LEIPZIG, Germany: Disappointing third-quarter results from SmileDirectClub (SDC) and Align Technology show that clear aligners are struggling to live up to high sales expectations in the midst of shrinking consumer confidence. The two companies are respective market leaders in at-home and dentist-led clear aligner treatment, and both are experiencing significant macroeconomic headwinds. According to Align, demand for adult clear aligner treatment is slipping.
On 8 November, lacklustre results from SDC caused the company’s stock (listed as SDC on Nasdaq) to dip by 8.7% before midday ET. The company’s share price fell to a low of US$0.5922 by 9 November, rebounding to US$0.6938 the following day. SDC’s stock was worth US$2.63 when trading for the year opened on 3 January, and the company first offered its stock at a price of US$23.00 per share when it went public on Nasdaq on 12 September 2019.
Investors also showed their concerns about Align’s third-quarter results when the company released its earnings report on 27 October. Align shares (ALGN) had fallen by 18% to a value of US$176.00 by early afternoon trading. On that day, a 72% year-to-date fall made Align the worst performer of the S&P 500 stock market index, and a further dip in value earned Align’s stock the Zacks Investment Research’s Bear of the Day award on 7 November. These milestones are a far cry from Align’s strong historic performance on Nasdaq and from that of 2021, in particular, when its share price peaked at US$737.45.
Align says demand for adult orthodontic treatment is falling
SDC provides clear aligners to dental clinics, but the bulk of its aligner shipments goes directly to consumers for remote therapy. Align, however, manufactures the dentist-led Invisalign clear aligner system. Dental Tribune International reported in May that Align’s results were being dragged down by the ongoing effects of the SARS-CoV-2 pandemic and macroeconomic headwinds in a number of markets that it serves. In the same month, SDC signalled a major strategy change for 2022 after confirming that its key demographic was struggling to pay its bills and changing its spending habits as a result of financial pressures. Half a year later, both companies are shipping fewer aligners.
Align shipped 577,170 Invisalign cases in the third quarter, representing a 3.6% sequential decrease and an 11.9% year-on-year drop. Its clear aligner net revenues of US$732.8 million were down 12.5% year on year. SDC’s third-quarter report showed that its 52,367 unique aligner shipments during the quarter represented a 16.5% sequential slide and a significant drop from the first quarter of this year, when case shipments numbered 76,254.
“For [the third quarter], third-party reports indicate there are fewer new patient visits, less traffic flow and lower orthodontic case starts overall.” – Joseph Hogan, CEO, Align Technology
Troy Crawford, chief financial officer at SDC, said in a call with analysts that performance during the period had been driven by a worsening of macroeconomic conditions and increasing inflation. Commenting on the coming year, David Katzman, the company’s CEO, said that SDC was seeing positive data for the coming months, but that demand remained low. “We’ve seen it from competitors,” he stated. SDC is active in six markets, and Katzman said that the inflationary pressures were not unique to the US. “It’s not unique to one country. It’s not worse; it is not better. It’s pretty much universal,” Katzman noted.
Joseph Hogan, CEO of Align, told analysts that the company’s result reflected a downward trend in the demand for orthodontic treatment. He said: “For our clear aligner segment, macroeconomic uncertainty and [waning] consumer confidence continues to impact the dental market overall, making for a challenging operating environment across the board. For [the third quarter], third-party reports indicate there are fewer new patient visits, less traffic flow and lower orthodontic case starts overall.”
More dentists were using the Invisalign system during the third quarter, and the number of new trained Invisalign treatment providers was up 8.5% sequentially. Hogan said that US sales of aligners for teens had been strong, but that falling demand for adult cases was being felt throughout the orthodontics industry. “[That] is not just in the US; we see that all over the world,” he added.
A Zacks Investment Research analyst wrote in November that economic uncertainties were making consumers less likely to spend on orthodontics, and that this was tugging at Align’s margins and affecting its stock price. “Align stock, like many others, soared too high too fast during the post-lockdown surge,” the analyst claimed.
Before this article went to press, on 17 November, Align shares closed at US$194.96, having lost just over 70% of their value so far this year. SDC shares closed at US$0.6498, representing a year-to-date fall of 72.35%.