Since my last Align Technology update post here on 10/27/2017 ( http://discussion.fool.com/update-algn-delivers-big-time-again-3… ), this company (a) continues to perform superbly for FY 2017 and yesterday’s announced Q1 2018 financial results and (b) expects to continue strong growth and performance as shown in the Financial Outlook guidance for the next Q2 2018:
ALIGN TECHNOLOGY (ALGN) Q2 ’18 GUIDANCE Q2 2017
FINANCIAL OUTLOOK:
Net Revenues $ 460 M - 470 M $ 356.482 M
Gross Margin 74.2% - 75.0% 76.0%
Operating Expense $ 245 M - 250 M $ 187.348 M
Operating Margin 21.0% - 21.8% 23.4%
Net Income per Diluted Share $ 1.02 - 1.06 $0.85
BUSINESS METRICS:
Case Shipments 296 K - 301 K 231,890
Capital Expenditure $ 65 M - 70 M $ 18.5 M
Stock-based Compensation $ 18.3 M $ 14.245 M
Expense
Over the recent 52-week period, Align continues to substantially outperform the S&P 500 as shown here:
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?..
Here’s the track record for Align, substantially outperforming its own guidance for Q1 2018, Q4 2017, Q3 2017 and Q2 2017.
ALIGN TECHNOLOGY (ALGN) Q1 ’18 GUIDANCE **Q1 2018** Q1 2017 Y/Y CHANGE
FINANCIAL OUTLOOK:
Net Revenues $ 400 M - 410 M $ 436.924 M $ 310.341 M 40.8%
Gross Margin 74.3% - 75.0% 74.9% 75.9%
Operating Expenses $ 223.5 M - 227.5 M $ 229.216 M $ 173.952 M
Operating Margin 18.5% - 19.5% 22.5% 19.9%
Net Income per Diluted Share $ 0.94 - 0.98 $ 1.17 $0.85 37.6%
BUSINESS METRICS:
Case Shipments 264 K - 269 K 272,235 208,060 30.8%
Capital Expenditure $ 65 M - $ 70 M $ 57.6 M $ 59.6 M
Stock-based Compensation $ 16.2 M $ 15.83 M $ 14.812 M
Expense
————————————————————————————————
ALIGN TECHNOLOGY (ALGN) Q4 ’17 GUIDANCE **Q4 2017** Q4 2016 Y/Y CHANGE
FINANCIAL OUTLOOK:
Net Revenues $ 391 M - 398 M $ 421.3 M $ 293.203 M 60.1%
Gross Margin 75.0% - 75.5% 75.5% 75.1%
Operating Margin 24.3% - 24.8% 26.0% 23.3%
Net Income per Diluted Share $ 0.92 - 0.95 0.13(a) $0.59 -78.0% (a)
BUSINESS METRICS:
Case Shipments 245 K - 250 K 255,030 190,055 34.2%
Capital Expenditure $ 55 M - 60 M $ 69.5 M
Stock-based Compensation $ 15.3 M $ 14.830 M $ 14.214 M
Expense
(a) Q4’17 diluted EPS of $0.13 includes $86.6 million tax expense, or $1.06 per diluted share negative impact due to the new U.S. Tax Cut and Jobs Act.
————————————————————————————————————
ALIGN TECHNOLOGY (ALGN) Q3 ’17 GUIDANCE Q3 2017 Q3 2016 Y/Y CHANGE
FINANCIAL OUTLOOK:
Net Revenues $ 355 M - 360 M $ 385.267 M $ 278.6 M 38.3%
Gross Margin 74.7% - 75.7% 75.9% 75.09%
Operating Margin 22.7% - 23.6% 25.6% 22.28%
Net Income per Diluted Share $ 0.78 - 0.81 $1.01 $0.63 60.3%
BUSINESS METRICS:
Case Shipments 231 K - 234 K 236,065 177,755 32.8%
Capital Expenditure $ 70 M - 75 M $ 48.1 M $ 17.3 M
Stock-based Compensation $ 14.9 M $ 14.967 M $ 13.711 M
—————————————————————————————————————
ALIGN TECHNOLOGY (ALGN) Q2 ’17 GUIDANCE Q2 2017 Q2 2016 Y/Y CHANGE
FINANCIAL OUTLOOK:
Net Revenues $ 340 M - 345 M $ 356.482 M $ 269.362 M 32.3%
Gross Margin 74% - 75% 76.0% 76.2%
Operating Margin 21.0% - 21.7% 23.4% 24.2%
Net Income per Diluted Share $ 0.71 - 0.74 $0.85 $0.62 37.1%
BUSINESS METRICS:
Case Shipments 221 K - 224 K 231,890 176,995 31.0%
Capital Expenditure $ 30 M - 35 M $ 18.5 M $ 18.8 M
Stock-based Compensation $ 14.7 M $ 14.245 M $ 13.699 M
Expense
ALIGN CASE SHIPMENT VOLUME
For FY 2017 , Align continues to realize tremendous growth in case shipment volume:
• 44.9% y-o-y increase in International shipments;
• 24.3% y-o-y increase in North America shipments;
• 31.4% y-o-y increase for Total Shipments.
CLEAR ALIGNER NORTH YoY INTER- YoY YoY
Case Shipment Volume AMERICA Change NATIONAL Change TOTAL Change
(in thousands)
FY 2017 576.5 24.3% 354.5 44.9% 931.0 31.4%
FY 2016 463.8 16.4% 244.7 32.4% 708.5 21.6%
FY 2015 398.4 17.7% 184.8 32.5% 583.2 22.0%
FY 2014 338.5 7.8% 139.5 28.6% 478.0 13.2%
FY 2013 313.9 13.4% 108.5 25.0% 422.4 16.2%
FY 2012 276.7 16.0% 86.8 22.6% 363.5 17.5%
FY 2011 238.6 19.7% 70.8 15.1% 309.4 18.6%
FY 2010 199.4 61.5 260.9
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CORPORATE FINANCIALS
Align Technology continues its ongoing strong trend, realizing significant year-over-year increases in quarterly and annual revenues and quarterly and annual EPS as shown in the following table. Please note that Q4’17 diluted EPS of $0.13 includes $86.6 million tax expense, or $1.06 per diluted share negative impact due to the new U.S. Tax Cut and Jobs Act.
**REVENUE YoY EPS $ YoY**
**$ million Change diluted Change**
Q1 '18 436.924 40.8% 1.17 37.6%
FY 2017 1,473.413 36.4% 2.83(a) 21.5%
Q4 '17 421.323 43.7% 0.13(a)-77.9%
Q3 '17 385.267 38.3% 1.01 60.3%
Q2 '17 358.482 32.3% 0.85 37.1%
Q1 ‘17 310.341 30.0% 0.85 70.0%
FY 2016 1,079.874 27.7% 2.33 31.6%
Q4 ‘16 293.203 27.3% 0.59 -1.7%
Q3 ‘16 278.589 34.2% 0.63 85.3%
Q2 ‘16 269.362 28.6% 0.62 59.0%
Q1 ‘16 238.720 20.5% 0.50 13.6%
FY 2015 845.486 11.0% 1.77 0.0%
Q4 ‘15 230.276 15.9% 0.60 25.0%
Q3 ‘15 207.636 9.4% 0.34 -27.7%
Q2 ‘15 209.488 8.8% 0.39 -9.3%
Q1 ‘15 198.086 9.7% 0.44 12.8%
FY 2014 761.653 1.77
Q4 ‘14 198.600 0.48
Q3 ‘14 189.876 0.47
Q2 ‘14 192.531 0.43
Q1 ‘14 180.646 0.39
(a) Q4’17 diluted EPS of $0.13 includes $86.6 million tax expense, or $1.06 per diluted share negative impact due to the new U.S. Tax Cut and Jobs Act.
Source: ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share data)
http://files.shareholder.com/downloads/ALGN/6224747208x0x978…
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The table below shows the following major changes to date since the 5/05/2017 financials given in my initial 5/9/2017 ALGN post ( http://discussion.fool.com/align-technology-the-clear-aligner-pi… ):
• On June 16, 2017, after a substantial increase in Market Cap, Align Technology joined the coveted S&P 500 benchmark and was also added to the S&P 500 Global Industry Classification Health Care Supplies Sub-Industry index.
• The ALGN stock price has substantially increased over 108% from $138.03/share on 5/5/17 to a recent 52-week high of $287.32/share on 1/26/2018.
ALIGN 04/26/2018 10/26/2017 5/05/2017
Market Cap $ 20.83 B $ 16.27 B $ 11.09 B
Employees 8,715 6,060 6,060
52-wk high 287.32 207.65 145.24
Price 259.89 202.98 138.03
52-wk low 119.16 83.27 74.48
EV/EBITDA (mrq) 50.78 50.78 NA
P/E (ttm) 91.83 69.51 51.50
Fwd P/E 46.08 49.75 35.67
P/B (mrq) 18.08 15.09 10.56
P/S (ttm) 14.14 13.13 9.80
Annual dividend 0 0 0
Yield 0.0% 0.0% 0.0%
Recently, the Align stock prices have been fluctuating up and down. After yesterday’s Q1 2018 financial results, today, 4/26/2018, ALGN closed up $14.26 for a gain of 5.81%.
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?..
ROIC-WACC SPREAD
As shown in the following table, for the recent past 5 fiscal years, Align Technology has realized exceptionally strong increases in Return on Invested Capital (ROIC) and superior ROIC-Weighted Average Cost of Capital (WACC) spreads or Economic Value Add (EVA).
Currently, on 4/26/2018, ALGN is creating 37 cents of pure economic value for every dollar invested.
ALGN ROIC WAAC EVA
04/26/18 50.1% 13.2% 36.9%
10/26/17 59.9% 11.6% 48.3%
05/04/17 57.2% 9.8% 47.4%
2016 58.1% 9.5% 48.6%
2015 47.2% 10.4% 36.8%
2014 52.8% 9.8% 43.0%
2013 25.5% 19.2% 6.3%
2012 24.4% 14.3% 10.0%
FREE CASH FLOW
Align Technology has strong free cash flow.
FCF (million $)
FY:
2017 243
2016 177
2015 185
2014 203
2013 167
2012 95
2011 100
2010 111
SUMMARY
In domestic and foreign regional marketplaces, Align Technology has successfully developed and produced several popular viable product lines - primarily Invisalign® and secondarily iTero® intraoral scanners and services - that have significantly enabled a formidable moat with strong fundamentals, superior value creation for shareholders, a solid capital structure with zero debt and strong growth performance in revenues, net income and EPS. Align’s strong financials coupled with the huge growth potential in China, its number one market with a gigantic number of people with crooked teeth, greatly offset and outweigh its currently high P/E.
For those interested, here’s the Align investor presentation of Financial Results for Q1 2018:
http://files.shareholder.com/downloads/ALGN/6224747208x0x978…
This presentation also announced that Align has received market approval for the iTero Element Intra-oral Scanner from the CFDA (China Food and Drug Administration), and Align has begun offering the iTero Element scanner in China. The iTero Element scanner launch in China not only supports growth of Align’s base Invisalign clear aligner business, but also represents a major milestone for digital dentistry in China.
As always, conduct your own due diligence and decision-making.
Regards,
Ray