Morningstar | Align's 1Q Results Show Robust Clear Aligner Growth Despite Retail Closures. See Updated Analyst Note from 25 Apr 2019
Align reported first-quarter results that mostly met our expectations. We do not anticipate any changes to our $276 fair value estimate, and our narrow moat rating is intact. Despite the company's abrupt Invisalign retail store closures, volume growth of clear aligners continued thanks to broad strength across all geographies and customer channels. Meanwhile, worldwide average selling prices for clear aligners continued to improve sequentially, but fell roughly 5% from the year-ago period.Invisalign volume growth remained strong during the period, increasing 28.3% versus the year-ago period, driven by broad portfolio strength. Volume in the company's Americas region increased 21.8% over the year-ago period thanks to robust demand across orthodontic and general practitioner channels, while international volume increased 38.5% year over year as a result of higher utilization amid an expanding customer base. While we expect global growth of aligner cases to persist, we still contend that it will require long-term sacrifices in profitability, as evidenced by the company's roughly 210-basis-point decline year over year in clear aligner gross profit margin.
Align's scanner segment performance was robust during the quarter. Segment revenue increased by roughly 55.1% versus the year-ago period thanks to higher global unit sales, while the segment's gross margin profitability improved 440 basis points from the year-ago period because of to higher ASPs and onetime benefits from freight refunds and manufacturing efficiencies. Although we think the scanner segment will continue to grow, we still view it as a no-moat segment because we think dental scanner technology will eventually become ubiquitous and undifferentiated.
Align Technology is a medical device company engaged in the design, manufacture and marketing of Invisalign? clear aligners and iTero? intraoral scanners and services for orthodontics, restorative and aesthetic dentistry. The company's segments are: Clear Aligner, which includes the Invisalign System, a method for treating malocclusion based on a proprietary computer-simulated virtual treatment plan and a series of doctor-prescribed, custom manufactured, clear plastic, removable aligners; and Scanners and Services, which includes Intraoral scanning that enables the dental practitioner to create a 3D image of the patient's teeth (digital scan) using a handheld intraoral scanner.
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