The second quarter results for Align Technology (ALGN) astounded all with a record-breaking performance. More specifically, the company reported EPS of 42 cents compared to the year-ago quarter’s 19 cents.
However, the second quarter 2010 results included benefits associated with deferred revenues of its Invisalign product line ($14.38.7 million) and credit for insurance settlement ($8.7 million). Excluding these items, EPS during the quarter was 21 cents surpassing the Zacks Consensus Estimates of 14 cent and the year ago quarter’s 7 cents, an increase of 200% year over year.
Total revenue was $108.2 million, an increase of 41.8% year over year. Total revenue increased 20.1% sequentially from $90.1 million. Excluding the deferred revenue for Invisalign Teen replacement aligners, total revenue increased 4.2% sequentially and 23% year over year to $93.9 million beating the Zacks Consensus estimate of $92 million.
The results were driven by the outstanding sales in the Invisalign business, which resulted in record revenues and case shipments. Strong volume growth, particularly for the international channel also led to strong sequential and year-over-year revenue growth.
Total number of cases shipped in the reported quarter were 67,485, an increase of 6.1% sequentially and 27.3% year over year, partially offset by lower average selling prices. Align Technology witnessed an expansion in most of its key business metrics. Total number of cases shipped to North American Orthodontists and International cases increased 4.2%, and 22.9%, respectively, compared to that in the prior quarter. However, cases shipped to North American GP Dentists declined 0.1% quarter over quarter.
In terms of cases shipped by products — Invisalign Full, Invisalign Express and Invisalign Assist increased 7.7%, 3.8% and 21.9%, respectively compared to the prior quarter. However, Invisalign Teen declined 7.6% quarter over quarter. Total utilization rate, defined as the ratio of the number of cases shipped to the number of doctors to whom cases were shipped, was 3.7, compared to 3.5 in the prior quarter and 3.0 in the year-ago quarter.
Revenue by channel constituted, 39.8% from North American GP Dentists’ (grew 0.5% quarter over quarter), 31% from North America orthodontists (3.4%), 23.5% from international (9.9%) and 5.7% from non-case revenue (15.1%).
Revenue by product consisted of 71.9% from Invisalign Full (grew 2.8% quarter over quarter), 9.3% from Invisalign Express (1.4%), 9% from Invisalign Teen (2.9%), 4.1% from Invisalign Assist (30.3%) and 5.7% from non-case revenues (15.1%).
Total worldwide and international average selling price (ASP), decreased 2.8% year over year to $1,355 and 11% to $1,415, respectively.
Gross Margin expanded 140 bps to 77.4% in the quarter as compared with 76.0% in the year-ago quarter, but declined 90 bps from the prior quarter’s 78.3%. Though the gross margins benefited from the increase in case volumes, it declined sequentially due to the impact of foreign exchange movements as well as high volume discounts.
Operating expenses excluding the credit for insurance settlement during the quarter was $50.3 million as compared with $49.0 million in first quarter 2010 and $51.3 million in the year-ago quarter. The expense remained consistent with the previous quarter reflecting low spending related to Sales and Marketing as well as General and Administration.
Align Technology exited the quarter with cash, cash equivalents and short-term marketable securities of $244.8 million as compared with $186.5 million at the end of 2009. The company generated $42.6 million in cash from operations versus $18.7 million generated in the prior quarter and $18.5 million in the year-ago quarter.
Guidance
Align Technology provided detailed guidance for the third quarter of fiscal 2010. It expects total revenue and EPS to be in the range $92 million−$95 million and 16 cents−18 cents, respectively. The Zacks Consensus EPS estimates for the third quarter is 17 cents. Case volumes are expected to be in a range of 66,000 − 68,000 cases. Gross margin and Operating margin should range within 77.3% − 77.8% and 20.2% − 21.4%, respectively.
Align Technology is engaged in the design, manufacture, and marketing of Invisalign, a proprietary system for treating malocclusion, or crooked teeth. Invisalign is approved for the treatment of all types of crooked teeth in patients with mature dentition or fully erupted molars.
Presently, we are Neutral on Align Technology.
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