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Align Technology (ALGN) Q2 Earnings Beat, Gross Margin Up
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Align Technology, Inc. (ALGN) delivered second-quarter 2023 adjusted earnings per share (EPS) of $2.22, up 3.3% from the year-ago earnings. The EPS exceeded the Zacks Consensus Estimate by 9.9% in the second quarter.
GAAP EPS for the quarter was $1.46, reflecting a 1.4% increase year over year.
Revenues
Revenues increased 3.4% year over year to $1002.2 million in the quarter and also beat the Zacks Consensus Estimate by 1.7%. Revenues were impacted by the unfavorable foreign exchange of approximately $19.4 million year over year.
At the constant exchange rate or CER, total revenues in the second quarter were up 1.9% year over year.
Segments in Detail
The company has two reportable segments —Clear Aligner and Imaging Systems and CAD/CAM Services (“Systems and Services”)
Align Technology, Inc. Price, Consensus and EPS Surprise
Revenues in the Clear Aligner segment were up 4.3% year over year to $832.7 million. This figure compares with our model’s segmental projection of $818.5 million for the second quarter.
The growth was driven by higher volumes, increased Average Selling Prices (“ASP”) as well as higher non-case revenues. However, revenues were unfavorably impacted by a foreign exchange headwind of approximately $16.3 million (or 1.9%) year over year. Total Clear Aligner shipments during the quarter amounted to 604,445, up 0.9% year over year.
Revenues from Imaging Systems & CAD/CAM Services were down 1.0% to $169.5 million in the quarter. Our model had projected the segment’s revenues for the second quarter to be $164.9 million.
Revenues witnessed an unfavorable currency impact of 1.8% year over year.
Margins
The gross profit in the second quarter was $713.6 million, reflecting an increase of 3.8% year over year. The gross margin in the quarter under review expanded 29 basis points (bps) year over year to 71.2% despite a 2.3% increase in the cost of net revenues.
During the quarter, Align Technology witnessed a 6.3% increase in SG&A expenses to $453.2 million and a 21.3% rise in R&D expenses to $88.5 million.
The operating income in the quarter under review was $171.9 million, highlighting a decline of 8.6%. The operating margin contracted 225 bps to 17.2%.
Financial Details
Align Technology exited the second quarter of 2023 with cash and cash equivalents of $952 million compared with the $942.1 million recorded at the end of 2022.
The cumulative net cash provided by operating activities at the end of the second quarter was $451.7 million compared with $157.5 million at the end of Jun 30, 2022.
Currently, $1 billion is available for repurchases under ALGN’s $1 billion Stock Repurchase Program, which was authorized in the first quarter of 2023 to succeed the 2021 $1 billion program. Further, the company’s management noted the completion of the $75 million equity investment in Heartland Dental, a multidisciplinary Dental Service Organization with GDP and ortho practices across the United States.
Full-Year Guidance
Align Technology provided an updated outlook for 2023.
For the full year, ALGN anticipates revenues in the range of $3.97 billion-$3.99 billion, implying a 12% improvement from 2022 at the midpoint. The Zacks Consensus Estimate for Align Technology’s 2023 revenues is pegged at $3.89 billion.
The company expects to report a 2023 GAAP operating margin of slightly more than 17% (previously 16%) and an adjusted operating margin of slightly higher than 21% (earlier 20%).
For 2023, Align Technology expects investments in capital expenditures to be approximately $200 million (earlier projected to exceed the same). Capital expenditures are primarily related to building construction and improvements and additional manufacturing capacity to support Align Technology’s international expansion.
For the third quarter of 2023, ALGN anticipates revenues in the range of $990 million-$1,010 million. The Zacks Consensus Estimate for the same is pegged at $978.1 million.
The company anticipates its adjusted operating margin to be slightly up on a sequential basis as it continues to prioritize investments in R&D and go-to-market activities to drive growth.
Our Take
Align Technology exited the second quarter of 2023 with better-than-expected earnings and revenues. The performance reflected improving trends across regions, and strength in teen and younger patient volumes, driven by increased Invisalign submitters and higher utilization and continued growth from Invisalign First. The strong uptake of the Invisalign Comprehensive 3 and 3 product, which was launched in the first quarter, looks encouraging.
Further, a year-over-year increase in the quarter’s non-case revenues reflected continued growth from the Vivera Retainers and Invisalign Doctor Subscription Program or DSP. In the second quarter, the company expanded the DSP to Spain and Nordic countries, while launches in France and the United Kingdom are expected in the second half of this year.
Meanwhile, the contraction in the adjusted operating margin is worrisome. Compared to the prior-year period, the Systems and Services business was impacted by lower scanner volumes and unfavorable ASPs. Headwinds related to foreign exchange persisted in the quarter.
Zacks Rank and Key Picks
Align Technology currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories (ABT - Free Report) , Elevance Health, Inc. (ELV - Free Report) and Intuitive Surgical, Inc. (ISRG - Free Report) .
Abbott, carrying a Zacks Rank of 2 (Buy), reported a second-quarter 2023 adjusted EPS of $1.08, beating the Zacks Consensus Estimate by 3.8%. Revenues of $9.98 billion outpaced the consensus mark by 2.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 12.4%.
Elevance Health reported a second-quarter 2023 adjusted EPS of $9.04, beating the Zacks Consensus Estimate by 2.5%. Revenues of $43.38 billion surpassed the Zacks Consensus Estimate by 4.5%. It currently carries a Zacks Rank #2.
Elevance Health has a long-term estimated growth rate of 12.1%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 2.8%.
Intuitive Surgical reported a second-quarter 2023 adjusted EPS of $1.42, beating the Zacks Consensus Estimate by 7.6%. Revenues of $1.76 billion surpassed the Zacks Consensus Estimate by 1.4%. It currently carries a Zacks Rank #2.
Intuitive Surgical has a long-term estimated growth rate of 14.5%. ISRG’s earnings surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 4.2%.
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Align Technology (ALGN) Q2 Earnings Beat, Gross Margin Up
Align Technology, Inc. (ALGN) delivered second-quarter 2023 adjusted earnings per share (EPS) of $2.22, up 3.3% from the year-ago earnings. The EPS exceeded the Zacks Consensus Estimate by 9.9% in the second quarter.
GAAP EPS for the quarter was $1.46, reflecting a 1.4% increase year over year.
Revenues
Revenues increased 3.4% year over year to $1002.2 million in the quarter and also beat the Zacks Consensus Estimate by 1.7%. Revenues were impacted by the unfavorable foreign exchange of approximately $19.4 million year over year.
At the constant exchange rate or CER, total revenues in the second quarter were up 1.9% year over year.
Segments in Detail
The company has two reportable segments —Clear Aligner and Imaging Systems and CAD/CAM Services (“Systems and Services”)
Align Technology, Inc. Price, Consensus and EPS Surprise
Align Technology, Inc. price-consensus-eps-surprise-chart | Align Technology, Inc. Quote
Revenues in the Clear Aligner segment were up 4.3% year over year to $832.7 million. This figure compares with our model’s segmental projection of $818.5 million for the second quarter.
The growth was driven by higher volumes, increased Average Selling Prices (“ASP”) as well as higher non-case revenues. However, revenues were unfavorably impacted by a foreign exchange headwind of approximately $16.3 million (or 1.9%) year over year. Total Clear Aligner shipments during the quarter amounted to 604,445, up 0.9% year over year.
Revenues from Imaging Systems & CAD/CAM Services were down 1.0% to $169.5 million in the quarter. Our model had projected the segment’s revenues for the second quarter to be $164.9 million.
Revenues witnessed an unfavorable currency impact of 1.8% year over year.
Margins
The gross profit in the second quarter was $713.6 million, reflecting an increase of 3.8% year over year. The gross margin in the quarter under review expanded 29 basis points (bps) year over year to 71.2% despite a 2.3% increase in the cost of net revenues.
During the quarter, Align Technology witnessed a 6.3% increase in SG&A expenses to $453.2 million and a 21.3% rise in R&D expenses to $88.5 million.
The operating income in the quarter under review was $171.9 million, highlighting a decline of 8.6%. The operating margin contracted 225 bps to 17.2%.
Financial Details
Align Technology exited the second quarter of 2023 with cash and cash equivalents of $952 million compared with the $942.1 million recorded at the end of 2022.
The cumulative net cash provided by operating activities at the end of the second quarter was $451.7 million compared with $157.5 million at the end of Jun 30, 2022.
Currently, $1 billion is available for repurchases under ALGN’s $1 billion Stock Repurchase Program, which was authorized in the first quarter of 2023 to succeed the 2021 $1 billion program. Further, the company’s management noted the completion of the $75 million equity investment in Heartland Dental, a multidisciplinary Dental Service Organization with GDP and ortho practices across the United States.
Full-Year Guidance
Align Technology provided an updated outlook for 2023.
For the full year, ALGN anticipates revenues in the range of $3.97 billion-$3.99 billion, implying a 12% improvement from 2022 at the midpoint. The Zacks Consensus Estimate for Align Technology’s 2023 revenues is pegged at $3.89 billion.
The company expects to report a 2023 GAAP operating margin of slightly more than 17% (previously 16%) and an adjusted operating margin of slightly higher than 21% (earlier 20%).
For 2023, Align Technology expects investments in capital expenditures to be approximately $200 million (earlier projected to exceed the same). Capital expenditures are primarily related to building construction and improvements and additional manufacturing capacity to support Align Technology’s international expansion.
For the third quarter of 2023, ALGN anticipates revenues in the range of $990 million-$1,010 million. The Zacks Consensus Estimate for the same is pegged at $978.1 million.
The company anticipates its adjusted operating margin to be slightly up on a sequential basis as it continues to prioritize investments in R&D and go-to-market activities to drive growth.
Our Take
Align Technology exited the second quarter of 2023 with better-than-expected earnings and revenues. The performance reflected improving trends across regions, and strength in teen and younger patient volumes, driven by increased Invisalign submitters and higher utilization and continued growth from Invisalign First. The strong uptake of the Invisalign Comprehensive 3 and 3 product, which was launched in the first quarter, looks encouraging.
Further, a year-over-year increase in the quarter’s non-case revenues reflected continued growth from the Vivera Retainers and Invisalign Doctor Subscription Program or DSP. In the second quarter, the company expanded the DSP to Spain and Nordic countries, while launches in France and the United Kingdom are expected in the second half of this year.
Meanwhile, the contraction in the adjusted operating margin is worrisome. Compared to the prior-year period, the Systems and Services business was impacted by lower scanner volumes and unfavorable ASPs. Headwinds related to foreign exchange persisted in the quarter.
Zacks Rank and Key Picks
Align Technology currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories (ABT - Free Report) , Elevance Health, Inc. (ELV - Free Report) and Intuitive Surgical, Inc. (ISRG - Free Report) .
Abbott, carrying a Zacks Rank of 2 (Buy), reported a second-quarter 2023 adjusted EPS of $1.08, beating the Zacks Consensus Estimate by 3.8%. Revenues of $9.98 billion outpaced the consensus mark by 2.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 12.4%.
Elevance Health reported a second-quarter 2023 adjusted EPS of $9.04, beating the Zacks Consensus Estimate by 2.5%. Revenues of $43.38 billion surpassed the Zacks Consensus Estimate by 4.5%. It currently carries a Zacks Rank #2.
Elevance Health has a long-term estimated growth rate of 12.1%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 2.8%.
Intuitive Surgical reported a second-quarter 2023 adjusted EPS of $1.42, beating the Zacks Consensus Estimate by 7.6%. Revenues of $1.76 billion surpassed the Zacks Consensus Estimate by 1.4%. It currently carries a Zacks Rank #2.
Intuitive Surgical has a long-term estimated growth rate of 14.5%. ISRG’s earnings surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 4.2%.