Align Earnings: Momentum From Strong Pricing and an Increase in Teen Cases Fuel Positive Outlook

Narrow-moat Align Technology ALGN reported second-quarter earnings that were better than our expectations. Total sales were up 3.2% year over year, driven by strong clear aligner pricing and volume as well as improved utilization rates among dental professionals. While we remain cautious to call a full return to prepandemic normalcy in the clear aligner market, we continue to see reviving conditions, especially in China, and expect less year-over-year volatility. With this improving environment, management raised full-year guidance for top-line and operating margin. We are raising our fair value estimate to $338 per share from $311 after baking in near-term upticks in our forecast and the time value of money.

Clear aligners were up 4.3% year over year, fueled by improving trends across regions and favorable product mix. Teen cases were up 9.7%, and we see continued efforts by Align to further penetrate this segment. The teen market makes up more than three fourths of all annual orthodontic case starts but only one fourth of Invisalign patients, providing a lot of runway for the company to win shares. During the quarter, we saw teen case pack rollouts in new geographies and an increasing investment in marketing platforms to reach younger audiences and to drive adoption of Invisalign treatment among young patients. While other clear aligner players are also focusing on the teen market given the untapped opportunities, we believe Align will continue to lead this space as it has in the adult market thanks to its intangible asset supported by strong brand power and relationship with dental professionals.

Sequential improvement in operating margin was healthy, up 280 basis points, driven by higher gross margins achieved from higher average selling prices for aligners as well as a more effective management of operating expenses.