ALGN: Plunges to 52-Week Low on Lower Guidance; Launches Invisalign Teen(TM)
Submitted By Knobias ClipReport
ALGN: Plunges to 52-Week Low on Lower Guidance; Launches Invisalign Teen(TM)
By Fain Hughes, fhughes@knobias.com
Shares of Align Technology, Inc. (ALGN) fell to a 52-week low on heavy volume Wednesday after the Company reported financial results for the second quarter of fiscal 2008, ended June 30, 2008. Total net revenues for the Q2 of fiscal 2008 were a record $79.9 million. This reflects a year-over-year increase of 4.3 percent compared to $76.6 million in Q2 of 2007. Net profit for Q2 was $4.0 million, or $0.06 per diluted share. This is compared to net profit of $13.6 million, or $0.19 per diluted share in Q2 07, and net profit of $5.3 million, or $0.07 per diluted share in Q1 of 2008.
For the third quarter, Align Technology expects net revenues to be in a range of $74 million to $76 million. Non-GAAP earnings per diluted share for Q3 08 is expected to be in a range of $0.04 to $0.06. For fiscal 2008, Align Technology expects net revenues to be in a range of $309 million to $314 million. Non-GAAP earnings per diluted share for fiscal 2008 is expected to be in a range of $0.29 to $0.33.
Kenneth B. Arola, CFO of Align Technology, explained in a conference call, “We believe the continuing challenges in the U.S. economy and weak consumer spending will continue. Given this enviroment, we are more cautious about our ability to accelerate growth in our base business over the back half of the year. We are expecting gross margins in the second half of the year to be impacted by about 50 basis points from increases in fuel charges and raw material costs.
“We are implementing cost saving measures that include a reduction of 38 full-time headcount and discretionary spending cuts. This will have the effect of reducing expenses by $5 million to $6 million over the second half of the year, while allowing us to continue critical investments in our new products and strategic initiatives. In addition, we plan a phase consolidation of our order acquisition operations from Santa Clara to Juarez, Mexico. We anticipate completing this by the end of 2008. We should realize cost savings from this of $1.0 million-$1.5 million in 2009.”
Mr. Arola added, “Our outlook for growth is not as robust as we had planned, but in this economic enviroment, we believe it is reasonable. We are committed to delivering shareholder value and are positioning the company for increased growth and profitability as the market improves. The cost saving actions that we announced today are only the first steps in actively reducing our cost structure and moving towards a financial model with greater operating leverage. Beyond this year, as we deliver on product innovation and gain efficiencies, we have a great opportunity to flatten our expense growth and take structural costs out of the business.”
Thomas M. Prescott, President and CEO of Align Technology, commented, “As a result of economic conditions, we have adopted a more conservative outlook for revenue growth. We are committed to our new investments, but we are reducing overall company spending and slowing headcount growth, while preserving the important investments in strategic priorities. We are confident that we have the right long term strategy.”
In a separate announcement yesterday, Align announced a new addition to its Invisalign product family: Invisalign Teen(TM) for non-adult, comprehensive orthodontic treatment.
Darrell Zoromski, VP of Global Marketing and Chief Marketing Officer of Align Technology, explained in the conference call, “Teenagers are a significant portion of the orthodontics practice. Patients aged 12-17 represent half of all patients. Until now, only a small number of doctors have treated their non-adult patients with Invisalign(R). The most often cited barriers have been patient compliance and the need to accommodate permanent teeth that are still coming in. We have addressed these issues with Invisalign Teen(TM), so that orthodontists will have confidence that they can treat their teen patients successfully with Invisalign.”
He added, “Our goal over the next six to eighteen months is to gain initial trial among our core orthodontist customers (approximately 3,000 doctors). Orthodontists are conservative by nature and teen cases make up the majority of their cases. We expect the product to ramp gradually over time as orthodontists experience outstanding clinical results with a product that we know can deliver. We expect our share gains to play-out over a number of years. We believe the adoption will significantly accelerate in the long term.”
Leerink downgraded ALGN to Market Perform from Outperform to reflect the Company’s lowered guidance and cut their target to $9 from $16.
