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Why Is Align Technology (ALGN) Down 0.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Align Technology (ALGN - Free Report) . Shares have lost about 0.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Align Technology due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Align Technology Q1 Earnings Beat Estimates, Margins Up

Align Technology’s first-quarter 2021 earnings per share were $2.49, up from the year-ago earnings per share of 73 cents, reflecting a surge of 241.1%. The quarter’s earnings per share surpassed the Zacks Consensus Estimate by 25.1%.

GAAP earnings per share for the quarter was $2.51, down from the year-ago earnings per share of $19.21, reflecting a plunge of 86.9%.

Revenues

Revenues surged 62.4% year over year to $894.8 million in the quarter, beating the Zacks Consensus Estimate by 8.5%.

Strength in Invisalign Clear Aligners and iTero scanners sales volumes during the first quarter despite the COVID-19 pandemic drove the top line.

Segments in Detail

In the first quarter, revenues at the Clear Aligner segment rose 56.4% year over year to $753.3 million due to strength in both adult and teen market segments, as well as across products and customer channels, especially in North America and the EMEA region, led by the United Kingdom, Germany and France. Within the segment, Invisalign case shipments amounted to 595.8 thousand, up 65.8% year over year.

During the quarter, Clear Aligner volumes were up 53.8% and 83.2% year over year in the Americas and International regions, respectively. The international business was driven by EMEA and APAC.

Clear Aligner volume for teenage patients was 165.3 thousand cases, up 58.9% year over year. In terms of products performance, the company recorded strong growth across the Invisalign portfolio for both comprehensive and non-comprehensive products, including Invisalign Go and Invisalign Moderate. Continued robust adoption of Invisalign Go, as well as the Invisalign Moderate product for non-comprehensive treatment in the general practitioner dentist channel, drove the top line.

Revenues from Imaging Systems & CAD/CAM Services surged 103.9% to $141.5 million in the quarter due to product mix, and increased services revenues from the company’s larger installed base and exocad's CAD/CAM services. Sequentially, the company’s revenues recorded an uptick of 5.8%. The company also recorded continued momentum with the iTero Element 5D Imaging System, which is seeing strength in all regions, with significant Element Flex sales in APAC.

Margins

Gross profit in the first quarter was $677.1 million, reflecting an improvement of 71.7% year over year. Gross margin in the quarter under review expanded 410 basis points (bps) year over year to 75.7% despite a 38.9% uptick in cost of net revenues.

During the quarter, Align Technology witnessed a 40.4% year-over-year increase in selling, general and administrative expenses to $397.1 million and a 31.3% rise in research and development expenses to $54.5 million.

Operating income in the quarter under review was $225.4 million compared with operating profit of $69.9 million year over year, indicating an uptick of 222.4%. The operating margin expanded 1251 bps to 25.2%.

Financial Details

Align Technology exited the first quarter of 2021 with cash, cash equivalents of $1.13 billion compared with $960.8 million recorded at the end of 2020.

Net cash provided by operating activities at the end of the first quarter of 2021 was $227.2 million compared with $9.8 million a year ago.

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

2021 Guidance

Align Technology, on the back of its impressive performance, has issued its financial outlook for the year 2021.

The company expects its revenue for the year to lie within the range of $3.7 billion-$3.9 billion, indicating a surge of 50-58% from 2020. The Zacks Consensus Estimate for the same is currently pegged at $3.52 billion.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 11.24% due to these changes.

VGM Scores

At this time, Align Technology has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Align Technology has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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