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Align Technology (ALGN) Down 9.8% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Align Technology (ALGN - Free Report) . Shares have lost about 9.8% 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 Lag Estimates, Margins Fall

Align Technology, Inc.’s first-quarter 2022 earnings per share were $2.13 compared to the year-ago $2.49, reflecting a decline of 14.5%. The quarter’s EPS lagged the Zacks Consensus Estimate by 4.9%.

GAAP earnings per share for the quarter was $1.70, down from the year-ago earnings per share of $2.51, reflecting a plunge of 32.3%.

Revenues

Revenues surged 8.8% year over year to $973.2 million in the quarter, missing the Zacks Consensus Estimate by 2.9%.

Segments in Detail

In the first quarter, revenues at the Clear Aligner segment rose 7.5% year over year to $809.7 million, with strong revenue growth across regions and products. Within the segment, Invisalign case shipments amounted to 598,835, up 0.5% year over year.

During the quarter, Clear Aligner case volumes declined 1.5% and rose 3% year over year in the Americas and International regions, respectively. Clear Aligner case volume for teenage patients increased 6% year over year.

Revenues from Imaging Systems & CAD/CAM Services surged 15.5% to $163.5 million in the quarter due to increased services revenues from the company’s iTero scanner installed base and exocad's CAD/CAM services. The company also continued to witness the growing adoption of the iTero Element 5D Plus imaging system in the first quarter.

Margins

Gross profit in the first quarter was $709.3 million, reflecting an improvement of 4.8% year over year. Gross margin in the quarter under review contracted 279 basis points (bps) year over year to 72.9% on a 21.2% uptick in cost of net revenues.

During the quarter, Align Technology witnessed a 10.7% year-over-year increase in selling, general and administrative expenses to $439.5 million and a 31.7% rise in research and development expenses to $71.8 million.

Operating income in the quarter under review was $198.1 million compared with operating profit of $225.4 million year over year, indicating a decline of 12.1%. The operating margin contracted 484 bps to 20.4%.

Financial Details

Align Technology exited the first quarter of 2022 with cash, cash equivalents of $926.1million compared with $1.09 billion recorded at the end of 2021.

Cumulative net cash provided by operating activities at the end of the quarter was $30.5million compared with $227.2 million a year ago.

The company expects to repurchase up to $200 million of its common stock in the second quarter of 2022, through either open market repurchases or an accelerated stock repurchase agreement, or a combination of the two.

Guidance

Align Technology has not provided revenue guidance for 2022, given the growing unpredictable nature of the current operating environment. However, going by the last-reported fourth-quarter earnings update, the company anticipated net revenue growth for 2022 in the band of 20-30%. The Zacks Consensus Estimate for the company’s 2022 revenues is pegged at $4.74 billion.

For 2022, the company expects operating margin above 20% (down from the earlier projected 24%) on a GAAP basis, assuming no further material disruptions or situations beyond control.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

The consensus estimate has shifted -29.14% due to these changes.

VGM Scores

At this time, Align Technology has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Align Technology has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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