Financial Trends -- 5/10

Revenue recovering but still low-growth. Quarterly revenue ranged narrowly between $943M and $1,048M over 12 quarters, reflecting a business that has been essentially flat at $3.9-4.0B for four years. Q4 2025 was the strongest quarter at $1,048M (+5.3% YoY), suggesting the trajectory is improving. Consensus expects FY2026 revenue of ~$4.18B (+3.6%), roughly in line with management guidance of +3-4%. The recovery is real but the growth rate remains well below the ~20% market CAGR.

Revenue YoY accelerated +690bps from Q2 2025 trough to Q4 2025. Total revenue briefly turned negative in Q1-Q2 2025 before recovering to +5.3% in Q4. Clear Aligner growth followed a similar V-shaped pattern, recovering from -3.3% to +5.5%. Scanner/Services decelerated sharply from +17.5% in Q1 2024 to low single digits as the iTero Lumina upgrade cycle matured. The convergence of all three lines near +5% in Q4 2025 suggests broad-based stabilization.

Core Clear Aligner revenue flat at ~$3.2B for four years. All incremental growth from FY2022-FY2025 came from Scanner/Services, which grew from $662M to $790M (+19%). Clear Aligner revenue was $3,247M in FY2021 and $3,245M in FY2025 -- essentially unchanged. This is a business growing at barely inflationary rates on its flagship 80% product. Scanner/Services growth also decelerated sharply from +16% (FY2024) to +2.7% (FY2025) as the Lumina upgrade cycle matured.

Non-GAAP operating margin expanded from 19.1% to 26.1% in FY2025. Q4 2025 hit 26.1%, up +300bps YoY and the highest in several years, driven by restructuring savings and cost discipline. Management guides FY2026 to ~23.7% (+100bps YoY average). However, GAAP gross margin compressed -280bps in FY2025 (70.0% to 67.2%) due to ~$145-155M in restructuring-related noncash charges. On a non-GAAP basis, Q4 2025 gross margin was 72.0% (+1.2pts YoY), suggesting underlying margins are stable. The GAAP compression is largely transitory from restructuring.

EPS YoY acceleration from -0.5% to +34.8% is the strongest bull signal. Non-GAAP EPS accelerated +3,530bps from Q1 2025 trough (-0.5%) to Q4 2025 (+34.8%). This reflects operating leverage (26.1% non-GAAP op margin), share buybacks (-3.2% share count), and a favorable tax/investment gains tailwind in Q4. Annual non-GAAP EPS grew from $9.33 (FY2024) to $10.51 (FY2025), +12.6% YoY. Consensus expects FY2026E ~$11.10 (+5.6%) and FY2027E ~$11.94 (+7.6%).

Consensus roughly aligned with management guidance. Street expects FY2026 revenue of ~$4.18B, within management guidance of $4.16-4.20B. EPS consensus implies mid-to-high single digit growth, consistent with modest revenue growth plus margin expansion and buybacks. FY2027E EPS range is wide ($10.78-$12.79), reflecting genuine analyst disagreement on whether the long-range 5-15% growth target is achievable.

FCF declined -21% to $491M despite lower capex. FY2025 FCF margin contracted from 15.6% to 12.2%. The decline was driven by lower cash from operations ($593M vs $738M prior year), not higher investment. FCF peaked at $772M in FY2021 and has not recovered. Management spent nearly all FCF on buybacks ($466M vs $491M FCF), signaling capital return commitment but leaving limited margin of safety. The FCF trend is a genuine concern given ongoing restructuring cash outlays.