Align Technology Inc. (NASDAQ:ALGN)

Inventory Turnover

There is a consistent decline in inventory turnover over the analyzed period, falling from 9.32 times in 2018 to 3.25 times in 2022. This trend suggests that inventory is being sold and replaced less frequently each year, which could indicate slower sales or increased inventory levels.

Receivables Turnover

The receivables turnover ratio remained relatively stable with minor fluctuations, starting at 4.48 in 2018 and ending at 4.34 in 2022. The lowest point was 3.76 in 2020, after which it increased again. This stability implies consistent effectiveness in collecting receivables over time.

Payables Turnover

Payables turnover showed variability, decreasing from 8.07 in 2018 to 4.99 in 2020, then rising sharply to 8.61 in 2022. This indicates changes in payment practices, with a tendency towards quicker payments in the later years compared to a slower payment period around 2020.

Working Capital Turnover

There is a clear upward trend in working capital turnover, rising from 3.22 in 2018 to 7.49 in 2022. This increase reflects improved efficiency in using working capital to generate sales.

Average Inventory Processing Period

The average days to process inventory has increased substantially from 39 days in 2018 to 112 days in 2022, indicating that inventory remains on hand for much longer periods, which aligns with the declining inventory turnover ratio.

Average Receivable Collection Period

This metric has remained relatively steady, with minor variation from 81 days in 2018 to 84 days in 2022, suggesting consistent credit policies and collection efforts.

Operating Cycle

The operating cycle lengthened notably over the period, increasing from 120 days in 2018 to 196 days in 2022, indicating a longer time frame for converting inventory and receivables into cash.

Average Payables Payment Period

The average payables payment period first increased from 45 days in 2018 to a peak of 73 days in 2020, then declined to 42 days in 2022, demonstrating a shift from extended payment terms back to shorter payment periods in recent years.

Cash Conversion Cycle

The cash conversion cycle extended considerably from 75 days in 2018 to 154 days in 2022, reflecting longer durations to convert resources into cash, primarily driven by increased inventory processing and operating cycle periods. This suggests a potential strain on liquidity and cash flow management.

Cost of Net Revenues

The cost of net revenues exhibited a consistent upward trend over the five-year period. Starting at $518.6 million in 2018, it increased each year, reaching approximately $1.10 billion in 2022. Notably, the largest annual increase occurred between 2020 and 2021, where the cost surged by roughly 43.5%, indicating escalating expenses related to goods sold or services provided.

Inventories

Inventory levels demonstrated significant growth across the observed years. From $55.6 million in 2018, inventories doubled to $112.1 million in 2019, and continued to expand annually to reach $338.8 million by 2022. This represents more than a sixfold increase in inventory holdings, suggesting either stockpiling or growth in production capacity and product availability.

Inventory Turnover Ratio

The inventory turnover ratio revealed a declining pattern over the period, starting at 9.32 in 2018 and falling steadily each year to 3.25 in 2022. This decrease indicates that inventories are being sold or used at a slower pace relative to their levels. The consistent decline might suggest potential issues with inventory management or an accumulation of stock that is not being converted into sales as rapidly as before.

Net Revenues

Net revenues showed a generally increasing trend from 2018 to 2021, rising from approximately 1.97 billion USD in 2018 to about 3.95 billion USD in 2021. However, in 2022, there was a slight decline to roughly 3.73 billion USD, indicating a reversal in the prior growth trend.

Accounts Receivable, Net of Allowance for Doubtful Accounts

Accounts receivable increased steadily over the period, growing from 439 million USD in 2018 to a peak of 897 million USD in 2021 before slightly declining to 860 million USD in 2022. This movement reflects a consistent buildup over the years, with a small reduction observed in the final reported year.

Receivables Turnover Ratio

The receivables turnover ratio fluctuated across the years without a clear upward or downward trend. It started at 4.48 in 2018, dipped to 3.76 by 2020, then recovered to 4.41 in 2021, and slightly decreased again to 4.34 in 2022. This pattern suggests variability in the efficiency of collecting receivables but remaining within a relatively narrow range.

Summary of Trends

The overall financial data indicates growing revenues and accounts receivable through much of the period, with a minor decline in 2022 revenues and accounts receivable following the peak in 2021. The receivables turnover ratio’s relative stability suggests consistent credit management performance despite fluctuations. The decline in revenue and accounts receivable in 2022 may warrant further investigation to understand underlying causes such as market conditions or changes in credit policy.

Cost of Net Revenues

The cost of net revenues displayed a consistent upward trend from 2018 through 2022. Starting at 518,625 thousand US dollars in 2018, it increased to 662,899 in 2019 and 708,706 in 2020. A significant rise occurred in 2021 where the cost reached 1,017,229 thousand US dollars, further increasing to 1,100,860 thousand US dollars in 2022. This indicates a substantial increase in costs associated with generating revenue over the five-year period.

Accounts Payable

Accounts payable values showed variability over the period. The figure increased from 64,256 thousand US dollars in 2018 to 87,250 thousand US dollars in 2019, followed by a sharp increase to 142,132 thousand US dollars in 2020 and 163,886 thousand US dollars in 2021. However, in 2022, accounts payable declined to 127,870 thousand US dollars. This pattern suggests a buildup of obligations through 2021, with a partial reduction in 2022.

Payables Turnover Ratio

The payables turnover ratio, indicating how frequently payables are paid during the year, experienced fluctuations. It started at 8.07 in 2018 and slightly decreased to 7.6 in 2019. A pronounced decline was noted in 2020, dropping to 4.99. The ratio then increased to 6.21 in 2021 and further to 8.61 in 2022, surpassing initial levels. This suggests that after slower payables turnover in 2020, the company improved its efficiency in settling obligations by 2022, paying suppliers more rapidly than in prior years.

Overall Insights

The data reflect increasing costs of goods sold alongside fluctuating accounts payable and varying payables turnover. The sharp rise in cost of net revenues suggests increased operational scale or cost pressures. The decreasing payables turnover ratio in 2020 points to slower payment cycles potentially linked to higher accounts payable balances during that year. Conversely, the recovery and improvement in payables turnover in subsequent years indicate strengthened cash management or supplier negotiations. The decline in accounts payable in 2022, despite rising costs, may further imply strategic efforts to optimize working capital.

Working Capital

The working capital exhibited fluctuations over the five-year period. It initially increased from 610,406 thousand USD in 2018 to a peak of 662,449 thousand USD in 2019. Subsequently, it declined to 523,937 thousand USD in 2020, showed a modest recovery in 2021 with 570,004 thousand USD, and then decreased again to 498,504 thousand USD by the end of 2022. Overall, there was a downward trend from the 2019 peak through to 2022.

Net Revenues

Net revenues showed a consistent upward trajectory from 2018 to 2021, rising from 1,966,492 thousand USD to 3,952,584 thousand USD. This represents significant growth, nearly doubling in value. However, in 2022, net revenues declined slightly to 3,734,635 thousand USD, marking a reversal of the prior growth trend but remaining substantially higher than the earlier years.

Working Capital Turnover Ratio

The working capital turnover ratio improved steadily throughout the entire period, rising from 3.22 in 2018 to 7.49 in 2022. This acceleration indicates an increasing efficiency in using working capital to generate net revenues, with the ratio more than doubling over five years. The most marked improvement occurred between 2020 and 2022, coinciding with the years when working capital decreased but revenues remained high.

Overall Insights

The data suggest that although working capital decreased after 2019, the company was able to generate higher net revenues and improve the efficiency of working capital utilization. The increase in the working capital turnover ratio highlights enhanced operational efficiency. The slight decline in net revenues in 2022 after a strong rise in 2021 may warrant further investigation to understand market or internal factors contributing to this change.

The analyzed data reveals a clear trend of declining inventory efficiency over the five-year period ending December 31, 2022. The inventory turnover ratio shows a continuous decrease from 9.32 in 2018 to 3.25 in 2022. This ratio, which measures how many times inventory is sold or used in a time period, indicates that inventory is being cycled through less frequently each year.

Correspondingly, the average inventory processing period, expressed in number of days, demonstrates an increasing pattern. It rose from 39 days in 2018 to 112 days in 2022, indicating that the company is holding inventory for progressively longer periods before it is sold or used.

Inventory Turnover Ratio

The steady decline from 9.32 to 3.25 suggests a slowdown in inventory movement, potentially signaling reduced sales velocity, overstocking, or inefficiencies in inventory management.

Average Inventory Processing Period

The rise from 39 days to 112 days confirms the increasing duration inventory remains on hand. This trend correlates inversely with the turnover ratio and may reflect challenges such as demand fluctuations, supply chain issues, or changes in product mix.

Overall, these trends indicate a significant deterioration in inventory management effectiveness over the period. The company may need to review its inventory policies to address longer holding periods and declining turnover, which could impact liquidity and increase storage costs.

Receivables Turnover

The receivables turnover ratio exhibited a fluctuating pattern over the five-year period. Starting at 4.48 in 2018, it slightly declined to 4.37 in 2019, followed by a more pronounced decrease to 3.76 in 2020. However, the ratio rebounded in 2021 to 4.41 and remained relatively stable at 4.34 in 2022. This trend indicates variability in how efficiently the company converted its receivables into cash, with a noticeable dip in 2020 potentially reflecting slower collections or extended credit terms during that year, followed by recovery in subsequent years.

Average Receivable Collection Period

The average receivable collection period mirrored the inverse behavior of receivables turnover, displaying an increase from 81 days in 2018 to a peak of 97 days in 2020. Subsequently, the collection period decreased to 83 days in 2021 and remained stable at 84 days in 2022. The elongation of the collection period in 2020 suggests that customers took longer to settle their invoices, which aligns with the observed decrease in receivables turnover. The partial improvement in 2021 and stability in 2022 indicate better collections performance during the latter years but not returning fully to the pre-2020 levels.

Overall Interpretation

The data indicates that the year 2020 marked a period of reduced efficiency in accounts receivable management, as evidenced by the lower turnover ratio and longer collection period. This may have been influenced by external factors affecting payment behaviors. The subsequent years show a recovery trend, though not fully to the 2018 levels, suggesting ongoing adjustments in credit policies or collection practices. Monitoring these metrics will be essential for maintaining healthy cash flow and optimizing working capital management.

Average Inventory Processing Period

This metric exhibits a consistent upward trend over the observed period. It has increased from 39 days in 2018 to 112 days in 2022, indicating that the time taken to process inventory has nearly tripled. This suggests a possible build-up of inventory or slower turnover, which may affect working capital requirements.

Average Receivable Collection Period

The receivable collection period shows relative stability with minor fluctuations. It rose slightly from 81 days in 2018 to 83 days in 2019, then peaked at 97 days in 2020 before decreasing back to 83 and 84 days in 2021 and 2022, respectively. This suggests that the company's credit and collection policies have maintained a fairly consistent efficiency, with a brief extension likely influenced by external factors in 2020.

Operating Cycle

The operating cycle has demonstrated a general increase over the time span, moving from 120 days in 2018 to 196 days in 2022. This growth is primarily driven by the rising inventory processing period, while the receivable collection period remained relatively steady. An extended operating cycle may imply a longer period to convert inventory and receivables into cash, potentially impacting liquidity and cash flow management.

Over the analyzed period, the payables turnover ratio exhibited fluctuations, with notable declines and subsequent recoveries. Initially, the ratio decreased from 8.07 in 2018 to 7.6 in 2019, followed by a more pronounced drop to 4.99 in 2020. This decline suggests a slower rate of payables turnover in 2020 compared to earlier years. Subsequently, the ratio improved to 6.21 in 2021 and further increased to 8.61 in 2022, indicating an acceleration in the rate at which payables are paid during the two most recent years.

The average payables payment period, measured in days, shows an inverse pattern in relation to the payables turnover ratio. Starting at 45 days in 2018, the payment period extended to 48 days in 2019 and increased sharply to 73 days in 2020. This prolongation indicates slower payment cycles during that year. In 2021, there was a reduction to 59 days, and a more significant decrease occurred in 2022, bringing the period down to 42 days, the shortest over the five-year span.

The changes in these two related metrics suggest that in 2020, the company took longer to settle payables, resulting in a lower turnover ratio and a higher payment period. Conversely, in 2022, the company accelerated payments, as evidenced by the highest turnover ratio and the shortest payment period, reflecting potentially improved liquidity management or changes in payment policies.

Inventory Processing Period

The average inventory processing period has shown a consistent upward trend over the five-year span, beginning at 39 days in 2018 and increasing steadily to 112 days by the end of 2022. This indicates that the company is taking progressively longer to convert inventory into finished goods or sales, which could be a signal of inventory management challenges or changes in product demand dynamics.

Receivable Collection Period

The average receivable collection period displayed relative stability, fluctuating within a moderate range. It started at 81 days in 2018, peaked at 97 days in 2020, and then slightly improved to 84 days in 2022. This suggests that while the company experienced some delays in collecting receivables during 2020, the collection efficiency has somewhat stabilized thereafter.

Payables Payment Period

The average payables payment period experienced notable variability. It increased from 45 days in 2018 to 73 days in 2020, indicating extended payment terms or delayed payments. However, it subsequently decreased to 42 days by 2022, the shortest period in the timeframe, suggesting a shift towards faster payment to suppliers or possibly improved cash management practices.

Cash Conversion Cycle

The cash conversion cycle has lengthened significantly over the period under review, moving from 75 days in 2018 to 154 days in 2022. This increase reflects the combined effects of longer inventory processing times and fluctuations in receivable and payable periods. The extended cycle implies that cash is tied up in operations for a considerably longer time, which may impact liquidity and working capital efficiency.