Align Technology (ALGN) Beats on Q3 Earnings, Margins Fall

Align Technology, Inc.’s ALGN third-quarter 2019 earnings per share (EPS) came in at $1.28, reflecting a 3.2% increase from a year ago. The figure beat the Zacks Consensus Estimate by 12.3%.


Revenues grew 20.2% year over year to $607.3 million in the quarter, surpassing the Zacks Consensus Estimate by 2.5%.

The robust top-line growth was led by 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 third quarter, revenues at the Clear Aligner segment rose 20.9% year over year. Within the segment, Invisalign case shipments amounted to 385,000, up 20.7% year over year. The upside was primarily driven by continued adoption by teenage and younger patients as well as increased utilization among orthodontists and expansion of the company’s global customer base.

During the quarter, Invisalign volumes were up 13% and 32.1% year over year in the Americas and International regions, respectively. Invisalign volume for teenage patients was 130,000 cases, up 31.5% 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 improved a significant 16.5% to $91.1 million on increased sales of iTero scanner and services.


Gross margin in the quarter under review contracted 153 basis points (bps) year over year to 72% on account of a 27.2% rise in cost of net revenues.

During the quarter, Align Technology witnessed a 29.8% year-over-year increase in selling, general and administrative expenses to $277.5 million and a 21.3% rise in research and development (R&D) expenses to $39.7million. Accordingly, adjusted operating margin contracted 496 bps to 19.8% in the quarter under review.

Financial Details

At the end of the third quarter, Align Technology had cash, cash equivalents and short-term marketable securities of $782.4 million, compared with $720.9 million at the end of the second quarter.

In the reported quarter, Align Technology repurchased 1.1 million stocks for $200 million under its accelerated stock repurchase agreement, introduced last July. The company currently has approximately $200.5 million left under its May 2018 repurchase program.

Q4 Guidance

For the fourth quarter of 2019, the company projects EPS of$1.35 to $1.42 on revenues to$640 million to $650 million (indicating 20-22% growth from a year ago). The company estimates Invisalign case shipments in the band of 400,000-407,000 suggesting a 20-22% rise from a year ago.

Meanwhile, the Zacks Consensus Estimate for fourth-quarter EPS is pinned at $1.38 on revenues of $648.9 million. Both the earnings and revenue estimates lie within their respective projected bands.

Our Take

Align Technology exited the third quarter of 2019 with better-than-expected results. 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 63,000 active doctors worldwide in the third quarter, buoys optimism. The company is witnessing solid worldwide Invisalign volume growth for teenage patient cases. On the flip side, gross and operating margins contracted on escalating expenses.

Zacks Rank and Key Picks

Align Technology currently has a Zacks Ranks #4 (Sell).

A few better-ranked stocks in the broader medical space are Mckesson MCK, Stryker SYK and Syneos Health SYNH, each carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for McKesson’s second-quarter fiscal 2020 revenues is pegged at $54.94 billion, suggesting 3.5% growth from the prior-year reported figure. The same for adjusted EPS stands at $3.59.

The Zacks Consensus Estimate for Stryker’s third-quarter fiscal 2019 revenues is pegged at $3.58 billion, calling for a year-over-year increase of 10.5%. The same for adjusted EPS stands at $1.91 cents, indicating an increase of 13% from the year-ago reported figure.

The Zacks Consensus Estimate for Syneos’ third-quarter fiscal 2019 revenues is pegged at $1.18 billion, suggesting 6.03% growth from the prior-year reported figure. The same for adjusted EPS stands at 72 cents, implying a 5.3% improvement from the year-ago reported number.

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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 Nasdaq, Inc.

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