Please ensure Javascript is enabled for purposes of website accessibility

Align Technology Reports First-Quarter Earnings After Up Day

By Jon Quast – Updated Apr 29, 2020 at 4:31PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After months of wondering and hoping for the best, investors get to see what the coronavirus has done to the business.

What happened

After the market closed on Wednesday, oral-health company Align Technology (ALGN -1.85%) reported first-quarter earnings. Many parts of its business were up in Q1 compared to the comparable period of 2019. However, business was down sequentially due to the COVID-19 pandemic.

This was an important earnings report for Align Technology, and one that investors had high hopes for. Prior to the earnings release, shares of Align traded higher, finishing the day up 8%.

A woman is holding a clear retainer.

Image source: Getty Images.

So what

Align Technology is a global company, with China accounting for about 8% of 2019's revenue. The coronavirus closed dental practices there first, but soon extended to other regions like Europe and the United States. With limited practices open, the company couldn't sell as many of its flagship Invisalign products. A March 18 update acknowledged the situation, but without giving financial details.

The uncertainty punished Align Technology's stock. At one point, shares were down over 50% from 2020 highs.

As sentiment on Wall Street turned more hopeful, Align Technology's stock rebounded. Including today's move, shares have now recovered over 50% from 2020 lows. Reasons for optimism include life returning to normal in China, and the hope that other economies could soon get back to business.

With today's earnings report, investors finally can finally stop hoping and pore over the actual numbers. In Q1, Align Technology generated $551 million in net revenue -- flat year over year, but down 15% quarter over quarter. Invisalign shipment volume also plunged: The company shipped 359,440 cases, a far cry from the 396,000 to 406,000 cases it had guided for.

By generally accepted accounting principles (GAAP), Align Technology's net income soared to $1.5 billion. That's an astounding $19.21 per diluted share. However, 96% of this was from an income tax benefit. Adjusted (non-GAAP) earnings per share were $0.73, down 42% year over year.

Now what

Align Technology has pulled its guidance for the remainder of the year, and who can blame it? The COVID-19 crisis is an ever-changing situation. And since the company does business around the world, it has to account for multiple governments' decisions on when nonessential dental practices can return to normal.

One thing that hasn't changed for Align Technology is its financial position. The company still has around $791 million in cash, cash equivalents, and marketable securities, and zero debt. Furthermore, as of this writing, it hasn't canceled its share buyback program, and has $100 million in repurchase authorization remaining.

Now, after hours, Align Technology's stock is giving up much of today's gain; that's to be expected. However, for long-term investors, now is a good time to revisit your investing thesis to see if anything has changed and respond accordingly.

Personally, I assume teeth-straightening treatments will resume someday. And Align Technology is well-capitalized, with an extensive network of dental partners to meet the opportunity.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Align Technology. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Align Technology, Inc. Stock Quote
Align Technology, Inc.
ALGN
$207.11 (-1.85%) $-3.90

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.