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Align Technology(ALGN) - 2025 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's analysis Financial Statements This section presents Align Technology's unaudited condensed consolidated financial statements and related notes Condensed Consolidated Statements of Operations Net revenues slightly decreased to $1.01 billion, while net income increased to $124.6 million due to a non-recurring legal settlement Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $1,012,449 | $1,028,490 | $1,991,711 | $2,025,921 | | Gross profit | $708,117 | $722,628 | $1,388,225 | $1,420,444 | | Income from operations | $163,033 | $147,046 | $294,133 | $301,181 | | Net income | $124,608 | $96,564 | $217,838 | $201,592 | | Diluted EPS | $1.72 | $1.28 | $2.98 | $2.68 | Condensed Consolidated Balance Sheets Total assets increased slightly to $6.22 billion, with a decrease in cash and a rise in stockholders' equity Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $901,157 | $1,043,887 | | Accounts receivable, net | $1,116,210 | $995,685 | | Total current assets | $2,448,058 | $2,492,441 | | Total assets | $6,219,094 | $6,214,600 | | Deferred revenues (current) | $1,317,990 | $1,331,146 | | Total liabilities | $2,306,315 | $2,362,615 | | Total stockholders' equity | $3,912,779 | $3,851,985 | Condensed Consolidated Statements of Cash Flows Operating cash flow slightly decreased, investing cash outflow reduced, and financing cash outflow increased from repurchases Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $181,326 | $188,491 | | Net cash used in investing activities | ($56,768) | ($192,077) | | Net cash used in financing activities | ($303,055) | ($163,275) | | Net decrease in cash | ($142,621) | ($176,057) | Notes to Condensed Consolidated Financial Statements Detailed notes cover accounting policies, acquisitions, legal proceedings, tax matters, and share repurchase programs - The company completed the acquisition of Cubicure GmbH on January 2, 2024, for a total purchase consideration of $85.8 million, which included $47.6 million in goodwill allocated to the Clear Aligner segment495052 - In June 2024, the company reached a settlement in principle for an antitrust lawsuit, accruing a total loss of $31.75 million. A payment for the full amount was made to an escrow agency subsequent to June 30, 2025636465 - The company is in a dispute with the UK's HMRC regarding VAT on clear aligner sales. While a Tax Tribunal ruled in Align's favor in April 2025, HMRC was granted permission to appeal in July 2025. The outcome and potential loss cannot be estimated at this stage727374 - The January 2023 Repurchase Program of $1.0 billion was completed as of June 30, 2025. A new $1.0 billion repurchase program was authorized in April 2025878889 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses operational results, financial condition, and macroeconomic challenges impacting revenue and patient demand - Strategic priorities focus on international expansion, GP treatment, patient demand, and orthodontic utilization. However, growth is challenged by macroeconomic conditions like global tariff volatility, inflation, and higher interest rates, which have negatively affected dental patient demand and led to an increase in the use of traditional wires and brackets over clear aligners115116 - The company expects to undertake actions in the second half of 2025 to streamline operations and reallocate resources, which may include realigning business groups, reducing the global workforce, and optimizing the manufacturing footprint120290 Results of Operations Q2 2025 net revenues decreased to $1.01 billion due to lower Clear Aligner ASPs, while operating income increased from reduced expenses Net Revenues by Segment (in millions) | Segment | Q2 2025 | Q2 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Clear Aligner | $804.6 | $831.7 | $(27.1) | (3.3)% | | Systems and Services | $207.8 | $196.8 | $11.1 | 5.6% | | Total net revenues | $1,012.4 | $1,028.5 | $(16.0) | (1.6)% | Clear Aligner Case Volume & Revenue per Case | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Case Volume (thousands) | 644.4 | 642.7 | 0.3% | | Revenue per Case | $1,250 | $1,295 | (3.5)% | Gross Profit by Segment (in millions) | Segment | Q2 2025 | Q2 2024 | Gross Margin % (2025) | Gross Margin % (2024) | | :--- | :--- | :--- | :--- | :--- | | Clear Aligner | $563.8 | $588.5 | 70.1% | 70.8% | | Systems and Services | $144.3 | $134.1 | 69.4% | 68.2% | | Total Gross Profit | $708.1 | $722.6 | 69.9% | 70.3% | - The decrease in Clear Aligner revenue was primarily due to lower Average Selling Price (ASP) from a product mix shift to lower-priced products and higher discounts. This was partially offset by favorable foreign exchange rates and a slight increase in volume129130 Liquidity and Capital Resources The company maintains strong liquidity with $901 million in cash, sufficient to fund operations and capital requirements - Cash and cash equivalents stood at $901 million as of June 30, 2025, down from $1.04 billion at the end of 2024164 - The company expects capital expenditures for fiscal year 2025 to be between $100 million and $125 million, primarily for technology upgrades and manufacturing expansion166 - A new $1.0 billion stock repurchase program was authorized in April 2025, expected to be completed over three years166 Cash Flow Summary - Six Months Ended June 30 (in thousands) | Flow Type | 2025 | 2024 | | :--- | :--- | :--- | | Operating activities | $181,326 | $188,491 | | Investing activities | $(56,768) | $(192,077) | | Financing activities | $(303,055) | $(163,275) | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks including foreign currency, inflation, and investment price fluctuations, mitigated by hedging strategies - The company uses foreign currency forward contracts to minimize the short-term impact of exchange rate fluctuations, primarily for the Euro, British Pound, Chinese Yuan, Polish Zloty, and Canadian Dollar179 - Inflationary trends have impacted both revenues and costs globally. The company may not be able to fully offset higher costs through price increases, potentially impacting results of operations181 - The company holds investments in privately held companies valued at $198.2 million as of June 30, 2025. These are subject to equity price risk and are accounted for using the measurement alternative (cost minus impairment, adjusted for observable transactions)182183 Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures are effective as of June 30, 2025184 - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2025185 PART II OTHER INFORMATION This section provides information on legal proceedings, risk factors, equity sales, and other disclosures Legal Proceedings The company is involved in ongoing legal proceedings, including antitrust class actions and patent infringement litigation with Straumann - The company is appealing a summary judgment ruling in its favor in an antitrust class action lawsuit (Simon and Simon, PC). Oral arguments were held in April 202561 - A settlement of $31.75 million was agreed upon to resolve remaining claims in a separate antitrust lawsuit (Misty Snow). The court granted preliminary approval in May 20256364 - Align is engaged in ongoing litigation with Straumann, involving claims of patent infringement and false advertising by Align, and counterclaims of antitrust violations and false advertising by Straumann. A trial is scheduled for May 20266667 Risk Factors The company faces significant risks from macroeconomic conditions, competition, supply chain, and legal and regulatory challenges - Macroeconomic conditions like inflation and potential recessions can reduce discretionary spending on elective procedures, driving patients to less costly treatments and negatively impacting demand for Align's products190 - The company faces increasing competition from traditional wires and brackets, other clear aligner manufacturers (including direct-to-consumer models), and doctors who self-manufacture aligners204 - The business is highly dependent on third-party suppliers for key components and materials, with some being sole-source relationships, creating supply chain vulnerabilities225 - The company is subject to extensive and evolving regulations globally, including those for medical devices (FDA), data privacy (HIPAA, GDPR, CCPA), and antitrust, which could result in fines, penalties, and operational changes239240252 Unregistered Sales of Equity Securities and Use of Proceeds The company completed its prior share repurchase program and authorized a new $1.0 billion program in April 2025 Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :--- | :--- | :--- | :--- | | April 2025 | 555,454 | $163.51 | $1,005,214,000 | | May 2025 | 29,677 | $176.07 | $1,000,000,000 | | June 2025 | — | $— | $1,000,000,000 | | Total | 585,131 | | | - In April 2025, a new $1.0 billion stock repurchase program was authorized by the Board of Directors, expected to be completed over up to three years286 Other Information The company plans operational streamlining actions in H2 2025, including workforce reductions, incurring $150-$170 million in charges - The company plans to take actions in H2 2025 to streamline operations, which may include workforce reductions and optimizing its manufacturing footprint290 - These streamlining actions are expected to incur one-time charges of approximately $150 million to $170 million in the second half of 2025, primarily for asset write-downs, accelerated depreciation, and restructuring charges291 Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents and certifications - The filing includes key corporate governance documents, executive certifications, and interactive data files (XBRL)292