Align Technology (ALGN) plans to close its New Jersey facility by the third quarter of fiscal 2012 to optimize efficiency and minimize operating costs. Subsequently, New Jersey-based operation on CAD/CAM services and scanner-related activities will be combined with the existing manufacturing (based in Mexico) and shared services (Costa Rica) organizations.
This initiative/step is expected to reduce the company’s employee strength by 119 from the current level of 2,400. Besides, Align expects to save around $4 million per year.
Additionally, Align expanded its facility in Juarez (by almost 150,000 square feet) through purchase of land and manufacturing facility for $3.2 million in cash. Align also plans to include scanner-related activities into this facility in 2012.
During the second quarter of fiscal 2011, Align’s adjusted gross margin contracted 130 basis points to 76.1% compared with the year-ago quarter due to a 36.7% rise in cost of sales. Adjusted operating margin declined 1960 basis points to 14.3%. The primary reason for the significant downside in operating margin was a 46.9% rise in operating expenses attributable to higher sales and marketing (33.3%), general and administrative (73.9%), and research and development (44.9%) expenses. The company’s continuous strategic investments in the international market, portfolio development and costs associated with the recent Cadent acquisition resulted in higher operating cost.
As a result, the company is primarily focusing on enhancing operating efficiencies with cost reduction initiatives. However, closure of the New Jersey facility will cost Align $2 million in 2012 of which $1.1 million will be realized in 2011 and the rest over the first three quarters of 2012. Align does not expect this to affect its fiscal 2011 EPS.
Additionally, the competitive landscape is quite tough with the presence of players such as Danaher Corporation (DHR) and Dentsply International (XRAY).
However, as a significant achievement in May, 2011, Aligned acquired privately-held Cadent Holdings, a provider of 3D digital scanning solutions for orthodontics and dentistry and maker of the iTero and OrthoCAD iOC scanning systems for $190 million in cash. Presently, the company is concentrating on attaining revenue synergies and leveraging its sales and marketing resources to better support go-to-market initiatives for iTero and iOC scanners. The company aims to invest further in Cadent products and intends to combine both the company’s technology and expertise in order to deliver innovative new tools for the malocclusion market displaying huge potential.
Presently, we remain ‘Neutral’ on Align.
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