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Align Technology (ALGN) Beats on Q2 Earnings, Margins Fall

Zacks Equity Research

Align Technology, Inc. ’s ALGN second-quarter 2019 earnings per share (EPS) came in at $1.83, reflecting a 40.8% increase from a year ago.

The figure beat the Zacks Consensus Estimate by 21.2%.


Revenues grew 22.5% year over year to $600.7 million in the quarter, surpassing the Zacks Consensus Estimate by 0.8%.

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.

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

Segments in Detail

In the second quarter, revenues at the Clear Aligner segment rose 14.6% year over year. Within the segment, Invisalign case shipments amounted to $377.1 million, up 24.6% 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 16.5% and 36.7% year over year in the Americas and International regions, respectively. Invisalign volume for teenage patients was 103.7 thousand cases, up 32.2% year over year.

Revenues from Scanner and Services improved a significant 82.4% to $104 million on increasedsales of iTero scanner and services.


Gross margin in the quarter under review contracted 260 basis points (bps) year over year to 71.9% on account of a 35% rise in cost of net revenues.

During the quarter, Align Technology witnessed a 26.3% year-over-year increase in selling, general and administrative expenses to $267.9 million and a 26.1% rise in research and development (R&D) expenses to $38.9 million. Accordingly, adjusted operating margin contracted 414 bps to 20.9% in the quarter under review.

Financial Details

At the end of the second quarter, Align Technology had cash, cash equivalents and short-term marketable securities of $720.9 million, compared with $732.5 million at the end of the first quarter.

In the reported quarter, Align Technology repurchased 0.2 million stocks for $49.5 million under its existing buy-back authorization. The company currently has approximately $400.5 million left under the May 2018 repurchase program.

Q3 Guidance

For the third quarter of 2019, the company projects EPS of $1.09-$1.16 on revenues of $585-600 million (indicating 16-19% growth from a year ago). The company estimates Invisalign case shipments in the band of 370,000-380,000, suggesting a 16-19% rise from a year ago.

Meanwhile, the Zacks Consensus Estimate for third-quarter EPS is pinned at $1.43 on revenues of $622.9 million. The earnings estimate is above the guided range while that for revenues is slightly above the high end of the projected band.

Our Take

Align Technology exited the second 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 60,000 active doctors worldwide in the second quarter, buoys optimism. The company is witnessing solid worldwide Invisalign volume growth for teenage patient cases.

On the flip side, contraction of gross and operating margins on escalating costs and expenses is disappointing.

Zacks Rank & Key Picks

Align Technology currently carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader medical space are Hologic Inc. HOLX, DENTSPLY SIRONA Inc. XRAY and Teleflex Inc. TFX.

Hologic is scheduled to release second-quarter 2019 results on Jul 31. The Zacks Consensus Estimate for the quarter’s adjusted EPS is pegged at 61 cents and for revenues stands at $834.6 million. The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .

DENTSPLY SIRONA is scheduled to release second-quarter 2019 results on Aug 2. The Zacks Consensus Estimate for its adjusted EPS is pegged at 62 cents and for revenues, $1.03 billion. The stock sports a Zacks Rank #1.

Teleflex is expected to release second-quarter 2019 results on Aug 1. The Zacks Consensus Estimate for its adjusted EPS is $2.59 and for the top line, $636.7 million. The stock has a Zacks Rank of 2.

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