Align Technology (ALGN) reported first quarter 2011 adjusted EPS of 21 cents, beating both the Zacks Consensus Estimate of 17 cents and the year-ago quarter’s 20 cents.Sequentially the adjusted EPS increased 50% from 14 cents.
Total revenue increased 16.4% year over year to $104.9 million (above the company’s guidance of $99.0−$102.5 million), beating the Zacks Consensus Estimate of $101.0 million.
Align witnessed balanced sales growth across all its channels during the reported quarter. The company recorded 37.4% of total sales from North American GP Dentists (up 16.1% on a sequential basis to $39.3 million), 33.4% from North America orthodontists (up 21.1% to $35.0 million), 24.0% from international (grew 1.4% to $25.2 million) and 5.2% from non-case revenues (increased 1.3% to $5.4 million). This positive growth resulted from increased number of patients visiting the clinics along with growing interest for high-value procedures like Invisalign.
The company’s highest contribution (67.8% of total revenues) comes from Invisalign Full, which saw a growth of 9.6% compared to the fourth quarter of fiscal 2010. Other products including Invisalign Teen (up 11.7% to $11.9 million) and Invisalign Express (up 20.7% to $10.1 million) had an encouraging quarter. In addition its Invisalign Assist witnessed a stupendous 72% growth sequentially to $6.4 million.
During the quarter, the gross margin increased by 100 basis points to 78.4% compared to the first quarter of 2010 due to higher case volume. However, adjusted operating margin declined by 240 basis points to 21.5%. The primary reason for the huge decline in operating margin was a 24.9% rise in operating expenses due to higher sales and marketing (17.4%), general and administrative (27.0%), and research and development (53.5%) expenses.
Align recorded a 1.9% sequential improvement in international average selling price (ASP) to 1,555, while the blended pricing was down marginally 0.35% to $1,395.
The total number of cases shipped in the reported quarter increased 12.2% annually (up 12.4% sequentially) to 71,370 (above the company’s guidance of 67,000 − 69,500). While cases shipped to the International market remained almost unchanged at 16,190 on a sequential basis, cases shipped to North American Orthodontists and North American GP Dentists were up 22.6% and 11.9%, respectively. Moreover, cases shipped for Invisalign Full, Invisalign Express, Invisalign Teen and Invisalign Assist recorded growth of 9.7%, 18.3%, 14.2% and 26.9%, respectively on a sequential basis.
Align exited the quarter with $322.6 million in cash, cash equivalents, and short-term marketable securities compared to $312.4 million as of December 2010.
Earlier, in March 2011, Align had decided to acquire privately-held Cadent Holdings, a provider of 3D digital scanning solutions for orthodontics and dentistry, for $190 million in cash. The transaction is expected to dilute fiscal 2011 EPS on a GAAP basis, while it will be accretive to the adjusted EPS in fiscal 2012. On April 13, 2011, with regard to this proposed acquisition, Align saw an early termination of the waiting period under the HSR Act. The transaction, subject to clearance of other conditions, is expected to close in late April or early May 2011.
Guidance
Align provided its outlook for the second quarter of fiscal 2011. It expects total revenue and adjusted EPS in the range $106.5−$110.5 million and 19 −21 cents, respectively. Although the revenues guidance exceeds the Zacks Consensus Estimate of $104 million, the lower end of EPS guidance meets the Zacks Consensus Estimate.
Case volumes are expected to be in a range of 72,500 − 75,000. Gross and operating margin should range within 78.0%–78.5% and 19.4% − 21.1%, respectively. Align expects to generate cash and cash equivalents of $340-$345 million.
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