What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-02 compared with 2021-08-04 · 158 added, 134 removed, 549 unchanged (35% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

6 unchanged sentences

Total operating expenses 493,996 357,019 1,435,284 978,785

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

Income from operations 261,160 177,069 755,508 173,987

Interest income and other income (expense), net:

2 unchanged sentences

Total interest income and other income (expense), net 828 7,476 36,903 ( 9,580 )

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

Net income before provision for (benefit from) income taxes 261,988 184,545 792,411 164,407

Provision for (benefit from) income taxes 81,019 45,174 211,352 ( 1,452,493 )

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

Net income (loss) per share:

Net income $ 180,969 $ 139,371 $ 581,059 $ 1,616,900

Net income per share:

$ 2.29 $ 1.77 $ 7.36 $ 20.54

$ 2.28 $ 1.76 $ 7.29 $ 20.45

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

Shares used in computing net income per share:

78,904 78,824 78,971 78,729

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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

Net income $ 180,969 $ 139,371 $ 581,059 $ 1,616,900

Change in foreign currency translation adjustment, net of tax ( 12,037 ) 15,810 ( 25,902 ) 25,793

2 unchanged sentences

( 12,017 ) 15,810 ( 25,902 ) 25,599

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

Comprehensive income $ 168,952 $ 155,181 $ 555,157 $ 1,642,499

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

2 unchanged sentences

(in thousands, except per share data)

September 30,

2021 December 31,

38 unchanged sentences

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

Three Months Ended September 30, 2021 Shares Amount

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

Net income — — — — 180,969 180,969

Net change in unrealized gains (losses) from investments — — — 20 — 20

Net change in foreign currency translation adjustment — — — ( 12,037 ) — ( 12,037 )

4 unchanged sentences

Stock-based compensation — — 28,402 — — 28,402

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

Balance as of September 30, 2021 78,852 $ 8 $ 972,450 $ 17,599 $ 2,526,705 $ 3,516,762

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

Six Months Ended June 30, 2021 Shares Amount

Nine Months Ended September 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 — — — — 581,059 581,059

Net change in unrealized gains (losses) from investments — — — ( 20 ) — ( 20 )

Net change in foreign currency translation adjustment — — — ( 25,902 ) — ( 25,902 )

2 unchanged sentences

Common stock repurchased and retired ( 442 ) — ( 4,884 ) — ( 270,154 ) ( 275,038 )

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

Stock-based compensation — — 84,498 — — 84,498

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

Balance as of September 30, 2021 78,852 $ 8 $ 972,450 $ 17,599 $ 2,526,705 $ 3,516,762

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

3 unchanged sentences

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 )

Three Months Ended September 30, 2020 Shares Amount

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

Net Income — — — — 139,371 139,371

Net change in foreign currency translation adjustment — — — 15,810 — 15,810

2 unchanged sentences

Stock-based compensation — — 25,229 — — 25,229

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

Balance as of September 30, 2020 78,849 $ 8 $ 951,740 $ 24,911 $ 2,056,812 $ 3,033,471

Common Stock Additional

3 unchanged sentences

Retained Earnings Total

Six Months Ended June 30, 2020 Shares Amount

Nine Months Ended September 30, 2020 Shares Amount

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

5 unchanged sentences

Stock-based compensation — — 73,163 — — 73,163

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

Balance as of September 30, 2020 78,849 $ 8 $ 951,740 $ 24,911 $ 2,056,812 $ 3,033,471

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

2 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

7 unchanged sentences

Arbitration award gain ( 43,403 ) —

Impairments on equity investments — 3,787

Other non-cash operating activities 14,092 14,189

22 unchanged sentences

Common stock repurchases ( 275,038 ) —

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

Payroll taxes paid upon the vesting of equity awards ( 107,344 ) ( 48,674 )

1 unchanged sentence

Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash ( 10,241 ) ( 568 )

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

Net increase in cash, cash equivalents, and restricted cash 276,976 64,988

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

6 unchanged sentences

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.

(“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 nine months ended September 30, 2021 and 2020, our comprehensive income for the three and nine months ended September 30, 2021 and 2020, our financial position as of September 30, 2021, our stockholders’ equity for the three and nine months ended September 30, 2021 and 2020, and our cash flows for the nine months ended September 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 results of operations for the three and nine months ended September 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.

3 unchanged sentences

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.

2 unchanged sentences

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.

Further, we could also be materially adversely affected by supply chain disruptions, including shortages and inflationary pressures, uncertain or reduced demand, labor shortages, delays in collection of outstanding receivables and the impact of any initiatives or programs that we may undertake to address financial and operational challenges faced by our customers.

Recent Accounting Pronouncements

17 unchanged sentences

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):

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

Description Balance as of

June 30, 2021 Level 1

September 30, 2021 Level 1

Cash equivalents:

11 unchanged sentences

$ 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.

1 The unsecured promissory note was paid in full by SmileDirectClub, LLC (“SDC”) during the nine months ended September 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.

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 nine months ended September 30, 2021.

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

Investments in Privately Held Companies

Investments in equity securities of privately held companies without readily determinable fair values was $ 8.6 million as of September 30, 2021 and not material as of December 31, 2020 and are reported as nonrecurring investments within other assets in our Condensed Consolidated Balance Sheet.

Our investments in equity securities are considered Level 3 in the fair value hierarchy since the investments are in private companies without quoted market prices and we adjust the carrying value based on observable price changes.

The adjustments to the carrying value of these investments was not material during the nine months ended September 30, 2021 and 2020.

Derivatives Not Designated as Hedging Instruments

2 unchanged sentences

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.

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

As a result of the settlement of foreign currency forward contracts, during the three months ended September 30, 2021 and 2020, we recognized net gains of $ 14.7 million and net losses of $ 12.1 million, respectively, and during the nine months ended September 30, 2021 and 2020, we recognized net gains of $ 14.1 million and $ 0.6 million, respectively.

As of September 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 September 30, 2021 and December 31, 2020 (in thousands):

September 30, 2021

Local Currency Amount Notional Contract Amount (USD)

2 unchanged sentences

Canadian Dollar C$ 100,000 78,563

British Pound £ 45,810 63,331

Japanese Yen ¥ 6,097,800 54,496

British Pound £ 40,250 54,296

Brazilian Real R$ 285,000 52,073

Polish Zloty PLN 142,000 35,710

Israeli Shekel ILS 54,600 16,759

Mexican Peso M$ 310,000 15,065

Israel Shekel ILS 38,400 11,914

Swiss Franc CHF 10,600 11,356

Australian Dollar A$ 5,900 4,252

13 unchanged sentences

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.

During the nine months ended September 30, 2020, we recognized a loss of $ 10.2 million within other income (expense), net in our Condensed Consolidated Statement of Operations.

Balance Sheet Components

Inventories consist of the following (in thousands):

September 30,

2021 December 31,

4 unchanged sentences

Accrued liabilities consist of the following (in thousands):

September 30,

2021 December 31,

Accrued payroll and benefits $ 229,743 $ 170,106

Accrued sales and marketing expenses 67,820 34,488

Accrued expenses 62,828 42,536

Accrued sales and marketing expenses 55,310 34,488

Accrued property, plant and equipment 41,389 27,692

Accrued income taxes 35,152 30,130

Accrued professional fees 29,488 20,617

3 unchanged sentences

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

Nine Months Ended

September 30,

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

3 unchanged sentences

Deferred revenues consist of the following (in thousands):

September 30,

2021 December 31,

3 unchanged sentences

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.

During the three months ended September 30, 2021 and 2020, we recognized $ 1.0 billion and $ 734.1 million of net revenues, respectively, of which $ 112.6 million and $ 99.6 million was included in the deferred revenues balance at December 31, 2020 and 2019, respectively.

During the nine months ended September 30, 2021 and 2020, we recognized $ 2.9 billion and $ 1.6 billion of net revenues, respectively, of which $ 349.7 million and $ 263.3 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 September 30, 2021 were $ 1.2 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 six months ended June 30, 2021, categorized by reportable segments, is as follows (in thousands):

During the three months ended September 30, 2021, we completed an immaterial business combination which increased goodwill and existing technology intangible assets.

The change in the carrying value of goodwill for the nine months ended September 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

Additions from acquisition 3,646 — 3,646

Foreign currency translation adjustments

( 3,062 ) ( 18,807 ) ( 21,869 )

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

Balance as of September 30, 2021 $ 113,275 $ 313,319 $ 426,594

Intangible Long-Lived Assets

2 unchanged sentences

(in years) Gross Carrying Amount as of

June 30, 2021 Accumulated

September 30, 2021 Accumulated

Impairment Loss

June 30, 2021

September 30, 2021

Existing technology 10 $ 104,531 $ ( 19,923 ) $ ( 4,328 ) $ 80,280

17 unchanged sentences

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):

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

Fiscal Year Ending December 31, Amortization

2 unchanged sentences

Total $ 110,190

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.

Amortization expense for the three months ended September 30, 2021 and 2020 was $ 4.4 million and $ 4.1 million, respectively, and amortization expense for the nine months ended September 30, 2021 and 2020 was $ 12.2 million and $ 9.5 million, respectively.

Credit Facility

6 unchanged sentences

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

Legal Proceedings

9 unchanged sentences

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.

A hearing on that motion was held on October 21, 2021.

At the hearing, the Court directed Lead Plaintiff to file an amended motion seeking preliminary approval of the settlement by November 1, 2021 and the Court indicated it will thereafter grant preliminary approval of the settlement.

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

2019 Shareholder Derivative Lawsuit

2 unchanged sentences

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.

associated with the litigation, including attorneys’ fees.

The consolidated action has been stayed pending final disposition of the 2018 Securities Class Action Lawsuit.

12 unchanged sentences

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.

Lead plaintiff filed a notice of appeal on April 28, 2021 and filed its opening appeal brief with the United States Court of Appeals for the Ninth Circuit on September 1, 2021.

Respondents ’ brief in opposition is due November 22, 2021.

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

3 unchanged sentences

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.

7 unchanged sentences

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.

Align’s motion to dismiss these 3Shape counterclaims was granted.

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

8 unchanged sentences

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.

In response, 3Shape filed b usiness tort and patent infringement counterclaims.

Align moved to dismiss the business tort counterclaims .

The Court granted Align ’s motion

to dismiss all of the business tort counterclaims except for a counterclaim of fraudulent inducement.

Align filed a separate motion to dismiss on that counterclaim which is pending.

3Shape and Align’s District Court patent infringement complaints and 3Shape’s 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.

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

No trial dates have been set in the remaining cases.

1 unchanged sentence

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.

4 unchanged sentences

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 jury trial is scheduled to begin in this matter on November 20, 2023.

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

2 unchanged sentences

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 moved to dismiss the first amended complaint.

On September 30, 2021, the Court dismissed the complaint and granted Plaintiffs leave to amend.

Plaintiffs filed a second amended complaint on October 21, 2021 .

Align has not yet responded to the second amended complaint.

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

14 unchanged sentences

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.

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 is set for hearing in the first quarter of 2022.

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.

8 unchanged sentences

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.

As of September 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

6 unchanged sentences

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.

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

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.

As of September 30, 2021, the 2005 Incentive Plan (as amended) has a total reserve of 27,783,379 shares of which 4,236,601 shares are available for issuance.

Summary of Stock-Based Compensation Expense

1 unchanged sentence

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):

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

6 unchanged sentences

RSUs granted generally vest over a period of four years .

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

A summary for the nine months ended September 30, 2021 is as follows:

Number of Shares

8 unchanged sentences

Forfeited ( 33 ) 343.14

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.

Unvested as of September 30, 2021 507 $ 365.16 1.4 $ 337,271

As of September 30, 2021, we expect to recognize $ 132.3 million of total unamortized compensation cost, net of estimated forfeitures, related to RSUs over a weighted average period of 2.3 years.

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

3 unchanged sentences

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:

A summary for the nine months ended September 30, 2021 is as follows:

Number of Shares

8 unchanged sentences

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.

Unvested as of September 30, 2021 174 $ 551.57 1.2 $ 115,851

As of September 30, 2021, we expect to recognize $ 45.4 million of total unamortized compensation cost, net of estimated forfeitures, related to MSUs over a weighted average period of 1.2 years.

Employee Stock Purchase Plan (“ESPP”)

1 unchanged sentence

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.

As of September 30, 2021, we have 2,194,566 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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Expected term (in years) 1.2 1.0 1.1 1.0

3 unchanged sentences

Weighted average fair value at grant date $ 257.89 $ 117.32 $ 246.84 $ 96.94

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.

As of September 30, 2021, there was $ 15.0 million of total unamortized compensation costs related to employee stock purchases which we expect to be recognized over a weighted average period of 0.7 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.

As of September 30, 2021, the authorization under 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.

As of September 30, 2021, we have $ 825.0 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.

During 2021, we entered into the following ASRs providing for the repurchase of our common stock based on the volume-weighted average price during the term of the agreement, less an agreed upon discount.

The table below sets forth information regarding our repurchases following table summarizes the information regarding repurchases of our common stock during the nine months ended September 30, 2021:

Date Repurchase

Program Amount Paid

(in millions) Completion

Date Total Shares

Received Average Price per Share

April 30, 2021 May 2018 $ 100.0 July 30, 2021 171,322 $ 583.70

May 17, 2021 May 2021 $ 100.0 August 31, 2021 161,707 $ 618.40

August 2, 2021 May 2021 $ 75.0 September 27, 2021 109,239 $ 686.91

As of September 30, 2021, all the ASRs have been completed and the repurchased shares retired.

Subsequent to the third quarter, on October 29, 2021, we entered into an ASR to repurchase $ 100.0 million of our common stock.

We paid $ 100.0 million 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 $ 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.

Our provision for income taxes was $ 81.0 million and $ 45.2 million for the three months ended September 30, 2021 and 2020, respectively representing effective tax rates of 30.9 % and 24.5 %, respectively.

Our provision for income taxes was $ 211.4 million for the nine months ended September 30, 2021 and our benefit from income taxes was $ 1,452.5 million for the nine months ended September 30, 2020, representing effective tax rates of 26.7 % and ( 883.5 )%, respectively.

Our effective tax rate differs from the statutory federal income tax rate of 21% for the three and nine months ended September 30, 2021 primarily due to foreign income taxed at different rates, state income taxes, and non-deductible expenses in the U.S., 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 September 30, 2020 primarily due to state income taxes and non-deductible expenses in the U.S., partially offset by a tax benefit resulting from settlement of an income tax audit.

Our effective tax rate differs from the statutory federal income tax rate of 21% for the nine months ended September 30, 2020 mainly as a result of the recognition of tax benefits associated with the intra-entity transfer of certain intellectual property rights and fixed assets completed last year.

During the nine months ended September 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.

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 nine months ended September 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 $ 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.

Our total gross unrecognized tax benefits, excluding interest and penalties, were $ 64.6 million and $ 46.3 million as of September 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 September 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 $ 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):

Our total deferred tax liabilities were $ 32.3 million and $ 35.7 million as of September 30, 2021 and December 31, 2020, respectively, which were 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):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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

Net income $ 180,969 $ 139,371 $ 581,059 $ 1,616,900

Weighted average common shares outstanding, basic 78,904 78,824 78,971 78,729

1 unchanged sentence

Total shares, diluted 79,516 79,163 79,677 79,078

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

Net income per share, basic $ 2.29 $ 1.77 $ 7.36 $ 20.54

Net income per share, diluted $ 2.28 $ 1.76 $ 7.29 $ 20.45

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.

1 Represents RSUs and MSUs 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):

Six Months Ended

Nine Months Ended

September 30,

Non-cash investing and financing activities:

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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.

We group our operations into two reportable segments:

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

5 unchanged sentences

Total gross profit $ 755,156 $ 534,088 $ 2,190,792 $ 1,152,772

Income (loss) from operations

Income from operations

Clear Aligner $ 346,957 $ 261,774 $ 1,022,048 $ 467,078

1 unchanged sentence

Unallocated corporate expenses ( 151,588 ) ( 119,617 ) ( 444,234 ) ( 345,285 )

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

Total income from operations $ 261,160 $ 177,069 $ 755,508 $ 173,987

Stock-based compensation

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Total depreciation and amortization $ 27,614 $ 24,486 $ 79,141 $ 68,769

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):

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):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

1 unchanged sentence

Unallocated corporate expenses ( 151,588 ) ( 119,617 ) ( 444,234 ) ( 345,285 )

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

Total income from operations 261,160 177,069 755,508 173,987

Interest income 401 329 2,427 2,788

Other income (expense), net 427 7,147 34,476 ( 12,368 )

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

Net income before provision for (benefit from) income taxes $ 261,988 $ 184,545 $ 792,411 $ 164,407

Geographical Information

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

7 unchanged sentences

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):

September 30,

2021 December 31, 2020

8 unchanged sentences

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