Morningstar | Align’s Q4 Performance Largely Tracked Our Expectations; Margin Expansion Likely to Pause in 2019
Align reported 2018 results that were broadly in line with our expectations. We do not anticipate any major changes to our fair value estimate, and we are leaving our narrow moat rating intact. Worldwide clear aligner ASPs stabilized somewhat on a sequential basis as we anticipated but remained lower compared with the year-ago period (down roughly 5%) due to higher non-comprehensive case growth and unfavorable currency effects. We remain concerned about long-term commodification in the non-comprehensive category as competition continues to flock to the market. Separately, scanner gross margins fell by 210 basis points versus the year-ago period due to higher manufacturing costs and lower ASPs. We continue to think the segment’s long-term profitability will be constrained.Management's 2019 revenue guidance range of 20%-30% is lower than our previously forecast 32%. While the company's flat clear aligner ASP growth forecast for 2019 falls below our expectations, the 20%-30% case volume growth guidance meets our forecast. Separately, our prior gross profit margin forecast of roughly 74% remains in line with Align's 73%-78% gross margin target. Align guided its 2019 operating margin expectation to below its long-term target of 25%-30% due to restructuring efforts, versus our prior 2019 estimate of roughly 24%. While we were surprised by Align's corporate reorganization plans, we think the company is right to ensure its internal organizational structure supports its long-term international growth strategy. However, we are concerned about the company's legal expenses, which we think pose ongoing risks to operating margins as the company continues to assert its various patents. Although we expect Align's investments in sales and R&D activities will somewhat constrain operating margins, we think the company will incrementally realize benefits from manufacturing efficiencies over time.
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.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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