What changed in this filing

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Item 1A. Risk Factors

2020-10-30 compared with 2020-07-31 · 120 added, 132 removed, 419 unchanged (38% of the section changed)

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The first, entitled “Risks Relating to our Business,” discusses some of the risks that may affect our business, results of operations and financial condition.

The second, captioned "Risks Related to our Common Stock," discusses some of the risks related to owning our common stock.

The second, captioned "General Risk Factors," discusses some of the risks that apply generally to companies and to owning our common stock, in particular.

You should carefully review both sections, as well as our consolidated financial statements and notes thereto and other information appearing in this Quarterly Report on Form 10-Q, for important information regarding these and other risks that may affect us.

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Risks Relating to our Business

Our results of operations have been materially adversely affected by the COVID-19 pandemic and the global and regional efforts by governments to mitigate its spread and we expect the adverse impacts to our business to continue.

The spread of COVID-19 has created significant, widespread and unprecedented volatility, uncertainty, and economic instability, disrupting the global economy, our operations and the businesses of our customers and suppliers.

Protective and preventative efforts to stop or minimize its spread have and continue to center on minimizing its transmission through decreased social interactions (social distancing).

As a result of measures imposed by the governments in certain affected regions starting in the first quarter of 2020, many commercial activities, businesses and schools were suspended as part of quarantines and other measures intended to contain this pandemic.

Because COVID-19 spreads readily through airways in nasal passages and the mouth, our principal customers, dentists and orthodontists and their patients, were an initial primary focus of the protective and preventative efforts.

For instance, in many countries governments and dental regulatory associations acted quickly to prohibit non-essential dental procedures;

thereby materially limiting or preventing our customers from conducting most or all business activities and materially adversely harming our sales and sales efforts.

Since then, the preventative measures have been reduced such that by the end of the second quarter of 2020, dental practices across every region had largely reopened and were seeing patients, although at varying degrees of previous capacities based on differing regions and times.

The initial spread of COVID-19 created significant, widespread and unprecedented volatility, uncertainty, and economic instability, disrupting the global economy, our operations and the businesses of our customers and suppliers, and recent renewed outbreaks in Europe and the Americas are threatening to harm recovering consumer confidence and renew demands for harsh preventative measures aimed at stopping or minimizing its spread.

As a result of these preventative measures starting in the first quarter of 2020, many commercial activities, businesses and schools were suspended.

Because COVID-19 spreads readily through airways in nasal passages and the mouth, our principal customers, dentists and orthodontists, and their patients, were the focus of many preventative efforts that led to complete or substantial closures of their operations.

With a significant portion of our customers' operations limited to only essential dental procedures our sales and sales efforts were materially adversely harmed.

By the end of the third quarter of 2020, dental practices across every region had largely reopened and were seeing patients, although at varying degrees of previous capacities.

In response to COVID-19, we implemented numerous measures to minimize its spread for the health and safety of our employees, customers, patients and the communities in which we live and work as well as in accordance with guidelines, orders and decrees of governmental agencies throughout the world.

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and regional headquarters in Europe, the Americas and Asia, mandating that a large percentage of our global workforce work remotely, prohibiting non-essential travel, and converting our manufacturing facilities to produce personal protective equipment.

The actions we have taken and any further health and safety measures we may be required or choose to implement in response to the pandemic are and may be highly disruptive to our business, and may ultimately prove insufficient to prevent employees or their relatives from getting ill, potentially severely, and potentially impacting our operations.

Even if these measures are completely or partially effective, if employees perceive them to be inadequate, or alternatively, overly burdensome, or they prove difficult to maintain over extended periods of time, productivity may decline or we may experience employee unrest, slowdowns or stoppages or other demands, we may be unable to timely meet customer demand or fulfill existing orders, the costs to deliver our products may increase or we may be required to store products that cannot be delivered to closed orthodontic and dental offices, and we may be subject to increased litigation, including for claims related to product liability and worker safety and working conditions.

Many of these actions remain in effect.

The actions and any further health and safety measures we may be required or choose to implement are and may be highly disruptive to our business, and may ultimately prove insufficiently effective;

harming employees, their relatives, and potentially our operations.

Even if these measures are completely or partially effective, if employees perceive them to be inadequate, or alternatively, overly burdensome, or they prove difficult to maintain over extended periods of time, productivity may decline or we may experience employee unrest, slowdowns or stoppages or other demands, we may be unable to timely meet customer demand or fulfill existing orders, the costs to maintain or implement protective measures or deliver our products may increase, and we may be subject to increased litigation, including product liability and worker safety and working conditions claims.

As the economic impact of the implementation of the various protective and preventative measures continues to unfold, we are continually evaluating macroeconomic as well as industry-specific factors, including how and to what extent our business and financial results are or may be impacted as well as those of our customers and suppliers, and the financial health and stability of businesses and consumers overall depends on numerous evolving factors, many of which we cannot control nor accurately predict.

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• future governmental actions mandated, or business and societal actions taken, in response to the pandemic;

• the speed and time frames in which dental practices reopen and demand for our products increases and our ability to timely and effectively respond;

• the impact on worldwide economic activity and employment rates and actions taken by central banks and governments;

• the speed and time frames in which dental practices reopen, demand for our products increases and our ability to timely and effectively respond to changes in demand;

• the impact on worldwide economic activity, employment rates and actions taken by central banks and governments;

• demand for products and services, particularly those that may be deemed discretionary or that can be delayed or cancelled, particularly in an environment of high unemployment;

• the liquidity and financial stability of consumers, customers, and patients, including their willingness to purchase our products and services at existing, or any, prices and delays paying for products or services, requests for extended payment terms, or payment defaults;

• the ability or willingness of our suppliers or others in our supply chains to timely provide materials and make deliveries on our behalf;

• travel restrictions, including those that adversely impair or prohibit patients from visiting their physicians and our sales personnel from interacting with customers;

• travel restrictions, including those that adversely impair or prohibit patients from visiting their doctors and our sales personnel from interacting with customers;

• diversion of management as they focus on the short- and long-term ramifications of the pandemic;

• actions by our competitors such as price reductions, aggressive product promotions, and mergers and consolidations;

• actions by us or our competitors such as price reductions, aggressive product promotions, changes in or the launch or termination of products or product lines, and mergers, consolidations and liquidations;

• the confidence of our customers and patients that our products and solutions are sanitary and safe to use;

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• data privacy and cybersecurity risks from new or expanded use of remote working and/or teledentistry by our suppliers, customers, and us, including new or expanded use of online service platforms, products and solutions such as video conferencing applications, inadequately secured computing networks or servers, overheard telephone conversations, viewable computer screens, stolen passwords or access information, increased phishing and other online cyber threats.

A sustained downturn may also result in the carrying value of our goodwill or other intangible assets, including those as a result of the exocad acquisition that closed in April 2020, exceeding their fair value, which may require us to recognize an impairment to those assets.

Any economic downturn may also result in the carrying value of our goodwill or other intangible assets, including those as a result of our exocad Global Holdings GmbH (“exocad”) acquisition in April 2020, exceeding their fair value, which may require us to recognize an impairment to those assets.

The effects of the pandemic, including remote working arrangements for employees, may also impact our financial reporting systems and internal control over financial reporting, including our ability to ensure information required to be disclosed in our current, quarterly and annual reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Events are changing rapidly and we cannot at this time predict the impact on our business or results of operations;

Moreover, the pandemic could worsen in countries that are already afflicted, could continue to spread to additional countries, or could return to countries where the pandemic was thought to have been partially contained, each of which could further adversely impact our operations, the businesses of our orthodontist and dentist customers, and economic activity generally.

The impact of the pandemic continues to rapidly evolve and we cannot at this time predict the impact on our business or results of operations;

however, the pandemic or the perception of its effects could continue to have a material adverse effect on our business, financial condition, results of operations, cash flows and stock price in the future as well as the businesses of our orthodontist and dentist customers, and economic activity generally.

Our net revenues are dependent primarily on our Invisalign System and iTero Scanners and any decline in sales or average selling price of these products for any reason, would adversely affect net revenues, gross margin and net income.

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Our iTero scanners are used by dental professionals for restorative and orthodontic procedures as well as Invisalign System case submissions.

Sales of our iTero scanners have grown, becoming a larger percentage of our overall revenues and as a means to further adoption of digital dentistry and the Invisalign System, and we expect the acquisition of exocad Global Holdings GmbH (“exocad”) will complement our iTero scanners to support sales of our Invisalign System.

If orthodontists and GPs experience a reduction in consumer demand for orthodontic services, if consumers prove unwilling to adopt Invisalign System treatment as rapidly or in the volumes we anticipate and at the prices offered, if orthodontists or GPs choose to use wires and brackets or competitive products rather than Invisalign, if sales of our iTero scanners decline or fail to grow sufficiently or as expected, if the acquisition of exocad does not produce the results expected, or if the average selling price of our products decline for any reason, particularly in the case of our Invisalign System as a result of a shift in product mix towards lower priced products or as a result of promotions, or competition, our operating results would be harmed.

Sales of our iTero scanners have grown, becoming a larger percentage of our overall revenues and as a means to further adoption of digital dentistry and the Invisalign System, and we expect the acquisition of exocad will similarly complement sales of our Invisalign System.

If orthodontists and GPs experience a reduction in consumer demand for orthodontic services, if consumers prove unwilling to adopt Invisalign System treatment as rapidly or in the volumes we anticipate and at the prices offered, if orthodontists or GPs choose to use wires and brackets or competitive products rather than Invisalign, if sales of our iTero scanners decline or fail to grow sufficiently or as expected, if the acquisition of exocad does not produce the results expected, or if the average selling price of our products declines for any reason, particularly in the case of our Invisalign System as a result

of a shift in product mix towards lower priced products or as a result of promotions, or competition, our operating results would be harmed.

Competition in the markets for our products is increasing and we expect aggressive competition from existing competitors and other companies that may introduce new technologies in the future.

The dental industry is in a period of immense and rapid transformation involving products, technologies, distribution channels and business models, much of which is based on digital transformation involving information technology, data, artificial intelligence, scanning, 3D printing, software and algorithms.

While our clear aligner and iTero scanners facilitate this transition, there remains significant uncertainty concerning the technologies that will achieve market acceptance and, if adopted, whether and when they may become obsolete as new offerings become available.

Currently, our clear aligner products compete directly against traditional metal brackets and wires and increasingly against clear aligner products manufactured and distributed by new market entrants as well as traditional manufacturers of wires and brackets, both within and outside the U.S., and from traditional medical device companies, laboratories, startups and, in some cases, doctors themselves.

Although the number and type of competitors varies by segment, geography and customer, we encounter a wide variety of competitors, including new and well-established regional competitors in certain foreign markets, as well as larger companies or divisions of larger companies with substantial sales, marketing, research and financial capabilities.

Due in part to the expiration of certain of our key patents beginning in 2017, competition in the clear aligner market has

Competitors include existing larger companies able to leverage existing dental market channels to compete directly with us, direct-to-consumer (“DTC”) companies that provide clear aligners using a remote teledentistry model requiring little or no in-office care from trained and licensed physicians, and doctors themselves who can manufacture custom aligners in their offices using modern 3D printing technology.

In addition, corresponding foreign patents began expiring in 2018 which has resulted in increased international competition.

While our clear aligner and iTero scanners facilitate this transition, whether our technologies will achieve market acceptance and, if adopted, whether and when they may become obsolete as new offerings become available remains unclear.

Currently, our clear aligners compete directly against traditional metal brackets and wires and increasingly against clear aligners manufactured and distributed by new market entrants and traditional manufacturers of wires and brackets, both within and outside the U.S., and from traditional medical device companies, laboratories, startups and, in some cases, doctors themselves.

Due in part to the expiration of certain of our key patents beginning domestically in 2017 and internationally thereafter, competition in the clear aligner market continues to increase.

Although the number and types of competitors varies by segment, geography and customers, our competitors are diverse, including new and well-established regional competitors, as well as larger companies or divisions of larger companies with substantial sales, marketing, research and financial capabilities, including the ability to leverage existing dental market channels to compete directly with us.

Our competitors also include direct-to-consumer (“DTC”) companies that provide clear aligners using a remote teledentistry model requiring little or no in-office care from trained and licensed doctors and doctors themselves who can manufacture custom aligners in their offices using modern 3D printing technology.

Large consumer product companies may also enter the orthodontic supply market.

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however, with the advent of DTC providers accompanied by significant advertising campaigns, there has been a shift away from traditional practices that may impact our primary selling channels.

We also believe doctors are sampling alternative products and/or taking advantage of wires and brackets bundles that essentially give clear aligners away for free or at reduced prices.

In addition, we may also face competition in the future from new companies that introduce new technologies.

We may be unable to compete with these competitors or one or more of these competitors may render our technology obsolete or economically unattractive.

We also believe doctors are sampling alternative products and/or taking advantage of competitive promotions and sale opportunities.

In addition, we may face competition from companies that introduce new technologies and we may be unable to compete with these competitors or one or more of these competitors may render our technology obsolete or economically unattractive.

If we are unable to compete effectively with existing products or respond effectively to any new technologies, our business could be harmed.

Increased competition has resulted in the past and may in the future result in volume discounting and price reductions, reduced gross margins and profitability, loss of market share, and result in the reduction of dental professionals’ efforts and commitment to use our products, any of which could materially adversely affect our net revenues, volume growth, net income and stock price.

Increased competition has resulted in the past and may in the future result in volume discounting and price reductions, reduced gross margins, profitability and average selling prices, loss of market share, and result in the reduction of dental professionals’ efforts and commitment to use our products, any of which could materially adversely affect our net revenues, volume growth, net income and stock price.

We cannot assure that we will be able to compete successfully against our current or future competitors or that competitive pressures will not have a material adverse effect on our business, results of operations and financial condition.

We are dependent on our international operations, which exposes us to foreign operational, political and other risks that may harm our business.

Our key production steps are performed in operations located outside of the U.S.

Technicians use a sophisticated, internally developed computer-modeling program to prepare digital clinical treatment plans (“ClinCheck”), which are then transmitted electronically to our aligner fabrication facilities.

These digital files form the basis of the ClinCheck treatment plan and are used to manufacture aligner molds and aligners.

Our digital treatment planning and aligner fabrication are performed in multiple international locations and we are continuing to establish these functions closer to our international customers to improve doctor and patient experiences and our operational efficiency.

Also, in addition to research and development efforts conducted in the U.S., Russia, Israel and now Germany with the acquisition of exocad, we have operations in Israel and China where we assemble wands and manufacture our intraoral scanner.

An increasingly larger portion of our total revenues are derived from international sales and we are dependent on our international operations, which exposes us to foreign operational, political and other risks that may harm our business.

We earn an increasingly larger portion of our total revenues from international sales generated through our foreign direct and indirect operations.

Since our growth strategy depends in part on our ability to penetrate international markets and increase the localization of our products and services, we expect to continue to increase our sales and presence outside the U.S., particularly in markets we believe to have high-growth potential.

Moreover, many of our key production steps are performed in operations located outside of the U.S.

For instance, technicians use a sophisticated, internally developed computer-modeling program to prepare digital clinical treatment plans (“ClinCheck”), which are then transmitted electronically to our aligner fabrication facilities.

These digital files form the basis of the ClinCheck treatment plan and are used to manufacture our aligners.

Our digital treatment planning and aligner fabrication are performed in multiple international locations, including Mexico, Costa Rica and China and we are continuing to establish these functions closer to our international customers to improve doctor and patient experiences and our operational efficiency.

Also, we maintain significant research and development efforts globally, including in the U.S., Russia, Israel, and Germany.

Our reliance on international operations exposes us to risks and uncertainties that may affect our business or results of operation, including:

• difficulties in hiring and retaining employees generally, as well as difficulties in hiring and retaining employees with the necessary skills to perform the more technical aspects of our operations;

• difficulties managing international operations, including any travel restrictions on us or our customers such as those recently imposed domestically and globally in response to the COVID-19 pandemic;

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• controlling production volume and quality of the manufacturing process;

• difficulties hiring and retaining employees, particularly those with the necessary skills to perform the more technical aspects of our operations;

• the engagement in activities by our employees, contractors, partners and agents, especially in countries with developing economies, that are prohibited by international and local trade and labor laws and other laws prohibiting corrupt payments to government officials, including the U.S.

Foreign Corrupt Practices Act, the U.K.

Bribery Act of 2010 and export control laws, in spite of our policies and procedures designed to ensure compliance with these laws;

• increased expense of developing, testing and making localized versions of our products;

• political, military, social, economic, or business instability, acts of terrorism and acts of war, including increased levels of violence in Juarez, Mexico, Hong Kong or the Middle East.

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and China and the possibility of additional tariffs, or other trade restrictions between the U.S.

and Mexico or other countries;

• interruptions and limitations in telecommunication services;

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• unexpected issues and expenses related to our corporate structure reorganization;

• reduced intellectual property rights protections as compared to the U.S.;

• reduced intellectual property rights protections as compared to the protections afforded under the laws of the U.S.;

• longer payment cycles and greater difficulty in accounts receivable collection;

• potential adverse tax consequences.

The United Kingdom’s (“U.K.”) withdrawal from the European Union ("EU") on January 31, 2020, commonly known as “Brexit,” has exacerbated and may further exacerbate many of the risks and uncertainties described above.

The United Kingdom’s (“U.K.”) withdrawal from the European Union ("EU") on January 31, 2020, commonly known as “Brexit,” and the potential real or perceived lack of a trade agreement between the U.K.

and the EU by the end of 2020 has exacerbated and may further exacerbate many of the risks and uncertainties described above.

The withdrawal of the U.K.

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Further, uncertainty around these and related issues could lead to adverse effects on the economy of the U.K., EU and the other economies in which we operate.

As the withdrawal continues to unfold, the actual implications of Brexit in their entirety are unlikely to be known for years.

If any of the risks outlined above materialize in the future, we could experience production delays and lost or delayed revenues.

We earn an increasingly larger portion of our total revenues from international sales and face risks attendant to those operations.

We earn an increasingly larger portion of our total revenues from international sales generated through our foreign direct and indirect operations.

Our international operations are subject to risks that are customarily encountered in non-U.S.

operations, including:

• local political and economic instability;

Foreign Corrupt Practices Act, the U.K.

Bribery Act of 2010 and export control laws, in spite of our policies and procedures designed to ensure compliance with these laws;

• fluctuations in currency exchange rates;

• increased expense of developing, testing and making localized versions of our products;

• health pandemics such as COVID-19 and natural disasters including weather and fires such as those common in California and recently in Australia.

Any of these factors, either individually or in combination, could materially impact our international operations and adversely affect our business as a whole.

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A decrease in U.S.

or certain international economies or an uncertain economic outlook, both of which are occurring as a result of the COVID-19 pandemic, would adversely affect consumer spending habits which may, among other things, result in a decrease in the number of overall orthodontic case starts, reduced patient traffic in dentists’ offices, reduction in consumer spending on elective, non-urgent, or higher value procedures or a reduction in the demand for dental services generally, each of which would materially adversely affect our sales and operating results.

or certain international economies or an uncertain economic outlook, both of which have or are occurring as a result of the COVID-19 pandemic, would adversely affect consumer spending habits which may, among other things, result in a decrease in the number of overall orthodontic case starts, reduced patient traffic in dentists’ offices, reduction in consumer spending on elective, non-urgent, or higher value procedures or a reduction in the demand for dental services generally, any of which would materially adversely affect our sales and operating results.

Weakness in the global economy results in a challenging environment for selling dental technologies and dentists may postpone investments in capital equipment, such as intraoral scanners and CAD/CAM software.

In addition, Invisalign treatment, which currently accounts for the vast majority of our net revenues, represents a significant change from traditional orthodontic treatment involving metal brackets and wires, and customers and consumers may not find it cost-effective or preferable to traditional treatment.

We have generally received positive feedback from orthodontists, GPs and consumers regarding Invisalign treatment as both an alternative to braces and as a clinical method for the treatment of malocclusion, but a number of dental professionals believe the Invisalign treatment is appropriate for only a limited percentage of patients.

Increased market acceptance of all of our products will depend in part

upon the recommendations of dental professionals, as well as other factors including effectiveness, safety, ease of use, reliability, aesthetics, and price compared to competing products and treatment methods.

In addition, Invisalign treatment, which accounts for the vast majority of our net revenues, represents a significant change from traditional metal brackets and wires orthodontic treatment, and customers and consumers may not find it cost-effective or preferable to traditional treatment.

For instance, a number of dental professionals continue to believe the Invisalign treatment is appropriate for only a limited percentage of patients.

Increased market acceptance of our products depends in part upon the recommendations of dental professionals, as well as other factors including effectiveness, safety, ease of use, reliability, aesthetics, and price compared to competing products and treatment methods.

Our success may depend on our ability to develop, successfully introduce and achieve market acceptance of new products or product offerings.

Our success depends on our ability to profitably develop, manufacture, market and obtain regulatory approval or clearance of new products and improvements to existing products.

Our success depends on our ability to profitably and quickly develop, manufacture, market and obtain regulatory approval or clearance of new products and improvements to existing products.

There is no assurance we can successfully develop, sell and achieve market acceptance of new or improved products and services.

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If we fail to accurately predict customer needs and preferences or fail to produce viable technologies, we may invest heavily in research and development of products that do not lead to significant revenues.

Even if we successfully innovate and develop new products and product enhancements, we may incur substantial costs in doing so and our profitability may suffer.

In addition, even if our new products are successfully introduced, it may be difficult to gain market share and acceptance, particularly if doctors require education to understand the benefits of the new products or measure their success only after extended periods of time required to treat patients.

Even if we successfully innovate and develop new products and product enhancements, we may incur substantial costs doing so and our profitability may suffer.

Even if our new products are successfully introduced, it may be difficult to gain market share and acceptance, particularly if doctors require education to understand the benefits of the new products or measure their success only after extended periods of time required to treat patients.

For instance, it can take up to 24 months or longer to treat patients using our Invisalign System.

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We provide volume-based discount programs to our customers.

In addition, we sell a number of products at different list prices which also differ based on region or country.

In addition, we sell a number of products at different list prices which may differ based on region or country.

If we change volume-based discount programs that affect our average selling prices;

if we introduce price reductions or consumer rebate programs;

if we expand discount programs or participation in these programs increases;

if we implement new or expand existing discount programs or participation in these programs increases;

if our critical accounting estimates materially differ from actual behavior or results;

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extending our Invisalign and iTero solutions while broadening our reach in digital dentistry to exocad’s existing and future customer base.

However, for a variety of reasons, many of which are outside our control or ability to predict, there can be no guarantee that the acquisition will achieve the desired benefits and synergies or will result in additional sales of either Invisalign or iTero solutions or that the exocad software will continue to succeed in the marketplace.

However, for a variety of reasons, many of which are outside our control or ability to predict, there can be no guarantee that the acquisition will achieve the desired benefits and synergies or will result in additional sales of either Invisalign or iTero solutions or that the exocad CAD/CAM software will continue to succeed in the marketplace.

In addition, successful post-acquisition integrations are difficult to accomplish under normal circumstances for companies with a history of acquisitions.

As an organization, we do not have a history of significant acquisitions and attempting to integrate exocad in the midst of the COVID-19 pandemic poses challenges.

As an organization, we do not have a history of significant acquisitions and attempting to

integrate exocad in the midst of the COVID-19 pandemic poses challenges.

As such, we may experience difficulties achieving the expected financial, technical or strategic benefits of the acquisition.

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• difficulties integrating the business of exocad in the timeframes expected or as anticipated and without adversely impacting our existing operations or the operations of exocad;

• technological difficulties uniting our product and service offerings to produce solutions that efficiently and effectively integrate with the workflows between physicians, laboratories and other market participants;

• slower adoption or lack of acceptance of CAD/CAM software in general alone or in combination with other rapidly evolving and groundbreaking advances that are fundamentally changing the dental industry and the way new and existing participants market and provide products and services to consumers;

• technological difficulties uniting our product and service offerings to produce solutions that efficiently and effectively integrate with the workflows between doctors, laboratories and other market participants;

• slower adoption or lack of acceptance of CAD/CAM software in general alone or in combination with other rapidly evolving technological advances that are fundamentally changing the dental industry and the way new and existing participants market and provide products and services to consumers;

• diversion of management resources;

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We are subject to growth related risks, including excess or constrained capacity and pressure on our internal systems and personnel.

In order to manage current operations and future growth effectively, we will need to continue to implement and improve our operational, financial and management information systems and to hire, train, motivate, manage and retain employees.

We may be unable to manage such growth effectively.

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We continue to establish additional order acquisition, treatment planning and manufacturing facilities closer to our international customers in order to provide doctors with a better experience, improve their confidence in using Invisalign to treat patients more often and provide redundancy should other facilities be temporarily or permanently unavailable.

Our ability to plan, construct and equip additional order acquisition, treatment planning and manufacturing facilities is subject to significant risk and uncertainty, including risks inherent in the establishment of a facility, such as hiring and retaining employees and delays and cost overruns as a result of a number of factors, any of which may be out of our control and may negatively impact our gross margin.

Our ability to plan, construct and equip additional order acquisition, treatment planning and manufacturing facilities is subject to significant risk and uncertainty, including risks establishing facilities, such as hiring and retaining employees and delays and cost overruns as a result of a number of factors, any of which may be out of our control and may negatively impact our gross margin.

In addition, these facilities may be located in higher cost regions compared to Mexico and Costa Rica, which may negatively impact our gross margin.

If the transition into additional facilities is significantly delayed or demand for our products exceeds our current expectations, we may be unable to fulfill orders timely, which may negatively impact our financial results, reputation and overall business.

In addition, because we cannot immediately adapt our production capacity and related cost structures to changing market conditions, our facility capacity may at times exceed or fall short of our production requirements.

In addition, because adapting production capacity and related cost structures to changing market conditions takes time, our facility capacity may at times exceed or fall short of our production requirements.

For instance, as a result of the COVID-19 pandemic sales in the final weeks of the first quarter of 2020 declined substantially and operations at our manufacturing facilities declined shortly thereafter.

If product demand decreases, remains lower or we fail to forecast demand accurately or if we are required to implement additional protective measures to safeguard employees in manufacturing facilities and offices, we could be required to write off inventory or record excess capacity charges, productivity could decline, or we may be required to purchase or lease additional or larger facilities and additional equipment, any of which may take time to accomplish and may lower our gross margin.

Thereafter, as dental practices reopened we experienced a rapid increase in demand, all or a portion of which may have been related to pent-up demand, an increase in utilization, or other factors which may or may not be sustainable.

If product demand decreases or increases more than expected, we fail to forecast demand accurately or if we are required to implement additional protective measures to safeguard our employees, we could be required to write off inventory or record excess capacity charges, productivity could decline, we may be required to purchase or lease additional or larger facilities and additional equipment, or we may be unable to fulfill customer demand in the time frames and with the quantities they require, any of which may take time to accomplish, lower our gross margin, inhibit sales or harm our reputation.

Production of our intraoral scanners may also be limited by capacity constraints due to a variety of factors, including our dependency on third party vendors for key components in addition to limited production yields.

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• changes in geographic, channel, or product mix;

• weakness in consumer spending and confidence as a result of high unemployment or a slowdown in the global, U.S.

• weakness in consumer spending and confidence or a slowdown in the global, U.S.

or other economies;

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• changes in relationships with our dental support organizations and distributors, including timing of orders;

• changes in the timing of when revenues are recognized, including as a result of the timing of receipt of product orders and shipments, the introduction of new products and software releases, product offerings or promotions, modifications to our terms and conditions such as payment terms, or as a result of new accounting pronouncements or changes to critical accounting estimates including, without limitation, those estimates based on such matters as our predicted usage of additional aligners;

• changes in the timing of revenues recognition, including as a result of the timing of receipt of product orders and shipments, the introduction of new products and software releases, product offerings or promotions, modifications to our terms and conditions such as payment terms, or as a result of new accounting pronouncements or changes to critical accounting estimates including, without limitation, those estimates based on such matters as our predicted usage of additional aligners;

• the creditworthiness, liquidity and solvency of our customers and their ability to timely make payments when due;

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• changes to our effective tax rate;

• unanticipated delays and disruptions in the manufacturing process caused by insufficient capacity or availability of raw materials, turnover in the labor force or the introduction of new production processes, power outages or natural or other disasters, pandemics or general economic conditions impacting the solvency of vendors in our supply chain beyond our control;

• underutilization of manufacturing and treat facilities;

• major changes in available technology or the preferences of customers may cause our current product offerings to become less competitive or obsolete;

• costs and expenditures in connection with litigation;

• costs and expenditures in connection with the establishment of treatment planning and fabrication facilities in international locations;

• costs and expenditures in connection with the hiring and deployment of direct sales force personnel;

• costs and expenditures in connection with such things as the establishment of treatment planning and fabrication facilities, the hiring and deployment of personnel, and litigation;

• unanticipated delays in our receipt of patient records made through intraoral scanners for any reason;

• disruptions to our business due to political, economic or other social instability or any governmental regulatory or similar actions, including the impact of epidemics and pandemics such as COVID-19, any of which results in changes in consumer spending habits, limiting or restricting customer visits to orthodontists or general practitioners, as well as any impact on workforce absenteeism;

• disruptions to our business due to political, economic or other social instability or any governmental regulatory or similar actions, including the impact of epidemics and pandemics such as COVID-19, any of which results in changes in consumer spending habits, limiting or restricting patient visits to orthodontists or general practitioners, as well as any impact on workforce absenteeism;

• inaccurate forecasting of net revenues, production and other operating costs;

• investments in research and development to develop new products and enhancements;

• material impairments in the value of our privately held companies;

• material impairments of goodwill, long-lived assets, or notes receivable;

• timing of industry tradeshows.

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Treatment planning is a key step leading to our manufacturing process which relies on sophisticated computer software.

This requires new technicians to undergo a relatively long training process, often up to 120 days or longer.

This requires new technicians to undergo a relatively long training process, often 120 days or longer.

As a result, if we are unable to accurately predict our volume growth, we may have an insufficient number of trained technicians to deliver our products within the time frame our customers expect.

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If we fail to meet our customer and patients’ expectations regarding the security of their information, we could be liable for damages and our reputation and competitive position could be impaired.

Affected parties could initiate legal or

regulatory action against us, which could cause us to incur significant expense and liability or result in orders forcing us to modify our business practices.

Affected parties could initiate legal or regulatory action against us, which could cause us to incur significant expense and liability or result in orders forcing us to

modify our business practices.

Concerns over our privacy practices could adversely affect others’ perception of us and deter customers, advertisers and partners from using our products.

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Our inability to maintain the proprietary nature of our technology through patents, copyrights or trade secrets would impair our competitive advantages and could have a material adverse effect on our operating results, financial condition and future growth prospects.

In particular, a failure to protect our proprietary rights might allow competitors to copy

our technology, which could adversely affect our pricing and market share.

In addition, in an effort to protect our IP we are currently, have in the past been, and may in the future be involved in litigation.

In particular, a failure to protect our proprietary rights might allow competitors to copy our technology, which could adversely affect our pricing and market share.

In addition, in an effort to protect our IP we are

currently, have in the past been, and may in the future be involved in litigation.

The potential effects on our business operations resulting from litigation, whether or not ultimately determined in our favor or settled by us, are costly and divert the efforts and attention of our management and technical personnel from normal business operations.

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• product sales and distribution.

It takes significant time, effort and expense to obtain and maintain FDA approvals of our products and services.

It takes significant time, effort and expense to obtain and maintain FDA clearances or approvals of products and services.

In other countries, the requirements to obtain and maintain similar approvals may differ materially from those of the FDA.

Moreover, there is no guarantee we will successfully obtain or maintain approvals in all or any of the countries in which we do business now or in the future.

Even if we are successful, the time and effort may take significantly longer, and costs may be significantly greater.

Even if successful, the time and effort required may be significant and costly.

The impact of COVID-19 on normal governmental operations may delay our efforts to obtain and maintain approvals, possibly significantly.

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The sourcing and availability of metals that may be used in the manufacture of, or contained in, our products may be affected by laws and regulations in the U.S.

or internationally regarding the use of minerals obtained from certain regions of the world like the Democratic Republic of Congo and adjoining countries.

or internationally regarding the use of minerals obtained from certain regions of the

world like the Democratic Republic of Congo and adjoining countries.

These laws and regulations may decrease the number of suppliers capable of supplying our needs for certain metals, thereby negatively affecting our ability to manufacture products in sufficient quantities or at competitive prices.

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Regardless, compliance with these laws and regulations will require time and effort by our personnel and others and we will incur additional costs.

We are required to annually assess our internal control over financial reporting and any adverse results from such assessment may result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

We have implemented and routinely assess, update and refine our internal control over financial reporting for its effectiveness.

Pursuant to the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated by the SEC, we are required to furnish in our Form 10-K a report by our management regarding the effectiveness of our internal control over financial reporting.

The report includes, among other things, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective.

This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management.

Our internal controls may become inadequate because of changes in conditions including changes in personnel, updates and upgrades to existing software including our ERP software system, changes in accounting standards or interpretations of existing standards, and, as a result, the degree of compliance of our internal control over financial reporting with the existing policies or procedures may become ineffective.

Establishing, testing and maintaining an effective system of internal control over financial reporting requires significant resources and time commitments on the part of our management and our finance staff, may require additional staffing and infrastructure investments and increases our costs of doing business.

If we are unable to assert that our internal control over financial reporting is effective in any future period (or if our auditors are unable to express an opinion on the effectiveness of our internal controls or conclude that our internal controls are ineffective), the timely filing of our financial reports could be delayed or we could be required to restate past reports, and cause us to lose investor confidence in the accuracy and completeness of our financial reports in the future, which could have an adverse effect on our stock price.

If we lose our key personnel or are unable to attract and retain key personnel, we may be unable to pursue business opportunities or develop our products.

We are highly dependent on the key employees in our clinical engineering, technology development, sales, training and marketing personnel and management teams.

The loss of the services provided by those individuals may significantly delay or prevent the achievement of our product development and other business objectives and could harm our business.

Our future success will also depend on our ability to identify, recruit, train and retain additional qualified personnel, including orthodontists and production technicians in our treatment planning facilities.

Few orthodontists are accustomed to working in a manufacturing environment since they are generally trained to work in private practices, universities and other research institutions.

Thus, we may be unable to attract and retain personnel with the advanced qualifications necessary for the further development of our business.

Furthermore, we may not be successful in retaining our key personnel or their services.

If we are unable to attract and retain key personnel, our business could be materially harmed.

If we infringe the patents or IP rights of other parties or are subject to a patent infringement claim, our ability to grow our business may be severely limited.

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We are also committed to purchasing the vast majority of our resin and polymer, the primary raw materials used in our manufacturing process for clear aligners, from a single source.

If these or other suppliers encounter financial, operating or other difficulties or if our relationship with them changes, we may be unable to quickly establish or qualify replacement sources of supply and could face production interruptions, delays and inefficiencies.

Moreover, we rely on a third-party manufacturer to supply key sub-assemblies for our iTero Element scanner.

If these or other suppliers encounter financial, operating or other difficulties, are unable to hire or maintain personnel, cannot timely obtain supplies, are unable to maintain manufacturing standards or controls, fail to timely deliver materials, parts or components, if our relationship or the terms by which we contract with any of them changes, we may be unable to quickly establish or qualify replacement sources of supply and could face production interruptions, delays and inefficiencies.

Finding substitute manufacturers may be expensive, time-consuming or impossible and could result in a significant interruption in the supply of one or more products, including our intraoral scanners, causing us to lose revenues and suffer damage to our customer relationships.

In addition, technology changes by our vendors could disrupt access to required manufacturing capacity or require expensive, time consuming development efforts to adapt and integrate new equipment or processes.

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In the event of technology changes, delivery delays, or shortages of or increases in price for these items, our business and growth prospects may be harmed.

We depend on a single contract manufacturer and supplier of parts used in our iTero scanner and any disruption in this relationship may cause us to fail to meet the demands of our customers and damage our customer relationships.

We rely on a third-party manufacturer to supply key sub-assemblies for our iTero Element scanner.

If this manufacturer fails to deliver its components, if we lose its services or if we fail to negotiate or maintain acceptable terms, we may be unable to timely deliver our products and our business may be harmed.

Furthermore, any difficulties encountered by this manufacturer with respect to obtaining supplies, hiring personnel and maintaining acceptable manufacturing standards, controls, procedures and policies could disrupt our ability to timely deliver our products.

Finding a substitute manufacturer may be expensive, time-consuming or impossible and could result in a significant interruption in the supply of our intraoral scanning products.

Any failure by our contract manufacturer that results in delays in our fulfillment of customer orders may cause us to lose revenues and suffer damage to our customer relationships.

We primarily rely on our direct sales force to sell our products, and any failure to train and maintain our key sales force personnel could harm our business.

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The healthcare market itself is highly regulated and subject to changing political, economic and regulatory influences.

Regulations implemented pursuant to the Health Insurance Portability and Accountability Act (“HIPAA”), including regulations affecting the security and privacy of patient healthcare information held by healthcare providers and their business associates may require us to make significant and unplanned enhancements of software applications or services, result in delays or cancellations of orders, or result in the revocation of endorsement of our

products and services by healthcare participants.

The effect of HIPAA and newly enforced regulations on our business is difficult to predict, and there can be no assurance that we will adequately address the business risks created by HIPAA and its implementation or that we will be able to take advantage of any resulting business opportunities.

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These costs would have the effect of increasing our expenses and diverting management’s attention away from the operation of our business and could harm our business.

We may experience unexpected issues and expenses associated with our corporate structure reorganization, including the relocation of our EMEA regional headquarters to Switzerland.

We reorganized our corporate structure and intercompany relationships in January 2020 in an effort to more closely align our international business activities and achieve financial and operational efficiencies.

This reorganization plan included the move of our EMEA regional headquarters from the Netherlands to Switzerland which has been time-consuming and costly, may be disruptive to our business, and may not be more efficient or effective in the future.

This relocation is accompanied by a number of risks and uncertainties that may affect our results of operations and statement of cash flows, including:

• failure to retain key employees who possess specific knowledge or expertise and upon whom we are depending upon for the timely and successful transition;

• difficulties in hiring employees in Switzerland with the necessary skills and expertise;

• increased costs due to transition of the operations to Switzerland along with higher costs of doing business in Switzerland.

If any of these risks materialize in the future, our operating results, statement of operations and cash flows may be adversely affected.

We are subject to risks associated with our strategic investments.

Impairments in the value of our investments and unsecured promissory note could negatively impact our financial results.

We have invested in privately held companies for strategic reasons and to support key business initiatives, and we may not realize a return on our strategic investments.

Many of these companies generate net losses and the market for their products, services or technologies may be slow to develop.

Furthermore, valuations of privately held companies are inherently complex due to the lack of readily available market data.

If we determine that our investments have experienced a decline in value or we believe such things like our unsecured promissory note with SmileDirectClub has become uncollectible as a result of events and circumstances such as weakness in the global and domestic economies, we may be required to record impairments which could be material and could have an adverse impact on our financial results.

General Risk Factors

If we lose our key personnel or are unable to attract and retain key personnel, we may be unable to pursue business opportunities or develop our products.

We are highly dependent on the key employees in our clinical engineering, technology development, sales, training and marketing personnel and management teams.

The loss of the services provided by those individuals may significantly delay or prevent the achievement of our product development and other business objectives and could harm our business.

Our future success also depends on our ability to identify, recruit, train and retain additional qualified personnel, including orthodontists and production technicians in our treatment planning facilities.

Few orthodontists are accustomed to working in a manufacturing environment since they are generally trained to work in private practices, universities and other research institutions.

Thus, we may be unable to attract and retain personnel with the advanced qualifications necessary for the further development of our business.

Furthermore, we may not be successful in retaining our key personnel or their services.

If we are unable to attract and retain key personnel, our business could be materially harmed.

Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

Our global operations may be disrupted by natural or human induced disasters including, earthquakes, tsunamis, floods, drought, hurricanes, typhoons, wildfires, extreme weather conditions, power shortages, telecommunications failures, materials scarcity and price volatility, and medical epidemics or health pandemics.

For instance, the COVID-19 pandemic has materially harmed our sales and business operations, the operations of our customers and the global economy overall.

For instance, the COVID-19 pandemic and subsequent recovery has materially impacted our sales and business operations, the operations of our customers and the global economy overall.

Climate change may increase both the frequency and severity of natural disasters and, consequently, risks to our operations and growth.

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A change in these policies or in the way these policies are interpreted by us or regulators can have a significant effect on our reported results and may even retroactively affect previously reported transactions.

We have implemented and routinely assess, update and refine our internal control over financial reporting for its effectiveness.

This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management.

If we fail to manage our exposure to global financial and securities market risk successfully, our operating results and financial statements could be materially impacted.

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Consequently, we may be required to record a significant charge to earnings in the financial statements during the period in which any impairment of goodwill or asset group are determined.

We may experience unexpected issues and expenses associated with our corporate structure reorganization, including the relocation of our EMEA regional headquarters to Switzerland.

We reorganized our corporate structure and intercompany relationships in January 2020 in an effort to more closely align our international business activities and to achieve financial and operational efficiencies.

The implementation of this reorganization plan included the move of our EMEA regional headquarters from the Netherlands to Switzerland which has been time-consuming and costly, may be disruptive to our business, and may not be more efficient or effective in the future.

This relocation is accompanied by a number of risks and uncertainties that may affect our results of operations and statement of cash flows, including:

• failure to retain key employees who possess specific knowledge or expertise and upon whom we are depending upon for the timely and successful transition;

• difficulties in hiring employees in Switzerland with the necessary skills and expertise;

• increased costs due to transition of the operations to Switzerland along with higher costs of doing business in Switzerland.

If any of these risks materialize in the future, our operating results, statement of operations and cash flows may be adversely affected.

Our effective tax rate may vary significantly from period to period.

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Our effective tax rate is also dependent in part on forecasts of full year results and could vary materially with the impact of the COVID-19 outbreak to the global economic environment.

Furthermore, we may continue to experience significant variation in our effective tax rate related to excess tax benefits on stock-based compensation, particularly in the first quarter of each year when the majority of our equity awards vest.

Furthermore, we may continue to experience significant variation in

our effective tax rate related to excess tax benefits on stock-based compensation, particularly in the first quarter of each year when the majority of our equity awards vest.

Changes in tax laws or tax rulings could negatively impact our income tax provision and net income.

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The OECD has issued and is expected to continue to issue, guidelines and proposals that may change various aspects of the existing framework under which our tax obligations are determined in many of the countries in which we do business.

We are subject to risks associated with our strategic investments.

Impairments in the value of our investments and unsecured promissory note could negatively impact our financial results.

We have invested in privately held companies for strategic reasons and to support key business initiatives, and we may not realize a return on our strategic investments.

Many of such companies generate net losses and the market for their products, services or technologies may be slow to develop.

Further, valuations of privately held companies are inherently complex due to the lack of readily available market data.

If we determine that our investments have experienced a decline in value or our unsecured promissory note with SmileDirectClub is determined to be uncollectible, which may be more likely as a result of the COVID-19 pandemic, particularly if its impact to global and domestic economies is sustained and widespread or any recovery is slow, we may be required to record impairments which could be material and could have an adverse impact on our financial results.

We may acquire other businesses, products or technologies in the future which could require significant management attention, disrupt our business, dilute shareholder value and adversely affect our results of operations.

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Acquisitions can also lead to large non-cash charges that can have an adverse effect on our results of operations as a result of write-offs for items such as future impairments of intangible assets and goodwill or the recording of stock-based compensation.

Risks Related to our Common Stock

Historically, the market price for our common stock has been volatile.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors