To The Moon

Invisalign's parent company $Align Technology(ALGN)$ Falling revenues and EPS misses, along with guidance cuts, put short-term pressure on the stock, which plunged 35% after hours.While Invisalign remains competitive with over 90% market share and continued innovation (e.g., iTero Lumina and Palate Expansion System), the company has also undertaken a program of investment and restructuring in the digital dentistry space that opens new doors for its long-term transformation.

Performance and market feedback

Total Revenue Misses Estimates

Total revenue for the second quarter of 2025 was $1,012.4 million, down 1.6% year-over-year ($1,029.0 million in Q2 2024) and below analysts' expectations of $1,059.3 million, but up 3.4% sequentially ($979.3 million in Q1 2025).The revenue decline was primarily dragged down by the Clear Aligner business, partially offset by growth in the Systems and Services business.

Earnings Per Share Lower Than Expected

Diluted earnings per share (EPS) came in at $1.72, below market expectations of $1.92 and down 3.11% year-over-year.Although net income increased 29.0% year-over-year to $124.6 million, it missed market expectations, reflecting the impact of cost pressures and weak revenues.

Invisalign revenue declines

Revenue from the Invisalign business declined 3.3% year-on-year to $804.6 million, despite a slight 0.3% increase in case volume.The decline in revenue was primarily attributable to lower average selling price (ASP), which was impacted by a combination of an increased proportion of non-full treatment products and currency fluctuations.

Strong performance in the systems and services business

Systems and Services revenue was $207.8 million, an increase of 5.6 percent from the prior year, driven by the iTero Lumina scanner upgrade and CAD/CAM software adoption.The company's investments in digital dentistry are paying off.

Share price reaction and market sentiment

Investment Highlights

Invisalign business faces regional challenges

The Invisalign business reported a 3.3% year-on-year decline in revenue in the second quarter of 2025, primarily dragged down by weak demand in the European and North American markets.Macroeconomic uncertainty, uncertainty over U.S. tariff policies, and reduced consumer financing options have led dental professionals and patients to be more cautious in their purchasing decisions.Nonetheless, Invisalign case volume grew 0.3% year-over-year, demonstrating continued consumer interest in clear aligners.

From a market perspective, Align Technology's Invisalign products continue to hold over 90% of the clear aligners market.According to Grand View Research, the global clear aligners market is expected to grow from $8.28 billion in 2025 to $32.35 billion in 2030, with a CAGR of 31.3%.Align partially offset weakness in Europe and the U.S. through strong performance in Asia Pacific and EMEA, particularly in the adolescent and pediatric patient segments, with year-over-year case volumegrowth of 13.3% (Q1 2025 data).

The decline in Invisalign's revenues may lead to a downward revision of the market's short-term growth expectations for Align, but its market leadership position and global expansion strategy provide support for long-term valuation.Investors need to keep an eye on the company's penetration in emerging markets and market share erosion by competitors (e.g., Spark, ClearCorrect).

Systems and Services Business

Systems and Services revenue increased 5.6 percent year-over-year to $207.8 million, as strategic investments in digital dentistry are paying off. iTero Lumina scanner upgrades and CAD/CAM software adoption drove this growth.More than 85 percent of Invisalign cases were submitted via digital scanning, with iTero scanners accounting for more than half of those, underscoring the company's central position in the digital dentistry ecosystem.The growth of this business provides Align with a diversified revenue stream and reduces reliance on its Invisalign business.

Restructuring Plan Addresses Cost Pressures, Optimizes Long-Term Profitability

Align has announced a restructuring plan that is expected to incur charges of $150 million to $170 million by mid-2025, of which approximately $40 million is a cash outlay.The plan includes global workforce reductions, optimization of manufacturing plant layouts, and disposal of obsolete assets to accommodate next-generation manufacturing technologies such as 3D printing and regionalized production strategies.Management expects this move to result in a GAAP operating margin of 13.0%-14.0% and a non-GAAP operating margin of just over 22.5% in 2025, with a further improvement of at least 1 percentage point in 2026.

The restructuring plan demonstrates management's focus on cost control and operational efficiency and may ease market concerns about near-term earnings pressure.However, the short-term impact of restructuring charges may lead to pressure on Q3 2025 margins, and investors need to closely monitor the execution effect.

Increasing competition and technological innovation go hand in hand

The clear aligners market is becoming increasingly competitive with brands such as Spark ($Ormco Corporation), ClearCorrect, and SmileDirectClub challenging Align's market share through low price strategies and regional expansion.For instance, in July 2023, Angelalign Technology launched custom clear aligners in the U.S., showing competitors' globalization intentions.

In response to competition, Align continues to invest in technological innovations.In 2025, the company launched the iTero Lumina scanner (to support orthodontic and restorative workflows) and the Invisalign Palatal Expansion System (for children and adolescents).In addition, the Invisalign Mandibular Advancement system was launched in Australia and New Zealand in April 2025, further expanding the range of products available.

Technological innovations have strengthened Align's market leadership position, but increased competition could compress ASPs and market share.The market will closely monitor the impact of Align's new products on case volume and revenue, as well as the progress of its expansion in emerging markets.

Macroeconomic and Policy Risks Require Continued Attention

Align cited macroeconomic uncertainty and uncertainty over U.S. tariff policy as negatively impacting demand for Invisalign in its Q2 earnings report.In addition, reduced consumer financing options further dampened patients' willingness to spend on high-priced dental treatments.Nonetheless, the company received a favorable VAT ruling in the U.K. (confirming tax exemption for clear aligners), which may alleviate some of the cost pressure.

Macroeconomic and policy risks may continue to weigh on Align's near-term valuation, but its global market presence and diversified product line provide a cushion.Investors will need to watch for signs of economic recovery and the eventual impact of tariff policies in the second half of 2025.

Earnings guidance and management tone

The company expects Q3 2025 global revenues to be $965 million to $985 million, down sequentially, partly due to seasonality, with Invisalign caseload expected to be down sequentially due to seasonality, and ASP expected to be up slightly due to the favorable impact of currency exchange rates.Systems and services revenue is expected to be down sequentially, also due to seasonality.GAAP gross margin is expected to be 64%-65%, down 5-6 percentage points due to one-time charges ($45 million to $55 million); non-GAAP gross margin is expected to be flat from Q2.

Management's outlook for the remainder of 2025 is more cautious, recognizing that economic uncertainty and consumer spending hesitancy may continue to impact demand.However, they emphasize their confidence in Invisalign's consumer interest and optimize long-term growth through restructuring and technology investments.