Align Technology (ALGN) Misses on Q2 Earnings, Tops Revenues - Analyst Blog

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Align Technology Inc . ( ALGN ) reported earnings of $35.6 million or 43 cents per share, up 21.5% and 19.4% respectively from the year-ago level of $29.3 million or 36 cents. While earnings per share during the quarter topped the company-provided guidance range of 36-39 cents, it missed the Zacks Consensus Estimate by a penny.


Align Technology, Inc - Earnings Surprise | FindTheBest



Revenues in Detail

Revenues improved 17.5% year over year to $192.5 million in the quarter, exceeding the guidance range of $181.7-$186.5 million. It also steered ahead of the Zacks Consensus Estimate of $186 million.

Apart from higher Invisalign ASPs, growth in revenues was also driven by strong Invisalign volume across North America, Middle East and Africa (EMEA) and the Asia Pacific regions.

Segments in Detail

Revenues from Invisalign Clear Aligner segment (93.4% of total revenue) increased 17.2% year over year to $179.7 million in the reported quarter. Growth in the top line was driven by case volume growth across all channels, favorable ASPs from a higher mix of full Invisalign products, a higher mix of international business, as well as the favorable impact of the company's acquisition of APAC distributor in May 2013.

For the quarter, total Invisalign case shipments were 119,300, up 12.4% year over year, propelled by continued expansion of the company's customer base and increased utilization from international and North American customers.

Revenues from Scannerand Service revenues (6.6% of total revenue) rose 21.6% to $12.8 million in the reported quarter. This increase reflects continued penetration in the market and increasing market share gains. In the reported quarter, the company launched iTero 5.2 software upgrade which is designed to increase practice efficiency and significantly expand the extensive array of existing iTero features.

Margins

Gross margin expanded by marginal 6 basis points (bps) year over year to 75.6% in the second quarter. The increase came on the back of improved Invisalign Clear Aligner gross margin due to higher ASPs. 

Align Technology witnessed a 17.8% year-over-year increase in sales and marketing expenses to $56.4 million, year-over-year flat general and administrative expenses at $27.1 million, and a 21.7% rise in research and development expenses to $13.3 million in the quarter. Operating margin during the quarter expanded by 218 bps to 25.3% due to higher sales volume and increased gross margins.

Financial Details

Align Technology exited reported quarter with cash and cash equivalents and short-term investment of $365.5 million compared with $369.9 million at the end of 2013. The company had no debt at quarter-end.

During the reported quarter, Align Technology generated $69.7 million in cash flow from operations. Capital expenditure incurred by the company was $4.9 million resulting in a free cash flow of $64.8 million, for the quarter.

In the second quarter, the company paid $70 million under an accelerated stock repurchase plan (ASR) in which it received an initial delivery of approximately 997,000 shares of its common stock. The ASR is expected to be completed by Jul 29, 2014. 

Guidance

For the third quarter of 2014, Align Technology expects revenues in the range of $186.3-$190.2 million, with an annualized growth rate of 13.2-15.6%. The current Zacks Consensus Estimate of $189 million approximately coincides with the higher end of the guided range.

Earnings per share are expected in the range of 41-44 cents.  The Zacks Consensus Estimate of 51 cents falls outside the guided range. Shipments for the Invisalign Clear Aligner are expected in the band of 118,000-120,500.

Our Take

Align Technology posted mixed second-quarter 2014 financial results with the company missing the Zacks Consensus Estimate on earnings but beating the same on the top-line front.

Over the past few quarters, sales have increased consistently riding on the strength of this product. Moreover, several features have been introduced across the Invisalign system, designed to address some of the most significant treatment challenges encountered by doctors. The company's Invisalign G3 and G4 are working successfully for its class II and class III patients. Moreover in Feb 2014, it launched Invisalign G5 innovations which will be specifically used to treat deep bite malocclusion.

We are also optimistic about the company's strong balance sheet and healthy cash flow position. Overall, we believe Align Technology possesses positive potential with management successfully channelizing the three key strategic growth drivers of the company, viz. market expansion, product innovation and brand strength.

However, we also remain worried about the current economic uncertainty which continues to cast a negative impact on dental procedures. Competetive landscape is also challenging.

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

Other Stocks to Consider

Some better-ranked stocks in the broader healthcare sector that warrant a look are AmerisourceBergen Corporation ( ABC ), The Cooper Companies Inc. ( COO ) and Laboratory Corp. of America Holdings ( LH ) all carrying a Zacks Rank #2 (Buy).


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ALIGN TECH INC (ALGN): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: ASR , ALGN , ABC , LH , COO



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