Align Technology - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 revenue was $1.0124B, up 3.4% q/q but down 1.6% y/y; non-GAAP EPS was $2.49. FX tailwinds added ~$26.4M to revenue and lifted margins modestly; nevertheless results were below management’s prior Q2 outlook due to weaker case conversion late in June.
• Versus S&P Global consensus, ALGN delivered a miss on revenue ($1.012B vs $1.061B*) and a slight miss on non-GAAP EPS ($2.49 vs $2.57*). Q1 2025 had been a modest beat on both revenue and EPS*.
• Systems & Services performed well (wand upgrades), but full iTero Lumina system sales fell short; Clear Aligner revenue declined y/y on lower ASPs and mix shift to non-comprehensive products despite flat volumes.
• FY 2025 guidance was lowered: revenue growth now flat to slightly up (from +3.5–5.5%), GAAP operating margin 13–14% (down 1–2 pts vs 2024) due to $150–170M H2 restructuring/asset write-downs; non-GAAP OM ~22.5% unchanged.
• Potential stock reaction catalyst: lowered FY guide and announced cost actions; near-term Q3 guide implies sequential revenue decline ($965–985M) and sizable GAAP margin compression from one-time charges.

What Went Well and What Went Wrong

What Went Well

• Systems & Services revenue rose 13.9% q/q and 5.6% y/y, driven by stronger-than-expected iTero Lumina wand upgrades and services as doctors transitioned platforms.
• Non-GAAP operating margin expanded 230 bps q/q to 21.3% (FX favorable ~120 bps sequentially), with non-GAAP EPS up $0.36 q/q to $2.49.
• Management highlighted continued consumer interest: “we continued to see strong consumer interest in Invisalign treatment, as reflected by iTero scans and Invisalign doctor case submissions”.

What Went Wrong

• Clear Aligner revenue fell 3.3% y/y on lower ASPs (discounts and mix shift to lower-priced products) despite flat volumes; Americas volumes were slightly down y/y.
• Case conversion weakened late in June, leading to below-outlook revenue and margins; management cited “U.S. tariff turmoil… less affordable financing options” and lower elective procedure traffic as contributing factors.
• Full iTero Lumina system sales were “lower-than-expected,” with upgrade wands dominating the mix (lower revenue per sale).

Transcript

Operator (participant)

Greetings. Welcome to the Align second quarter 2025 earnings call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Shirley Stacy with Align Technology. You may begin.

Shirley Stacy (VP Corporate & Investor Communications)

Good afternoon and thank you for joining us Shirley. I'm Shirley Stacy, Vice President of Corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO, and John Morici, Chief Financial Officer. We issued second quarter 2025 financial results today via Business Wire, which is available on our website at investor.aligntech.com. Today's conference call is being audio webcast and will be archived on our website for approximately one month.

As a reminder, the information provided and discussed today will include forward looking statements including statements about Align's future events and product outlook. These forward looking statements are only predictions and involve risks and uncertainties that are described in more detail in our most recent periodic reports filed with the Securities and Exchange Commission available on our website and at sec.gov. Actual results may vary significantly and Align expressly assumes no obligation to update any forward looking statement. We have posted historical financial statements with corresponding reconciliations including our GAAP to non-GAAP reconciliation if applicable, and our second quarter 2025 conference call slides on our website under Quarterly Results. Please refer to these files for more detailed information. With that, I'll turn the call over to Align Technology's President and CEO Joe Hogan.

Operator (participant)

Joe,

Joseph Hogan (President and CEO)

Thanks Shirley. Good afternoon and thanks for joining us today. On our call today I'll provide an overview of our second quarter results and discuss performance from our two operating segments, Systems and Services and Clear Aligners. John will provide more detail on our Q2 financial performance and comment on our views for the remainder of the year. Following that, I'll come back and summarize a few key points and open the call to questions. Our second quarter results were mixed. Total Q2 revenues at $1 billion $12 million reflect solid year-over-year revenue growth for Systems and Services driven primarily by stronger than expected sales of iTero Lumina scanner wand upgrades, offset by lower than expected sales of full iTero Lumina systems and a slight Year-over-year decrease in Clear Aligner revenues driven primarily by lower than expected volumes in Europe and North America.

As a result, Q2 worldwide revenues and operating margins were below our Q2 outlook. During Q2 we continued to see strong consumer interest in Invisalign treatment as reflected by iTero scans and Invisalign doctor case submissions. However, we experienced uneven patient case conversion which led to a lower than typical seasonal uptick in case starts, which historically occurred late in the quarter. As we assessed our Q2 results and the activity in our customers' offices, we believe it was impacted in part by U.S. tariff turmoil in and outside the United States and less affordable financing options for orthodontic treatment as well as for capital equipment purchases. Recent dental industry surveys for the second quarter suggest that there was less overall patient traffic, fewer orthodontic case starts, and patient hesitation toward elective procedures.

2025 marks the fourth consecutive year of orthodontic starts being down and third-party research reports indicate that practices that use both wires and brackets and clear aligners may often have shifted more of their case starts to metal braces in Q2. Uncertainty not only impacts the consumer purchasing decisions but also the decisions that doctors make, especially practices who still use wires and brackets and weigh the sunk cost of their inventory and their available time over investing in digital solutions during times of financial uncertainty. As we begin the third quarter and plan for the remainder of the year, our outlook anticipates the potential continued economic uncertainty and spending hesitancy that impacted demand for our clear aligners and new iTero scanning systems in the second quarter.

Even though we know consumer interest in Invisalign treatment remains strong, we're continuing to drive engagement and effectiveness of commercial and marketing programs that leverage our innovation and new product cycle across our clear aligners and scanners, especially those for teens and kids. At the same time, we're evaluating actions to reduce costs and thoughtfully manage our investments. For Q2, total revenues were $1 billion $12.4 million, up 3.4% sequentially and down 1.6% Year-over-Year. In our Systems and Services segment, Q2 2025 revenues were $207.8 million and increased 13.9% sequentially and increased 5.6% Year -over-Year, primarily reflecting solid revenue driven by iTero Lumina wand upgrades and increased services as more doctors transitioned to iTero Element 5D Plus to the advanced iTero Lumina. The iTero Lumina scanner makes up a majority of iTero scanner systems mix.

For Clear Aligners, Q2 2025 worldwide volumes are up slightly sequentially and Year-over-Year. Q2 clear aligner volumes reflect growth across the APAC and EMEA regions, offset somewhat by the Americas regions. From a product perspective, in Q2 we had strong Year-over-Year growth from Invisalign First, DSP touch-up cases, Invisalign Palatal Expander, and retention including DSP, as well as continued mix shift to non-comprehensive clear aligner products. From a channel perspective, Q2 clear aligner volumes increased slightly year-over-year in both orthodontist and general practitioner or GP dentist channels, with strong year-over-year growth from dental service providers. Growth in total submitters was primarily driven by strength in the orthodontic channel, while increased utilization was led by the GP channel. Notably, we also achieved a record number of doctors shipped to for the second quarter.

For the Americas, Q2 aligner volumes were down slightly Year-over-Year and reflect solid growth in the Latin America teen segment, offset by lower volumes in North America. Despite lower volumes, adoptions increased across several key product offerings including Invisalign First for teens and kids, Invisalign DSP touch-up cases, and Invisalign Palatal Expander System. In the EMEA region, Q2 clear aligner volume grew Year-over-Year driven by increased utilization across both orthodontist and GP dentist channels with strength in the adult segment. This performance reflects continued adoption of non-comprehensive Invisalign offerings, particularly Moderate and DSP touch-up cases including retention as well as Invisalign Comprehensive 3 and 3 and Invisalign First within our comprehensive portfolio. For the APAC region, Q2 clear aligner volume grew Year-over-Year reflecting increased submitters across both orthodontist and GP channels across teens and kid patients led by China.

From a product standpoint, Invisalign First was a key contributor to Year-over-Year growth reflecting rising demand for early intervention solutions. In Q2, over 223,000 teens and growing kids started treatment with Invisalign clear aligners. This number represents a 1.1% sequential decline primarily due to softer performance in EMEA and APAC. Despite the continued strength in the Americas on a Year-over-Year basis, case starts increased 3% driven by growth in APAC and EMEA and Latin America, partially offset by North America. From a product standpoint, Invisalign First was a key Year-over-Year growth driver across all regions. Additionally, the Invisalign Palatal Expander System contributed to Year-over-Year growth in North America. During the quarter, we achieved a record number of teen cases for a second quarter. Additionally, we've surpassed a significant milestone.

Over 6 million teens and kids have now been treated with the Invisalign System globally. For Q2, the number of doctors submitting case starts for teens and kids was up 3.5% Year-over-Year, led by continued strength from doctors treating young kids and growing patients with Invisalign First and Invisalign Palatal Expander. With that, I'll now turn the call over to John. Thanks, Joe.

John Morici (CFO)

Now for our Q2 financial results. Total revenues for the second quarter were $1 billion $12.4 million, up 3.4% from the prior quarter and down 1.6% from the corresponding quarter a year ago on a constant currency basis. Q2 revenues were favorably impacted by approximately $26.4 million or approximately 2.7% sequentially and were favorably impacted by approximately $5.6 million Year-over-Year or approximately 0.6% for clear aligners. Q2 revenues of $804.6 million were up 1% sequentially primarily from favorable foreign exchange partially offset by higher discounts. Favorable foreign exchange impacted Q2 clear aligner revenues by approximately $21.6 million or approximately 2.8% sequentially. Q2 clear aligner average per case shipment price of $1,250 increased by $10 on a sequential basis primarily due to the impact of favorable foreign exchange on a year-over-year basis.

Q2 clear aligner revenues were down 3.3% primarily due to lower ASPs from discounts and product mix shift to lower priced products, partially offset by a price increase. Variable foreign exchange impacted Q2 clear aligner revenues by approximately $4.5 million or approximately 0.6% Year-over-Year. Q2 clear aligner average per case shipment price of $1,250 was down $45 on a Year-over-Year basis primarily due to discounts and a product mix shift to lower priced products, partially offset by a price increase in Q1 2025 and favorable foreign exchange. Clear aligner deferred revenues on the balance sheet as of June 30, 2025 increased $1.4 million or 0.1% sequentially and decreased $65.5 million or 5.2% year-over-year and will be recognized as additional aligners are shipped under each sales contract.

Q2 systems and services revenues of $207.8 million were up 13.9% sequentially primarily due to higher scanner system revenue and favorable foreign exchange. Q2 systems and services revenues were up 5.6% year-over-year primarily due to an increase in scanner and wand upgrade revenue. Higher non-system revenues and favorable foreign exchange partially offset by lower scanner system sales. Foreign exchange favorably impacted Q2 systems and services revenue by approximately $4.8 million or approximately 2.3% sequentially on a year-over-year basis. Systems and services revenue were favorably impacted by foreign exchange of approximately $1 million or approximately 0.5%. Systems and Services deferred revenues decreased $7.6 million or 3.7% sequentially and decreased $24.5 million or 10.9% year-over-year due in part to the shorter duration of service contracts selected by customers on initial scanner system purchases.

Moving on to gross margin, second quarter overall gross margin was 69.9%, up 0.5 percentage points sequentially and down 0.3 percentage points year-over-year. Overall gross margin was favorably impacted by foreign exchange of 0.8 percentage points sequentially and 0.2 percentage points on a year-over-year basis. Clear aligner gross margin for the second quarter was 70.1%, down 0.5 percentage points sequentially primarily due to higher manufacturing costs, partially offset by freight savings. Foreign exchange favorably impacted clear aligner gross margin by approximately 0.8 percentage points sequentially. Clear aligner gross margin for the second quarter was down 0.7 percentage points Year-over-Year primarily due to lower ASPs, partially offset by freight savings. Foreign exchange favorably impacted clear aligner gross margin by approximately 0.2 percentage points Year-over-Year.

Systems and Services gross margin for the second quarter was 69.4%, up 4.7 percentage points sequentially due to higher scanner system ASPs and manufacturing efficiencies, partially offset by tariffs. Foreign exchange favorably impacted the Systems and Services gross margin by approximately 0.7 percentage points sequentially. Systems and Services gross margin for the second quarter was up 1.3 percentage points year-over-year due to manufacturing efficiencies, partially offset by tariffs and lower scanner ASPs. Foreign exchange favorably impacted the Systems and Services gross margin by approximately 0.1 percentage points year-over-year. Q2 operating expenses were $545.1 million, down 0.7% sequentially and down 5.3% year-over-year. On a sequential basis, operating expenses were $3.9 million lower primarily due to lower legal settlements not recurring in Q2 2025. Year- over-year, operating expenses decreased by $30.5 million primarily due to legal settlements not recurring in Q2.

On a non-GAAP basis, excluding stock-based compensation, legal settlements, and amortization of acquired intangibles related to certain acquisitions, operating expenses were $497.6 million, down 0.6% sequentially and down 0.4% year-over-year. Our second quarter operating income of $163 million resulted in an operating margin of 16.1%, up 2.7 percentage points sequentially and up 1.7 percentage points year-over-year. Operating margin was favorably impacted from foreign exchange by approximately 1.2 percentage points sequentially and 0.2 percentage points year-over-year on a non-GAAP basis, which excludes stock-based compensation, legal settlements, and amortization of intangibles related to certain acquisitions. Operating margin for the second quarter was 21.3%, up 2.3 points sequentially and down 1 percentage point year-over-year.

Interest and other income and expense, net, for the second quarter was an income of $10.5 million compared to an income of $9.3 million in Q1 of 2025, primarily driven by favorable foreign exchange movement of $10.1 million, partially offset by lower interest income on a year-over-year basis. Q2 interest and other income and expense were favorably compared to an expense of $3.2 million in Q2 of 2024, primarily driven by favorable foreign exchange movements. The GAAP effective tax rate in the second quarter was 28.2% compared to 33.6% in the first quarter and 32.9% in the second quarter of the prior year. The second quarter GAAP effective tax rate was lower than the first quarter effective tax rate primarily due to discrete tax expenses related to stock-based compensation recognized in Q1 of 2025 that did not occur in Q2 of 2025.

The second quarter GAAP effective tax rate was lower than the second quarter effective tax rate of the prior year primarily due to a decrease in US taxes on foreign earnings, partially offset by a change in our jurisdictional mix of income. On a non-GAAP basis, effective tax rate in the second quarter was 20%, which reflects our long-term projected tax rate. Second quarter net income per diluted share was $1.72, up $0.45 sequentially and up $0.43 compared to the prior year. Our EPS was favorably impacted by $0.26 on a sequential basis and $0.13 on a year-over-year basis due to foreign exchange. On a non-GAAP basis, net income per diluted share was $2.49 for the second quarter, up $0.36 sequentially and up $0.09 year-over-year.

Moving on to the balance sheet, as of June 30, 2025, cash and cash equivalents were $901.2 million, up sequentially $28.1 million and up $139.7 million year-over-year. Of the $901.2 million balance, $193.5 million was held in the US and $707.7 million was held by our international entities. During Q2 2025, we repurchased approximately 585.1 thousand shares of our common stock at an average price of $164.14 per share, completing the $225 million open market repurchase initiated in Q1 of 2025. This completed our $1 billion stock repurchase program approved in January of 2023 in its entirety. Over the last 12 months, we have repurchased $500 million of our common stock. Over the last 24 months, we have repurchased $1 billion of our common stock.

In April 2025, our Board of Directors authorized a plan to repurchase up to $1 billion of our common stock, none of which has been utilized. The April 2025 repurchase program is expected to be completed over a period of up to 3 years. Q2 accounts receivable balance was $1,116,002,000, up sequentially. Our overall days sales outstanding was 99 days, up approximately 2 days sequentially and up approximately 10 days as compared to Q2 2024 and primarily reflects flexible payment terms that are part of our ongoing efforts to support Invisalign practices. Cash flow from operations for the second quarter was $128.7 million. Capital expenditures for the second quarter were $21.5 million, primarily related to investments in our manufacturing capacity and facilities. Free cash flow, defined as cash flow from operations minus capital expenditures, amounted to $107.2 million.

Before I turn to our Q3 and fiscal 2025 outlook, Align is also announcing today that we expect to take a series of actions in the second half of fiscal 2025 to streamline operations and reallocate resources to better align with our long term growth and profitability objectives. These actions are intended to sharpen operational focus, reduce ongoing costs, and enhance capital efficiency. First, we expect to realign certain business groups and reduce our global workforce. Second, we are looking to optimize our manufacturing footprint and dispose of certain manufacturing capital assets as we transition to next generation manufacturing technologies, increase automation, and regionalize manufacturing to be closer to our customers. We expect these actions will incur one-time charges of approximately $150 million-$170 million in the second half of 2025, primarily for the write down of assets, accelerated depreciation expense, and restructuring charges.

We expect approximately $40 million of these charges to be in cash with the remainder in non-cash charges. We expect approximately $50 million-$60 million of these charges in Q3 of 2025. We expect these actions to deliver cost savings that will allow us to achieve a GAAP operating margin of approximately 13-14% and a non-GAAP operating margin of slightly above 22.5% in fiscal year 2025. For fiscal year 2026, we expect these actions to improve our GAAP and non-GAAP operating margins by at least 100 basis points year-over-year. We are evaluating these difficult but we believe necessary actions to position us for sustainable long-term success and improved profitability. While these decisions may impact valued members of our team, we believe they are essential to ensure we are positioned for upcoming technology changes and remain agile and focused in a rapidly evolving market.

We are committed to executing our strategy with discipline and purpose. In addition to this, I'd like to provide the following remarks regarding the U.K. VAT and U.S. tariffs. As of July 30, as previously disclosed in our Q1 2025 earnings release and conference call, on April 24, 2025, we received a favorable ruling in which the Tribunal determined that our clear aligners are exempt from VAT. In June 2025, HMRC filed a petition to appeal to the Upper Tribunal to attempt to challenge the First Tribunal's decision. On July 15, HMRC was given permission to appeal and has until August 15 to do so for impacted customers. Effective August 1, 2025, Align invoices will no longer include the U.K.

VAT rate of 20% for all Invisalign treatment packages that are approved as of August 1, 2025 and for refinement and replacement aligners, Vivera retainers, PVS processing fees, and additional aligner orders placed on or after August 1, 2025. At the same time, we will simultaneously adjust prices for our clear aligners and retainers to keep the overall price consistent. There are no material changes to the expected impact of US tariffs and we refer you to our Q1 2025 press release and earnings material, as well as our Q2 2025 webcast slides, which include specifics regarding potential impacts of US tariffs. Assuming no circumstances occur beyond our control, such as foreign exchange, macroeconomic conditions, and changes to currently applicable tariffs that could impact our business, we expect Q3 2025 worldwide revenues to be in the range of $965 million-$985 million, down sequentially from Q2 2025.

We expect Q3 2025 clear aligner volume to be down sequentially as a result of Q3 seasonality, and Q3 2025 clear aligner ASPs to be slightly up sequentially from favorable foreign exchange at current spot rates, partially offset by a continued product mix shift to non-comprehensive clear aligner products with lower list prices. We expect Q3 2025 systems and services revenues to be down sequentially because of Q3 seasonality. We expect Q3 2025 worldwide GAAP gross margin to be 64%-65%, down sequentially by approximately 5-6 points due to the incurrence of one-time charges expected to be approximately $45-$55 million, primarily for the write-down of assets, accelerated depreciation expense, and restructuring charges in Q3 2025, and lower clear aligner volume. We expect non-GAAP gross margin to be flat from Q2 2025.

We expect Q3 2025 GAAP operating margins to be 10.5%-11.5%, down sequentially by approximately 5-6 points due to the incurrence of one-time charges expected to be approximately $50-$60 million, primarily for the write-down of assets, accelerated depreciation expense, and restructuring charges in Q3 2025, and lower clear aligner volume. We expect the majority of these charges to be non-cash charges, with approximately $5 million in cash charges. We expect Q3 2025 non-GAAP operating margin to be approximately 22%. We expect 2025 clear aligner volume growth to be in the low single digits and revenue growth to be flat to slightly up from 2024.

We expect 2025 clear aligner ASPs to be down year-over-year due to the continued product mix shift to non-comprehensive clear aligners with lower list prices and continued growth in our emerging markets with products that may carry lower list prices, partially offset by favorable foreign exchange at current spot rates. We expect 2025 systems and services year-over-year revenues to grow faster than clear aligner revenues. We expect the 2025 GAAP gross margin to be 67%-68%, down year-over-year by approximately 2-3 points. Due to the incurrence of one-time charges expected to be approximately $115-$130 million, primarily for the write-down of assets, accelerated depreciation expense, and restructuring charges in the second half of 2025, and lower clear aligner volume, we expect 2025 non-GAAP gross margin to be flat to slightly lower than 2024 non-GAAP gross margin.

We expect the fiscal 2025 GAAP operating margin to be 13%-14%, down year-over-year by approximately 1-2 points below the 2024 GAAP operating margin due to incurrence of one-time charges of approximately $150-$170 million, primarily for the write-down of assets, accelerated depreciation expense, and restructuring charges in the second half of 2025. Most of the one-time charges will be non-cash, with the expected cash outlay for 2025 estimated to be around $40 million. We expect the 2025 non-GAAP operating margin to be slightly above 22.5%. We expect our investments in capital expenditures for fiscal 2025 to be between $100 million and $125 million. Capital expenditures primarily relate to technology upgrades as well as maintenance. With that, I'll turn it back over to Joe for final comments.

Joseph Hogan (President and CEO)

Joe, thanks John. In the face of a challenging and uncertain macroeconomic backdrop characterized by global tariff volatility, ongoing inflation, elevated interest rates, and unstable consumer confidence, we're navigating with a clear focus to control what we can and to continue to invest with discipline in the areas that will define our future. In Q2, our customers reported reduced patient traffic, fewer orthodontic case starts, and delayed case acceptance. Despite significant headwinds across the consumer discretionary spend landscape, our consumer interest metrics remain strong. Patients are still prioritizing care that delivers meaningful, visible results, even if timing and affordability concerns are reshaping how and when they choose to commit to treatment. Those that have transitioned to clear aligner therapy and digital practices, including larger practices and DSOs, are showing more resiliency and commitment to digital dentistry and orthodontics.

This underscores the opportunity that those who invest in customer trust, seamless experience, and value-based innovation will be best positioned for the long run. We're doubling down on the levers within our reach: innovation, efficiency, and execution. We're investing in next generation technology and treatment platforms that meet today's patient expectations for fast, effective, and personalized treatment while also providing value and growth opportunities for our doctor customers. We believe these innovations are not only improving outcomes in Invisalign practices, but also expanding our addressable market and strengthening our competitive differentiation. We're expanding our new product offerings to drive Invisalign volume growth in our business year to date.

We've successfully introduced IPE and MAO in over 70 markets and are expanding Invisalign DSP offerings in more markets in Europe and Latin America in the second half of the year and on track to introduce DSP for the first time in major APAC markets beginning in 2026. We are piloting integration of our X-ray diagnostics and our iTero Lumina scanner in some select markets outside the United States. In Q3, we will pilot our ortho restorative offering to GP dentists through labs where we help non-Invisalign trained GPs who are interested in learning and offering Invisalign in their practice. Finally, our commercial marketing teams are engaging practices with tools that improve case conversion at the point of care through digital channels. We're activating more prospective patients and connecting them directly to providers in the face of lower consumer confidence and delayed spending.

Our engagement with potential patients remains high and we are continuing to refine and scale our integrated consumer marketing programs in a fragmented, choice-heavy market. We're continuing to make it easier for providers to succeed with our solution, whether it's clinical training, financing tools, or personalized marketing support. Our strategy is simple: surround our customers with the right support at every stage of their growth journey. We believe this commitment is helping drive greater adoption and turning one-time users into repeat champions. At the same time, we recognize the importance of operating with discipline and taking steps now to mitigate the impact of potential continued headwinds and volatility in the market.

We are considering actions that right-size parts of our organization, aligning resources to current demand realities and eliminating redundancy to drive leaner, faster execution across our organization, especially in areas where we can integrate innovation teams and take global decision-making and support closer to our customers in each region. These tough decisions are being made to preserve our investment in core technologies and protect the teams building our long-term growth. While we believe the macroeconomic uncertainty will likely persist in the near future, we're confident in our ability to adapt and lead. Our long-term strategic initiatives and opportunities remain intact, as does our commitment to focused execution and to transforming treatment for doctors and patients. With that, I'll thank you for your time and I'll turn the call over to the operator for questions. Operator,

Operator (participant)

thank you.

At this time we will be conducting a question and answer session. If you would like to ask a question, please press star one one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 1 1 if you would like to remove your question from the queue for participation. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Our first question comes from the line of Elizabeth Anderson with Evercore ISI. Your line is open.

Elizabeth Anderson (Senior Managing Director)

Hi guys, good afternoon. Thanks so much for the question. One, you know, obviously I think the case conversion as you called out was not, you know, what you guys were hoping for in the quarter. Can you talk about how that trended across the quarter?

Sort of are we at a stability point? Are you saying it is still trending one way or the other? Two, can you remind us what, I mean, you said something about sort of higher proportion of brackets and wires that orthos are using in this current sort of economic uncertainty. Can you talk about some of the levers that you pulled last time we saw this a year or two ago and sort of what your learnings from there and sort of how to think about the potential change in that contribution as we go into the back half of 2025.

Thanks.

Joseph Hogan (President and CEO)

Yeah, Elizabeth, thanks for the question. You know, as we started off the quarter, you know, we normally know there's a lot happens in the last quarter of a month here. Remember, we're a real time business. There's really no inventory outside of what we have with iTero. The clear aligner business is straight on. So we, you know, a normal kind of a sequence I'd say for the quarter until June and June just didn't materialize the way we thought it would. That's the kind of the year-over-year increase from a sequential standpoint that we talked about that we see, you know, every year in this business. It just didn't materialize and it was primarily in June. You know, the levers as far as, you know, orthodontists moving back to wires and brackets and all, you know, it's the orthodontists that haven't really committed to digital.

Maybe they're doing 30% and mainly it's being done with adults or whatever, their patient, their agendas aren't full, their offices aren't full and they obviously have an inventory of wires and brackets. Just from an overall standpoint, from their profitability in that individual office, they'll sometimes push for the wires and brackets piece. You know, we see that, you.

Know, how have we been able to.

Address that obviously really help doctors through that. We usher patients through there that are asking for digital treatment. We work with them so they can be more efficient and more efficient and effective, you know, with our product lines too directly. You know, many of the doctors engage that way. Obviously there's 10,000 orthos in North America and some have chosen not to be digital and to be primarily analog. That's what hurts us at times. Joni, any thoughts?

Elizabeth Anderson (Senior Managing Director)

Great. Thank you very much.

Joseph Hogan (President and CEO)

Thanks again, Elizabeth.

Operator (participant)

Thank you. Our next question comes from the line of John Block of Stifel. Your line is open.

Jonathan Block (Managing Director)

Thanks, guys. Good afternoon. Hey, I guess maybe the first one and just deal with my sort of implied math here. But if I run the 2025 revenues flat versus 2024, John, which is the low end of your guide, I take the midpoint of the 3Q guidance, I arrive at $1.03 billion for 4Q25, that would be up 6% Q over Q, which is well above the three year average of 1%. I guess just to start, what I'm struggling with is sort of this implied. That's obviously even worse or more dramatic if I grow 2025, which you said is still possible. Help me out on that implied 4Q. Help me out on that sequential growth rate 3 to 4Q what it's spitting out and why that would be the case. When we think about the trend line in June that you alluded to in the 3Q guidance.

John Morici (CFO)

Yeah, yeah, John, this is. John, I think when you look at what you've, what you've laid out for Q4, you know, we would expect that systems and services up sequentially. You know, we have the new scanner that we have as we go this year, you know, we would expect that those full systems that we were behind a bit in Q2, that would, you know, continue in the second half and we'd have some benefit from some of those full systems that we have coming through. You know, we look at what we're doing from trying to drive conversion and be more active about that conversion with teens and adults in our second half.

Products like we have with Invisalign First, products that we have with IPE and Mandibular Advancement, those products to be able to help us continue to grow and have that focus into the, you know, as you said, that sequential third quarter to fourth quarter.

Jonathan Block (Managing Director)

Okay, the second one. Maybe I'll just try to jam in as many questions as I can until you guys cut me off. Joe, can you just talk a little bit more about what happened late 2Q? I mean, arguably your 2Q is, you know, the orders from late May to late June because of the rev rec timing. Here we are on July 30. Any thoughts on what's transpired over the last five weeks into July or the end of July? Were those conversion issues more prominent in some of the markets relative to others? I'll just pause there. Thank you.

Joseph Hogan (President and CEO)

Yeah, I'll start with the back end of your question, John. Really where we saw that lack of take up that we normally would, I'd pin it primarily on North America. Two countries in Europe would be France and Germany.

The rest of the world performed at expectation in that sense. When we look at it, we can see primarily that's where we had that issue. What is it? From what we can tell, it's just what we read in the scripts. It's patients being concerned in a sense of can they afford that kind of treatment at this point in time. There's a certain demographic with it too, obvious ones that are challenged. That's why we were worried about, from a financing standpoint, what was being offered or not being offered in that quarter also. Like you said, we have record interest from a brand standpoint. Our GRS, which is our gross receipts, which come in when a patient is scanned and is interested, was extremely high.

We just didn't see the kind of conversion rate we normally would between what we call a general gross receipt and what we see, a CCA.

Jonathan Block (Managing Director)

The trends into month to date, July, or any color there that you can provide. Has it started to unwind here in the first four weeks of July?

Joseph Hogan (President and CEO)

Yeah, I'd say when you look at our forecast, John, we've basically taken what we've seen in the end of the quarter and projected forward.

Jonathan Block (Managing Director)

Thank you.

Operator (participant)

Thanks, John. Next question. Thank you. Our next question comes from Jeff Johnson of R.W. Baird. Your line is open. Thank you.

Jeffrey Johnson (Managing Director and Senior Research Analyst)

Good afternoon, guys.

Joseph Hogan (President and CEO)

Hey, Joe.

Jeffrey Johnson (Managing Director and Senior Research Analyst)

So question, Joe. I guess, you know, as I hear your explanation on trading back down to some of the brackets and wire stuff, which is, you know, we've heard off and on over the last couple years at times. I think what I've been hearing in my checks is kind of this profound pressure, if you will, on practice profitability.

Your brackets and wires comments kind of feed into that.

I think my checks have kind of been saying it's almost more the doctors pulling back. Right now I'm not so sure it's the patients pulling back as much. Of course you have data that maybe does show it's the patients too. I'm not trying to totally disaggregate those two, but I guess as I look at consumer confidence and some of the tariff fears may be coming off over the last few months, I'm surprised that June was that weak. Unless we're at this point where doctors are the ones that are really freezing up, almost more so than the patients. I don't even know if I have a question there, but I'd love your observation because this is definitely something I'm hearing kind of in my general dental checks as well.

Joseph Hogan (President and CEO)

Yeah, Jeff, I think it's a good question. I think you have to. Our look, you have to split it between our DSOs or OSOs we work with, and which have gone really well from a quarter standpoint and a growth standpoint for us too. They offer good finance solutions. They're often aggressive in following back up with patients that showed some kind of an interest in having a marketing program to go back and, you know, offer a special deal at a certain point in time. We see that really work again in those channels, Jeff. I'd say it indicates that it is a reluctant consumer that needs to be encouraged in different ways for treatment and above and beyond what we've seen in the past. I mean, that's always been there.

In this case, I think where there's financial uncertainty, when you look at the individual doctors, again, you know, like, you know, what do we have, 150,000 GPs in the United States and, you know, 10,000 orthodontic doctors. There's a story everywhere. Primarily what we see is patients interested, again, reluctance to spend, doctors sometimes when I'm moving the wires and brackets if they can and push them. Adults are more difficult to do that than teens. From an adult standpoint, that's where the patient traffic has really been down to. I wouldn't pin this on the doctors. I think the aggregate we're talking about here is a reluctant consumer like we talked about in our script. Look, you can find a million stories out there at different doctors and how they handle things, Jeff.

I think the continuum in this is just uncertainty for an out of pocket, expensive type of procedure.

Jeffrey Johnson (Managing Director and Senior Research Analyst)

Yeah, fair enough.

I guess just one question on the restructuring, you know, as you talk about shutting down some manufacturing assets and writing them off, any color there, and does this, you know, accelerate your move at all to direct fab printing? Just any color on those two topics would be great.

Joseph Hogan (President and CEO)

Thanks, Jeff. I'd start to answer that question by saying, you know, over the last five years, we've done a lot to internationalize our production, right? We used to be completely centered in Mexico and we served the world. We opened in China and then we opened in Poland. What we're trying to do is, you know, remember, transportation costs for us are really important in this business. Moving closer to customers helps too. It helps to lower that. What we're going to do is really refocus and make sure that we're as close to those customers as we possibly can. Also, we're taking advantage of some, what I would say, current, you know, vacuum form kind of technology and resin technology in our traditional line that's much more productive than what we've had in the past.

We'll be able to update our facilities both in Mexico, Poland and also China with that kind of technology. We're going to retire the technologies that aren't as productive overall. That's a big part of this. I'll stop there. Does that make sense to you, Joe?

Jeffrey Johnson (Managing Director and Senior Research Analyst)

Yeah. It doesn't sound like necessarily an acceleration. On the direct fab side, it's more of kind of this intermediary, if you will, of going to some of the more efficient vacuum forming and resin stuff.

Joseph Hogan (President and CEO)

In the back of those moves, Jeff, what we're doing is creating, you know, capacity and ability to be able to move into direct printing too. What we'll do with direct printing will directly follow that footprint we're developing around the world with vacuum forming. I hope that helped.

Jeffrey Johnson (Managing Director and Senior Research Analyst)

Fair enough.

Joseph Hogan (President and CEO)

Yep, it does. Thanks, Jeff.

Shirley Stacy (VP Corporate & Investor Communications)

Thank you. Our next question comes from the line of Stephen Valakat of Mizuho Securities. Your line is open.

Stephen Valiquette (Managing Director)

Oh, great. Thanks for taking the question.

Hey, good afternoon.

I guess separate from the comments you made regarding the bracket and wire braces, I guess I'm curious, with your softer Invisalign case volume due to all the market patterns you discussed, I guess just based on your market intelligence, do you think your softer volume was in.

Line with the overall clear aligner market trend?

Or do you think you're maybe losing?

Share in clear aligners for some reason?

Or also I thought in my mind.

That Align would maybe be more favorably.

Positioned on the whole tariff impact relative to many of your clear aligner competitors, maybe, are you still perhaps, maybe even gaining market share in the clear aligner.

Market vs other manufacturers.

Curious to get some thoughts around just.

That part of the market in particular.

Thanks.

Joseph Hogan (President and CEO)

Hey, Steve, it's a good question. I would say primarily from a competitive standpoint. Nothing's really changed around the world between the first quarter and the second quarter. You know, if we think about it, it's mainly what we see is from an economic standpoint. I can't pick out any one country. I mean, China did extremely well for us and I think everyone on the call knows that we have some pressure from a Chinese competitor around the world. We don't think that's basically changed. We saw a competitor actually raise prices that they had to in the quarter also. That was not the dynamic. If that was a dynamic in the quarter, I certainly would have pointed to it, but I didn't see that.

Stephen Valiquette (Managing Director)

I got it. Thanks.

Joseph Hogan (President and CEO)

Yeah, sure.

Operator (participant)

Thank you. Our next question comes from the line of Jason Bednar of Piper Sandler. Your line is open.

Jason Bednar (Managing Director)

Hey, good afternoon. Pick up on a couple other themes here that have been discussed already. Joe.

John, we look at the patients that.

Didn't materialize, the cases didn't materialize in 2Q late in June. It seems like there's two buckets here, your patients that aren't moving forward at all with treatment because of reluctance, be it for financing or tariff unease or what have you. Then another bucket of doctors pushing patients to brackets and wires. I guess the former would open the door to a potential release of volumes in the future with practices tapping into maybe a backlog of patients down the road. I guess how would you split the volumes across those two buckets? How much do you think is falling into just clear aligner opportunity in the future, but not seeing it in 2Q versus doctors putting patients in brackets and wires, and those are no longer candidates for aligners.

Joseph Hogan (President and CEO)

You know, I. John Yeah, I would.

John Morici (CFO)

Jason, it's a mix. You would have, you know, they fall, those potential patients fall into those two categories. You've got some that, you know, we saw good interest, we continue to see good interest in Invisalign and people wanting to go into treatments. Some show up at doctor's offices, they see the pricing and they say that's not something we want to do now because of the end consumer price, the end patient price. So they put things off for their own personal reasons. You have others, and it's really mostly on the ortho channel. They're in, they want to go into treatment.

You might be a teenager and parents bring that child in and, you know, due to some of the economics or other things that we see at that patient at that practice that is there, that doctor, because of economics, puts that patient that's in their chair into wires and brackets versus maybe they might even came in asking for Invisalign. That's the challenge that we have, you know, overall patients and then the patients, that potential patients that come through, what can we do and what do you, what can we do to help our doctors keep them Invisalign? It's a mix and it's going to vary kind of geography by geography in terms of which is larger than the other.

Jason Bednar (Managing Director)

Thanks, Jason.

Operator (participant)

Next question, please. Thank you. Our next question comes from Brandon Vazquez of William Blair. Your line is open.

Joseph Hogan (President and CEO)

Hi, Brandon.

Hi, everyone. This is Russell on for Brandon.

Thanks for taking the question. Sure. Could you guys give us some color on what feedback has been recently on Lumina?

Given the weakened consumer looking at industry.

Surveys, there seems to be a general low willingness to purchase capital equipment.

Has it been impacting your numbers?

Affecting product launch in some way?

How are you navigating it? Thanks.

That's a good question. You know, we didn't meet our sales goals for Lumen in the second quarter, but we did have a good increase, you know, close to 14% growth. And we saw a good trade out. I mean, we see the same surveys and we work around the industry that you do, and we know there's a reluctance because of lack of patient traffic in dental offices and ortho offices of them to commit to capital equipment. I mean, based on that, we felt good about how well we did. When you look at it, and I talked about it in my script, we thought we'd sell more full systems. What we did is our 5D Plus product was upgradable to Lumen with a WAN switch, and the majority of our sales went to the WAN side.

That's just not the same amount of revenue in that switch, and that's basically what hurt us. We do see that reflected, but we felt good about the uptake of Lumen and the excitement we see in the marketplace.

Operator (participant)

Thank you. Our next question comes from the line of Michael Czerney, Lee Ring Partners. Your line is open.

Michael Cherny (Senior Managing Director)

Good afternoon, and thanks for taking the question.

Maybe if I can get back to some of the dynamics of the expectations for the remainder of the year, as you think through the various different macro pictures that you've talked about, Joe, are there any changes you're making on the demand stimulation side? Should we expect anything on the promotional side that you may or may not push? How should we think through the proactive attempts that you're making to ensure that you're driving better patient conversion, better demand curves, satisfaction, et cetera?

Joseph Hogan (President and CEO)

Yeah, Michael, it's a good question. We like to say that the last mile is where we really talk. We touch our doctors with this, and we obviously do a lot of advertising, national advertising, and we're going to try to move as close as we can to our doctors and channel that demand more closely with them. We know how to do this. We just have to scale it more broadly across the United States in different areas where we think it's going to work. One of the things is really, look, the DSOs and the OSOs, again, know how to do this. These individual doctor practices don't necessarily know. They do. There's Invisalign opportunities for them. We're going to try to work more hand in hand to help to guide those patients through there so they can find Invisalign treatment.

Part of that is making sure they have the right kind of financing opportunities through HCA and other organizations that we work with.

Michael Cherny (Senior Managing Director)

Thank you.

Operator (participant)

Thank you.

Joseph Hogan (President and CEO)

You're welcome.

Operator (participant)

Our next question comes from the line of Erin Wright of Morgan Stanley. Your line is open.

Erin Wright (Analyst)

Great, thanks. A similar type of question, but more so, what kind of happened in the quarter and what sort of changed? Outside of just the sluggish demand and kind of conversion rates that you were seeing, were there any of your own initiatives, like promotional activity that did not really just play out to plan like we are hearing? Just some more promotional activity in June, for instance? You know, how did that strategy work relative to your expectations? Obviously, it fell short of that. I mean, was there any sort of nuance to the strategy that maybe changed at all? Was any of that a competitive response?

Thanks.

Joseph Hogan (President and CEO)

You know, again, that's a good question. I'd say we ran the same play in the second quarter that we run in every quarter in the sense of, you know, promotions and things that we offer from a month to month standpoint. John?

John Morici (CFO)

Yeah, I would add the awareness is there, the interest is there. We see it in search metrics. We see it in, in kind of that overall interest that we see from even getting a scan. It's just that conversion then to go from that scan to actually go into treatment that didn't materialize, didn't see that sequential improvement, especially as you think about moving into teen season in a bigger way with North America and Europe. The play was set to increase that interest to get people wanting to go into treatment due to their own economic reasons. They did not.

Erin Wright (Analyst)

Okay. All right. Thank you. Thank you. Our next question comes from Kevin Caliendo of UBS. Your line is open.

Kevin Caliendo (Managing Director)

Thank you. Thanks for taking my question. I'm going to ask this a little bit differently. Maybe it's a question specifically for Joe, but if I'm thinking about this and sort of the way Align's positions, ortho versus GP. If we're seeing wires and brackets being more competitive, that's happening in the ortho space where you guys dominate. Does it make sense for you strategically to try to become somehow more aggressive in the GP space where your share is not as high, where there is more competition? Does that, you know, have you been defensive about that because of pricing or anything else? Like, from a strategic perspective, given the environment, this isn't like a one. It happened this quarter, but we've seen this trend now for a couple years.

I'm just asking, just purely from a, hey, at the board level, what kind of decisions do we have to make strategically to grow faster and how do we gauge one segment versus the other? Pricing power, market share in all of the solutions we bring to the table?

Joseph Hogan (President and CEO)

Kevin, I think it's a fair question. It's actually, it's a good question. You know, about, you know, over 40% of our business in United States is GP now, you know, versus ortho. We have a dedicated GP salesforce that's completely isolated from ortho. They're trained specifically to be able to work with GPs and understand their business and their different kinds of workflow. We have products like iGo, we have products like, you know, Comprehensive, you know, three and three, or, you know, modern kinds of products that are really geared often to get GP started.

We have tremendous doctors like Ryan Mollus and David Galler that train thousands of GPs out there in order to do these things. So we're excited about the GP marketplace. It does not have that possible competitive trade with wires and brackets the way the ortho market is. Remember, these are workflows. They're tight workflows. You have to be able to walk in and be able to explain into a GP practice how you engage with those workflows and walk through those workflows overall. I think people and I got lost in this business when I first started is thinking that you would treat GPs just like you do orthos and you don't. It's a different business person and a different business model altogether. They weren't trained to move teeth. That's why our GCP practices, which are you scan, we can give you a treatment plan.

We have different doctors that can help them through that, that we call, you know, technical support that we can walk them through. I feel good about the resources, the products and the focus that we have in that area. Will we put more pressure on the GP side? Wherever we see opportunities, we'll work it to try to advance our business.

[crosstalk]

Operator (participant)

Thank you. Our next question comes from the line of Vic Chopra of Wells Fargo. Your line is open.

Vik Chopra (Equity Research Analyst)

Hey, good afternoon and thanks for squeezing me in. Maybe just a high level question on the restructuring action you're planning on taking in the back half of the year. You know, I guess what gives you the confidence that these actions will yield the results that you desire and will indeed align with your long term goals? You know, I guess I'm just trying to figure out like, are these sufficient to counter the soft macro environment?Thanks.

John Morici (CFO)

Yeah, Vic, this is John. When we look at some of the restructuring, like we had said in our prepared remarks, it's getting closer to our customers. We know that in this day and age, it's a key requirement to shorten cycle times, be closer to our customers.

Their willingness to work with us, some of the programs that we have with our doctor subscription program and so on, really rely on getting closer to our customers. It also drives productivity where we can reduce our freight costs and so on, which has become a big part of our overall cost. At the same time, to be able to, you know, change out some of the equipment that we have to be more productive, drive efficiency, drive savings, we wanted to reflect that in terms of our profitability. We also want to be able to reflect that in, you know, how do we go to market with that, you know, with some of those actions and the savings that we generate.

Think of, you know, being very active with our customers to help drive conversion, be able to work with them even on a practice by practice basis to make sure that they have that demand, they have the capabilities, they understand the products, and they can help digitize their practice and ultimately use our products. We've got plays on how we're running to drive productivity and it fits with what we want to do with our customers. We want to use some of that savings to really be able to get more active and be active with our customers so that we can help them drive increased patients.

Operator (participant)

Thanks. Our next question comes from the line of Michael Riskin of Bank of America. Your line is open.

Michael Riskin (Analyst)

Great, thanks for taking the question. I'm going to preempt this, Joe, by saying, I know it may maybe an unfair question and if there's just no answer, there's no answer to that.

I just want to think about.

The analyst day you guys just had a couple months ago in division uaf in the next couple of years you gave us an updated LRP and you sort of gave us the bridge over the next couple years and then beyond.

The way I always remembered it.

Was sort of like the, you know, there's the underlying macro and markets and then there's what Align can deliver above that. Obviously it's only been a couple months and it feels like it's, you know, it's been a very short amount of time in terms of what's changed. Like I said, maybe it's too early to say anything but you're certainly leaving this year at a much lower starting point than you'd imagine. You thought you'd be growing revenues more in the mid single digit rate, now it's kind of flattish. If you think about that 5-15 going forward, much bigger jump next year. Does that change how you think you're going to be able to approach that in 2026 and beyond? Or is it just one month and.

We'll take it from there. Thanks,

Joseph Hogan (President and CEO)

Michael. I'll start where you ended. It is one month.

Okay.

I think to be fair to project the business off of one month is tough. What we're doing with our forecast this year is taking that month, shooting it forward. We're going to work hard to do all we can to beat that. If we can, we stick by what we presented in New York. We're excited about the future of the business, that 5-15, we truly believe it's there. I think the best thing that can happen is we get somewhat of a more confident consumer and, you know, being able to drive some of the conversion work that we're talking about, you know, on the front end with doctors overall, you know, work with DSOs and all the help of this too. I feel good about and stick to what we, what we pitched in New York in a direction we have.

Obviously, this looks like a setback and it is in a sense of what we forecasted for the second quarter. Again, I think this business is on a strong foundation. We're going to do what we can to reposition the business. As John talked about with some of these moves around the world, I feel good about where we are, but the environment is challenging right now.

Michael Riskin (Analyst)

All right, thanks.

Operator (participant)

Thank you. We have reached the end of our question and answer session. I will now turn the call back over to Shirley Stacy for closing remarks. Thank you everyone again for joining us today. We look forward to meeting you at upcoming investor conferences and bus trips. If you have any follow up questions, please contact Investor Relations. Thanks and have a great day. Thank you. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.