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

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Align Technology, Inc.’s (ALGN - Free Report) third-quarter 2020 earnings per share (EPS) was $2.25, up from the year-ago EPS of $1.48, reflecting an improvement of 52%. The quarter’s EPS surpassed the Zacks Consensus Estimate by a stupendous 281.4%. Significantly better-than-expected revenues of Invisalign Clear Aligners and iTero scanners during the third quarter despite the COVID-19 pandemic resulted in the bottom-line beat.

GAAP EPS for the quarter was $1.76, up from the year-ago EPS of $1.28, reflecting an uptick of 37.5%.

Revenues surged 20.9% year over year to $734.1 million in the quarter, beating the Zacks Consensus Estimate by 38%.

Segments in Detail

In the second quarter, revenues at the Clear Aligner segment rose 20.2% year over year to $620.8 million due to volume increase across geographies. Within the segment, Invisalign case shipments amounted to 496.1 thousand, up 28.7% year over year.

During the quarter, Invisalign volumes were up 24.9% and 33.6% year over year in the Americas and International regions, respectively. In Latin America, the growth was led by Mexico and Brazil whereas the international business was driven by EMEA and APAC.

Invisalign volume for teenage patients was 162.7 thousand cases, up 25.6% year over year. In terms of products performance, the company recorded strong growth across the portfolio and non-comprehensive surpassed comprehensive even with the record adult shipments for the quarter. Growth with the Invisalign Go product also increased among general practitioner dentists (GPs), driven by North America and EMEA.

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

There was an uptick in express package shipments, where North America contributed to the majority of that growth. Overall, both non-comprehensive and comprehensive shipments were up, with continued increased adoption of the company’s Moderate products among the orthodontist and GP channels.

Revenues from Imaging Systems & CAD/CAM Services surged 24.5% to $113.4 million in the quarter due to higher shipments and services. Sequentially, Align Technology recorded continued momentum with the Element 5D Imaging System, witnessing growth in North America and the APAC region.

Margins

Gross profit in the third quarter was 534.1 million, reflecting an improvement of 22.1% year over year. Gross margin in the quarter under review expanded 71 basis points (bps) year over year to 72.7% despite a 17.8% uptick in cost of net revenues.

During the quarter, Align Technology witnessed a 12.6% year-over-year increase in selling, general and administrative expenses to $312.5 million and a 12.2% rise in research and development expenses to $44.5 million.

Operating income in the quarter under review was $177.1 million compared with operating profit of $120.4 million year over year, indicating an uptick of 47.1%. The operating margin expanded 430 bps to 24.1%.

Financial Details

At the end of the third quarter, Align Technology had cash, cash equivalents and short-term marketable securities of $615.5 million compared with $404.4 million at the end of the second quarter of 2020.

Cumulative net cash provided by operating activities was $280.8 million at the end of the third quarter compared with $529.1 million in the year-ago period.

The company currently has approximately $100 million left under its May 2018 repurchase program.

Guidance

The uncertainties regarding the duration and impact of the coronavirus pandemic on the company’s overall business have compelled Align Technologies to refrain from providing any guidance for the fourth quarter of 2020.

Our Take

Align Technologies exited the third quarter of 2020 with better-than-expected results despite the challenging business environment. The company saw significantly higher sales of Invisalign clear aligners and iTero scanners amid the pandemic. Impressive international performance across geographies and increased shipment volumes buoy optimism on the stock. Robust segmental performances and margin expansions look encouraging. Latest partnerships and product launches have also been looking impressive.

However, the company not providing any guidance due to the unrelenting spread of the pandemic is worrying.

Zacks Rank and Key Picks

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

Some better-ranked stocks in the broader medical space are IDEXX Laboratories, Inc. (IDXX - Free Report) , Insulet Corporation (PODD - Free Report) and Quidel Corporation (QDEL - Free Report) .

The Zacks Consensus Estimate for IDEXX’s third-quarter 2020 revenues is pegged at $666.7 million, suggesting a year-over-year improvement of 10.1%. The same for EPS stands at $1.42, indicating growth of 14.5% from the year-ago reported figure. The company currently carries 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 Insulet’s third-quarter 2020 revenues is $220.9 million, implying 14.9% increase from the year-earlier reported figure. The company currently sports a Zacks Rank #1.

The Zacks Consensus Estimate for Quidel’s third-quarter 2020 revenues is pegged at $476.1 million, suggesting a year-over-year improvement of 276.4%. The same for EPS stands at $4.58, indicating growth of 554.3% from the year-ago reported figure. The company currently flaunts a Zacks Rank #1.

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