Align Technology (NSDQ:ALGN) said today that it is closing its Invisalign stores due to the outcome of arbitration with SmileDirectClub.
San Jose, Calif.-based Align Technology, known for its clear orthodontic alignment devices, said that it will close its Invisalign stores by April 3. The stores were first piloted in 2017 and have since expanded into 12 locations by last year, the company said.
The arbitration between Smile Direct Club and Align Technology concluded on January 23, with the arbitrator releasing his decision on March 4. In his decision, the arbitrator held that Align breached a non-compete provision applicable to Smile Direct Club and that Align “misused the SDC Entities’ confidential information and violated fiduciary duties” to Smile Direct Club.
The arbitrator ordered Align to close its Invisalign stores by April 3 and enjoined the company from opening new Invisalign stores or providing “certain services in physical retail establishment” in connection with the clear aligner devices, and ordered the company to stop using confidential information from SDC.
In its decision, the arbitrator also extended the expiration date of a non-compete provision between the two to August 18, 2022. No financial damages were awarded, and Align said that the decision does not affect its existing supply agreement with SDC, which will remain in place through 2019.
Align said it is currently evaluating the financial impacts of the closing and its divestiture of its equity investment in SDC, adding that it expects to record a material charge in the first quarter of 2019, but that no impact is expected on Q1 or fiscal 2019 revenue.
“Since April 2018 Align has been engaged in an arbitration proceeding with the SDC Entities stemming from the claim that our Invisalign retail stores violate non-compete provisions applicable to the members of SDC Financial LLC, including Align. Throughout this process we have maintained that we have acted in good faith and integrity with regards to the SDC Entities and our contractual obligations. And we believe that what makes Invisalign Stores and every part of the Invisalign experience substantially different from SDC scan shops is our focus on a doctor’s office for treatment. While we are disappointed by the arbitrator’s decision, it has no bearing on our long-held strategy of educating millions of consumers worldwide on the benefits of a having better smile and connecting them directly with Invisalign providers. We’ll continue to raise consumer awareness and drive patients to doctor’s offices for great outcomes and great treatment experiences,” Align Tech prez & CEO Joe Hogan said in a press release.
The closure of the stores should have minimal impact on the company, according to SVB Leerink analyst Richard Newitter.
“Ultimately the Invisalign store initiative was still in its pilot phase, so the actual financial impact should be minimal. Nonetheless we thought it had good potential so it is disappointing to see it come to an end before fully launching,” Newitter wrote in a letter to investors.
Despite the loss being disappointing, Newitter said that the setback was “manageable,” adding that Align will need to find another direct-to-consumer avenue to target new prospective aligner customers and keep them “in the orthodontic channel.”
Last November, Align Tech filed a suit against competitor Strauss Diamond Instruments, a subsidiary of Israel-based Strauss & Co, claiming that Strauss’s MagicSleeve product infringes upon Align’s own iTero Element sleeves, and that the company has engaged in “false and misleading advertising” of the product.
