It has been about a month since the last earnings report for Align Technology (ALGN). Shares have lost about 14.8% 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 Earnings Beat in Q4, Margins Rise
Align Technology, Inc.’s fourth-quarter 2019 earnings per share were $1.53, reflecting a 27.5% increase from a year ago. The figure beat the Zacks Consensus Estimate by 10.1%.
For 2019, earnings came in at $5.53, showing a year-over-year increase of 12.4%. The figure surpassed the Zacks Consensus Estimate by 2.6%.
Revenues grew 21.7% year over year to $649.8 million in the quarter, surpassing the Zacks Consensus Estimate by 0.6%.
The robust top-line performance was led by double-digit increase in Invisalign case shipments from the year-ago quarter. Moreover, increased revenues from iTero scanner contributed substantially.
For the full year, revenues totaled $2.41 billion, up 22.4% from the year-ago number. The figure beat the Zacks Consensus Estimate by a marginal 0.4%.
Segments in Detail
In the fourth quarter, revenues at the Clear Aligner segment rose 22% year over year to $543.6 million. Within the segment, Invisalign case shipments amounted to 413.7 thousand, up 23.9% year over year. The upside was primarily driven by continued adoption by teenage and younger patients as well as increased utilization among orthodontists and expansion of the company’s global customer base.
During the quarter, Invisalign volumes were up 19.3% and 30.1% year over year in the Americas and International regions, respectively. Invisalign volume for teenage patients was 116,000 cases, up 33.1% year over year.
Revenues from Scanner and Services improved a significant 20.2% to $106.2 million on increased sales of iTero scanner and services.
Gross margin in the quarter under review expanded 89 basis points (bps) year over year to 72.6% despite a 17.8% rise in cost of net revenues.
During the quarter, Align Technology witnessed a 23.2% year-over-year increase in selling, general and administrative expenses to $279.5 million and a 15.4% rise in research and development expenses to $41.3 million. However, operating margin expanded 70 bps to 23.3% in the quarter under review.
At the end of the fiscal year, Align Technology had cash, cash equivalents and short-term marketable securities of $868.6 million, compared with $744.5 million at the end of fiscal 2018.
At the end of 2019, net cash provided by operating activities was $747.2 million, compared with $554.7 million at the end of the year-ago period.
In the reported quarter, Align Technology repurchased 389,000 stocks under its accelerated stock repurchase agreement (introduced in July 2019). The company currently has approximately $100 million left under its May 2018 repurchase program.
For the first quarter of 2020, the company projects earnings per share of $1.19 to $1.28 on revenues of $615 million to $630 million, (indicating 12-15% growth from a year ago). The company estimates Invisalign case shipments in the band of 396,000-406,000, suggesting a 13% to 16% rise from a year ago.
Meanwhile, the Zacks Consensus Estimate for first-quarter earnings per share is pinned at $1.44 on revenues of $658.9 million. Both earnings and revenue estimates lie above their respective projected bands.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -18.17% due to these changes.
Currently, Align Technology has a strong Growth Score of A, though it is lagging a lot 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Align Technology has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.