Source: Align Technology.

Align Technology (NASDAQ:ALGN) exceeded analysts' expectations in every earnings report announced in 2014. The maker of dental medical devices couldn't keep the momentum going into the new year, though. Align reported 2014 fourth-quarter results after the market closed on Thursday. Investors were clearly disappointed, with shares falling as much as 10% during after-hours trading.

By the numbers
Fourth-quarter revenue came in at $198.6 million. That reflects an 11.4% year-over-year increase. It also topped the average analyst's revenue estimate of $197.24 million. For full year 2014, Align generated revenue of $761.7 million, a 15.4% jump from the prior year revenue.

Align announced fourth-quarter earnings of $39.5 million, or $0.48 per diluted share. This represented a decline from the $42.4 million, or $0.51 per diluted share, reported in the same quarter of 2013.

The company's quarterly earnings also missed the consensus analyst estimate of $0.49 per share. For the full year in 2014, Align reported earnings of $145.8 million, or $1.77 per diluted share, up from $127.5 million, or $1.54 per diluted share, reported in the previous year.

Clear aligner case shipments saw solid year-over-year growth. For the fourth quarter, Align shipped nearly 126,905 clear aligner cases compared to 111,130 in the same quarter of 2013, which was a 14.2% jump. The company shipped 478,000 clear aligner cases during all of 2014. That reflects a 13.2% increase over the 422,340 shipments in 2013. 

Where Align clearly missed the mark, however, was in its outlook for the 2015 first quarter. Analysts expected revenue in the range of $195 million to $199 million with earnings of $0.40 to $0.49 per share. Align, though, projected first-quarter revenue of $187.3 million to $192.4 million, and earnings of only $0.29 to $0.32 per share.

Behind the numbers
The good news is that Align's fourth quarter was still pretty good despite the narrow miss on earnings. Align's revenue beat estimates, so the culprit was higher operating expenses. In particular, sales and marketing costs shot up 24% year over year.

International growth was a big factor in the nice revenue picture from the fourth quarter. While North American clear aligner shipments were up by only 8.4% year over year, international shipments jumped 29.2% year over year. This drove international clear aligner revenue up by 19.5% during the fourth quarter of 2014 compared to the prior-year period.

So why the bad news about Align's first-quarter outlook? Foreign exchange rates presented the biggest challenge. With the company depending even more on international sales, currency fluctuations become more important.

Align expects North American demand to be up slightly in the first quarter, but things are typically slower on the international front due primarily to winter holidays in Europe and the Lunar New Year in Asia. The company's scanner business also tends to be more sluggish during the first quarter.

The company missed expectations on earnings for the first quarter by a wider margin than it did for revenue. That reflects anticipated higher operating expenses. Employee compensation costs will grow because salary increases are given companywide during the first quarter. Align also plans to spend more on expansion, particularly in North America, and in investing in non-core markets such as obstructive sleep apnea and enterprise systems. 

Looking ahead
Align's near-term share prices could be somewhat at the mercy of currency rates. Should the euro gain strength, the company could be in better shape than management forecasts. What happens on that front is impossible to predict, however.

From a business standpoint, Align appears to be making some good moves with expansion in North America and focusing on newer market opportunities. Volume growth still looks solid. Long-term investors should still find plenty of things to like with Align's business model.