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Align Technology (ALGN - Free Report) reported fourth quarter 2011 adjusted EPS of 28 cents, beating the Zacks Consensus Estimate of 22 cents and was also ahead of the year-ago quarter adjusted EPS of 14 cents. The 100% jump in EPS was primarily the result of lower tax rate and higher revenues during the quarter. Reported EPS also surpassed the company’s guidance range of 20−22 cents. For fiscal 2011, Align’s adjusted EPS of 97 cents, surpassed the Zacks Consensus Estimate of 90 cents as well as the year-ago adjusted EPS of 80 cents.

Total revenue increased 31.3% year over year to $128.9 million in the quarter, exceeding the Zacks Consensus Estimate of $128 million and marginally ahead of the company’s guidance of $124.0−$128.5 million. Total revenue in fiscal 2011 was $479.7 million, up 23.9% year over year and marginally ahead of the Zacks Consensus Estimate of $479 million. Total Invisalign revenue came in at $118.9 million, up 28% year over year, driven by case shipments of 82.6 thousand (up 30.1%) during the quarter.

Align witnessed improved sales performance during the reported quarter. This positive growth was primarily attributable to increased Invisalign case volume in North American Orthodontists and International doctors, strong growth of Invisalign Teen and higher earnings on the heels of lower-than-projected operating expenses. 

Revenue in the reported quarter includes contribution from the Cadent Holdings, which was considered as one of the emerging powerhouses in the fast growing intra-oral scanning market. The company closed the acquisition on April 29, 2011.  The improved sales were also attributable to Align’s interoperability with Cadent products. 

Align expects to maintain the growth momentum in the upcoming quarters, primarily on the back of scanner sales and new opportunities in the digital dentistry and restorative markets. Fiscal 2011 net revenues for Scanner and CAD/CAM Services were $28.0 million and reflect the sales contribution of the newly acquired Cadent Holdings for eight months of sales.

For Invisalign, the company is persistently increasing its market share, especially in Teen Orthodontic segment in existing markets. Also it is expanding into new geographies including China, Turkey, the Middle East and Russia.

The company recorded 33.5% of the total sales from North America orthodontists (up 49.4% year over year to $43.2 million), 37.4% from North American GP Dentists (up 42.6% to $48.2 million), 23.5% from international (up 22.6% to $30.4 million) and 5.5% from non-case revenues (up 31.5% to $7.1 million).

The company’s highest contribution (61.7% of revenues) comes from Invisalign Full, which spiked 22.5% year over year to $79.5 million. Additionally, Invisalign Express/Lite (up 31.3% to $10.9 million), Invisalign Assist (up 89.2% to $7.0 million), Invisalign Teen (up 35.8% to $14.4 million) and Non-case Invisalign (up 31.5% to $7.1 million) registered impressive performance. Further, sales derived from Scanners (4.0% of total sales) were $5.2 million, and CAD/CAM Services were $4.8 million (3.7%).

During the quarter, adjusted gross margin contracted 230 basis points (bps) year over year to 74.9%. Adjusted operating margin, however, was up 580 bps to 23.0%.

Align reported international average selling price (ASP) of $1,530, flat year over year. Blended pricing was down 2.9% to $1,360.

Align exited the quarter with $248.1 million in cash and cash equivalents compared with $312.4 million at the end of fiscal 2010. During the quarter, Align also purchased 0.3 million shares for a total of $7.8 million. Currently, the company has $142.2 million remaining under its existing stock repurchase authorization.


Align provided outlook for the first quarter of fiscal 2012. The company expects net revenue in the range $125.4−$127.9 million, lower than the current Zacks Consensus Estimate of $130 million. Also, the company expects adjusted EPS in the range of 19−21 cents (Zacks Consensus Estimate: 22 cents).

Considering the strong untapped potential of the malocclusion market, we are optimistic about the prospects of the company, which retains a Zacks #2 Rank (Buy) in the short term.

However, the current economic uncertainty continues to cast a negative impact on dental procedures because of its elective nature. Moreover, the company faces significant competition from players such as 3M (MMM - Free Report) , Danaher Corporation (DHR - Free Report) and Dentsply International (XRAY - Free Report) .

We currently have a Neutral recommendation on the company in the long term.

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