430 million.

Zacks Rank and Key Picks

Align Technology currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the broader medical space are ResMed Inc. RMD, Aphria Inc. APHA 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 third-quarter fiscal 2020 revenues is pegged at $715.6 million, suggesting year-over-year improvement of 8.1%. The same for EPS stands at $1, indicating growth of 12.4% from the year-ago reported figure.

The Zacks Consensus Estimate for Aphria’s fourth-quarter fiscal 2020 revenues is $100.3 million, implying 4.4% increase from the year-earlier reported figure.

The Zacks Consensus Estimate for ViewRay’s first-quarter 2020 bottom line stands at a loss of 20 cents per share, suggesting 41.2% improvement from the year-ago quarter.

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