Align Technology (ALGN) Q4 Earnings Top On Invisalign Sales

Align Technology, Inc.’s (NASDAQ:ALGN) fourth-quarter 2017 adjusted earnings per share (EPS) came in at $1.19, excluding net expense of $86.6 million or $1.06 per share as an impact of U.S. tax reform. Reported EPS came in at 13 cents.

The adjusted EPS figure was up 77.6% year over year. Earnings were also higher than the company’s guided range of 92-95 cents. The figure beat the Zacks Consensus Estimate of 96 cents by 23.9%.

Full-year 2017 adjusted EPS came in at $3.89, beating the Zacks Consensus Estimate of $3.67 by 5.9%. Moreover, the figure beat the year-ago number by 66.9%.

Revenues

Revenues grew 43.7% year over year to $421.3 million in the quarter, surpassing the Zacks Consensus Estimate of $395.5 million. Revenues were well ahead of the company’s guided range of $391-$398 million.

Net revenues in 2017 totaled $1.47 billion, outpacing the Zacks Consensus Estimate of $1.45 billion. The figure also improved from the year-ago number by 36.4%.

Align Technology, Inc. Price, Consensus and EPS Surprise

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

Per management, the top line was driven by a 34.2% year-over-year increase in Invisalign case shipments to 255,000 in the fourth quarter. The upside was driven by growth in North America and international regions from expanded customer base and increased utilization. Moreover, increased revenues from iTero scanner contributed to the top line.

Segments in Detail

Revenues at the Clear Aligner segment (86.4% of total revenues) soared 44.8% year over year to $364.2 million in the reported quarter, primarily driven by continued strong Invisalign case volume growth across all customer channels and geographical regions.

In the fourth quarter, Invisalign case shipments amounted to 255,000, up 34.2% year over year, aided by growth across all regions as well as the expansion of customer base. During the quarter, Align Technology Invisalign cases were shipped to 44,985 doctors worldwide, of which 25,365 were to North America and 19,620 to international regions.

Revenues from Scanner and Service (13.6%) improved a significant 37% to $57.1 million.

Margins

Gross margin in the quarter under review was up 40 basis points (bps) year over year to 75.5% in spite of a 41.8% rise in cost of net revenues.

During the quarter, Align Technology witnessed a 39.8% year-over-year increase in selling, general and administrative expenses to $182.1 million and a 21.3% rise in research and development (R&D) expenses to $26.2 million. The operating margin expanded 270 bps to 26%.

Financial Details

Align Technology exited 2017 with cash and cash equivalents and short-term marketable securities of $721.5 million, which marked a 12.7% rise from 2016.

In the reported quarter, Align Technology repurchased 0.2 million shares of stock for $50 million under the April 2016 stock repurchase program. The company currently has approximately $200.0 million left under the buy-back program.

Guidance

For the first quarter of 2018, the company projects EPS of 94-98 cents on revenues of $400-$410 million. The company projects Invisalign case shipments in the band of 264,000-269,000, up 26.9-29.3% from a year ago. Meanwhile, the current Zacks Consensus Estimate for first-quarter 2018 EPS is 90 cents on revenues of $395.9 million. Both the estimates are falling below the projected range.

Our Take

Align Technology ended the fourth quarter on a solid note. We are upbeat about the continued strength in Invisalign volumes. While GP dentists saw higher demand in North America following the summer holidays season, orthodontists witnessed increased adult patient footfall after a busy teen season in the preceding quarter. Internationally, we are encouraged by strength in the EMEA and Asia Pacific markets.

Within Scanners and Service, the company witnessed strong uptake of iTero scanners by GP dentists along with record contracts coming from the GP summit last September. Moreover, increased uptake due to the recent deal with Patterson Dental for Align’s iTero Element intraoral scanning system also contributed to the top-line. The company witnessed solid demand for the iTero scanners in EMEA and Asia Pacific as well.

Align Technology has a strong cash balance that enables it to carry out share repurchases and in turn provide solid returns to investors.

On the flip side, the company is exposed to foreign exchange fluctuations, seasonal demand fluctuations, higher operating expenses pertaining to increased head count along with higher investments targeted toward expansion of geographical presence and portfolio.

Zacks Rank & Other Key Picks

Align Technology carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader medical sector are ResMed (NYSE:RMD) , PerkinElmer (NYSE:PKI) and Accuray (NASDAQ:ARAY) . All the three companies carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

ResMed posted second-quarter fiscal 2018 adjusted earnings of $1, up 36.9% from the prior-year quarter. Revenues in the reported quarter increased 13.4% year over year (up 11% at constant exchange rate or CER) to $601.3 million.

PerkinElmer reported fourth-quarter 2017 adjusted earnings of 97 cents. The company reported adjusted revenues of approximately $641.6 million, surpassing the year-ago quarter’s $567 million.

Accuray reported a loss of 6 cents in the second quarter of fiscal 2018, 5 cents narrower than the year-ago figure. Total revenues increased 15% year over year to $100.3 million.

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