Align (ALGN) Q2 Revenue Falls 1.6%

Key Points

• Earnings and revenue for Q2 2025 both fell short of expectations, with non-GAAP EPS of $2.49, compared to the $2.57 estimate, and GAAP revenue of $1,012.4 million, versus the $1,060.5 million estimate.

• Clear Aligner revenue declined by 3.3 % from the prior-year quarter, reflecting a lack of meaningful volume growth and pricing pressure.

• Management introduced restructuring plans and signaled ongoing margin pressure, providing muted guidance for the next quarter.

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Align Technology (NASDAQ:ALGN), the company behind Invisalign clear aligners and intraoral scanners for orthodontics and dental care, released its Q2 2025 financial results on July 30, 2025. The main takeaway is that both non-GAAP earnings per share and GAAP revenue missed analyst expectations, with non-GAAP EPS of $2.49, compared to the $2.57 consensus, and GAAP revenue of $1,012.4 million, trailing the anticipated $1,060.5 million. Year over year, total GAAP revenue slipped by 1.6%, despite a modest 3.4% increase from the previous quarter. This period was marked by weak sales in the Clear Aligner segment, competitive headwinds, and a marginal rise in shipment volumes, even as the company expanded product offerings and continued international growth. Collectively, the quarter reflected ongoing challenges.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Company Overview and Business Drivers

Align Technology operates at the intersection of dentistry and digital technology. It offers clear aligner products, like Invisalign, that provide an alternative to traditional metal braces. Its portfolio also includes iTero intraoral scanners and CAD/CAM (computer-aided design/manufacturing) systems, enabling digital dental workflows for practitioners worldwide.

The company’s growth relies on five core areas: ongoing innovation in clear aligners and scanners, expanding its global footprint, integrating digital treatment platforms, scaling advanced manufacturing, and maintaining strong consumer-focused branding initiatives. Continuous investment in research and development, alongside international market entry and digital tool rollouts, remain central to Align Technology’s approach.

Quarter in Review: Financial and Operational Highlights

During the quarter, financial performance was restrained by soft demand, especially in North America and Europe, and by competitive trends favoring traditional orthodontic solutions. Revenue was 4.5% below analyst estimates, with muted performance in the Clear Aligner segment. The Clear Aligner segment posted GAAP revenue of $804.6 million, down 3.3% year-over-year, despite a marginal rise in shipment cases (up 0.3%) and ongoing price pressures, with implied revenue per case at approximately $1,250—lower than a year ago due to increased discounts and changes in product mix.

The Imaging Systems and CAD/CAM Services segment, which includes digital scanners for dental practices, saw stronger results. That business generated $207.8 million in GAAP revenue, up 5.6% year-over-year and up 13.9% sequentially from the prior quarter. Sales of iTero Lumina scanner wand upgrades drove much of this improvement, though adoption of complete new systems lagged expectations. Notably, this segment saw traction internationally but still faced some drag from shifting market dynamics and seasonality.

Margins reflected similar pressures. Non-GAAP operating margin was 21.3%, down from 22.3% a year ago, indicating that higher operational costs continued to weigh on profitability. Management cited foreign exchange as a minor tailwind for GAAP operating margin. Net income on a non-GAAP basis was essentially flat year over year at $181.1 million.

As the company faced these challenges, it initiated restructuring steps, including realigning certain business groups, workforce reductions, and streamlining global manufacturing operations. These actions will lead to one-time charges of $150–170 million in the second half of fiscal 2025, with $50–60 million expected in Q3 2025. While most of these charges are non-cash, the targeted benefits include improving GAAP and non-GAAP operating margins by at least 1 percentage point beginning in FY2026. Align Technology also completed a $225 million stock repurchase and authorized a new $1 billion share buyback plan.

Products and Strategy Updates

The period saw several product launches and technology expansions. The company rolled out its Invisalign System with Mandibular Advancement—a clear aligner solution that helps correct jaw positioning issues (known as Class II malocclusions)—in Malaysia, India, Australia, New Zealand, the United States, and Canada. The Invisalign Palatal Expander System—a direct 3D-printed device aimed at children and teens needing palate expansion—received approvals in China, India, and Malaysia, broadening the suite of solutions for orthodontic care.

In the scanner segment, the iTero Lumina restorative scanner expanded its utility for general dental practitioners, offering upgraded software and tools designed for restorative and multidisciplinary workflows beyond orthodontics. These digital platforms aim to integrate doctor, laboratory, and patient experiences more seamlessly. Upgrades to existing scanners drove significant short-term revenue and positioned Align Technology to further penetrate general dental markets.

On the operational side, the company made early moves to regionalize manufacturing and invest in next-generation processes such as advanced automation and additive manufacturing (3D printing). These changes aim to increase efficiency and responsiveness to local market needs. Period-end cash stood at $901.2 million, and accounts receivable grew, partly due to extending flexible payment terms to dental practice clients.

Marketing initiatives continued, with partnerships targeting the teen segment—such as a campaign with Disney themed “Freakier Friday”—and professional outreach in Asia Pacific and EMEA. Despite healthy interest and scan activity, patient starts and doctor conversion rates did not move meaningfully. This disconnect underscores the impact of broader macroeconomic issues and the growing preference among both doctors and patients for conventional braces in several major markets.

Looking Ahead: Guidance and Considerations

Management’s outlook for the coming quarter and full-year remains cautious. For Q3 2025, management forecasts GAAP revenue between $965 million and $985 million, representing another sequential decline, along with a reduction in GAAP operating margin for FY2025 due to expected restructuring charges. The core Clear Aligner business is expected to show low-single-digit volume growth and flat to slightly higher revenue, with volume guidance indicating a decline and revenue per case likely to remain under pressure due to ongoing product mix and discounting trends. The Systems and Services segment is also expected to experience a typical seasonal dip.

For FY2025, non-GAAP operating margin is projected to remain slightly above 22.5%, while GAAP operating margin will drop to the 13–14% range, reflecting the impact of restructuring. Capital spending is set at $100–125 million for FY2025, focused on technology and manufacturing upgrades. Leadership expects that cost-saving measures will set the stage for GAAP and non-GAAP operating margin improvement in FY2026, but did not offer detailed long-term forecasts for revenue or volume expansion.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has positions in and recommends Align Technology. The Motley Fool has a disclosure policy.