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Align Technology, the company behind the innovative Invisalign system, has recently faced some challenges that have sent its shares tumbling. In a disappointing turn of events, the company fell short on quarterly earnings and subsequently had to revise its guidance due to a noticeable slowdown in demand.

For the third quarter, Align reported adjusted earnings of $2.14 per share, falling short of Wall Street estimates of $2.26. Net revenue for the same period also missed expectations, coming in at $960.2 million instead of the anticipated $994.5 million.

President and CEO Joe Hogan attributed these struggles to deteriorating trends in the dental industry. Reports from dental practices and industry research firms revealed decreased patient visits, increased appointment cancellations, and a decline in orthodontic case starts, especially among adult patients. The September Gaidge report, reflecting data from over 1,200 North American Orthodontic Practices, revealed a significant deceleration in orthodontic treatment. New orthodontic patient appointments were down 8.7% year-over-year, and ortho case starts were down 6.9% year-over-year, marking the most significant decrease in over a year.

Despite these challenges, Align Technology reported growth in certain regions. Aligner volumes for the third quarter were up in the APAC and Latin America regions, as well as North America for Invisalign Teen cases. However, there was lower volume and pronounced softness due to summer seasonality in EMEA and North America, primarily in Invisalign adult cases.

These challenges have had a significant impact on Align’s stock price, which plummeted by 23% to $195.65, marking one of the largest percentage declines since July 2019.

Align’s outlook for the coming quarters is cautious, with the company anticipating fourth-quarter revenue between $920 million and $940 million. For the full year, Align now forecasts revenue in the range of $3.83 billion to $3.85 billion, down from a prior projection of $3.97 billion to $3.99 billion.

While the immediate future may appear challenging, some analysts still find reasons for optimism. William Blair analysts Brandon Vazquez and Justin Lin, who rate Align’s shares as “Outperform,” pointed out some bright spots in the quarter that suggest medium- to long-term growth potential.

Despite the recent setbacks, Align Technology continues to demonstrate its commitment to innovation and adaptation. In Q3, the company had 8.9 million website visitors and made 5.8 billion impressions in the Americas. The Invisalign Brand Consumer Concierge service teams contacted 5.3 million consumers, scheduled 615,000 consultations, and resulted in 180,000 Invisalign cases started. This program has been successful in providing leads to doctors they might not have obtained otherwise.

Additionally, Align’s board authorized a $1.0 billion Stock Repurchase Program in Q1 2023, and they plan to repurchase up to $250 million of their common stock in Q4 2023.

Looking ahead, Align Technology has its sights set on strategic growth. The company has announced a definitive agreement to acquire Cubicure GmbH, a private firm specializing in hot lithography processes for highly viscous resins. This acquisition is expected to be finalized in Q4 2023 or early 2024 and could potentially expand Align’s product offerings. Cubicure’s patented hot lithography opens up new possibilities in orthodontic device manufacturing.

Align Technology is also focusing on improving the efficiency of its services. The ClinCheck® Live Update was used by 41,000 doctors on more than 560,000 cases in Q3, reducing the time spent on modifying treatment by 21%. The Invisalign® Practice app, actively used by 86.8 thousand doctors, continues to facilitate smoother workflows.

Furthermore, Align Technology is set to launch the Invisalign® Palatal Expander (“IPE”) System in Canada. This 3D printed orthodontic device offers an alternative to traditional metal palatal expanders, potentially expanding the company’s market reach.

During this week’s earnings call, Align Technology addressed questions about its future growth prospects and adaptability. While the company can’t predict consumer sentiment for 2024, it emphasizes efficiency gains in its software and the significance of the Doctor Subscription Program (DSP), scanner advancements, IPE in Canada and many other areas of opportunity for future growth.

Align is also closely monitoring its costs, making adjustments where necessary to maintain profitability while navigating uncertain market conditions. The recent decision to right-size headcount reflects the company’s commitment to adapt to changing economic circumstances.

“More than anything,” Hogan said, “I want the investors to understand that while we have this uncertain environment from a demand standpoint, we’re going to be responsible on cost.”

An analyst from Bank of America asked a very smart question about Align’s decision in 2020 to power through the pandemic without layoffs and their decision in this quarterly earnings call to make some adjustments in reducing the headcount. Joe Hogan, CEO provided a very wise answer, explaining how he made the judgment call in 2020 that the pandemic wasn’t based on economic challenges. Even though the pandemic ultimately affected the economy, there was a very distinct start and end point in his mind around that decision. For this new economic environment, there are serious challenges with consumer sentiment and economic headwinds and for that reason, the firm is going to pull some operational efficiency levers, including layoffs.

According to The Triangle Business Journal, “about 60 local jobs are being eliminated in this round of layoffs, with another round expected later this year, according to sources close to the company.” Too many orthodontists are hesitant to pull the same operational efficiency levers in the midst of economic downturns. With inadequate margin, you simply cannot be overstaffed as an orthodontic practice in Q4 and going into 2024.

Align Technology is facing a challenging period as it grapples with slowing demand and economic headwinds. While analysts remain cautiously optimistic, the company is implementing strategies to weather the storm, including cost management and technology-driven growth. It wouldn’t be a bad idea for most orthodontists to project a slower Q4 and cautious 2024 pro forma financial statements in the budgeting process, particularly as it pertains to human capital. We must find more efficient ways to delight patients without shrinking operating margin or cashflow. 

The-Seven-Mistakes-to-Avoid-in-Your-Orthodontic-Practice-Report

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