Align Technology, Inc. (ALGN) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A indicate positive sentiment, with improved financial performance, effective market strategies, and optimistic guidance. The company's focus on strategic partnerships and product development, along with stable financial health, suggests potential for growth. Despite some uncertainties, such as ASP declines and margin dilution, the overall outlook remains positive, supported by strategic initiatives and market expansion plans.
Key Financial Performance
Q4 revenues $1.048 billion, up 5.3% year-over-year and 5.2% sequentially. Reasons for growth include better-than-expected Clear Aligner volumes and strong performance in EMEA, Latin America, and APAC regions.
Full year 2025 total revenues $4 billion, up 1% year-over-year. Growth driven by Systems and Services revenues of $790 million (up 2.7% year-over-year) and Clear Aligner revenues of $3.2 billion (up 0.5% year-over-year).
Clear Aligner volumes (2025) 2.6 million cases, up 4.7% year-over-year. Growth attributed to increased adoption among teens and kids, with 936,000 teens and kids starting treatment (up 7.8% year-over-year).
DSP Touch Up cases (2025) Over 136,000 cases, up 36% compared to 2024. Growth driven by increased demand for touch-up treatments.
Q4 Clear Aligner revenues $838 million, up 5.5% year-over-year and 4% sequentially. Growth driven by higher volumes, strength in EMEA, Latin America, and APAC, and stability in North America.
Q4 Clear Aligner volume 677,000 cases, up 7.7% year-over-year and 4.5% sequentially. Growth driven by strength in adult, teen, and growing kids' segments, as well as GP and ortho channels.
Q4 Systems and Services revenues $209 million, up 4.2% year-over-year and 10% sequentially. Growth driven by higher scanner system sales and adoption of iTero Lumina scanner.
Non-GAAP operating margin (2025) 22.7%, above the 2025 outlook. Improvement attributed to operational efficiencies and cost management.
Q4 operating margin 14.8%, up 5.2 points sequentially and 0.3 points year-over-year. Growth driven by operational efficiencies and lower restructuring costs.
Q4 net income per diluted share $1.89, up $1.11 sequentially and $0.50 year-over-year. Growth driven by higher revenue and lower operating expenses.
Q4 free cash flow $187.3 million, calculated as cash flow from operations ($223.2 million) minus capital expenditures ($35.9 million). Growth supported by strong operational performance.
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Operating Highlights
Invisalign First: Continued growth and adoption globally, addressing Phase 1 needs for younger patients.
Invisalign Palate Expander: First direct printed orthodontic appliance, driving early intervention adoption globally.
MAOB (Mandibular Advancement with Occlusal Blocks): Supports growth in the teen and early intervention category.
Direct 3D-Printed Retainers and Invisalign Specifics: Limited market release expected in 2026, with more complex products in 2027.
DSO Partnerships: Strong growth across all major regions, with double-digit growth in the Americas and EMEA, and triple-digit growth among top DSOs in EMEA.
Regional Expansion: Double-digit Clear Aligner volume growth in EMEA and APAC, with record shipments in China, India, and Korea.
Localized Marketing: Improved retail conversion in targeted markets through data-driven marketing programs.
Operational Efficiencies: Improved gross margins due to operational efficiencies and reduced restructuring costs.
AI-Driven Tools: Enhanced treatment planning and digital workflows to improve efficiency and patient conversion.
Manufacturing Investments: Investments in local manufacturing and direct fabrication capabilities to reduce costs and improve scalability.
Focus on Teens and Kids: Major long-term opportunity supported by unique solutions like Invisalign First and Palate Expander.
Digital Ecosystem: Integration of Invisalign, iTero, and Exocad to strengthen adoption and utilization.
Affordability and Flexibility: Portfolio strategy includes lower upfront cost options to expand access and maintain margins.
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Risk or Challenges
North America Retail Chain Softness: Broader orthodontic market softness in North America retail chain where consumer sentiment and patient inflow remain pressured.
China's Volume-Based Procurement Process: Implementation delays and early phases expected to begin within the public hospital system before expanding more broadly. Timing and scope remain fluid, posing potential pricing challenges.
Macroeconomic Environment: Dynamic macroeconomic conditions could impact business performance and growth.
Direct Fabrication Transition: Transitioning from thermal forming to 3D printing of Clear Aligner appliances has early production dilutive margin impact until scale is achieved.
Foreign Exchange Impact: Unfavorable foreign exchange impacted revenues and margins in certain quarters.
North America Teen and Kids Segment: Continued softness in North America teen and kids segment, with sequential case starts declining 9.8%.
Capital Expenditures: Investments in manufacturing capacity and technology upgrades could strain financial resources.
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Guidance & Outlook
Revenue Growth for Q1 2026: Worldwide revenues are expected to be in the range of $1.01 billion to $1.03 billion, representing a 3% to 5% year-over-year increase.
Clear Aligner Volume for Q1 2026: Volume is expected to grow mid-single digits year-over-year.
Clear Aligner Average Selling Price for Q1 2026: Expected to increase sequentially due to favorable geographic mix.
Systems and Services Revenue for Q1 2026: Expected to decline sequentially, consistent with typical Q1 seasonality.
Operating Margin for Q1 2026: GAAP operating margin is expected to be between 12.4% and 12.8%, while non-GAAP operating margin is projected to be approximately 19.5%.
Revenue Growth for Fiscal 2026: Worldwide revenue growth is projected to be up 3% to 4% year-over-year.
Clear Aligner Volume for Fiscal 2026: Volume growth is expected to be up mid-single digits year-over-year.
Operating Margin for Fiscal 2026: GAAP operating margin is expected to be slightly below 18%, representing a 400 basis point improvement over 2025. Non-GAAP operating margin is projected to be approximately 23.7%, a 100 basis point improvement year-over-year.
Capital Expenditures for Fiscal 2026: Expected to range between $125 million and $150 million, primarily for technology upgrades, additional manufacturing capacity, and maintenance.
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Shareholder Return Plan
Share Repurchase Program: During Q4 2025, the company repurchased approximately 0.7 million shares of its common stock at an average share price of $142.87. These repurchases were part of the $200 million open market repurchase plan announced in August 2025 and were completed in January 2026. For the full year 2025, the company repurchased 2.9 million shares at an average price of $162.09, totaling $465.9 million. As of December 31, 2025, $831.2 million remains available for repurchases under the $1 billion stock repurchase program announced in April 2025.
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Key Q&A
Q:What factors contributed to the improved volume performance?
A:Joseph Hogan attributed the improved volume performance to market stability, effective execution by the sales force, and growth in specific product portfolios like Invisalign First, Palate Expander, and MAOB. He also highlighted the strong attachment rate of IPE with Invisalign First cases and growth in DSP and Touch-Up cases.
Q:What is driving the positive ASPs in the first quarter?
A:John Morici explained that positive ASPs are driven by favorable country mix, growth in regions with higher list prices, and a balanced product portfolio with more comprehensive products. He emphasized managing ASPs closely to maintain gross margins.
Q:What are the assumptions for end markets in the 2026 guidance?
A:Joseph Hogan and John Morici stated that the 2026 guidance assumes market stability similar to the second half of the year. They emphasized driving active conversion through product and portfolio strategies without expecting significant market changes.
Q:How early is the company in the adoption curve for DSOs?
A:Joseph Hogan noted that the company is still in the early stages of DSO adoption. He highlighted increased penetration in DSOs globally and the company's ability to scale treatment planning and distribution, making them a natural partner for DSOs.
Q:What is driving the improvement in the adult business?
A:Joseph Hogan attributed the improvement in the adult business to variables like DSOs, financial credit options, and digital scanning technology that enhances patient conversion. He also mentioned the importance of showing before-and-after results to patients.
Q:What is the status of the North American retail business?
A:Joseph Hogan described the North American retail business as more stable, with better execution and a broader portfolio. John Morici added that the combination of less negative retail performance and DSO growth improved North America's year-over-year performance.
Q:What are the expectations for Invisalign ASPs in 2026?
A:John Morici stated that Invisalign ASPs are expected to decline by 1% to 2% year-over-year in 2026 due to country and product mix. He also explained that quarter-over-quarter ASP changes in Q4 were influenced by FX and country mix.
Q:What is the rollout plan for NOAA?
A:Joseph Hogan explained that NOAA will be rolled out globally by the end of Q1 or early Q2. The rollout will vary by geography, and the product has been well-received by customers who are confident in its capabilities.
Q:What are the factors behind the 3% to 4% revenue growth guidance for 2026?
A:John Morici outlined factors like international growth, orthodontic utilization, GP engagement, and leveraging the brand as key drivers for the 3% to 4% revenue growth guidance. He emphasized the continuation of strategic initiatives.
Q:What percentage of sales comes from the DSO channel, and how will it expand?
A:John Morici stated that DSOs account for about 25% of the business on a volume basis. The company plans to expand DSO partnerships by emphasizing digital orthodontics, Lumina scanners, and leveraging its brand.
Q:What is the impact of direct fab on gross margins?
A:Joseph Hogan and John Morici explained that direct fab will be margin dilutive initially in 2026 but is expected to become margin accretive by the second half of 2027 or 2028 as it scales.
Q:What are the broader Clear Aligner pricing trends across the industry?
A:John Morici noted that competitors have increased prices due to factors like tariffs and profitability. While this trend is observed, it is not factored into the company's guidance, which focuses on its own strategies.
Q:What is the impact of VPP implementation in China?
A:Joseph Hogan stated that the company does not expect major disruption from VPP implementation in China in 2026. The guidance assumes a status quo, with the company being well-positioned in private markets.
Q:What is the outlook for the Scanners and Services segment in 2026?
A:John Morici stated that the Scanners and Services segment is expected to grow in line with the overall company revenue growth of 3% to 4%. The focus will be on upgrades, trade-ins, and new placements.
Q:What are the broader Clear Aligner growth trends compared to brackets and wires?
A:Joseph Hogan stated that there has been no significant change in conversion rates between Clear Aligners and wires and brackets. Growth in younger patients and workflow improvements are key drivers for Clear Aligners.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer to the question about whether the 3% to 4% revenue growth guidance for 2026 is conservative or if the company could deliver above that level. They reiterated their strategic initiatives but did not provide a clear stance on the conservativeness of the guidance.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ASP exchange
Clear Aligners
Expander MAOB
Iberia
Invisalign Clear
Invisalign Palate
Palate Expander
Palate expander
Printed
Services revenue
acquisition depreciation
adjustment tax
adoption Invisalign
asset sale
attachment
change jurisdiction
charge margin
configuration
country product
deferral exchange
depreciation expense
digit record
discount deferral
exocad
expense asset
fabrication
health care
increase submitter
planning
point depreciation
point efficiency
position reserve
predictability
priority
rate release
region DSOs
revenue record
sale charge
sale efficiency
sale exchange
scale
shift country
softness
strength adult
ALGN Transcript
Align Technology, Inc. (ALGN) Q4 2025 Earnings Call Transcript
Positive2-4
The earnings call summary and Q&A indicate positive sentiment, with improved financial performance, effective market strategies, and optimistic guidance. The company's focus on strategic partnerships and product development, along with stable financial health, suggests potential for growth. Despite some uncertainties, such as ASP declines and margin dilution, the overall outlook remains positive, supported by strategic initiatives and market expansion plans.
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Neutral12-3
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Neutral12-2
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Neutral11-18
ALGN Report
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