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Align Technologies Hands Investors a Surprise Gift With Its Latest Earnings

By Brian Withers and Brian Feroldi - Feb 15, 2021 at 7:16AM

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A record quarter bodes well for the future of this stock.

Align Technology (ALGN 2.37%) has had to deal with orthodontist office closures, competition from lower-priced competitors, and a difficult economic environment, but it turned in a stellar quarter despite the headwinds. Motley Fool contributor Brian Feroldi discusses the details for the quarter and shares how the market reacted to the latest report on an episode of Fool Live, recorded on Feb 4.

Brian Feroldi: Align Technology. You guys know this company as the Invisalign company, a monster winner in the medtech space. They just reported Q4 earnings. The headline numbers were fantastic. Revenue was up 28% to $835 million. Wall Street was expecting %785 million, so that's a pretty substantial top-line beat. Earnings were up almost 50%. This is adjusted to $2.61, also smashed Wall Street's estimates. Really great headline numbers out of Align.

Here are their quarterly numbers. Align makes revenue in two ways. The primary way, the way that we really care about, is the clear aligners. Revenue from that was $700 million in the quarter. That was up nicely year over year. They also make revenue from system sales and services. These are devices that help to graft people's teeth. These are sold to orthodontists' offices. Revenue for that business also up, and you can see just how sharply it's rebounded from the COVID lows.

Case shipments, up to 568,000 shipments during the quarter. That's a lot of teeth to fix. Gross margin, looking pretty darn strong at 73%, and operating margin has fully rebounded. You can see they are actually negative in Q2, but it's back to being 25% operating margin. This company has just fully recovered from the COVID hit.

This is an interesting chart to show the average selling prices on their charts. You can see that it has been actually declining over time; that's due to them entering the global market where they are selling less. It also could be because of SmileDirectClub is a low-price alternative and perhaps they're competing on price to offset that risk, but you can see that that is paying off with higher volumes.

This is an interesting thing that showed the relationship between adults who use Invisalign and teens. The ratio was 2:1 in favor of adults, believe it or not. I know a lot of teens that have been using Invisalign, and it's becoming more and more popular of them. All good there.

A couple other notes. They acquired a privately held company called Exocad, which is a global leader in the CAD/CAM software market. Essentially, this is back-office workflows and for dental labs and dental practitioners in 150 countries. I like that move. It makes them even more integrated with the dental offices.

They announced the agreement with the NFL to make Invisalign the official clear aligner sponsor of the NFL. Take that, SmileDirectClub. [laughs] They got FDA approval and have launched the new iTero Element system, which is a bedside patient system for measuring teeth and taking pictures to make the aligners, so that's a go. That's their fourth or fifth. They had also announced the commercial availability of something called ClinCheck, which is, again, a software that's used to take pictures your teeth and make the actual aligners from your bite.

They're doing all kinds of stuff with consumer brand marketing, and this company is very forward-thinking. They have tons of YouTube and Snapchat influencers that are promoting their brands, and each of them have millions of followers. I really like that strategy. That's spending money to me where it should be spent, especially since they are targeting teens. Seventy-seven thousand Invisalign doctors worldwide are using the product, including 7,300 that were first-time customers.

Brian Withers: In a quarter? Wow. That's a huge number.

Feroldi: In a quarter, and 6,400 new doctors were trained on the system, including almost 4,000 internationally. This is what a moat looks like [laughs] when you have that.

They announced an in-phase visualization tool. You can see this is long-term shipment case volumes. You can see that the growth slowed significantly in 2020. That was due to COVID but still, it's reporting year-over-year growth. Given that the orthodontists' offices closed globally, it's super, super impressive.

Here are the full-year numbers. Looked pretty good, and you could see gross margins are actually down a bit. That's because of the higher revenue from the system and services which are actually lower margin, as well as the loss of operating leverage during the year due to the bad Q2 numbers. It will be interesting to see if this number can rebound over time as they overcome that.

Here's the overview of the headline numbers from the year. Earnings were actually down, all because of Q2. Investors really like this report. The stock was up about 14% last I checked, and currently trading about 60 times next year's earnings and about 17 or so time sales. You can see just how big of a rebound this company has had from the March lows. So Invisalign, like PayPal, all systems go -- really just an awesome report all around.

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Stocks Mentioned

Align Technology, Inc. Stock Quote
Align Technology, Inc.
$276.57 (2.37%) $6.39
PayPal Holdings, Inc. Stock Quote
PayPal Holdings, Inc.
$80.12 (1.87%) $1.47
SmileDirectClub, Inc. Stock Quote
SmileDirectClub, Inc.
$1.39 (5.30%) $0.07

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