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Align Technology, Inc. (ALGN): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:

Align's third-quarter 2014 earnings as well as revenues steered ahead of the respective Zacks Consensus Estimate. Besides, both revenues and EPS exceeded year-ago numbers. Growth was boosted by strong Invisalign sales from international doctors in EMEA as well as in the Asia Pacific. Continued expansion of the company's customer base and increased Invisalign utilization also propelled growth. Moreover, we are impressed with the company's recent introduction of Invisalign G5, a new feature enhancement. We expect these to improve ASP going forward. The company's solid focus on international markets and conversion of countries to direct sales geographies is encouraging. However, we are worried about the ongoing macroeconomic headwinds which continue to cast a negative impact on dental procedures. We are thus Neutral on Align.

Overview:

Align Technology (ALGN), headquartered in California, manufactures and markets a system of clear aligner therapy, intra-oral scanners and CAD/CAM (computer-aided design and computer-aided manufacturing) digital services used in dentistry, orthodontics, and dental records storage. The clear aligner system corrects malocclusion using nearly invisible and removable appliances that gently move the tooth to a desired final position.

The company had received the approval from the U.S. Food and Drug Administration (FDA) for Invisalign in 1998. Customers, including orthodontists and general practitioner dentists (GP), are required to complete an initial Invisalign training before treating their patients. The Invisalign system is sold in North America, Europe, Asia Pacific, Latin America and Japan. The company uses a distributor model for the sale of its products in parts of Asia-Pacific, Latin America and comparatively smaller markets in the Middle East, Europe, and Africa.

In 2011, Align acquired Cadent Holdings, a leading provider of 3D digital scanning solutions for orthodontics and dentistry. Since then the company has been manufacturing iTero and iOC digital intra-oral scanners and provides CAD/CAM restorative models for dental professionals, and labs and services for orthodontic digital procedures.

Align presently has two operating segments, Clear Aligner, known as the Invisalign system and Scanner and Services known as the iTero intra-oral scanners and OrthoCAD services (which we previously referred to as Scanner and CAD/CAM Services). In the last fiscal, 93% of Align's worldwide revenue came from Clear Aligner, while scanners and CAD/CAM Services represented the remaining 6% of revenues.

Industry Dynamics

Align has tremendous growth opportunity in the malocclusion market. It is estimated that malocclusion affects roughly a billion individuals worldwide. Out of this, approximately 6.8 million people annually elect treatment by orthodontists worldwide and 2.6 million people have mild-to-moderate malocclusion and are eligible for Invisalign treatment. Owing to compromised aesthetics, discomfort and other drawbacks associated with traditional orthodontic treatments, a relatively small number of people with malocclusion seek treatment. As a result, the market is severely under penetrated. Align can increase its market share by tapping this under-penetrated market.

The product portfolio consists of:

Invisalign System An exclusive method to treat malocclusion based on a series of doctor-prescribed, custom manufactured, clear plastic removable orthodontic aligners. The Invisalign system offers a range of treatment options, specialized services, and proprietary software for treatment visualization and comprises several phases.

The Clear Aligner products are Invisalign Full, Teen and Assist (Full Products), Express/Lite (Express Products), Vivera retainers, along with training and ancillary products for treating malocclusion.

Feature Enhancement: Beginning Sep 2009, Align introduced enhanced features across the Invisalign system. The company launched Invisalign 1.5 in Sep 2009, Invisalign G3 in Oct 2010 and Invisalign G4 in Nov 2011. More recently, the company launched Invisalign G5 (Feb 2014).

These enhancements are a collection of clinical innovations designed to address some of the most significant treatment challenges encountered by doctors.

Invisalign G5, the latest feature enhancement, is designed specifically as an integrated solution to enhance treatment predictability for deep bite, a specific type of malocclusion. Its features include Precision Cuts, which are custom mesial and distal hooks used to provide anchorage for elastics and button cutouts to accommodate buttons bonded to the tooth that aim to help treat patients with Class II and Class III malocclusion. It also has SmartForce features to achieve more predictable tooth movements using custom optimized attachments and Power Ridges designed to provide additional force in cases where certain types of root movement are prescribed.

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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.


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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