Jim Cramer on Align Technology's Q1 Earnings Miss

Jim Cramer discusses the decline in Align Technology stock, citing the company's missed numbers and CEO Joe Hogan's explanation of the macroeconomic challenges facing the company. Cramer believes the decline is unexpected, as Invisalign clear aligners are not typically considered a discretionary item. He notes the company's focus on controlling what it can in the face of global tariff volatility, inflation, and unstable consumer confidence.

Align Technology, Inc. (ALGN) reported its second-quarter 2025 earnings on July 30, 2025, with both adjusted earnings per share (EPS) and revenue falling short of analyst expectations. The company's stock dropped by 34.2% in after-market trading following the announcement. Adjusted EPS was $2.49, up 3.3% year-over-year but missing the Zacks Consensus Estimate by 3.1% [1]. GAAP EPS for the quarter was $1.72, reflecting a rise of 43.4% from $1.28 in the comparable period of 2024.

Revenue for the second quarter was $1.01 billion, a 1.6% decrease year-over-year and a 4.6% miss of the Zacks Consensus Estimate. The Clear Aligner segment, which accounts for a significant portion of the company's revenue, saw a 3.3% decrease in revenue to $804.6 million, while the Imaging Systems and CAD/CAM Services segment grew by 5.6% to $207.8 million [1].

Align Technology also announced a restructuring plan that includes layoffs and one-time charges of $150-$170 million in the second half of fiscal 2025. These charges are expected to impact the company's GAAP and non-GAAP margins. The restructuring aims to align the company with its long-term growth objectives and improve operational efficiency.

The company's gross profit for the second quarter was $708.1 million, a 2% decrease year-over-year. Gross margin contracted by 32 basis points (bps) to 69.9%, despite a decrease of 0.5% in the cost of net revenues. SG&A expenses fell by 0.8% to $448.7 million, while R&D expenses rose by 4.6% to $96.4 million. Operating income totaled $163 million, a decrease of 8.5% year-over-year, with the operating margin contracting by 122 bps to 16.1% [1].

Align Technology exited the second quarter with cash and cash equivalents of $901.2 million, up from $873 million at the end of the first quarter. The net cash provided by operating activities was $181.3 million compared to $188.5 million at the end of the second quarter of 2024 [1].

The company completed a $225.0 million open market repurchase of common stock during the reported quarter, bringing the total repurchased shares to approximately 585.1 thousand shares at an average price of $164.14 per share. This marks the completion of the $1.0 billion stock repurchase program approved in January 2023 [1].

For the full year, Align Technology expects Clear Aligner revenue to be flat to slightly up from 2024, assuming foreign exchange at current spot rates. Systems and Services revenues are anticipated to grow faster than Clear Aligner revenues. The Zacks Consensus Estimate for 2025 revenues is pegged at $4.16 billion, suggesting 3.9% growth year-over-year. The 2025 GAAP gross margin for the full year is expected to be 67-68%, and the GAAP operating margin is anticipated to range between 13% and 14% [1].

Align Technology's stock price has been volatile in recent quarters, reflecting the company's challenges in meeting analyst expectations and maintaining profitability. The restructuring plan and one-time charges are expected to impact the company's financial performance in the near term, but the company remains optimistic about its long-term growth prospects.

References:
[1] https://finance.yahoo.com/news/algn-stock-falls-q2-earnings-124600344.html
[2] https://www.nasdaq.com/articles/align-algn-q2-revenue-falls-16