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Align Technology (ALGN) Beats on Q3 Earnings & Revenues

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Align Technology Inc. (ALGN - Free Report) reported earnings of 63 cents per share in the third quarter of 2016, up 85.3% year over year.

Earnings also comfortably exceeded the company’s expectation of 49−52 cents and the Zacks Consensus Estimate by a solid 23.5%. Strong double-digit revenue growth was the key catalyst driving the earnings improvement in the third quarter.

Revenues

Revenues improved 34.2% year over year to $278.6 million in the quarter and outpaced the Zacks Consensus Estimate of $273 million. The top line also surpassed the company's expectation of $267.2–$273.5 million.

Per management, on a year-over-year basis, Align’s solid revenue growth in the third quarter was backed by record Invisalign case volume reflecting growth across all customer channels and geographies as well as continued demand for iTero scanners.

ALIGN TECH INC Price, Consensus and EPS Surprise

ALIGN TECH INC Price, Consensus and EPS Surprise | ALIGN TECH INC Quote

Geographically, Align witnessed Invisalign case volume growth of 14.5% in North America and 33.8% overseas.

Segments in Detail

Revenues from the Invisalign Clear Aligner segment (87.4% of total revenue) increased 22.9% year over year to $243.7 million in the reported quarter, primarily driven by continued strong Invisalign case volume growth across all customer channels and geographies.

In the third quarter, Invisalign case shipments amounted to 177,800, up 20.5% year over year, aided by growth across all regions. During the quarter, Align added 2,615 new Invisalign doctors worldwide, out of which 1,300 were from North America while 1,315 were from international regions.

Revenues from Scanner and Service (12.6%) improved a massive 273.7% to $34.9 million on account of a record number of units shipped in the quarter, primarily in North America.

Margins

Gross margin was down 80 basis points (bps) year over year to 75.1% on a 3.6% rise in cost of net revenue and a larger percentage of Scanner and Services revenue which carries a lower margin than Clear Aligner. Clear Aligner gross margin contracted 110 bps year over year to 77.7% on a higher number of aligners per case, partially offset by higher worldwide ASP.

During the quarter, Align witnessed a 24.5% year-over-year increase in selling, general and administrative expenses to $126.7 million, and a 14.8% hike in research and development (R&D) expenses to $20.4 million. The operating margin, however, improved 396 bps to 22.3%, due to higher gross margin.

Financial Details

Align exited the reported quarter with cash and cash equivalents and short-term marketable securities of $612.9 million, up from $571.8 million at the end of second-quarter 2016. The company had no debt at the end of the third quarter.

In the reported quarter, Align concluded its previously announced $50 million accelerated stock repurchase with final delivery of 143,310 shares and purchased shares worth $8.2 million. These repurchases were collectively part of a three-year $300 million stock repurchase program announced in Apr 2014. Also, Align announced a new plan in Apr 2016 to repurchase up to an additional $300 million of stock. There remains approximately $341.8 million available for repurchases under these two existing stock repurchase authorizations.

Guidance

For the fourth quarter of 2016, the company projects EPS of 64−67 cents on revenues of $289.2–$293.9 million. The current Zacks Consensus Estimate for EPS and revenues is pegged at 66 cents and $286.8 million, respectively.

The company also expects to register Clear Aligner case shipments in the range of 182,500−184,500, up approximately 13.8%−15% from the year-ago level.

Our Take

Align Technology ended the third quarter on a promising note, with its earnings and revenues squarely beating the Zacks Consensus Estimate. We are also upbeat about the continued strong Invisalign volumes registered by the company, which in turn drove the top and bottom lines during the quarter.

Additionally, the company has a strong cash balance position that enables it to adopt attractive share repurchase programs and in turn provide solid returns to its investors. Going forward, management anticipates witnessing consistent growth in its Asia Pacific region, which will mitigate the typical seasonality it usually experiences in the European nations.   

Zacks Rank & Key Picks

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

Better-ranked medical stocks are GW Pharmaceuticals plc (GWPH - Free Report) , Baxter International Inc. (BAX - Free Report) and Bovie Medical Corporation (BVX - Free Report) . GW Pharmaceuticals and Baxter sport a Zacks Rank #1 (Strong Buy), while Bovie Medical carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GW Pharmaceuticals surged 71.6% year to date compared to the S&P 500’s 4.3% over the same period. The company has a four-quarter average positive earnings surprise of 41.6%.

Baxter international rallied 26.5% in the past one year, which compares favorably with the S&P 500’s 2.6% gain. It has a trailing four-quarter average positive earnings surprise of 27%.

Bovie Medical recorded a 153.5% gain in the past one year, way better than the S&P 500’s 2.6%. The company has a trailing four-quarter average positive earnings surprise of 28.7%.

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