$3.86 Billion
Prior Fiscal: $3.73 Billion
Percentage Change: +3.5%
R&D Expenditure: $347M
Best FY23 Quarter: Q2 $1.0B
Latest Quarter: Q1 $997M
No. of Employees: 21,610

Talk about last laughs. Or in this case, last smiles.

Align Technology Inc. gained the upper hand on a competitor last year by winning a 36-month legal scuffle and fortifying its clear aligner market domination (as if it needed any help in that department).

Its victory over SmileDirectClub last summer ended a three-year supply agreement dispute. Align Technology became an investor, strategic partner, and exclusive third-party aligner supplier to SmileDirectClub customers in 2016, purchasing a 19% stake in the company and gaining a board seat.

The smiles and good will between both firms were short-lived, though. The two parted ways in 2019 after an arbitrator determined that Align Technology violated the non-compete clause of its SmileDirectClub contract. The decision required Align Technology to close its Invisalign retail locations, return its stake in SmileDirectClub, and refrain from competing against its former partner until August 2020.

Align Technology obeyed the ruling but filed a confidential arbitration petition against SmileDirectClub as soon as the non-compete period was over, accusing its rival of breaching the 2016 supply agreement and causing it (Align) damages. SmileDirectClub filed counterclaims in January 2021, but an arbitrator ruled against the New York City-based firm the following October (2022) and ordered it last May to pay $63 million in damages to Align Technology. Not surprisingly, SmileDirectClub tried to vacate the judgement but a California court upheld both the decision and arbitration award in August 2023.

SmileDirectClub vowed to appeal the arbitration award. It soon abandoned that plan, however, as years of shrinking revenue, ballooning deficits, and legal woes forced it into bankruptcy protection (September 2023) and eventually, out of business completely. The abrupt shutdown last December left many SmileDirectClub patients in treatment and customer service limbo (with some having paid for a product they would never receive).

Patients’ purgatory was short-lived, though—Align Technology initiated a U.S. program in the fourth quarter last year to help former SmileDirectClub customers complete their treatment, offering clients up to a 50% discount on Invisalign case submission in Vivera retainers.

“We want to help everyone achieve a healthy beautiful smile,” Align Technology Director/President/CEO Joseph M. Hogan told financial analysts during a February 2024 earnings call, “and [we] strongly recommend that individuals who are impacted by this matter seek the advice of a licensed orthodontist or dentist.”

During that same call, a Morgan Stanley delegate asked Hogan about the impact of SmileDirectClub’s collapse on his company’s finances and market share (SmileDirect was never mentioned by name). The chief executive responded very carefully but honestly, calling the bankruptcy a difficult to quantify opportunity.

“…on the DTC [direct to consumer] customers, we’ve always argued that, that wasn’t our marketplace in the sense of the price point and all,” Hogan replied. “But obviously, these patients will pursue treatment. Now probably more so for doctors than DTC. And we’re just doing what we can in order to support those customers going forward…But we do see this as being a certain opportunity. It’s just hard for us to quantify right now.”

SmileDirectClub’s failure, however, would have to spawn a significant market opportunity to truly benefit Align Technologies, which has already claimed a gargantuan slice of the global clear aligner pie and appears to be compensating for past losses.

In its most recent fiscal year (2023), Align Technology grew revenue 3.4% to $3.86 billion. Gross profit climbed 2.7% to $2.7 billion, net income surged 23% to $445 million, and net income per share skyrocketed 26% to $5.82, according to the company’s 2023 annual report.

The company’s solid financial performance last year was fueled by gains in both of its reporting segments. Clear Aligner sales rose 4.1% to $3.19 billion, thanks to average selling price hikes and higher non-case revenue, while Systems and Services proceeds inched up $800,000 (0.9%) to $662.9 million. Hampering the latter segment’s 2023 growth were fewer scanner sales (which led to a $26.1 million shortfall) and a lower scanner average selling price, which beget a $23.9 million reduction compared with fiscal 2022.

FROM THE TOP: “I am especially proud of our continued focused execution of our product roadmap and innovation pipeline. We are committed to delivering on our strategic growth drivers of International Expansion, Patient Demand, Orthodontist Utilization, and GP Dentist Treatment to extend our leadership in digital orthodontics and dentistry. I believe the next wave of innovation that we are introducing into the market will further differentiate Align and allow us to increase our share of the large untapped market opportunity of 22 million annual orthodontic case starts as well as the additional 600 million consumers who could benefit from a healthy beautiful smile using Invisalign clear aligners.”

— John F. Morici, Align Technology CFO and EVP Global Finance

Despite the setbacks in the Systems and Services segment, Align Technology’s 2023 balance sheet turned out better than expected, according to executives. While they touted the year’s gains, company bigwigs were even more excited about the innovations they hope will help Align Technology accrue orthodontic case market share.

“I am pleased with our fiscal 2023 results, and I am especially proud of our continued focused execution of our product roadmap and innovation pipeline,” John Morici, Align Technology’s chief financial officer and executive vice president, Global Finance, stated upon releasing FY23’s earnings results. “I believe the next wave of innovation that we are introducing into the market will further differentiate Align and allow us to increase our share of the large untapped market opportunity of 22 million annual orthodontic case starts as well as the additional 600 consumers who could benefit from using Invisalign clear aligners.”

Hogan agreed: “We are extremely pleased with our latest innovations and commercialization of products to better serve our doctors, customers, and their patients. Our belief in the future business overall is unwavering.”

That belief was considerably fortified last year by new software solutions, its first direct 3D-printed orthodontic device (the Palatal Expander System), and the €79 million purchase of Austrian 3D printing firm Cubicure GmbH.

Cubicure develops, produces, and distributes materials, equipment, and processes for 3D printing solutions. Its patented hot lithography technology uses a special heating and coating mechanism to process highly viscous resins that are used to make particularly tough, temperature-resistant polymers. This high-precision 3D printing process enables entrepreneurs to additively manufacture resilient components with material quality performance.

The Cubicure deal allows Align to support and scale its strategic innovation roadmap and bolster its digital platform. It also extends and scales Align Technology’s printing, materials, and manufacturing capabilities for its 3D-printed product portfolio, which includes the Invisalign Palatal Expander System.

Authorized by Canadian and U.S. regulators, the Invisalign Palatal Expanders are intended for rapid expansion and holding of skeletal and dental narrow maxilla with primary, mixed, or permanent dentition during treatment. The system contains a series of removable devices staged in small increments of movement to expand a patient’s narrow maxilla to a position determined by their treating doctor.

Initially unveiled in September 2023, the Invisalign Palatal Expander System is an advanced direct 3D printed device that works based on Align Technology’s patented technology. It is the company’s first direct 3D printed orthodontic device, designed to provide a safe, comfortable, and clinically effective alternative to traditional palatal expanders.

“Phase 1 or early interceptive treatment makes up 20 percent of orthodontic case starts each year and is growing,” Mitra Derakhshan, D.D.S., Align Technology’s senior vice president, Global Clinical, said when the Palatal Expanders won U.S. Food and Drug Administration 510(k) clearance last December. “Together with Invisalign First aligners, Invisalign Palatal Expanders provide doctors with a solution set to treat the most common skeletal and dental malocclusions in growing children. The addition of mandibular advancement features to Invisalign aligners also provides doctors with more options for treating skeletal and dental jaw imbalances and bite correction for their growing patients during their teenage years.”

At its Investor Day event last fall, Align Technology introduced several new software solutions designed to advance digital dental practices. They included:

• • Align Oral Health Suite, an intuitive digital interface that enhances dental consultations and dental treatment acceptance. Health Suite integrates Align Technology’s iTero diagnostic tools—iTero NIRI, iTero Occlusogram, iTero TimeLapse, and Invisalign Outcome Simulator Pro—into a single interface.

• • X-Ray Insights technology, designed to streamline X-ray assessments, improve patient communication, and enhance the digital treatment experience.

• • Plan Editor in ClinCheck treatment planning software. This tool contains the Flex Rx form for simplified case submission and is meant to complement Align Technology’s automated treatment planning templates, including its Invisalign Personalized Plan, for doctors to quickly modify their treatment approach or add exceptions for a specific patient to their usual treatment preferences. Plan Editor is enabled with the Flex Rx form for simplified case submission and designed to complement Align Technology’s automated treatment planning templates, including Invisalign Personalized Plan, for doctors to quickly modify their treatment approach or add exceptions for a specific patient to their usual treatment preferences.

• • SmartForce attachment-free aligner activation, a solution that includes optimized attachments (small tooth-colored shapes attached to teeth) to deliver precise forces at the time and place needed to achieve more predictable tooth movements.