Dental technology company Align Technology (NASDAQ:ALGN) fell short of the market’s revenue expectations in Q2 CY2025, with sales falling 1.6% year on year to $1.01 billion. Next quarter’s revenue guidance of $975 million underwhelmed, coming in 6.4% below analysts’ estimates. Its non-GAAP profit of $2.49 per share was 3.3% below analysts’ consensus estimates.
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Align Technology (ALGN) Q2 CY2025 Highlights:
- Revenue: $1.01 billion vs analyst estimates of $1.06 billion (1.6% year-on-year decline, 4.8% miss)
- Adjusted EPS: $2.49 vs analyst expectations of $2.57 (3.3% miss)
- Adjusted Operating Income: $215.9 million vs analyst estimates of $234.4 million (21.3% margin, 7.9% miss)
- Revenue Guidance for Q3 CY2025 is $975 million at the midpoint, below analyst estimates of $1.04 billion
- Operating Margin: 16.1%, up from 14.3% in the same quarter last year
- Free Cash Flow Margin: 11%, similar to the same quarter last year
- Sales Volumes were flat year on year (3.2% in the same quarter last year)
- Market Capitalization: $14.92 billion
Company Overview
Pioneering an alternative to traditional metal braces with nearly invisible plastic aligners, Align Technology (NASDAQ:ALGN) designs and manufactures Invisalign clear aligners, iTero intraoral scanners, and dental CAD/CAM software for orthodontic and restorative treatments.
Revenue Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Align Technology grew its sales at a solid 12.9% compounded annual growth rate. Its growth beat the average healthcare company and shows its offerings resonate with customers.
We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Align Technology’s recent performance shows its demand has slowed as its annualized revenue growth of 3% over the last two years was below its five-year trend. 
We can better understand the company’s revenue dynamics by analyzing its number of clear aligner shipments, which reached 644,370 in the latest quarter. Over the last two years, Align Technology’s clear aligner shipments averaged 2.8% year-on-year growth. Because this number is in line with its revenue growth, we can see the company kept its prices fairly consistent. 
This quarter, Align Technology missed Wall Street’s estimates and reported a rather uninspiring 1.6% year-on-year revenue decline, generating $1.01 billion of revenue. Company management is currently guiding for flat sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 7.6% over the next 12 months, an improvement versus the last two years. This projection is above average for the sector and indicates its newer products and services will catalyze better top-line performance.
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Adjusted Operating Margin
Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.
Align Technology has been an efficient company over the last five years. It was one of the more profitable businesses in the healthcare sector, boasting an average adjusted operating margin of 23.3%.
Analyzing the trend in its profitability, Align Technology’s adjusted operating margin decreased by 7.5 percentage points over the last five years, but it rose by 1.8 percentage points on a two-year basis. Still, shareholders will want to see Align Technology become more profitable in the future.
This quarter, Align Technology generated an adjusted operating margin profit margin of 21.3%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Align Technology’s EPS grew at an astounding 21% compounded annual growth rate over the last five years, higher than its 12.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
Diving into Align Technology’s quality of earnings can give us a better understanding of its performance. A five-year view shows that Align Technology has repurchased its stock, shrinking its share count by 7.8%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings. 
In Q2, Align Technology reported adjusted EPS at $2.49, up from $2.41 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects Align Technology’s full-year EPS of $9.41 to grow 15.2%.
Key Takeaways from Align Technology’s Q2 Results
We struggled to find many positives in these results. Its revenue guidance for next quarter missed and its revenue fell short of Wall Street’s estimates. Overall, this was a bad quarter. The stock traded down 33.4% to $136.14 immediately after reporting.
The latest quarter from Align Technology’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.