Align Technology Inc.'s 2017 Is Lining Up Nicely With Another Record Quarter

Align Technology (ALGN 0.61%) posted record-high revenue when it announced its first-quarter results earlier this year. The medical-device company, best known for its Invisalign clear aligners, followed up in the second quarter with even more record-high sales figures.

When Align announced its third-quarter results after the market closed on Thursday, the big question was whether or not it could pull off another repeat performance. The answer? A resounding "yes."

Image source: Getty Images.

Align Technology results: The raw numbers

Data Source: Align Technology.

What happened with Align Technology this quarter?

Let's start with the bad news in the third quarter: Align's sales didn't grow by 50% and its earnings didn't double. Seriously, there really was no bad news at all for the company. Every number in Align's quarterly update looked good.

Align's clear-aligner revenue, which includes sales from Invisalign and SmileDirectClub aligners, jumped 40.2% year over year, to $341.6 million. Invisalign demand remained exceptionally strong, with case shipments nearly one-third higher than the third quarter of 2016.

Although Align's iTero intra-oral scanners and services provided to customers don't generate nearly as much revenue as its clear aligners do, the segment also performed quite well in the third quarter. Align reported scanner and service revenue of $43.7 million, up 25% from the prior-year period.

The company's bottom-line improvement looked especially impressive. While operating expenses increased significantly from the same period in 2016, the percentage increase was well below Align's revenue growth.

Align ended the third quarter with $737.9 million in cash, cash equivalents, and marketable securities. That reflected a nice boost from the $676.6 million on hand at the end of the second quarter.

What management had to say

Align Technology CEO Joe Hogan clearly liked what he saw in the third quarter. Hogan said:

I'm pleased to report another strong quarter and results that exceeded our expectations across our key financial metrics including revenue, volume, margins, and EPS. Third-quarter revenues increased 38.3% year-over-year driven by increased Invisalign volumes across all our geographies, as well as strong growth from iTero scanners. Our strong third-quarter results also reflect accelerated growth from teenager patients in both North America and the Asia Pacific region, with total Invisalign shipments up 46.3% year-over-year and up 26.5% from the second quarter. On a sequential basis, revenues increased 8.1% driven by continued strength across Asia Pacific, which offset expected seasonality in Europe, as well as higher than expected revenues from shipments to SmileDirectClub.

Looking forward

Align expects Invisalign case shipments in the fourth quarter between 245,000 and 250,000, which would represent a 29% to 32% year-over-year increase. Net revenue for the fourth quarter is expected to be between $391 million and $398 million -- as much as 36% higher than the prior-year period. Align also projects diluted earnings per share of $0.92 to $0.95.

A couple of developments in the third quarter could bode well for Align down the road. The company signed a distribution agreement with Patterson Dental, a unit of Patterson Companies (PDCO -0.42%). This means that Patterson's sales force will promote Align's iTero Element scanners. With Patterson Dental's broad reach in the dental community, the partnership should be a good move for Align.

Align Technology also opened its first office in Canada during the third quarter. Canada is already Align's second-biggest market after the U.S. There should be significant opportunities for more growth in the country. I suspect that Align's best pathway for continuing its streak of record-high numbers will include more international expansion in the future.