Align Technology, Inc.’s ALGN fourth-quarter 2018 adjusted earnings per share (EPS) came in at $1.20, compared with adjusted EPS of 13 cents in the year-ago quarter. Notably, the fourth-quarter 2017 figure reflects the deemed repatriation tax impact of $1.06. Earnings were above the company’s guided range of $1.10-$1.15. The figure beat the Zacks Consensus Estimate of $1.16 by 3.4% as well.
2018 adjusted EPS came in at $4.92, up 73.9% year over year. The figure also surpassed the Zacks Consensus Estimate of $4.87 by 1%.
Revenues
Revenues grew 26.7% year over year to $534 million in the quarter, surpassing the Zacks Consensus Estimate of $512 million by 4.3%. Revenues were ahead of the company’s guided range of $505-$515 million as well.
Per management, the top line was driven by a 30.9% year-over-year increase in Invisalign case shipments to 333,800. The upside was supported by increased Invisalign average selling prices and growing volumes. Moreover, increased revenues from iTero scanner contributed substantially.
Align Technology, Inc. Price, Consensus and EPS Surprise
Revenues in 2018 came in at $1.97 billion, up 34% year over year. The figure also surpassed the Zacks Consensus Estimate of $1.95 billion by 1%.
Segments in Detail
Revenues at the Clear Aligner segment (83.4% of total revenues) rose 22.4% year over year to $445.6 million in the reported quarter, primarily driven by continued strong Invisalign case volume growth across all customer channels and geographical regions.
In the fourth quarter, Invisalign case shipments amounted to 333,800, up 30.9% year over year, aided by growth across all regions as well as expansion of customer base. During the quarter, Align Technology Invisalign cases were shipped to 54,690 doctors worldwide, of which 29,215 were in North America and 25,475 in international regions.
Revenues from Scanner and Services (16.6%) improved a significant 54.8% to $88.4 million led by increased scanner units across several regions.
Margins
Gross margin in the quarter under review was down 380 basis points (bps) year over year to 71.7% on a 45.9% rise in cost of net revenues.
During the quarter, Align Technology witnessed a 24.5% year-over-year increase in selling, general and administrative expenses to $226.8 million and a 36.6% rise in research and development (R&D) expenses to $35.8 million. The operating margin contracted 340 bps to 22.6%.
Financial Details
Align Technology exited 2018 with cash and cash equivalents and short-term marketable securities of $735.4 million, compared with $721.5 million in 2017.
In the reported quarter, Align Technology repurchased $50 million of stock under its buy-back authorization. The company currently has approximately $500 million left under the May 2018 Repurchase Program.
Guidance
For the first quarter of 2019, the company projects EPS of 78-84 cents on revenues of $525-$535 million (up 20-22% from a year ago). The company estimates Invisalign case shipments in the band of 340,000-345,000, up 25-27% from a year ago. Meanwhile, the Zacks Consensus Estimate for first-quarter 2018 EPS is $1.15 on revenues of $524.4 million. The earnings estimate is above the guided range while that for revenue is below it.
Our Take
Align Technology exited the fourth quarter of 2018 on a solid note. We are upbeat about the continued strength in Invisalign volumes. In North America, the company continued to witness an expanding GP dentist customer base along with continued strength in Invisalign utilization by orthodontists. We are also encouraged by the solid performance in the Europe, Middle East and Africa region and Asia-Pacific markets. The company is also witnessing a solid worldwide teen case growth. Moreover, increased revenues from iTero scanner contributed substantially.
Meanwhile, the company is exposed to foreign exchange fluctuations, seasonal demand fluctuations, higher operating expenses pertaining to increased head count along with increased investments targeted toward expansion of geographical presence and portfolio.
Zacks Rank & Key Picks
Align Technology carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader medical space are Varian Medical Systems VAR, AngioDynamics ANGO and CONMED Corporation CNMD.
AngioDynamics’ fiscal second-quarter adjusted earnings of 22 cents per share beat the Zacks Consensus Estimate by a penny. Revenues totaled $91.5 million, surpassing the consensus estimate by 2.9%. The stock flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Varian’s fiscal first-quarter adjusted earnings of $1.06 per share were in line with the Zacks Consensus Estimate. Revenues of $741 million outpaced the consensus mark of $717.9 million. The stock has a Zacks Rank #2 (Buy).
CONMED’s fourth-quarter adjusted earnings per share of 73 cents met the Zacks Consensus Estimate. Revenues of $242.4 million surpassed the Zacks Consensus Estimate of $229.2 million. The stock carries a Zacks Rank #2.
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