# How Align Technology makes money

CXProWealth Business Lens · Align Technology (ALGN) · Q2 FY2026

Read from the 10-Q for the period 2026-04-01 to 2026-06-30, filed 2026-08-05 with the SEC (accession 0001097149-26-000060): https://www.sec.gov/Archives/edgar/data/1097149/000109714926000060/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $1.1B (+4.3% on the year)
- Operating income: $154.0M (operating margin 14.6%)
- Net income: $108.3M (net margin 10.3%)
- Gross margin: 71.7%
- Free cash flow: $157.1M (14.9% of revenue)
- Cash conversion (operating cash flow / net income): 1.78x
- Capital expenditure: 3.4% of revenue

## Where the money goes (Q2 FY2026)

- Clear Aligner → Net revenues: $870.9M
- Systems and Services → Net revenues: $185.3M
- Net revenues → Cost of net revenues: $298.8M
- Net revenues → Gross profit: $757.4M
- Gross profit → Total operating expenses: $603.4M
- Total operating expenses → Selling, general and administrative: $462.7M
- Total operating expenses → Research and development: $102.0M
- Total operating expenses → Legal settlements and contingencies: $38.7M
- Gross profit → Income from operations: $154.0M
- Income from operations → Total interest income and other income (expense), net: $5.3M
- Total interest income and other income (expense), net → Other income (expense), net: $10.0M
- Interest income → Total interest income and other income (expense), net: $4.6M
- Income from operations → Net income before provision for income taxes: $148.7M
- Net income before provision for income taxes → Provision for income taxes: $40.4M
- Net income before provision for income taxes → Net income: $108.3M

## Where the revenue comes from

### Segments (Segments and Geographical Information - Summarized Financial Information by Reportable Segment (Details))

| Member | Value | Share |
|---|---:|---:|
| Clear Aligner | $870.9M | 82.5% |
| Systems and Services | $185.3M | 17.5% |

The members sum to total revenue.

## Key insights

### Aligners earn more than the whole company reports

Both segments run at high margins; the profit thins out in corporate costs the filing does not assign to either.

Clear Aligner segment income from operations was $325.5M on $870.9M of segment revenue, a 37.4% margin. Systems and Services earned $77.7M on $185.3M, a 41.9% margin. Company income from operations was $154.0M, a 14.6% margin, so Clear Aligner alone earned 211.3% of it and Systems and Services a further 50.4%. _(from the filing)_
The filing explains the gap: certain operating costs are not allocated to the segments, generally stock-based compensation, IT, facilities, human resources, accounting and finance, legal and regulatory, and restructuring costs. Those sit at the center, outside either product line. _(from the filing)_
Over the longer run, company operating margin was 24.7% in FY2021 on $3.95B of revenue and 13.5% in FY2025 on $4.03B, each a ratio of operating income to revenue in that year. Revenue was roughly flat across those years while the margin fell to a little over half its FY2021 level. _(from the filing)_
Read this way, the product economics look stronger than the company margin suggests, and the question for the company margin is central cost as much as aligner pricing. This is a reading of the segment table, not a statement in the filing. _(analysis)_

### A legal charge undid a wider gross margin

Gross margin widened, yet operating income fell, because a new legal line equalled 25.1% of operating income.

Gross margin rose to 71.7% from 69.9% a year earlier, as cost of net revenues fell 1.8% while revenue rose 4.3%. Operating margin still fell to 14.6% from 16.1%, a drop of 1.5 points, and income from operations fell 5.5% to $154.0M. _(from the filing)_
Legal settlements and contingencies, nil a year earlier, were $38.7M, or 3.7% of revenue: more than the 1.5-point fall in operating margin. SG&A rose 3.1% and R&D 5.8%, while total operating expenses rose 10.7%. The filing says most of the charge is an estimated UK VAT liability, recorded after a UK tribunal held in July that clear aligners are subject to VAT; the company intends to appeal. _(from the filing)_
The filing attributes the gross-margin gain primarily to tariff refunds, the roll-off of accelerated depreciation and higher clear aligner prices per case. _(from the filing)_
Two of those three causes are one-off by nature, and the legal charge may or may not recur. The underlying quarter sits between the two readings: better than the operating line shows, less durable than the gross margin suggests. This is analysis, not a statement in the filing. _(analysis)_

### Trained doctors chose aligners for more patients

Case volume grew 7.4%, faster than the doctor count, so existing customers, not just new ones, carried growth.

Doctor submitters rose to 89.2 thousand from 86.3 thousand, a 3.4% increase, while utilization rose to 7.8 cases per doctor from 7.5. Clear Aligner case volume grew 7.4%, and shipments for teens and growing patients rose to 239.2 thousand from 223.2 thousand, or 7.2%. _(from the filing)_
Revenue per case shipment rose only to $1,260 from $1,250, or 0.8%. Clear Aligner revenue grew 8.2%, which the filing attributes mainly to volume, with a smaller lift from favorable exchange rates and price increases. _(from the filing)_
The filing also says orthodontic starts have been down for four consecutive years, and that doctors who offer both options have shifted starts to wires and brackets when patient traffic is uneven. _(from the filing)_
Higher use per doctor in a soft market for orthodontic starts suggests aligners are gaining ground inside existing practices, not only riding market growth. A single quarter does not establish a trend. This is analysis. _(analysis)_

### Cash rose while reported profit fell

Free cash flow exceeded net income, and most of the new legal charge was booked as a liability, not yet paid.

Free cash flow was $157.1M, 14.9% of revenue and 145% of net income of $108.3M. A year earlier it was $107.2M, 86% of net income of $124.6M. Operating cash flow was $192.8M, 1.78 times net income, and capital spending was $35.7M, 3.4% of revenue. _(from the filing)_
The filing records the estimated UK VAT liability under accrued liabilities on the balance sheet, so the charge reduced this quarter's profit without a matching cash payment in the quarter. _(from the filing)_
Quarterly cash flow is uneven: free cash flow was $27.4M in Q1 FY2025 and $187.3M in Q4 FY2025. Over FY2025 as a whole it was $490.8M against net income of $410.4M. _(from the filing)_
If the VAT appeals fail, the cash leaves in a later period, so part of this quarter's cash strength is timing rather than a change in the business. This is analysis. _(analysis)_

## For members

Signed-in members read, on the page: the investor's and the founder's views of Align Technology (its fundamentals against its peers, where the profit is made, how the model works, where every $100 of revenue goes against the industry, the path to scale), its performance over time with every line as filed, and the edge and the risks. Membership is free.

## Member research

Signed-in members read, on the page: what Align Technology's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Align Technology 10-Q for the period to 2026-06-30: https://www.sec.gov/Archives/edgar/data/1097149/000109714926000060/ (2026-08-05)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-03 · as of 2026-11-03