ALGN

• First Half 2026 Operational Progress

  • Achieved record Invisalign clear aligner volumes, expanded doctor adoption and utilization, grew scanner placements, and delivered targeted operating margin improvement in the first half of 2026, despite uneven macroeconomic conditions across global markets.
  • Strong momentum was delivered across international regions (APAC, EMEA, Latin America) that offset soft retail demand in North America.
  • Customer-focused initiatives including expanded patient financing, the DSP subscription program, the NoAA lower-priced clear aligner offering, clinical education, and DSO collaboration have shown early positive traction.

• Strategic Priorities

  • Returning North America retail segment to consistent growth is the top near-term priority.
  • Innovation is a core competitive differentiator and central to long-term growth, with ongoing work on digital workflow innovation, direct fabrication technologies, and expanded offerings for teen and adult patients.
  • Increasing scanner adoption is a key driver of long-term platform growth, as digital scanning is the foundation of all integrated digital dentistry workflows.
  • Long-term strategy focuses on expanding global access to orthodontic and restorative dental care, helping doctors treat more patients, and driving value for all stakeholders.

• Ongoing Strategic Review

  • A full strategic and operating model review is currently underway, supported by an external consultant with relevant industry experience. No areas of the business are off-limits for optimization, while the core growth-focused, technology and distribution-led strategy remains intact.

• Fiscal 2026 capital expenditures are projected to be $125 million to $150 million, primarily for technology upgrades, expanded manufacturing capacity, and maintenance.
  • Fiscal 2026 common stock repurchases are guided to $400 million to $500 million, including approximately $133 million expected to be repurchased through October 2026.
  • The company reaffirmed its prior guidance of approximately 100 basis points of operating margin improvement for full-year fiscal 2026, with margin expansion so far in 2026 driven primarily by gross margin improvements from productivity gains and favorable product mix.
  • Formal guidance for fiscal 2027 will not be issued until the ongoing strategic and operating model review is complete. However, management confirmed that they are targeting at least 100 basis points of year-over-year operating margin expansion for fiscal 2027, which is inclusive of margin impacts from scaling DirectFab manufacturing technology.

The firm operates two segments: Invisalign Clear Aligners and iTero Scanner and Systems & Services. Invisalign Clear Aligners delivered strong volume growth, with record clear aligner volumes in the first half of 2026, supported by higher average selling prices (ASPs) that offset an expected downward revenue revision for the Systems & Services segment. Systems & Services is now expected to be down 7% year-over-year at the 2026 full-year midpoint, down from prior guidance of flattish annual performance; this 7% decline is fully offset by higher Invisalign volume and stronger ASPs to hit overall company guidance. Double-digit growth in scanner installed base growth has been achieved year-to-date, driven by DSO and lab channel volume gains. Geographically, APAC, EMEA, and Latin America delivered strong double-digit Invisalign growth, while North America overall was stable with strong DSO channel growth offsetting soft retail demand.

• Uncertain and uneven global macroeconomic conditions create ongoing pressure on consumer discretionary demand for orthodontic treatment, particularly in the North American retail segment and for doctor capital expenditures on new scanning equipment.
  • Foreign exchange headwinds impacted intra-quarter results and contribute to expected ASP volatility across quarters in 2026.
  • The newly reimposed UK VAT on clear aligner treatment could potentially impact UK treatment volumes, though the VAT is passed through to customers and has no impact on Align's ASPs or profitability. A market shift toward lower-upfront-payment flexible acquisition models (leasing, rental, certified pre-owned equipment) for scanners creates near-term downward pressure on Systems & Services ASP and revenue, even as it supports long-term installed base growth.

Q: Given strong recent case start growth despite broad consumer risk concerns, what gives management confidence to maintain momentum going forward?

A: Management cites the company's diversified global business mix as the core source of confidence. Double-digit growth across APAC and Europe, paired with ongoing strength in the North American DSO channel, offsets softness in other regions and segments, and this diversification has proven resilient to uneven macroeconomic conditions. This geographic and channel dexterity was clearly reflected in the strong quarterly results.

Q: Are there early signs of thawing in the sluggish North American independent retail segment, and can new offerings like expanded financing and NoAA help reverse the slowdown?

A: Management notes strong enthusiasm for Align's new teen treatment innovations (mandibular advancement, IPE) among North American independent doctors, which is already driving market share gains. DSP subscription program expansion and the NoAA lower-priced offering are also gaining traction, and expanded patient financing is showing early traction to help patients commit to treatment. Guidance does not assume any macroeconomic improvement, relying instead on execution of these new product and initiative-driven growth strategies.

Q: Is the ongoing operating model review considering all expense categories including R&D and sales/marketing, and are any areas off-limits for optimization?

A: Management confirms the core growth-focused, technology and distribution-led strategy remains intact, but no areas of the business are completely off-limits for potential optimization. The company hired an experienced external consultant to support the review, which management frames as a healthy exercise to improve execution and focus across the business, with no predetermined outcomes at this early stage.

Q: What is driving the downward guidance for Systems & Services this year, and how should we think about long-term mix headwinds from flexible scanner acquisition models?

A: The 2026 decline is driven by a market shift toward lower-upfront-payment options (leasing, rental, certified pre-owned equipment) as doctors pull back on large capital outlays amid macro uncertainty. This shift is fully reflected in 2026 guidance, and while flexible models will remain a part of the product mix going forward, they produce steady recurring revenue over multi-year lease terms, and Align is testing third-party financed capital lease structures that preserve ASPs while still meeting customer demand for flexible payment options. The shift has also supported growth to new doctor customers, which will drive future Invisalign ecosystem gains.