What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-04 compared with 2021-05-05 · 203 added, 122 removed, 480 unchanged (40% of the section changed)

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Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Net revenues $ 1,010,808 $ 352,314 $ 1,905,579 $ 903,277

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Total operating expenses 489,636 297,328 941,288 621,766

Income from operations 225,446 69,918

Income (loss) from operations 268,902 ( 73,000 ) 494,348 ( 3,082 )

Interest income and other income (expense), net:

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Total interest income and other income (expense), net ( 100 ) ( 493 ) 36,075 ( 17,056 )

Net income before provision for (benefit from) income taxes 261,621 53,355

Net income (loss) before provision for (benefit from) income taxes 268,802 ( 73,493 ) 530,423 ( 20,138 )

Provision for (benefit from) income taxes 69,088 ( 32,891 ) 130,333 ( 1,497,667 )

Net income $ 200,376 $ 1,518,131

Net income per share:

Net income (loss) $ 199,714 $ ( 40,602 ) $ 400,090 $ 1,477,529

Net income (loss) per share:

$ 2.53 $ ( 0.52 ) $ 5.06 $ 18.78

$ 2.51 $ ( 0.52 ) $ 5.02 $ 18.70

Shares used in computing net income per share:

Shares used in computing net income (loss) per share:

79,008 78,769 79,004 78,681

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Three Months Ended

Net income $ 200,376 $ 1,518,131

June 30, Six Months Ended

2021 2020 2021 2020

Net income (loss) $ 199,714 $ ( 40,602 ) $ 400,090 $ 1,477,529

Change in foreign currency translation adjustment, net of tax 586 9,294 ( 13,865 ) 9,983

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586 9,294 ( 13,885 ) 9,789

Comprehensive income $ 185,905 $ 1,518,626

Comprehensive income (loss) $ 200,300 $ ( 31,308 ) $ 386,205 $ 1,487,318

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss), Net Retained Earnings Total

Three Months Ended March 31, 2021 Shares Amount

Three Months Ended June 30, 2021 Shares Amount

Balance as of March 31, 2021 79,136 $ 8 $ 948,362 $ 29,030 $ 2,416,176 $ 3,393,576

Net income — — — — 199,714 199,714

Net change in foreign currency translation adjustment — — — 586 — 586

Issuance of common stock relating to employee equity compensation plans 89 — — — — —

Tax withholdings related to net share settlements of equity awards — — ( 38,321 ) — — ( 38,321 )

Common stock repurchased and retired ( 277 ) — ( 3,065 ) — ( 156,935 ) ( 160,000 )

Equity forward contract related to accelerated stock repurchase — — ( 40,000 ) — — ( 40,000 )

Stock-based compensation — — 28,855 — — 28,855

Balance as of June 30, 2021 78,948 $ 8 $ 895,831 $ 29,616 $ 2,458,955 $ 3,384,410

Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss), Net Retained Earnings Total

Six Months Ended June 30, 2021 Shares Amount

Balance as of December 31, 2020 78,860 $ 8 $ 974,556 $ 43,501 $ 2,215,800 $ 3,233,865

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Tax withholdings related to net share settlements of equity awards — — ( 104,889 ) — — ( 104,889 )

Common stock repurchased and retired ( 277 ) — ( 3,065 ) — ( 156,935 ) ( 160,000 )

Equity forward contract related to accelerated stock repurchase — — ( 40,000 ) — — ( 40,000 )

Stock-based compensation — — 56,096 — — 56,096

Balance as of June 30, 2021 78,948 $ 8 $ 895,831 $ 29,616 $ 2,458,955 $ 3,384,410

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ALIGN TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(in thousands)

Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss), Net Retained Earnings Total

Three Months Ended June 30, 2020 Shares Amount

Balance as of March 31, 2020 78,759 $ 8 $ 895,131 $ ( 193 ) $ 1,958,043 $ 2,852,989

Net loss — — — — ( 40,602 ) ( 40,602 )

Net change in foreign currency translation adjustment — — — 9,294 — 9,294

Issuance of common stock relating to employee equity compensation plans 22 — — — — —

Tax withholdings related to net share settlements of equity awards — — ( 1,643 ) — — ( 1,643 )

Stock-based compensation — — 25,007 — — 25,007

Balance as of June 30, 2020 78,781 $ 8 $ 918,495 $ 9,101 $ 1,917,441 $ 2,845,045

Common Stock Additional

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Retained Earnings Total

Three Months Ended March 31, 2020 Shares Amount

Six Months Ended June 30, 2020 Shares Amount

Balance as of December 31, 2019 78,433 $ 8 $ 906,937 $ ( 688 ) $ 439,912 $ 1,346,169

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Stock-based compensation — — 47,934 — — 47,934

Balance as of March 31, 2020 78,759 $ 8 $ 895,131 $ ( 193 ) $ 1,958,043 $ 2,852,989

Balance as of June 30, 2020 78,781 $ 8 $ 918,495 $ 9,101 $ 1,917,441 $ 2,845,045

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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(in thousands)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

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Arbitration award gain ( 43,403 ) —

Impairment on equity investment — 2,900

Impairments on equity investments — 3,787

Other non-cash operating activities 12,345 11,542

Changes in assets and liabilities:

Changes in assets and liabilities, net of effects of acquisition:

Accounts receivable ( 164,822 ) 64,645

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CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition, net of cash acquired — ( 420,788 )

Purchase of property, plant and equipment ( 167,668 ) ( 80,502 )

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Other investing activities ( 4,249 ) 1,760

Net cash provided by investing activities 4,566 276,211

Net cash used in investing activities ( 123,920 ) ( 172,326 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock 13,133 10,662

Common stock repurchases ( 160,000 ) —

Payments for equity forward contracts related to accelerated stock repurchase agreements ( 40,000 ) —

Payroll taxes paid upon the vesting of equity awards ( 104,889 ) ( 47,038 )

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Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash ( 3,511 ) ( 7,172 )

Net increase in cash, cash equivalents, and restricted cash 170,831 240,255

Net increase (decrease) in cash, cash equivalents, and restricted cash 125,504 ( 146,190 )

Cash, cash equivalents, and restricted cash at beginning of the period 961,474 551,134

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The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by Align Technology, Inc.

(“we”, “our”, or “Align”) in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and contains all adjustments, including normal recurring adjustments, necessary to state fairly our results of operations for the three months ended March 31, 2021 and 2020, our comprehensive income for the three months ended March 31, 2021 and 2020, our financial position as of March 31, 2021, our stockholders’ equity for the three months ended March 31, 2021 and 2020, and our cash flows for the three months ended March 31, 2021 and 2020.

(“we”, “our”, or “Align”) in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and contains all adjustments, including normal recurring adjustments, necessary to state fairly our results of operations for the three and six months ended June 30, 2021 and 2020, our comprehensive income for the three and six months ended June 30, 2021 and 2020, our financial position as of June 30, 2021, our stockholders’ equity for the three and six months ended June 30, 2021 and 2020, and our cash flows for the six months ended June 30, 2021 and 2020.

The Condensed Consolidated Balance Sheet as of December 31, 2020 was derived from the December 31, 2020 audited financial statements.

It does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.”).

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other future period, and we make no representations related thereto.

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other future period, and we make no representations related thereto.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020.

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Recent Accounting Pronouncements

New Accounting Updates Recently Adopted

In December 2019, the Financial Accounting Standards Board issued ASU 2019-12, “ Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes, ” to enhance and simplify various aspects of the income tax accounting guidance.

(i) New Accounting Updates Recently Adopted

In December 2019, the Financial Accounting Standards Board ( “ FASB ” ) issued Accounting Standard Update ( “ ASU ” ) 2019-12, “ Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes, ” to enhance and simplify various aspects of the income tax accounting guidance.

The amendment removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

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Adoption of this standard in the first quarter of fiscal year 2021 did not have a material impact on our consolidated financial statements or related disclosures.

(ii) Recent Accounting Updates Not Yet Effective

We continue to monitor new accounting pronouncements issued by the FASB and do not believe any of the recently issued accounting pronouncements will have an impact on our consolidated financial statements or related disclosures.

Fair Value Measurements

The following tables summarize our financial assets measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 (in thousands):

Fair value is an exit price, representing the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

We use the GAAP fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The three levels of inputs that may be used to measure fair value:

Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

We obtain fair values for our Level 2 investments.

Our custody bank and asset managers independently use professional pricing services to gather pricing data which may include quoted market prices for identical or comparable financial instruments, or inputs other than quoted prices that are observable either directly or indirectly, and we are ultimately responsible for these underlying estimates.

Level 3 — Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.

Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

The following tables summarize our financial assets measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 (in thousands):

Description Balance as of

March 31, 2021 Level 1

June 30, 2021 Level 1

Cash equivalents:

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$ 528,136 $ 519,228 $ 3,500 $ 5,408

1 The unsecured promissory note was paid in full by SmileDirectClub, LLC (“SDC”) during the three months ended March 31, 2021.

1 The unsecured promissory note was paid in full by SmileDirectClub, LLC (“SDC”) during the six months ended June 30, 2021.

Besides the repayment on the note, on March 12, 2021, the Arbitrator ruled in favor of us on the SDC dispute and issued an award of $ 43.4 million along with interest.

The gain of $ 43.4 million is recognized as a part of our other income (expense), net in our Condensed Consolidated Statement of Operation.

Refer to Note 6 “Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements for more information on the arbitration award received.

The gain of $ 43.4 million is recognized as a part of our other income (expense), net in our Condensed Consolidated Statement of Operation during the six months ended June 30, 2021.

Refer to Note 6 “Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements included for more information on the arbitration.

Derivatives Not Designated as Hedging Instruments

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These forward contracts are classified within Level 2 of the fair value hierarchy.

As a result of the settlement of foreign currency forward contracts, during the three months ended March 31, 2021 and 2020, we recognized net gains of $ 12.4 million and $ 15.6 million, respectively.

As of March 31, 2021 and December 31, 2020, the fair value of foreign exchange forward contracts outstanding was not material.

The following table presents the gross notional value of all our foreign exchange forward contracts outstanding as of March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021

As a result of the settlement of foreign currency forward contracts, during the three months ended June 30, 2021 and 2020, we recognized net losses of $ 13.0 million and $ 3.0 million, respectively, and during the six months ended June 30, 2021 and 2020, we recognized a net loss of $ 0.6 million and a net gain of $ 12.7 million, respectively.

As of June 30, 2021 and December 31, 2020, the fair value of foreign exchange forward contracts outstanding was not material.

The following table presents the gross notional value of all our foreign exchange forward contracts outstanding as of June 30, 2021 and December 31, 2020 (in thousands):

June 30, 2021

Local Currency Amount Notional Contract Amount (USD)

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British Pound £ 45,810 63,331

Brazilian Real R$ 222,000 38,836

Japanese Yen ¥ 5,245,758 47,408

Brazilian Real R$ 224,600 44,673

Polish Zloty PLN 161,000 42,280

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Mexican Peso M$ 307,740 15,481

Swiss Franc CHF 6,100 6,474

Australian Dollar A$ 7,700 5,775

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Prior to the closing of the exocad Global Holdings GmbH (“exocad”) acquisition on April 1, 2020, we entered into a Euro foreign currency forward contract with a notional contract amount of € 376.0 million.

During the three months ended March 31, 2020, we recognized an unrealized loss of $ 9.2 million within other income (expense), net in our Condensed Consolidated Statement of Operation as a result of the forward contract's fair value as of March 31, 2020.

During the three and six months ended June 30, 2020, we recognized losses of $ 1.0 million and $ 10.2 million, respectively, within other income (expense), net in our Condensed Consolidated Statement of Operations.

Balance Sheet Components

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Accrued payroll and benefits $ 212,886 $ 170,106

Accrued sales and marketing expenses 67,820 34,488

Accrued expenses 52,608 42,536

Accrued income taxes 41,539 30,130

Accrued property, plant and equipment 33,756 27,692

Accrued professional fees 28,844 20,617

Current operating lease liabilities 22,547 21,735

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Accrued warranty, which is included in the "Other accrued liabilities" category of the accrued liabilities table above, consists of the following activity (in thousands):

Three Months Ended

Six Months Ended

Balance at beginning of period $ 12,615 $ 11,205

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1 Included in Other long-term liabilities within our Condensed Consolidated Balance Sheet

During the three months ended March 31, 2021 and 2020, we recognized $ 894.8 million and $ 551.0 million of net revenues, respectively, of which $ 125.8 million and $ 95.5 million was included in the deferred revenues balance at December 31, 2020 and 2019, respectively.

Our unfulfilled pe rformance obligations, including deferred revenues and backlog, as of March 31, 2021 were $ 963.5 million.

During the three months ended June 30, 2021 and 2020, we recognized $ 1.0 billion and $ 352.3 million of net revenues, respectively, of which $ 134.4 million and $ 72.4 million was included in the deferred revenues balance at December 31, 2020 and 2019, respectively.

During the six months ended June 30, 2021 and 2020, we recognized $ 1.9 billion and $ 903.3 million of net revenues, respectively, of which $ 260.2 million and $ 167.9 million was included in the deferred revenues balance at December 31, 2020 and 2019, respectively.

Our unfulfilled pe rformance obligations, including deferred revenues and backlog, as of June 30, 2021 were $ 1.1 billion.

These performance obligations are expected to be recognized over the next one to five years .

Goodwill and Intangible Assets

The change in the carrying value of goodwill for the three months ended March 31, 2021, categorized by reportable segments, is as follows (in thousands):

The change in the carrying value of goodwill for the six months ended June 30, 2021, categorized by reportable segments, is as follows (in thousands):

Clear Aligner Systems and Services Total

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( 1,679 ) ( 10,959 ) ( 12,638 )

Balance as of March 31, 2021 $ 110,317 $ 317,244 $ 427,561

Balance as of June 30, 2021 $ 111,012 $ 321,167 $ 432,179

Intangible Long-Lived Assets

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Weighted Average Amortization Period

(in years) Gross Carrying Amount as of March 31, 2021 Accumulated

(in years) Gross Carrying Amount as of

June 30, 2021 Accumulated

Impairment Loss

March 31, 2021

June 30, 2021

Existing technology 10 $ 99,400 $ ( 17,351 ) $ ( 4,328 ) $ 77,721

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Total intangible assets $ 130,072

The total estimated annual future amortization expense for these acquired intangible assets as of March 31, 2021 is as follows (in thousands):

The total estimated annual future amortization expense for these acquired intangible assets as of June 30, 2021 is as follows (in thousands):

Fiscal Year Ending December 31, Amortization

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Total $ 109,222

Amortization expense for the three months ended March 31, 2021 and 2020 was $ 3.9 million and $ 1.3 million, respectively.

Amortization expense for the three months ended June 30, 2021 and 2020 was $ 3.9 million and $ 4.1 million, respectively, and amortization expense for the six months ended June 30, 2021 and 2020 was $ 7.8 million and $ 5.4 million, respectively.

Credit Facility

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The margin ranges from 1.50 % to 2.25 % for LIBOR loans and 0.50 % to 1.25 % for base rate loans.

The 2020 Credit Facility allows for an alternative rate to be identified if LIBOR is no longer available.

Interest on the loans is payable quarterly in arrears with respect to base rate loans and at the end of an interest period (and at three month intervals if the interest period exceeds three months) in the case of LIBOR loans.

The outstanding principal, together with accrued and unpaid interest, is due on the maturity date.

As of March 31, 2021, we had no outstanding borrowings under the 2020 Credit Facility and were in compliance with the conditions and performance requirements.

The outstanding

principal, together with accrued and unpaid interest, is due on the maturity date.

As of June 30, 2021, we had no outstanding borrowings under the 2020 Credit Facility and were in compliance with the conditions and performance requirements.

Legal Proceedings

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On September 9, 2020, Defendants’ motion to dismiss the amended consolidated complaint was granted in part and denied in part.

Trial is scheduled for October 3, 2022.

Align believes the claims that remain in the case are without merit and intends to vigorously defend itself.

Align is currently unable to predict the outcome of the lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.

On June 30, 2021, counsel for the parties signed a Stipulation and Agreement of Settlement to resolve all claims for $ 16 million.

The settlement amount will be funded by insurance proceeds and consequently, we recorded a short term liability and a receivable for this amount in our condensed consolidated financial statements.

Lead Plaintiff filed a motion seeking preliminary approval of the settlement on July 15, 2021.

A hearing on that motion is currently scheduled for December 9, 2021.

The settlement is subject to notice to class members and approval by the Court.

2019 Shareholder Derivative Lawsuit

In January 2019, three derivative lawsuits were filed in the U.S.

District Court for the Northern District of California which were later consolidated, purportedly on behalf of Align, naming as defendants the members of our Board of Directors along with certain of our executive officers.

District Court for the Northern District of California which were later consolidated, purportedly on behalf of Align, naming as defendants the then current members of our Board of Directors along with certain of our executive officers.

The allegations in the complaints are similar to those asserted in the 2018 Securities Class Action Lawsuit, but the complaints assert various state law causes of action, including for breaches of fiduciary duty, insider trading, and unjust enrichment.

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On March 29, 2021, defendants’ motion to dismiss the amended complaint was granted with leave for the lead plaintiff to file a further amended complaint.

On April 22, 2021, lead plaintiff filed a notice stating it would not file a further amended

On April 22, 2021, lead plaintiff filed a notice stating it would not file a further amended complaint.

On April 23, 2021, the Court dismissed the action with prejudice and judgment was entered.

Lead plaintiff filed a notice of appeal on April 28, 2021.

Currently there is no schedule for the appeal.

Lead plaintiff’ s opening brief is currently due September 1, 2021.

Align believes these claims are without merit and intends to vigorously defend itself.

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District Court for the Northern District of California, purportedly on behalf of Align, naming as defendants the members of our Board of Directors along with certain of our executive officers.

The allegations in the complaint are similar to those presented in the 2020 Securities Class Action Lawsuit, but this complaint asserts state law claims for breach of fiduciary duty and insider trading.

The allegations in the complaint are similar to those presented in the 2020 Securities Class Action Lawsuit,

but this complaint asserts state law claims for breach of fiduciary duty and insider trading.

The complaint seeks unspecified monetary damages on behalf of Align, which is named solely as a no minal defendant against whom no recovery is sought, as well as disgorgement and the costs and expenses associated with the litigation, including attorneys’ fees.

This action has been stayed pending a decision on the motion to dismiss in the 2020 Securities Class Action Lawsuit.

The parties are required to file a status report with the Court within 14 days of the order dismissing the 2020 Securities Class Action Lawsuit.

This action is stayed pending resolution of the appeal in the 2020 Securities Class Action Lawsuit.

Align is currently unable to predict the outcome of this lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.

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District Court for the District of Delaware alleging patent infringement by 3Shape’s Trios intraoral scanning system and Dental System software.

Three of the cases are active and 3Shape has filed counterclaims for breach of contract and business torts.

Align’s motions to dismiss the 3Shape counterclaims was recommended to be granted by the Magistrate Judge.

Three of the cases are active and 3Shape filed counterclaims for breach of contract and business torts.

Align’s motions to dismiss these 3Shape counterclaims were granted.

In 2018, 3Shape filed two separate complaints in the U.S.

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3Shape filed business tort counterclaims.

The Magistrate Judge recommended granting Align’s motion to dismiss 3Shape's counterclaims.

The Court granted Align’s motion to dismiss 3Shape’s business tort counterclaims.

The case is currently stayed.

On October 19, 2020, Align filed a complaint in the U.S.

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In response, 3Shape filed a motion to dismiss as well as b usiness tort and patent infringement counterclaims.

3Shape’s motion to dismiss was denied.

Align has moved to dismiss the business tort counterclaims .

Each of 3Shape and Align’s District Court patent infringement complaints and all of 3Shape’s business tort counterclaims seek monetary damages and/or injunctive relief.

One of Align’s Delaware District Court cases against 3Shape is scheduled for a jury trial beginning on July 26, 2021.

One of Align’s Delaware District Court cases against 3Shape is scheduled for a jury trial beginning on May 31, 2022.

The case pending in the Western District of Texas has been given an estimated trial date of October 3, 2022.

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Antitrust Class Actions

On June 5, 2020, a dental practice named Simon and Simon, PC doing business as City Smiles brought an antitrust action in the United States District Court for the Northern District of California on behalf of itself and a putative class of similarly

situated practices seeking monetary damages and injunctive relief relating to Align’s alleged market activities in alleged clear aligner and intraoral scanner markets.

On June 5, 2020, a dental practice named Simon and Simon, PC doing business as City Smiles brought an antitrust action in the U.S.

District Court for the Northern District of California on behalf of itself and a putative class of similarly situated practices seeking monetary damages and injunctive relief relating to Align’s alleged market activities in alleged clear aligner and intraoral scanner markets.

Plaintiff filed an amended complaint and added VIP Dental Spas as a plaintiff on August 14, 2020.

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On April 8, 2021, the Judge denied Align’s motion to dismiss.

The court has not entered a schedule or set a trial date.

A jury trial is scheduled to begin November 20, 2023.

A lign believes the plaintiffs’ claims are without merit and intends to vigorously defend itself.

On May 3, 2021, an individual named Misty Snow brought an antitrust action in the United States District Court for the Northern District of California on behalf of herself and a putative class of similarly situated individuals seeking monetary damages and injunctive relief relating to Align’s alleged market activities in alleged clear aligner and intraoral scanner markets.

Align has not yet responded to the complaint.

On May 3, 2021, an individual named Misty Snow brought an antitrust action in the U.S.

District Court for the Northern District of California on behalf of herself and a putative class of similarly situated individuals seeking monetary damages and injunctive relief relating to Align’s alleged market activities in alleged clear aligner and intraoral scanner markets.

Plaintiff filed an amended complaint on July 30, 2021 adding new plaintiffs and various state law claims.

Align has not yet responded to the amended complaint.

Align believes the plaintiffs’ claims are without merit and intends to vigorously defend itself.

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In an award dated March 4, 2019, (“Award”) an arbitrator found that Align breached a restrictive covenant and that Align misused the SDC Entities’ confidential information and violated fiduciary duties to SDC Financial LLC.

As part of the Award, Align was enjoined from opening new Invisalign stores or providing certain services in physical retail establishments in connection with the marketing and sale of clear aligners in the United States, and enjoined from using the SDC Entities’ confidential information.

As part of the Award, Align was enjoined from opening new Invisalign stores or providing certain services in physical retail establishments in connection with the marketing and sale of clear aligners in the U.S., and enjoined from using the SDC Entities’ confidential information.

The arbitrator extended the expiration date of specified aspects of the restrictive covenant to August 18, 2022.

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The Circuit Court for Cook County, Illinois confirmed the Award on April 29, 2019.

As required by the Award, Align tendered its membership interests for a purchase price that SDC claims to be Align’s “capital account” balance.

As required by the Award, Align tendered its membership interests for a purchase price that SDC claimed to be Align’s “capital account” balance.

Align disputed that the SDC Entities properly determined the value of Align’s “capital account” balance as of October 31, 2017.

Consequently, on July 3, 2019, Align filed a confidential demand for arbitration challenging the propriety of the SDC Entities’ determination.

The arbitration hearing occurred in December 2020 and on March 12, 2021 the Arbitrator issued a final award in favor of Align and against SDC finding that the SDC entities owed Align an additional $ 43.4 million plus interest which SDC paid to Align on March 17, 2021.

In a related legal proceeding, the SDC Entities had filed a contempt petition with an Illinois court asserting that Align had no right to contest the SDC Entities;

“capital account” determination in the July 3, 2019 arbitration.

On September 4, 2019, the Illinois court denied in its entirety the contempt petition filed by the SDC Entities.

The SDC Entities appealed and, on February 9, 2021, the Illinois Appellate Court affirmed the denial of the contempt petition.

The time for SDC to seek rehearing or further appeal has passed.

On August 19, 2019, the SDC Entities filed a separate confidential arbitration proceeding alleging that Align had violated a restrictive covenant applicable to the members of the SDC Entities by virtue of Align’s alleged dealings with a third-party claimed to be a competitor of the SDC Entities.

On April 27, 2020, the SDC Entities filed an amended arbitration demand, which additionally asserted that Align’s alleged dealings with a third-party constituted contempt of the Award.

On February 5, 2021, pursuant to an agreement reached by the parties, the arbitrator dismissed the arbitration with prejudice.

On March 12, 2021 the Arbitrator issued a final award in favor of Align and against SDC finding that the SDC entities owed Align an additional $ 43.4 million plus interest.

SDC paid the amount due to Align on March 17, 2021.

On August 27, 2020, Align initiated a confidential arbitration proceeding against the SDC entities before the American Arbitration Association in San Jose, California.

This arbitration relates to the Strategic Supply Agreement (“Supply Agreement”) entered into between the parties in 2016.

The complaint states that the SDC Entities breached the Supply Agreement ’ s terms, causing damages to Align in an amount to be determined.

The complaint alleges that the SDC Entities breached the Supply Agreement ’ s terms, causing damages to Align in an amount to be determined.

On January 19, 2021, SDC filed a counterclaim alleging that Align breached the Supply Agreement.

Align denies the SDC Entities’ allegations in the counterclaim and will vigorously defend itself against them.

This arbitration hearing is scheduled for September 27, 2021.

Align is currently unable to predict the outcome of these disputes and therefore cannot determine the likelihood of loss or success nor estimate a range of possible loss or success, if any.

In addition to the above, in the course of Align’s operations, Align is involved in a variety of claims, suits, investigations, and proceedings, including actions with respect to intellectual property claims, patent infringement claims, government

investigations, labor and employment claims, breach of contract claims, tax, and other matters.

In addition to the above, in the ordinary course of Align’s operations, Align is involved in a variety of claims, suits, investigations, and proceedings, including actions with respect to intellectual property claims, patent infringement claims, government investigations, labor and employment claims, breach of contract claims, tax, and other matters.

Regardless of the outcome, these proceedings can have an adverse impact on us because of defense costs, diversion of management resources, and other factors.

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Commitments and Contingencies

Other Commitments

In 2018, we entered into a purchase agreement, as amended, with an existing single source supplier which requires us to purchase aligner material for a minimum amount of approximately $ 425.9 million over a five year period through 2022.

On June 24, 2021, we amended the agreement which requires an additional minimum aligner material purchase of approximately $ 348.0 million from 2023 through 2026.

Off-Balance Sheet Arrangements

As of March 31, 2021, we had no material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources other than certain items disclosed in Note 11 “Com mitments and Contingencies” of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K.

As of June 30, 2021, we had no material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources other than certain items disclosed in Note 11 “Com mitments and Contingencies” of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K.

Indemnification Provisions

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However, to the extent that valid indemnification claims arise in the future, future payments by us could be significant and could have a material adverse effect on our results of operations or cash flows in a particular period.

As of March 31, 2021, we did not have any material indemnification claims that were probable or reasonably possible.

As of June 30, 2021, we did not have any material indemnification claims that were probable or reasonably possible.

Stockholders’ Equity

As of March 31, 2021, the 2005 Incentive Plan (as amended) has a total reserve of 27,783,379 shares of which 4,210,089 shares are available for issuance.

Common Stock Repurchase Program

As of March 31, 2021, we have $ 100.0 million available for repurchase under the May 2018 Repurchase Program.

Subsequent to the first quarter, on April 30, 2021, we entered into an accelerated stock repurchase agreement (“2021 ASR”) to repurchase $ 100.0 million of our common stock.

We paid $ 100.0 million on May 3, 2021 and received an initial delivery of approximately 0.1 million shares based on current market prices.

The final number of shares to be repurchased will be based on our volume-weighted average stock price under the terms of the 2021 ASR, less an agreed upon discount.

As of June 30, 2021, the 2005 Incentive Plan (as amended) has a total reserve of 27,783,379 shares of which 4,227,993 shares are available for issuance.

Summary of Stock-Based Compensation Expense

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Estimated forfeitures are based on historical experience at the time of grant and may be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The stock-based compensation related to our stock-based awards and employee stock purchase plans for the three months ended March 31, 2021 and 2020 is as follows (in thousands):

The stock-based compensation related to our stock-based awards and employee stock purchase plans for the three and six months ended June 30, 2021 and 2020 is as follows (in thousands):

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Cost of net revenues $ 1,418 $ 891 $ 2,724 $ 2,238

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RSUs granted generally vest over a period of four years .

A summary for the three months ended March 31, 2021 is as follows:

A summary for the six months ended June 30, 2021 is as follows:

Number of Shares

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Forfeited ( 24 ) 333.07

Unvested as of March 31, 2021 560 $ 348.77 1.7 $ 303,402

As of March 31, 2021, we expect to recognize $ 163.6 million of total unamortized compensation cost, net of estimated forfeitures, related to RSUs over a weighted average period of 2.7 years.

Unvested as of June 30, 2021 525 $ 358.92 1.6 $ 320,663

As of June 30, 2021, we expect to recognize $ 147.5 million of total unamortized compensation cost, net of estimated forfeitures, related to RSUs over a weighted average period of 2.5 years.

Market-performance Based Restricted Stock Units (“MSUs”)

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Each MSU represents the right to one share of Align’s common stock.

The actual number of MSUs which will be eligible to vest will be based on the performance of Align’s stock price relative to the performance of a stock market index over the vesting period, and certain MSU grants are also based on Align’s stock price at the end of the performance period.

The maximum number of MSUs which will be eligible to vest range from 250 % to 300 % of the MSUs initially granted and the vesting period is three years .

A summary for the three months ended March 31, 2021 is as follows:

The actual number of MSUs which will be eligible to vest will be based on the performance of Align’s stock price relative to the performance of a stock market index over the vesting period.

MSUs vest over a period of three years and the maximum number eligible to vest in the future is 250 % of the MSUs initially granted.

A summary for the six months ended June 30, 2021 is as follows:

Number of Shares

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Contractual Term (in years)

Intrinsic Value

(in thousands)

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Vested and released ( 230 ) 513.73

Unvested as of March 31, 2021 217 $ 569.07 1.4 $ 117,620

As of March 31, 2021, we expect to recognize $ 60.8 million of total unamortized compensation cost, net of estimated forfeitures, related to MSUs over a weighted average period of 1.4 years.

Unvested as of June 30, 2021 174 $ 551.57 1.5 $ 106,374

As of June 30, 2021, we expect to recognize $ 52.2 million of total unamortized compensation cost, net of estimated forfeitures, related to MSUs over a weighted average period of 1.5 years.

Employee Stock Purchase Plan (“ESPP”)

In May 2010, our stockholders approved the 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”) which will continue until terminated by either the Board of Directors or its administrator.

The maximum number of shares available for purchase under the 2010 Purchase Plan is 2,400,000 shares.

As of March 31, 2021, we have 253,444 shares available for future issuance.

In May 2021, the 2010 Purchase Plan was amended and restated to increase the maximum number of shares available for purchase to 4,400,000 shares.

As of June 30, 2021, we have 2,253,444 shares available for future issuance.

The fair value of the option component of the 2010 Purchase Plan shares was estimated at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:

Three Months Ended

Six Months Ended

Expected term (in years) 1.0 1.0

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Weighted average fair value at grant date $ 202.74 $ 80.54

As of March 31, 2021, there was $ 3.9 million of total unamortized compensation costs related to employee stock purchases which we expect to be recognized over a weighted average period of 0.4 year.

As of June 30, 2021, there was $ 2.2 million of total unamortized compensation costs related to employee stock purchases which we expect to be recognized over a weighted average period of 0.2 year.

Common Stock Repurchase Programs

In May 2018, our Board of Directors authorized a plan to repurchase up to $ 600.0 million of our common stock (“May 2018 Repurchase Program”).

As of June 30, 2021, the authorization under the May 2018 Repurchase Program had been fully utilized and the May 2018 Repurchase Program was completed.

In May 2021, our Board of Directors authorized a plan to repurchase up to $ 1.0 billion of our common stock (“May 2021 Repurchase Program”).

As of June 30, 2021, we have $ 900.0 million available for repurchase under the May 2021 Repurchase Program.

Accelerated Stock Repurchase Agreements ("ASRs")

During the three months ended June 30, 2021, we entered into the following ASRs:

Initial Share Delivery

Effective Date Repurchase Program Amount Paid

(in millions) Initial Shares Delivered Price Per Share Value Of Shares As A Percent Of Contract Value

April 30, 2021 May 2018 Repurchase Program $ 100.0 134,334 $ 595.53 80 %

May 17, 2021 May 2021 Repurchase Program $ 100.0 142,980 $ 559.52 80 %

Under the terms of the ASRs, the financial institution may be required to deliver additional shares of common stock to Align at final settlement or, under certain circumstances, we may be required at our election, to either deliver shares or make a cash payment to the financial institution.

The ASRs limit the number of shares that Align would be required to deliver.

As of June 30, 2021, we recorded the remaining $ 40.0 million contract value from the ASRs as equity forward contracts indexed to our own common stock which was included in additional paid-in capital in stockholders' equity in our Condensed Consolidated Balance Sheet.

The final number of shares to be repurchased will be based on our volume-weighted average stock price under the terms of the ASRs, less an agreed upon discount.

Subsequent to the second quarter, on July 30, 2021, we entered into an ASR to repurchase $ 75.0 million of our common stock.

We paid $ 75.0 million on August 2, 2021 and received an initial delivery of approximately 0.1 million shares based on current market prices.

The final number of shares to be repurchased will be based on our volume-weighted average stock price under the terms of the ASR, less an agreed upon discount.

Accounting for Income Taxes

Our provision for income taxes was $ 61.2 million for the three months ended March 31, 2021 and our benefit from income taxes was $ 1,464.8 million for the three months ended March 31, 2020 representing effective tax rates of 23.4 % and ( 2,745.3 )%, respectively.

Our effective tax rate differs from the statutory federal income tax rate of 21% for the three months ended March 31, 2021 primarily due to the recognition of additional tax expense resulting from state income taxes, non-deductible expenses in the U.S.

Our provision for income taxes was $ 69.1 million for the three months ended June 30, 2021 and our benefit from income taxes was $ 32.9 million for the three months ended June 30, 2020, representing effective tax rates of 25.7 % and 44.8 %, respectively.

Our provision for income taxes was $ 130.3 million for the six months ended June 30, 2021 and our benefit from income taxes was $ 1,497.7 million for the six months ended June 30, 2020, representing effective tax rates of 24.6 % and 7,437.0 %, respectively.

Our effective tax rate differs from the statutory federal income tax rate of 21% for the three and six months ended June 30, 2021 primarily due to state income taxes, non-deductible expenses in the U.S.

and foreign income taxed at different rates, partially offset by the recognition of excess tax benefits related to stock-based compensation.

Our effective tax rate differs from the statutory federal income tax rate of 21% for the three months ended March 31, 2020 mainly as a result of the recognition of a deferred tax asset and related one-time tax benefit in accordance with the completion of the intra-entity transfer of certain intellectual property rights and fixed assets to our Swiss entity and excess tax benefits related to stock-based compensation, partially offset by state income taxes and foreign income taxed at different rates.

During the three months ended March 31, 2020 , we completed an intra-entity transfer of certain intellectual property rights and fixed assets to our Swiss entity.

Our effective tax rate differs from the statutory federal income tax rate of 21% for the three months ended June 30, 2020 primarily due to foreign income taxed at different rates.

Our effective tax rate differs from the statutory federal income tax rate of 21% for the six months ended June 30, 2020 mainly as a result of the recognition of a deferred tax asset and related one-time tax benefit associated with the intra-entity transfer of certain intellectual property rights completed last year and the recognition of excess tax benefits related to stock-based compensation, partially offset by foreign income taxed at different rates.

During the six months ended June 30, 2020 , we completed an intra-entity transfer of certain intellectual property rights and fixed assets to our Swiss entity.

The transfer of intellectual property rights did not result in a taxable gain;

however, it did result in a step-up of the Swiss tax deductible basis in the transferred assets, and accordingly, created a temporary difference between the book basis and the tax basis of such intellectual property rights.

Consequently, this transaction resulted in the recognition of a deferred tax asset and related one-time tax benefit of approximately $ 1,493.5 million during the three months ended March 31, 2020 , which is the net impact of the deferred tax asset recognized as a result of the additional Swiss tax deductible basis in the transferred assets and certain costs related to the transfer of fixed assets and inventory.

Consequently, this transaction resulted in the recognition of a deferred tax asset and related one-time tax benefit of approximately $ 1,493.5 million during the six months ended June 30, 2020 , which is the net impact of the deferred tax asset recognized as a result of the additional Swiss tax deductible basis in the transferred assets and certain costs related to the transfer of fixed assets and inventory.

We exercise significant judgment in regards to estimates of future market growth, forecasted earnings and projected taxable income in determining the provision for income taxes and for purposes of assessing our ability to utilize any future benefit from deferred tax assets.

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With few exceptions, we are no longer subject to examination by foreign tax authorities for years before 2014.

Our total gross unrecognized tax benefits, excluding interest and penalties, were $ 50.0 million and $ 46.3 million as of March 31, 2021 and December 31, 2020, respectively, a material amount of which would impact our effective tax rate if recognized.

Total interest and penalties accrued as of March 31, 2021 was not material.

We have elected to recognize interest and penalties related to unrecognized tax benefits as a component of income taxes.

Our total gross unrecognized tax benefits, excluding interest and penalties, were $ 53.2 million and $ 46.3 million as of June 30, 2021 and December 31, 2020, respectively, a material amount of which would impact our effective tax rate if recognized.

Total interest and penalties accrued as of June 30, 2021 was not material.

We have elected to recognize interest and

penalties related to unrecognized tax benefits as a component of income taxes.

The timing and resolution of income tax examinations is uncertain, and the amounts ultimately paid, if any, upon resolution of issues raised by the taxing authorities may differ materially from the amounts accrued for each year.

Although it is possible that our balance of gross unrecognized tax benefits could materially change in the next 12 months, given uncertainty in the development of ongoing income tax examinations, we are unable to estimate the full range of possible adjustments to this balance.

Our total deferred tax liabilities were $ 32.9 million and $ 35.7 million as of March 31, 2021 and December 31, 2020, respectively, which primarily related to the intangible assets from our exocad acquisition.

Net Income per Share

The following table sets forth the computation of basic and diluted net income per share attributable to common stock (in thousands, except per share amounts):

Our total deferred tax liabilities were $ 34.0 million and $ 35.7 million as of June 30, 2021 and December 31, 2020, respectively, which primarily related to the intangible assets from our exocad acquisition.

Net Income (Loss) per Share

The following table sets forth the computation of basic and diluted net income (loss) per share attributable to common stock (in thousands, except per share amounts):

Three Months Ended

Net income $ 200,376 $ 1,518,131

June 30, Six Months Ended

2021 2020 2021 2020

Net income (loss) $ 199,714 $ ( 40,602 ) $ 400,090 $ 1,477,529

Weighted average common shares outstanding, basic 79,008 78,769 79,004 78,681

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Total shares, diluted 79,638 78,769 79,737 79,016

Net income per share, basic $ 2.54 $ 19.32

Net income per share, diluted $ 2.51 $ 19.21

Net income (loss) per share, basic $ 2.53 $ ( 0.52 ) $ 5.06 $ 18.78

Net income (loss) per share, diluted $ 2.51 $ ( 0.52 ) $ 5.02 $ 18.70

Anti-dilutive potential common shares 1

1 Represents RSUs and MSUs not included in the calculation of diluted net income per share as the effect would have been anti-dilutive.

49 733 38 231

1 Represents RSUs, MSUs and ESPP not included in the calculation of diluted net income per share as the effect would have been anti-dilutive.

Supplemental Cash Flow Information

The supplemental cash flow information consists of the following (in thousands):

Three Months Ended

Six Months Ended

Non-cash investing and financing activities:

Fixed assets acquired with accounts payable or accrued liabilities $ 45,354 $ 24,121

Acquisition of property, plant and equipment in accounts payable and accrued liabilities $ 133,530 $ 13,199

Cash paid for amounts included in the measurement of lease liabilities:

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Certain operating expenses are attributable to operating segments and each allocation is measured differently based on the specific facts and circumstances of the costs being allocated.

Costs not specifically allocated to segment income from operations include various corporate expenses such as stock-based compensation and costs related to IT, facilities, human resources, accounting and finance, legal and regulatory, and other separately managed general and administrative costs outside the operating segments.

separately managed general and administrative costs outside the operating segments.

We group our operations into two reportable segments:

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Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Clear Aligner $ 840,959 $ 298,341 $ 1,594,228 $ 779,952

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Total gross profit $ 758,538 $ 224,328 $ 1,435,636 $ 618,684

Income from operations

Income (loss) from operations

Clear Aligner $ 347,626 $ 38,916 $ 675,091 $ 205,304

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Unallocated corporate expenses ( 143,399 ) ( 114,809 ) ( 292,646 ) ( 225,668 )

Total income from operations $ 225,446 $ 69,918

Total income (loss) from operations $ 268,902 $ ( 73,000 ) $ 494,348 $ ( 3,082 )

Stock-based compensation

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Systems and Services

4,622 5,005 9,167 6,790

Unallocated corporate expenses

9,100 8,843 19,070 17,675

Total depreciation and amortization $ 25,892 $ 23,545 $ 51,527 $ 44,283

The following table reconciles total segment income from operations in the table above to net income before provision for (benefit from) income taxes (in thousands):

The following table reconciles total segment income from operations in the table above to net income (loss) before provision for (benefit from) income taxes (in thousands):

Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Total segment income from operations $ 412,301 $ 41,809 $ 786,994 $ 222,586

Unallocated corporate expenses ( 143,399 ) ( 114,809 ) ( 292,646 ) ( 225,668 )

Total income from operations 225,446 69,918

Total income (loss) from operations 268,902 ( 73,000 ) 494,348 ( 3,082 )

Interest income 383 473 2,026 2,459

Other income (expense), net ( 483 ) ( 966 ) 34,049 ( 19,515 )

Net income before provision for (benefit from) income taxes $ 261,621 $ 53,355

Net income (loss) before provision for (benefit from) income taxes $ 268,802 $ ( 73,493 ) $ 530,423 $ ( 20,138 )

Geographical Information

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Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Net revenues 1 :

United States $ 383,002 $ 271,705

$ 434,398 $ 140,859 $ 817,400 $ 412,564

Switzerland 366,334 105,495 681,784 292,771

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Switzerland $ 416,871 $ 257,337

United States 180,709 180,539

193,814 180,539

China 126,033 113,918

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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 1. Financial Statements