Align Earnings: Not a Lot to Smile About as Volume Wins Not Enough to Offset Sluggish Pricing

Narrow-moat Align Technology reported lower-than-expected second-quarter results. Total sales of $1.028 billion were up 2.6% year over year, narrowly missing last quarter’s guidance of $1.03 billion-$1.05 billion, as strong systems and services performance was partially offset by weaker clear aligners business. Systems and services continues to benefit from the iTero Lumina launch from early 2024, but we expect tailwinds to be curtailed for the second half of the year as offices wait to upgrade their scanner until Lumina’s restorative capabilities fully roll out in 2025. Clear aligners posted a 0.1% sales decline during the quarter despite a moderately growing volume due to a sluggish average selling price, or ASP. Unfavorable product mix from an increasing utilization of the Invisalign Doctor Subscription Program, difficult foreign exchange headwinds, and discounts all led to lower-than-anticipated ASP. Management lowered full-year sales growth guidance to 4%-6% from the previous 6%-8% after citing that low ASP is likely to continue posing challenges for the remainder of the year. After digesting July 25’s results and trimming our near-term assumptions, we lower our fair value estimate to $300 per share from $320.