Clear aligner lull sinks Align Technology stock value

Jeremy Booth, Dental Tribune International

Fri. 10. November 2023

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SAN JOSE, Calif., US: The world’s largest clear aligner treatment provider has alerted investors to a substantial slowdown in new orthodontic appointments and adult case starts in North America. The fall in demand depressed Align Technology’s third-quarter results, and the company has warned analysts that it expects sluggish case starts to linger into the fourth quarter and to hamper its full-year results. Align Technology stock (ALGN) lost nearly one-quarter of its value after the announcement.

News of lay-offs at Align’s Morrisville, North Carolina regional headquarters alerted investors to potential problems even before the company announced its third-quarter results. The local Triangle Business Journal reported on 20 October that the medical device giant had initiated downsizing of its workforce in order to cut costs as it looks to the new year. Some 60 jobs in Morrisville have been cut in a first round of lay-offs, the journal said, citing internal company documents and sources close to the company.

Align’s president and CEO, Joseph Hogan, told analysts in a webcast conference call on 25 October that its third-quarter results reflect demand that was lower than expected—dentists and their patients are facing increasing macroeconomic pressures, he said. The company’s results for the period seemed to be a continuation of its historically stellar performance; however, they fell short of analysts’ expectations.

Net revenues of US$960 million (€911 million) represented a year-on-year increase of 7.8% but a dip of 4.2% compared with the prior quarter. Net income of US$164.3 million represented a near 30% year-on-year increase but a sequential fall of 3.6%. Revenue from the company’s systems and services portfolio, at US$165.3 million, was up by 4.9% year on year but down by 2.5% sequentially, and earnings from clear aligner sales—totalling US$795 million—were up by 8.5% year on year but fell by 4.5% sequentially.

Third-quarter shipments of clear aligner cases totalled 602,225, representing a year-on-year gain of 2.3% and a sequential drop of 3.3%. The trend in the teens category was more promising: Align’s record shipment of 221,800 teen cases represented an increase of 8.4% year on year and a sequential increase of 9.9%, offset by falling demand among adult patients.

“We don’t anticipate improvement in adult volumes [in the fourth quarter].”—John Morici, Chief Financial Officer

Hogan said: “Dental practices and industry research firms have reported deteriorating trends, including decreased patient visits and increased patient cancellations, along with fewer orthodontic case starts overall, especially among adult patients.” He pointed to a September consumer report by business analytics provider Gaidge which showed that new orthodontic appointments and case starts in North America were down by 8.7% and 6.9% year on year, respectively.

Chief Financial Officer John Morici said that Align now expects its 2023 revenues to be within the range of US$3.83 billion to US$3.85 billion—down from the previous guidance of US$3.97 billion to US$3.99 billion.

High times: ALGN shares were worth US$695.80 at the end of June 2021, and those who had invested US$1,000 in the stock ten years earlier would have pocketed a 2,668.46% gain. (Image: NATNN/Shutterstock)

Morici explained: “For our clear aligner business, we expect clear aligner teen volume to be seasonally lower in [the fourth quarter], and we don’t anticipate improvement in adult volumes. For [the fourth quarter], we also expect clear aligner [average selling price] to be down sequentially, primarily due to the strengthening US dollar. For our systems and services business, we anticipate increasing headwinds from macro uncertainty and potential supply issues related to the war in the Middle East.”

Align’s stock is coveted by healthcare investors on the Nasdaq; however, news of the company’s third-quarter woes sent its value plummeting by around 23%—its sharpest decline of the year to date. ALGN closed at US$253.69 on 25 October and at US$190.56 the following day. At the time of writing, the stock had not made significant gains, closing at US$193.62 on 8 November.

The company announced on 6 November that it would repurchase US$100 million of its common stock, in addition to a US$1 million common stock purchase by Hogan himself. Hogan said in a statement: “Invisalign is the most trusted brand in the orthodontic industry globally, and we believe our record [third-quarter 2023] teenage shipments reflect market share gains for our clear aligners.” He added: “Today’s announcement of Align’s $100 million open market repurchases along with my additional $1 million share buyback demonstrates our confidence in our business and commitment to increasing shareholder value.”