ALIGN TECHNOLOGY INC 10-Q

ITEM 1 FINANCIAL STATEMENTS ALIGN TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net revenues $ 1,010,808 $ 352,314 $ 1,905,579 $ 903,277 Cost of net revenues 252,270 127,986 469,943 284,593 Gross profit 758,538 224,328 1,435,636 618,684 Operating expenses: Selling, general and administrative 431,921 256,967 829,036 539,873 Research and development 57,715 40,361 112,252 81,893 Total operating expenses 489,636 297,328 941,288 621,766 Income (loss) from operations 268,902 ( 73,000 ) 494,348 ( 3,082 ) Interest income and other income (expense), net: Interest income 383 473 2,026 2,459 Other income (expense), net ( 483 ) ( 966 ) 34,049 ( 19,515 ) Total interest income and other income (expense), net ( 100 ) ( 493 ) 36,075 ( 17,056 ) 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 (loss) $ 199,714 $ ( 40,602 ) $ 400,090 $ 1,477,529 Net income (loss) per share: Basic $ 2.53 $ ( 0.52 ) $ 5.06 $ 18.78 Diluted $ 2.51 $ ( 0.52 ) $ 5.02 $ 18.70 Shares used in computing net income (loss) per share: Basic 79,008 78,769 79,004 78,681 Diluted 79,638 78,769 79,737 79,016 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents ALIGN TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 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 Change in unrealized gains (losses) on investments, net of tax — — ( 20 ) ( 194 ) Other comprehensive income (loss) 586 9,294 ( 13,885 ) 9,789 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. 4 Table of Contents ALIGN TECHNOLOGY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited) June 30, 2021 December 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 1,086,357 $ 960,843 Accounts receivable, net of allowance for doubtful accounts of $ 9,427 and $ 10,239 , respectively 808,079 657,704 Inventories 178,751 139,237 Prepaid expenses and other current assets 158,638 91,754 Total current assets 2,231,825 1,849,538 Property, plant and equipment, net 960,852 734,721 Operating lease right-of-use assets, net 93,425 82,553 Goodwill 432,179 444,817 Intangible assets, net 117,721 130,072 Deferred tax assets 1,512,285 1,552,831 Other assets 47,281 35,151 Total assets $ 5,395,568 $ 4,829,683 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 225,079 $ 142,132 Accrued liabilities 495,572 405,582 Deferred revenues 975,930 777,887 Total current liabilities 1,696,581 1,325,601 Income tax payable 113,306 105,748 Operating lease liabilities 74,184 64,445 Other long-term liabilities 127,087 100,024 Total liabilities 2,011,158 1,595,818 Commitments and contingencies (Notes 6 and 7) Stockholders’ equity: Preferred stock, $ 0.0001 par value ( 5,000 shares authorized; none issued) — — Common stock, $ 0.0001 par value ( 200,000 shares authorized; 78,948 and 78,860 issued and outstanding, respectively) 8 8 Additional paid-in capital 895,831 974,556 Accumulated other comprehensive income (loss), net 29,616 43,501 Retained earnings 2,458,955 2,215,800 Total stockholders’ equity 3,384,410 3,233,865 Total liabilities and stockholders’ equity $ 5,395,568 $ 4,829,683 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents ALIGN TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) (unaudited) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss), Net Retained Earnings Total 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 Net income — — — — 400,090 400,090 Net change in unrealized gains (losses) from investments — — — ( 20 ) — ( 20 ) Net change in foreign currency translation adjustment — — — ( 13,865 ) — ( 13,865 ) Issuance of common stock relating to employee equity compensation plans 365 — 13,133 — — 13,133 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. 6 Table of Contents ALIGN TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED) (in thousands) (unaudited) 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 Paid-In Capital Accumulated Other Comprehensive Income (Loss), Net Retained Earnings Total 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 Net income — — — — 1,477,529 1,477,529 Net change in unrealized gains (losses) from investments — — — ( 194 ) — ( 194 ) Net change in foreign currency translation adjustment — — — 9,983 — 9,983 Issuance of common stock relating to employee equity compensation plans 348 — 10,662 — — 10,662 Tax withholdings related to net share settlements of equity awards — — ( 47,038 ) — — ( 47,038 ) Stock-based compensation — — 47,934 — — 47,934 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. 7 Table of Contents ALIGN TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited ) Six Months Ended June 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 400,090 $ 1,477,529 Adjustments to reconcile net income to net cash provided by operating activities: Deferred taxes 39,961 ( 1,504,251 ) Depreciation and amortization 51,527 44,283 Stock-based compensation 56,096 47,934 Non-cash operating lease cost 12,413 11,148 Allowance for doubtful accounts provisions 829 12,578 Arbitration award gain ( 43,403 ) — Impairments on equity investments — 3,787 Other non-cash operating activities 12,345 11,542 Changes in assets and liabilities, net of effects of acquisition: Accounts receivable ( 164,822 ) 64,645 Inventories ( 49,070 ) ( 21,398 ) Prepaid expenses and other assets ( 70,132 ) ( 31,058 ) Accounts payable ( 5,736 ) 11,918 Accrued and other long-term liabilities 65,650 ( 106,572 ) Long-term income tax payable 7,535 6,707 Deferred revenues 231,408 40,892 Net cash provided by operating activities 544,691 69,684 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition, net of cash acquired — ( 420,788 ) Purchase of property, plant and equipment ( 167,668 ) ( 80,502 ) Purchase of marketable securities — ( 5,341 ) Proceeds from maturities of marketable securities — 42,641 Proceeds from sales of marketable securities — 278,817 Repayment on unsecured promissory note 4,594 11,087 Proceeds from arbitration award 43,403 — Other investing activities ( 4,249 ) 1,760 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 ) Net cash used in financing activities ( 291,756 ) ( 36,376 ) Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash ( 3,511 ) ( 7,172 ) 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 Cash, cash equivalents, and restricted cash at end of the period $ 1,086,978 $ 404,944 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 8 Table of Contents ALIGN TECHNOLOGY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1. Summary of Significant Accounting Policies Basis of Presentation 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 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 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. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the U.S. requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, useful lives of intangible assets and property and equipment, long-lived assets and goodwill, income taxes and contingent liabilities, the fair values of financial instruments, stock-based compensation, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Certain Risks and Uncertainties Due to the COVID-19 pandemic, we are subject to a greater degree of uncertainty than normal in making the judgments and estimates needed to apply our significant accounting policies. The full extent to which the pandemic, including as a result of any new strains, business restrictions or lockdowns, and the impact of vaccinations, will directly or indirectly impact our business, results of operations, cash flows, and financial condition will depend on future developments that are highly uncertain and cannot be accurately determined. Recent Accounting Pronouncements (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. The amendments are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. 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. 9 Table of Contents Note 2. Fair Value Measurements 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 June 30, 2021 Level 1 Level 2 Cash equivalents: Money market funds $ 531,207 $ 531,207 $ — Prepaid expenses and other current assets: Israeli funds 3,999 — 3,999 $ 535,206 $ 531,207 $ 3,999 Description Balance as of December 31, 2020 Level 1 Level 2 Level 3 Cash equivalents: Money market funds $ 519,228 $ 519,228 $ — $ — Prepaid expenses and other current assets: Israeli funds 3,500 — 3,500 — Current unsecured promissory note 1 5,408 — — 5,408 $ 528,136 $ 519,228 $ 3,500 $ 5,408 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 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 Recurring foreign currency forward contracts We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on certain trade and intercompany receivables and payables. 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 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. 10 Table of Contents 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) Euro € 202,350 $ 240,334 Chinese Yuan ¥ 1,170,000 180,638 Canadian Dollar C$ 96,300 77,707 British Pound £ 45,810 63,331 Japanese Yen ¥ 5,245,758 47,408 Brazilian Real R$ 224,600 44,673 Polish Zloty PLN 161,000 42,280 Israeli Shekel ILS 54,600 16,759 Mexican Peso M$ 307,740 15,481 Australian Dollar A$ 7,700 5,775 $ 734,386 December 31, 2020 Local Currency Amount Notional Contract Amount (USD) Euro € 126,300 $ 155,125 Chinese Yuan ¥ 936,000 143,393 Canadian Dollar C$ 65,000 50,791 British Pound £ 32,300 43,879 Japanese Yen ¥ 4,249,000 41,222 Brazilian Real R$ 142,000 27,264 Israeli Shekel ILS 74,000 23,094 Mexican Peso M$ 140,000 7,002 Australian Dollar A$ 5,800 4,447 Swiss Franc CHF 3,700 4,191 $ 500,408 Other foreign currency forward contract 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 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. Note 3. Balance Sheet Components Inventories consist of the following (in thousands): June 30, 2021 December 31, 2020 Raw materials $ 90,018 $ 76,404 Work in process 37,505 31,393 Finished goods 51,228 31,440 Total inventories $ 178,751 $ 139,237 11 Table of Contents Accrued liabilities consist of the following (in thousands): June 30, 2021 December 31, 2020 Accrued payroll and benefits $ 212,886 $ 170,106 Accrued sales and marketing expenses 67,820 34,488 Accrued expenses 52,608 42,536 Accrued property, plant and equipment 33,756 27,692 Accrued professional fees 28,844 20,617 Current operating lease liabilities 22,547 21,735 Other accrued liabilities 77,111 88,408 Total accrued liabilities $ 495,572 $ 405,582 Accrued warranty, which is included in the "Other accrued liabilities" category of the accrued liabilities table above, consists of the following activity (in thousands): Six Months Ended June 30, 2021 2020 Balance at beginning of period $ 12,615 $ 11,205 Charged to cost of net revenues 8,936 5,820 Actual warranty expenditures ( 7,105 ) ( 5,396 ) Balance at end of period $ 14,446 $ 11,629 Deferred revenues consist of the following (in thousands): June 30, 2021 December 31, 2020 Deferred revenues - current $ 975,930 $ 777,887 Deferred revenues - long-term 1 $ 91,379 $ 62,551 1 Included in Other long-term liabilities within our Condensed Consolidated Balance Sheet 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 . Note 4. Goodwill and Intangible Assets Goodwill 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 Balance as of December 31, 2020 $ 112,691 $ 332,126 $ 444,817 Foreign currency translation adjustments ( 1,679 ) ( 10,959 ) ( 12,638 ) Balance as of June 30, 2021 $ 111,012 $ 321,167 $ 432,179 12 Table of Contents Intangible Long-Lived Assets Acquired intangible long-lived assets were as follows, excluding intangibles that were fully amortized (in thousands): Weighted Average Amortization Period (in years) Gross Carrying Amount as of June 30, 2021 Accumulated Amortization Accumulated Impairment Loss Net Carrying Value as of June 30, 2021 Existing technology 10 $ 99,400 $ ( 17,351 ) $ ( 4,328 ) $ 77,721 Customer relationships 11 55,000 ( 23,885 ) ( 10,751 ) 20,364 Trademarks and tradenames 10 16,600 ( 3,702 ) ( 4,179 ) 8,719 Patents and other 8 6,610 ( 4,192 ) — 2,418 $ 177,610 $ ( 49,130 ) $ ( 19,258 ) 109,222 Foreign currency translation 8,499 Total intangible assets $ 117,721 Weighted Average Amortization Period (in years) Gross Carrying Amount as of December 31, 2020 Accumulated Amortization Accumulated Impairment Loss Net Carrying Value as of December 31, 2020 Existing technology 10 $ 99,400 $ ( 12,719 ) $ ( 4,328 ) $ 82,353 Customer relationships 11 55,000 ( 21,879 ) ( 10,751 ) 22,370 Trademarks and tradenames 10 16,600 ( 2,934 ) ( 4,179 ) 9,487 Patents and other 8 6,610 ( 3,785 ) — 2,825 177,610 ( 41,317 ) ( 19,258 ) 117,035 Foreign currency translation 13,037 Total intangible assets $ 130,072 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 Remainder of 2021 $ 7,809 2022 14,366 2023 13,745 2024 12,805 2025 12,428 Thereafter 48,069 Total $ 109,222 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. Note 5. Credit Facility On July 21, 2020 we entered into a credit facility for a $ 300.0 million unsecured revolving line of credit, with a $ 50.0 million letter of credit sublimit, and a maturity date of July 21, 2023 (“2020 Credit Facility”), replacing our previous credit facility which provided for a $ 200.0 million revolving line of credit with a $ 50.0 million letter of credit. The 2020 Credit Facility requires us to comply with specific financial conditions and performance requirements. Loans under the 2020 Credit Facility bear interest, at our option, at either a rate based on the reserve adjusted LIBOR for the applicable interest period or a base rate, in each case plus a margin. The base rate is the highest of the credit facility's publicly announced prime rate, the federal funds rate plus 0.50 % and one-month LIBOR plus 1.0 %. 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 13 Table of Contents 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. Note 6. Legal Proceedings 2018 Securities Class Action Lawsuit On November 5, 2018, a class action lawsuit against Align and three of our executive officers was filed in the U.S. District Court for the Northern District of California on behalf of a purported class of purchasers of our common stock. The complaint generally alleged claims under the federal securities laws and sought monetary damages in an unspecified amount and costs and expenses incurred in the litigation. On December 12, 2018, a similar lawsuit was filed in the same court on behalf of a purported class of purchasers of our common stock. On November 29, 2019, the lead plaintiff filed an amended consolidated complaint against Align and two of our executive officers alleging similar claims as the initial complaints on behalf of a purported class of purchasers of our common stock from May 23, 2018 and October 24, 2018. On September 9, 2020, Defendants’ motion to dismiss the amended consolidated complaint was granted in part and denied in part. 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 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. The complaints seek unspecified monetary damages on behalf of Align, which is named solely as a nominal defendant against whom no recovery is sought, as well as disgorgement and the costs and expenses associated with the litigation, including attorneys’ fees. The consolidated action has been stayed pending final disposition of the 2018 Securities Class Action Lawsuit. On April 12, 2019, a derivative lawsuit was also filed in California Superior Court for Santa Clara County, 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 in the derivative suits described above. The matter has been similarly stayed pending final disposition of the 2018 Securities Class Action Lawsuit. Align is currently unable to predict the outcome of these lawsuits and therefore cannot determine the likelihood of loss nor estimate a range of possible loss . 2020 Securities Class Action Lawsuit On March 2, 2020, a class action lawsuit against Align and two of our executive officers was filed in the U.S. District Court for the Southern District of New York (later transferred to the U.S. District Court for the Northern District of California) on behalf of a purported class of purchasers of our common stock. The complaint alleged claims under the federal securities laws and sought monetary damages in an unspecified amount and costs and expenses incurred in the litigation. The lead plaintiff filed an amended complaint on August 4, 2020 against Align and three of our executive officers alleging similar claims as in the initial complaint on behalf of a purported class of purchasers of our common stock from April 25, 2019 to July 24, 2019. 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 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. Lead plaintiff’ s opening brief is currently due September 1, 2021. Align believes these claims are without merit and intends to vigorously defend itself. 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. 2020 Shareholder Derivative Lawsuit On May 4, 2020, a derivative lawsuit was filed in the U.S. 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, 14 Table of Contents 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 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. 3Shape Litigation On November 14, 2017, Align filed several patent infringement lawsuits asserting patents against 3Shape, a Danish corporation, and a related U.S. corporate entity, asserting that 3Shape’s Trios intraoral scanning system and Dental System software infringe Align patents. These lawsuits were filed in the U.S. 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 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. District Court for the District of Delaware alleging patent infringement by Align’s iTero Element scanner of 3Shape patents. On August 19, 2019, the Court consolidated the two actions, and on August 30, 2019, 3Shape filed an amended complaint. On December 11, 2018, Align filed an additional complaint in the U.S. District Court for the District of Delaware alleging patent infringement by 3Shape’s Trios intraoral scanning system, Lab Scanners and Dental and Ortho System Software. 3Shape filed business tort 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. District Court for the Western District of Texas alleging patent infringement by 3Shape ’s intraoral scanners and associated software products. 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 May 31, 2022. The case pending in the Western District of Texas has been given an estimated trial date of October 3, 2022. No trial dates have been set in the remaining cases. On August 28, 2018, 3Shape filed a complaint against Align in the U.S. District Court for the District of Delaware alleging antitrust violations and seeking monetary damages and injunctive relief relating to Align’s alleged market activities, including Align’s assertion of its patent portfolio, in alleged clear aligner and intraoral scanner markets. After the Court dismissed 3Shape’s complaint, 3Shape filed an amended complaint on October 28, 2019. The Court denied Align’s motion to dismiss the amended complaint on November 25, 2020. No trial date has been set. Align is currently unable to predict the outcome of these lawsuits and therefore cannot determine the likelihood of loss, if any, nor estimate a range of possible loss. 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 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. On September 9, 2020, Align moved to dismiss Plaintiffs’ amended complaint. On April 8, 2021, the Judge denied Align’s motion to dismiss. 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 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. 15 Table of Contents Align is currently unable to predi ct the outcome of these lawsuits and therefore cannot determine the likelihood of loss, if any, nor estimate a range of possible loss. SDC Dispute In April 2018, SDC Financial LLC, SmileDirectClub LLC, and the Members of SDC Financial LLC other than the Company (collectively, the “SDC Entities”) initiated confidential arbitration proceedings against Align. 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 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. The arbitrator also ordered Align to tender its SDC Financial LLC membership interests to the SDC Entities for a purchase price equal to the “capital account” balance as of October 31, 2017, to be determined in accordance with the applicable provisions of the SDC Operating Agreements. No financial damages were awarded to the SDC Entities. 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 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. 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 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. 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 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. Although the results of complex legal proceedings are difficult to predict and Align’s view of these matters may change in the future as litigation and events related thereto unfold; Align currently does not believe that these matters, individually or in the aggregate, will materially affect Align’s financial position, results of operations or cash flows. Note 7. 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 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. 16 Table of Contents Indemnification Provisions In the normal course of business to facilitate transactions in our services and products, we indemnify certain parties: customers, vendors, lessors, and other parties with respect to certain matters, including, but not limited to, services to be provided by us and intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and our executive officers that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. Several of these agreements limit the time within which an indemnification claim can be made and the amount of the claim. It is not possible to make a reasonable estimate of the maximum potential amount under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Additionally, we have a limited history of prior indemnification claims and the payments we have made under such agreements have not had a material adverse effect on our results of operations, cash flows or financial position. 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 June 30, 2021, we did not have any material indemnification claims that were probable or reasonably possible. Note 8. Stockholders’ Equity 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 Stock-based compensation is based on the estimated fair value of awards, net of estimated forfeitures, and recognized over the requisite service period. 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 and six months ended June 30, 2021 and 2020 is as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Cost of net revenues $ 1,418 $ 891 $ 2,724 $ 2,238 Selling, general and administrative 23,058 20,203 44,902 38,333 Research and development 4,379 3,913 8,470 7,363 Total stock-based compensation $ 28,855 $ 25,007 $ 56,096 $ 47,934 Restricted Stock Units (“RSUs”) The fair value of RSUs is based on our closing stock price on the date of grant. RSUs granted generally vest over a period of four years . A summary for the six months ended June 30, 2021 is as follows: Number of Shares Underlying RSUs (in thousands) Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Unvested as of December 31, 2020 632 $ 243.55 Granted 158 597.20 Vested and released ( 241 ) 214.71 Forfeited ( 24 ) 333.07 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. 17 Table of Contents Market-performance Based Restricted Stock Units (“MSUs”) We grant MSUs to our executive officers. 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. 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 Underlying MSUs (in thousands) Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Unvested as of December 31, 2020 227 $ 430.50 Granted 177 658.02 Vested and released ( 230 ) 513.73 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. 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: Six Months Ended June 30, 2021 2020 Expected term (in years) 1.0 1.0 Expected volatility 58.8 % 41.7 % Risk-free interest rate 0.1 % 1.5 % Expected dividends — — Weighted average fair value at grant date $ 202.74 $ 80.54 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. Note 9. 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. 18 Table of Contents 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. Note 10. Accounting for Income Taxes 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 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 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. We continue to assess the realizability of the deferred tax assets as we take into account new information. We file U.S. federal, U.S. state, and non-U.S. income tax returns. Our major tax jurisdictions include U.S. federal, the State of California and Switzerland. We are no longer subject to U.S. federal tax examination for years before 2017 and U.S. state tax examination for years before 2016. Our subsidiary in Israel is under audit by the local tax authorities for years 2015 through 2018. 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 $ 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 19 Table of Contents 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 $ 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. Note 11. 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 June 30, Six Months Ended June 30, 2021 2020 2021 2020 Numerator: Net income (loss) $ 199,714 $ ( 40,602 ) $ 400,090 $ 1,477,529 Denominator: Weighted average common shares outstanding, basic 79,008 78,769 79,004 78,681 Dilutive effect of potential common stock 630 — 733 335 Total shares, diluted 79,638 78,769 79,737 79,016 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 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. Note 12. Supplemental Cash Flow Information The supplemental cash flow information consists of the following (in thousands): Six Months Ended June 30, 2021 2020 Non-cash investing and financing activities: 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: Operating cash flows from operating leases $ 14,030 $ 12,817 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 24,338 $ 25,545 Note 13. Segments and Geographical Information Segment Information We report segment information based on the management approach. The management approach designates the internal reporting used by our Chief Operating Decision Maker for decision making and performance assessment as the basis for determining our reportable segments. The performance measures of our reportable segments include net revenues, gross profit and income from operations. Income from operations for each segment includes all geographic revenues, related cost of net revenues and operating expenses directly attributable to the segment. 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 20 Table of Contents separately managed general and administrative costs outside the operating segments. We group our operations into two reportable segments: Clear Aligner segment and Imaging Systems and CAD/CAM services (“Systems and Services”) segment. Summarized financial information by segment is as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net revenues Clear Aligner $ 840,959 $ 298,341 $ 1,594,228 $ 779,952 Systems and Services 169,849 53,973 311,351 123,325 Total net revenues $ 1,010,808 $ 352,314 $ 1,905,579 $ 903,277 Gross profit Clear Aligner $ 646,665 $ 192,366 $ 1,231,199 $ 543,858 Systems and Services 111,873 31,962 204,437 74,826 Total gross profit $ 758,538 $ 224,328 $ 1,435,636 $ 618,684 Income (loss) from operations Clear Aligner $ 347,626 $ 38,916 $ 675,091 $ 205,304 Systems and Services 64,675 2,893 111,903 17,282 Unallocated corporate expenses ( 143,399 ) ( 114,809 ) ( 292,646 ) ( 225,668 ) Total income (loss) from operations $ 268,902 $ ( 73,000 ) $ 494,348 $ ( 3,082 ) Stock-based compensation Clear Aligner $ 2,632 $ 2,096 $ 4,926 $ 4,625 Systems and Services 174 153 345 231 Unallocated corporate expenses 26,049 22,758 50,825 43,078 Total stock-based compensation $ 28,855 $ 25,007 $ 56,096 $ 47,934 Depreciation and amortization Clear Aligner $ 12,170 $ 9,697 $ 23,290 $ 19,818 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 (loss) before provision for (benefit from) income taxes (in thousands): Three Months Ended June 30, Six Months Ended June 30, 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 (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 (loss) before provision for (benefit from) income taxes $ 268,802 $ ( 73,493 ) $ 530,423 $ ( 20,138 ) 21 Table of Contents Geographical Information Net revenues are presented below by geographic area (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net revenues 1 : U.S. $ 434,398 $ 140,859 $ 817,400 $ 412,564 Switzerland 366,334 105,495 681,784 292,771 China 66,440 46,377 127,652 66,102 Other International 143,636 59,583 278,743 131,840 Total net revenues $ 1,010,808 $ 352,314 $ 1,905,579 $ 903,277 1 Net revenues are attributed to countries based on the location of where revenues are recognized by our legal entities. Tangible long-lived assets, which includes Property, plant and equipment, net, and Operating lease right-of-use assets, net, are presented below by geographic area (in thousands): June 30, 2021 December 31, 2020 Long-lived assets 1 : Switzerland $ 416,871 $ 257,337 U.S. 193,814 180,539 China 126,033 113,918 Costa Rica 95,860 97,804 Other International 221,699 167,676 Total long-lived assets $ 1,054,277 $ 817,274 1 Long-lived assets are attributed to countries based on the location of our entity that owns or leases the assets. 22 Table of Contents