Align Technology Beats Expectations in the First Quarter

Despite posting record sales in the fourth quarter, Align Technology (ALGN -1.63%) worried investors in January with its weak first-quarter guidance. The orthodontic-device maker warned that revenue and earnings growth would be slower than in the past.

But things turned out better than Align predicted. The company reported its first-quarter earnings results after the market closed on Wednesday and handily beat its guidance. Here are the highlights from Align's first-quarter update. 

Image source: Getty Images.

Align Technology results: The raw numbers

Data source: Align Technology.

What happened with Align Technology this quarter?

First and foremost, Align's strong first-quarter performance stemmed from a solid uptick in shipments of its flagship Invisalign clear aligners. Invisalign case shipments jumped 28.3% higher year over year and 4.6% higher than the fourth-quarter total.

This shipment growth was slower than previous quarters, though. And the average selling price for Invisalign in the first quarter was lower than Align has reported throughout 2018. Nevertheless, the company was still able to top its guidance of first-quarter revenue between $525 million and $535 million.

It also helped that Align's scanner and services business chalked up nice sales growth in the quarter. Revenue for the segment soared 55.1% year over year to $79.8 million. The only downside was that sales slipped 9.8% from the fourth quarter. However, management noted in the company's January conference call that the fourth quarter was exceptionally strong with better-than-expected revenue.

Why did Align's bottom line deteriorate? It's not as bad as it might appear. The company recorded impairments and other charges of $29.8 million related to the closures of its U.S. Invisalign stores. These closures were required as a result of an arbitrator's decision in a dispute between Align and SmileDirectClub.

Align also had several significant achievements in the first quarter, including:

• The launch of its new iTero Element 5D imaging system.
• The launch of SmileView, an online tool that helps prospective patients visualize how Invisalign could straighten their teeth before they sign up for treatment.
• The signing of a deal with Benco Dental, the largest privately owned dental distributor in the U.S., to distribute iTero Element intraoral scanners.

What management had to say

CEO Joe Hogan said: "Our first quarter was a very good start to the year with revenues, volumes, gross margin, and EPS above our guidance.  Record Q1 revenues and Invisalign volumes were up 25.6% and 28.3% year over year, respectively, reflecting continued strong growth across all geographies and customer channels, as well as strong iTero scanner and services revenues, which were up 55.1% year over year."

Hogan added: "Q1 sequential growth was driven primarily by North America and the [Europe, Middle East, and Africa] region, reflecting strength across the Invisalign product portfolio. We also saw a nice uptick in adoption of Invisalign treatment with record utilization overall, as well as expansion of our customer base, which totaled 57,000 active doctors worldwide in Q1."

Looking forward

Align expects second-quarter net revenue between $590 million and $600 million. This reflects a year-over-year increase of 20% to 22%. The company anticipates Invisalign case shipment growth of 26% to 27%. Align also looks for diluted EPS in the second quarter between $1.47 and $1.54.

The company faces more competition than it has in the past. But its first-quarter performance and its outlook for the second quarter show that it should be able to keep bringing smiles to investors' faces.