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Item 1A. Risk Factors

2021-11-02 compared with 2021-08-04 · 133 added, 85 removed, 505 unchanged (30% of the section changed)

The following discussion is divided into two sections.

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

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

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

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• Our operating results have and will fluctuate in the future, which makes predicting the timing and amount of our revenues, costs and expenditures difficult.

• A disruption in the operations of a primary freight carrier or higher shipping costs could cause a decline in our net revenues or a reduction in our earnings.

• A disruption in the operations of a primary freight carrier, higher shipping costs or shipping delays could cause a decline in our net revenues or a reduction in our earnings.

• If we fail to accurately predict our volume growth and hire too many or too few technicians, the delivery time of our products could be delayed or our costs may exceed our revenues, each of which could adversely affect our results of operations.

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• If we or any vendors on whose products or services we rely for our products and services infringe the patents or IP rights of other parties or are subject to a patent infringement claim, our ability to grow our business may be severely limited.

• We maintain single supply relationships for certain key machines and materials, and our business and operating results could be harmed if supply is restricted or ends or the price of raw materials used in our manufacturing process increases.

• We are highly dependent on third party suppliers, some of whom are sole source suppliers for certain key machines, components and materials, and our business and operating results could be harmed if supply is restricted or ends or the price of raw materials used in our manufacturing process increases.

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

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Impairments in the value of our investments could negatively impact our financial results.

• The requirements to comply with current or future environmental, health and safety and workforce laws may materially increase our costs, expose us to potential liability and otherwise materially impact our business.

General Risk Factors

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

• We cannot guarantee we will repurchase our common stock again in the future, and any repurchases may not achieve our objectives.

• We cannot guarantee that we will continue to repurchase our common stock in the future, and any repurchases that we may make may not achieve our desired objectives.

• Future sales of significant amounts of our common stock may depress our stock price.

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Many of these effects continue to varying degrees and further outbreaks of COVID-19 globally or regionally may harm recovering consumer confidence or renew implementation of harsh preventative measures.

Because COVID-19 spreads readily through airways in nasal passages and the mouth, our principal customers, dental and orthodontic practices, were an initial focus of efforts to prevent the spread of the virus leading to the complete or substantial closures of their operations;

materially harming our sales and sales efforts.

In particular, these preventative measures in the first and second quarters of 2020 materially adversely impacted our business and financial results.

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The actions and reactions to voluntary and involuntary requirements have been highly disruptive to our business and may continue to be disruptive.

As physical offices are allowed to reopen, the rules and regulations for reopening will likely increase in complexity, making compliance more difficult.

As physical offices are allowed to reopen, the rules and regulations for reopening will likely increase in

complexity, making compliance more difficult.

Furthermore, if employees perceive the protocols and requirements we implement to create a safe and effective work environment to be inadequate, overly burdensome or no longer necessary, employees may choose to leave, productivity may decline or we may experience employee unrest, slowdowns, stoppages or other demands, we may fail to timely meet customer demand or fulfill orders, the costs to maintain or implement protective measures or deliver our products may increase, and we may be subject to increased litigation, including product liability and occupational safety and condition claims.

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

As the economic and societal impact of the pandemic continues to unfold, we are continually evaluating macroeconomic as well as industry-specific factors, including the extent our business and financial results have been and may in the future be impacted as well as those of our customers and suppliers, and the financial health and stability of businesses and consumers overall depends on numerous evolving factors, many of which we cannot control nor accurately predict.

Examples include:

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

• disruptions and shortages impacting the cost, availability and timing of the procurement, delivery, manufacturing and overall supply chain for raw materials, components, parts and products, including semiconductor chips;

• delays and cancellations as a result of port congestion and intermittent supplier shutdowns;

• travel and gathering restrictions, including those that adversely impair or prohibit our sales personnel from interacting with customers or that limit patients from visiting their doctors or the number of patients doctors can see in their offices;

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

• the impact of remote working arrangements on our financial reporting systems and internal control over financial reporting, including our ability to ensure information required to be disclosed is timely and accurately recorded, processed, summarized, reported, and communicated to management, including our Chief Executive and Chief Financial Officers, as appropriate, to allow for timely decisions regarding required disclosure;

• the impact of remote working arrangements on our financial reporting systems and internal control over financial reporting, including our ability to ensure information required to be disclosed is timely and accurately recorded, processed, summarized, reported, and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure;

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

The impact of the pandemic continues to evolve and we cannot predict the future impact on our business or results of operations;

although it may have a material adverse effect on our business, financial condition, results of operations, cash flows and stock price as well as the businesses of our customers, and economic activity generally.

The effects of the pandemic continue to linger and evolve and we cannot predict the future direct and ancillary impacts of the pandemic on our business or results of operations, although they may have a material adverse effect on our business, financial condition, results of operations, cash flows and stock price as well as the businesses of our customers, suppliers and economic activity generally.

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

Our net revenues are largely dependent on sales of our Invisalign System of clear aligners an d iTero intraoral scanners.

Of the two, we expect net revenues from the sale of the Invisalign System, primarily our comprehensive products, will continue to account for the majority of our net revenues;

making the continued and widespread acceptance of the Invisalign System by orthodontists, GPs and consumers critical to our future success.

Sales of our iTero scanners are becoming a larger percentage of our overall revenues and we expect the acquisition of exocad to complement the adoption of digital dentistry.

If orthodontists and GPs experience a reduction in consumer demand for orthodontic services, if consumers prove unwilling to adopt Invisalign System treatment as rapidly or in the volumes we anticipate and at the prices offered, if orthodontists or GPs choose to continue using wires and brackets or competitive products rather than the Invisalign System or the rates at which they utilize the Invisalign System fail to increase, if sales of our iTero scanners decline or fail to grow sufficiently or as expected, if the acquisition of exocad does not produce the results expected, or if the average selling price of our products declines for any reason, our operating results could be harmed.

The average selling prices of our products, particularly our Invisalign System, are influenced by numerous factors, including the type and timing of products sold, price increases and reductions, product mix, product and services bundling, promotions, and foreign exchange rates.

Our net revenues remain largely dependent on sales of our Invisalign System of clear aligners an d iTero intraoral scanners.

Of the two, we expect net revenues from the sale of the Invisalign System, primarily our comprehensive products, will continue to account for the majority of our net revenues, making the continued and widespread acceptance of the Invisalign System by orthodontists, GPs and consumers critical to our future success.

Sales of our iTero scanners have become a material percentage of our overall revenues and we expect our 2020 acquisition of exocad to complement the adoption of digital dentistry.

If orthodontists and GPs experience a reduction in consumer demand for orthodontic services;

if consumers prove

unwilling to adopt Invisalign System treatment as rapidly or in the volumes we anticipate and at the prices offered;

if orthodontists or GPs choose to continue using wires and brackets or competitive products rather than the Invisalign System or the rates at which they utilize the Invisalign System fail to increase or increase as rapidly as anticipated;

if sales of our iTero scanners decline or fail to grow sufficiently or as expected;

if the acquisition of exocad does not produce the results expected;

or if the average selling price of our products declines for any reason, our operating results could be harmed.

The average selling prices of our products, particularly our Invisalign System, are influenced by numerous factors, including the type and timing of products sold (including the timing of orders for additional clear aligners under certain Invisalign products), price increases and reductions, product mix, product and services bundling, promotions, and foreign exchange rates.

We provide volume-based discount programs to our customers.

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or if our geographic, channel, or product mix shifts to lower priced products or to products that have a higher percentage of deferred revenue, our average selling prices would be adversely affected.

Moreover, some programs, products and services may be unsuccessful or may drive demand in unexpected ways.

If any of the foregoing to occur, our net revenues, gross profit, gross margin and net income may decline.

Moreover, some programs, products and services have been unsuccessful or driven demand in unexpected and material ways and this may happen again in the future.

If any of the foregoing were to occur, our net revenues, gross profit, gross margin and net income may decline.

Competition in the markets for our products is increasing and we expect aggressive competition from existing competitors, other companies that may introduce new technologies in the future and customers who alone or with others create aligners, or retainers or other products or services that compete with us.

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

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

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

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

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Invisalign System treatment requires a doctor's prescription and an in person physical examination of the patient’s dentition before beginning treatment;

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

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

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

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• fluctuations in currency exchange rates;

• import and export risks, penalties, controls, license requirements and restrictions;

• import and export risks, including shipping delays and cost increases, penalties, controls, license requirements and restrictions;

• controlling production volume and quality of the manufacturing process;

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If any of these events or conditions to occur, the impact to us, our employees and customers is uncertain, particularly if emergency circumstances, armed conflicts or an escalation in political instability or violence were to occur;

• general geopolitical instability and the responses to it, such as the possibility, threat of, imposition of, or changes in sanctions, trade restrictions and tariffs, particularly involving key customer, development or manufacturing markets such as China, Mexico, Russia, Eastern Europe or other countries;

• general geopolitical instability and the responses to it, such as the possibility, threat of, imposition of, or changes in sanctions, trade restrictions and tariffs, particularly involving key customers, development or manufacturing markets such as China, Mexico, Russia, Eastern Europe or other countries;

• interruptions and limitations in telecommunication services or critical systems or applications reliant on a stable and uninterrupted communications infrastructure;

• production or material transportation delays or disruption, including as a result of customs clearance, workforce unrest, slowdowns or stoppages, unionization efforts, or as a result of disasters, whether as a natural forces or human caused;

• delays, disruptions and increasing costs to us and our suppliers for raw materials or components, manufacturing, and transportation, including as a result of customs clearance, port congestion, workforce unrest or labor shortages, slowdowns or stoppages, unionization efforts, or disasters, whether natural forces or human caused;

• burdens of complying with a wide variety of regional and local laws, including anti-trust, and competition laws;

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• potential adverse tax consequences.

The potential impacts of the United Kingdom’s (“UK”) withdrawal from the European Union ("EU") is still unfolding and could, among other potential outcomes, adversely affect the tax, tax treaty, currency, operational, legal and regulatory regimes to which our businesses are subject, including those involving data privacy and the regulation of medical devices.

The withdrawal could also, among other potential outcomes, disrupt the free movement of goods, services, people, data and information and significantly disrupt trade.

The potential impacts of the United Kingdom’s (“UK”) withdrawal from the European Union ("EU") are still unfolding and could, among other potential outcomes, adversely affect the tax, tax treaty, currency, operational, legal and regulatory regimes to which our businesses are subject, including those involving data privacy and the regulation of medical devices.

The withdrawal could also, among other potential outcomes, disrupt the free and timely movement of goods, services, people, data and information and significantly disrupt trade.

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

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Demand for our products may not increase as rapidly as we anticipate or may decrease due to a variety of factors, including a weakness in general economic conditions and resistance to non-traditional treatment methods.

Consumer spending habits are affected by, among other things, pandemics, prevailing economic conditions, levels of employment, salaries and wage rates, debt obligations, discretionary income, consumer confidence and consumer perception of current and future economic conditions.

Consumer spending habits are affected by, among other things, pandemics, prevailing economic conditions, levels of employment, salaries and wage rates, debt obligations, discretionary income, inflation, consumer confidence and consumer perception of current and future economic conditions.

Declines in, or uncertain economic outlooks for, the U.S.

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In order to manage current operations and future growth effectively, we must continue implementing and improving our operational, financial and management information systems, hire, train, motivate, manage and retain employees, and ensure our suppliers remain diverse and capable of meeting growing demand for the systems, raw materials, parts and components essential to the manufacture and delivery of our products.

We may be unable to manage such growth effectively;

balancing near-term efforts to meet existing demand while adding personnel, creating scalable, secure and robust systems and operations, and automating processes needed for long term efficiencies.

We may be unable to manage such growth effectively while balancing near-term efforts to meet existing demand, including adding personnel, creating scalable, secure and robust systems and operations, and automating processes needed for long term efficiencies.

Any such failure could have a material adverse impact on our business, operations and prospects.

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

We continue to establish treatment planning and manufacturing facilities closer to our international customers in order to provide doctors with better experiences, improve their confidence in using the Invisalign System and iTero intraoral scanners to treat more patients and provide redundancy should other facilities be temporarily or permanently unavailable.

Our ability to obtain regulatory clearance and certifications for, move into, plan, construct and equip additional order acquisition, treatment planning and manufacturing facilities is subject to significant risk and uncertainty, including risks related to establishing facilities, hiring and retaining employees and delays and cost overruns, any of which may be out of our control and may negatively impact our gross margin.

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

If the transition into additional facilities is significantly delayed, if a facility is required to temporarily or permanently, partially or fully shut down, or demand for our products outpaces our ability to hire qualified personnel and effectively implement systems and infrastructure, we may be unable to fulfill orders timely, or at all, which may negatively impact our financial results, reputation and overall business.

If the transition into additional facilities is significantly delayed, if a facility is required to temporarily or permanently, partially or

fully shut down, or demand for our products outpaces our ability to hire qualified personnel and effectively implement systems and infrastructure, we may be unable to fulfill orders timely, or at all, which may negatively impact our financial results, reputation and overall business.

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

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Additionally, if we are required to implement new or modify existing health and safety protocols to safeguard our employees, customers or their patients, productivity could decline.

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

Production of our clear aligners and intraoral scanners are also limited by capacity constraints due to a variety of factors, including labor shortages, shipping delays, our dependency on third party vendors for key materials, parts, components and equipment, and limited production yields.

Any or all of these problems could result in the loss of customers, provide an opportunity for competing products to gain market acceptance and otherwise harm our business and financial results.

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A significant portion of our clear aligner production is dependent on digital scans from our iTero and third-party intraoral scanners.

Failures of all or any portion of ours or third party software or other components or systems to interoperate with iTero or third party scanners, termination of interoperability with third party scanners, malware or ransomware attacks, product or system vulnerabilities or defects, or a system outage for any reason have harmed our operations previously and in the future could materially adversely effect our ability to accept scans, manufacture clear aligners or otherwise service our customers which may, amongst other things, harm our sales, damage our reputation, or result in litigation.

system vulnerabilities or defects, or a system outage for any reason have harmed our operations previously and in the future could affect materially and adversely our ability to accept scans, manufacture clear aligners or otherwise service our customers which may, amongst other things, harm our sales, damage our reputation, or result in litigation.

If the information we rely on to run our businesses is inaccurate or unreliable, if we fail to properly maintain, secure or restore our IT systems, if the integrity of our products or IT systems is compromised or questioned or data is lost, or if we fail to develop new capabilities to meet our business needs in a timely manner, we could suffer operational disruptions, have customer disputes, and fail to produce timely, accurate or complete reports.

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Affected parties could initiate legal or regulatory action against us, which could cause us to incur significant expense and liability or result in judicial or governmental orders forcing us to cease operations or modify our business practices in ways that could materially limit or restrict the products and services we provide.

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

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

In addition, patient care could suffer, and we could be liable if our products or IT systems fail to deliver accurate and complete information in a timely manner.

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The policy also provides coverage for regulatory action defense including fines and penalties, potential payment card industry fines and penalties and costs related to cyber extortion;

however, damage and claims arising from such incidents may not be covered or may exceed the amount of any coverage.

however, damages and claims arising from such incidents may not be covered or may exceed the amount of any coverage.

We are also subject to federal, state and foreign laws and regulations, including ones relating to privacy, data security and protection, content regulation, and consumer protection among others.

We are subject to various national and regional data localization or data residency laws which generally require that certain types of data collected within a country be stored and processed only within that country or approved countries and other countries are considering enacting similar data localization or data residency laws.

We have and likely will again in the future be required to implement new or expand existing data storage protocols, build new storage facilities, and/or devote additional resources to comply with the requirements of such laws, any of which could have significant cost implications.

any of which could have significant cost implications.

We are also subject to data export restrictions and international transfer laws which prohibit or impose conditions upon the transfer of such data from one country to another.

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For instance, China has enacted new, complex and highly restrictive cybersecurity, data localization, and cross border data transfer laws.

In the EU, we must comply with the General Data Protection Regulation which serves as a harmonization of EU data-privacy laws, and in the U.S.

we must comply with data privacy and data security provisions of the U.S.

In the EU, we must comply with the General Data Protection Regulation which serves as a harmonization of EU data-privacy laws, and in the U.S., we must comply with data privacy and data security provisions of the U.S.

Health Insurance Portability and Accountability Act ("HIPAA") regulations.

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If we are to sustain or increase profitability in future periods, we need to continue increasing our net revenues, while controlling expenses.

Because our business and the markets we target are evolving, it is difficult to predict our future operating

results or levels of growth or declines, and we have not in the past and may be unable in the future to sustain or regain our historical growth rates which may cause our profitability to decline.

Because our business and the markets we target are evolving, it is difficult to predict our future operating results or levels of growth or declines, and we have not in the past and may be unable in the future to sustain or regain our historical growth rates which may cause our profitability to decline.

Our operating results have and will continue to fluctuate in the future, which makes predicting the timing and amount of our revenues, costs and expenditures difficult.

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Some of the factors that have historically and in the future could cause our operating results to fluctuate include:

• limited visibility into and difficulty predicting from quarter to quarter, the level of activity in our customers’ practices;

• limited visibility into and difficulty predicting from quarter to quarter, the types of procedures and level of activities in our customers’ practices;

• changes in geographic, channel, or product mix;

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• our inability to scale, suspend or reduce production based on variations in product demand;

• seasonal fluctuations, including those related to patient demographics such as teen buying habits in the U.S., China and Europe as well as the number of doctors in their offices and their availability to take appointments;

• seasonal fluctuations, including those related to patient demographics such as the seasonality of teen treatments in the U.S., China and Europe as well as the number of doctors in their offices and their availability to take appointments;

• success of or changes to our marketing programs from quarter to quarter;

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• changes to our effective tax rate;

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

• unanticipated delays and disruptions in the manufacturing process caused by insufficient capacity or availability of raw materials, parts or components, shortages or turnover in the labor force or the introduction of new production

processes, power outages or insufficient power, natural or other disasters, pandemics or general economic conditions impacting the solvency of vendors in our supply chain;

• underutilization of manufacturing and treat facilities;

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

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

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

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

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Due to these and other factors, we do not believe that quarter-to-quarter comparisons of our operating results are meaningful.

A disruption in the operations of a primary freight carrier or higher shipping costs could cause a decline in our net revenues or a reduction in our earnings.

A disruption in the operations of a primary freight carrier, higher shipping costs or shipping delays could cause a decline in our net revenues or a reduction in our earnings.

We are dependent on commercial freight carriers, primarily UPS, to deliver our products.

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This could cause a decline in our net revenues and net income and could adversely affect our results of operations.

Conversely, if we hire and train too many technicians in anticipation of volume growth that does not materialize, materializes at a rate slower than anticipated, or if volumes decline, our costs and expenditures may outpace our revenue growth, harming our gross margins, operating expenses and financial results.

We are dependent on our marketing activities to deepen our market penetration and raise awareness of our brand and products, which may not prove successful or may become less effective or more costly to maintain in the long term.

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however, there is no assurance our campaigns will achieve the returns on advertising spend desired, successfully increase brand or product awareness sufficiently to sustain or increase our growth goals or generate the goodwill and positive reputational goals we intend.

Moreover, should any of these entities or individuals do, say, publish or lend support to events or causes which may be perceived by all or any portion of society negatively, our sponsorships or support of these entities or individuals may be called into question, boycotts of our products announced, and our reputation may be harmed, any of which could have an adverse effect on our gross margin and business overall.

In addition, various countries restrict direct to consumer advertising of our products and we could run afoul of restrictions and be ordered to stop certain marketing activities.

Moreover, should any of these entities or individuals take actions in support of, make or publish statements in support of or lend support to events or causes which may be perceived by all or any portion of society negatively, our sponsorships or support of these entities or individuals may be called into question, boycotts of our products announced, and our reputation may be harmed, any of which could have an adverse effect on our gross margin and business overall.

various countries restrict direct to consumer advertising of our products and we could run afoul of restrictions and be ordered to stop certain marketing activities.

Additionally, we rely heavily on data generated from our campaigns to target specific audiences and evaluate their effectiveness, particularly data generated from Internet activities on mobile devices.

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Any changes in such systems that degrade, reduce or eliminate our ability to target or measure the results of ads or increase costs to target audiences could adversely affect the effectiveness of our campaigns.

For example, Apple recently released iOS 14 that includes significant data privacy changes that may limit our ability to interpret, target and measure ads effectively.

For example, Apple has released mobile operating systems that include significant data privacy changes that may limit our ability to interpret, target and measure ads effectively.

Our success depends in part on our proprietary technology, and if we fail to successfully obtain or enforce our intellectual property rights, our competitive position may be harmed.

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patents and IP laws.

Moreover, our

foreign patent portfolio is less extensive than our U.S.

Moreover, our foreign patent portfolio is less extensive than our U.S.

We also rely on protection of our copyrights, trademarks, trade secrets, know-how and proprietary information.

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

For instance, regulations affecting the security and privacy of patient healthcare information held by healthcare providers and their business associates such as HIPAA may require us to make significant and unplanned enhancements of software applications or services, result in delays or cancellations of orders, or result in the revocation of endorsement of our products and services by healthcare participants.

For instance, regulations affecting the security and privacy of patient healthcare information applicable to healthcare providers and

their business associates, such as HIPAA, may require us to make significant and unplanned enhancements of software applications or services, result in delays or cancellations of orders, or result in the revocation of endorsement of our products and services by healthcare participants.

Our critical vendors and service providers are similarly subject to various regulations.

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• the marketing and advertising of our products.

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

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

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

We may furthermore suffer financial and reputational harm if customers require, and we are unable to deliver, certification that our products are conflict free.

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

Consequently, if we cannot successfully obtain approval for our products or services or timely and cost-effectively maintain compliance with laws regulating our products and services, our results of operations and financial condition could be harmed.

If we or any vendors on whose products or services we rely for our products and services infringe the patents or IP rights of other parties or are subject to a patent infringement claim, our ability to grow our business may be severely limited.

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Licenses may not be available on commercially reasonable terms or at all, in which event, our business would be materially adversely affected.

We maintain single supply relationships for certain key machines and materials, and our business and operating results could be harmed if supply is restricted or ends or the price of raw materials used in our manufacturing process increases.

We are highly dependent on manufacturers of specialized scanning equipment, rapid prototyping machines, resin and other advanced materials, as well as the optics, electronic and other mechanical components of our intraoral scanners.

We are highly dependent on third party suppliers, some of whom are sole source suppliers, for certain key machines, components and materials, and our business and operating results could be harmed if supply is restricted or ends or the price of raw materials used in our manufacturing process increases.

We are highly dependent on our supply chain, particularly manufacturers of specialized scanning equipment, rapid prototyping machines, resin and other advanced materials, as well as the optics, electronic and other mechanical components of our intraoral scanners.

We maintain single supply relationships for many of these machines and materials.

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

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

Our relationships with one or more of our suppliers could change.

For instance, our suppliers could encounter financial, operating or other difficulties, be unable to hire or maintain personnel, or fail to timely obtain supplies, maintain manufacturing standards or controls, or timely deliver materials, parts or components.

Further, the effects of climate change on regional and global economies could change the supply, demand or availability of sources of energy or other resources material to our products and operations, and affect the availability or cost of natural resources and goods and services on which we rely.

Additionally, our relationship or the terms by which we contract with any of our suppliers could change.

Because of our dependence on our suppliers, changes in one or more of our relationships with them can materially impact our business.

For instance, we may be unable to quickly establish or qualify replacement sources of supply and could face production interruptions, delays and inefficiencies.

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

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If demand for our products is less than we expect, we may experience additional excess and obsolete inventories and be forced to incur additional charges and our profitability may suffer.

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

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

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

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It can take up to twelve months or more to train sales representatives to successfully market and sell our products and for them to establish strong customer relationships.

If we are unable to expand our sales force, retain our key sales personnel or quickly replace them with individuals of equivalent technical expertise and qualifications, if we are unable to successfully instill technical expertise in new and existing sales representatives, if we fail to establish and maintain strong relationships with our customers, or if our efforts at specializing our selling techniques prove unsuccessful or not cost-effective, our net revenues and our ability to maintain market share could be materially harmed.

If we are unable to expand our sales force, retain our key sales personnel or quickly replace personnel with individuals of equivalent technical expertise and qualifications, if we are unable to successfully instill technical expertise in new and existing sales representatives, if we fail

to establish and maintain strong relationships with our customers, or if our efforts at specializing our selling techniques prove unsuccessful or not cost-effective, our net revenues and our ability to maintain market share could be materially harmed.

We use distributors for a portion of the importation, marketing and sales efforts related to our products and services, which exposes us to risks that may be harmful to our sales and operations.

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Our business exposes us to potential liability for the quality and safety of our products and services, how we advertise and market those products and services and how and to whom we sell them, and we may incur substantial expenses or be found liable for substantial damages or penalties if we are subject to claims or litigation.

laws and regulations, how we package, bundle or sell them to customers who may be private individuals or companies or public entities such as hospitals and clinics and how we train and support doctors, their staffs and patients who administer or use our products.

Our products and services involve an inherent risk of claims concerning their design, manufacture, safety and performance, how they are marketed and advertised in a complex framework of highly regulated domestic and international laws and regulations, how we package, bundle or sell them to customers who may be private individuals or companies or public entities such as hospitals and clinics and how we train and support doctors, their staffs and patients who administer or use our products.

Moreover, consumer products and services are routinely subject to claims of false, deceptive or misleading advertising, consumer fraud and unfair business practices.

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If we determine that our investments have declined in value, we may be required to record impairments which could be material and could have an adverse impact on our financial results.

The requirements to comply with current or future environmental, health and safety and workforce laws may materially increase our costs, expose us to potential liability and otherwise materially impact our business.

Our operations are subject to a variety of existing local, regional and global environmental, health and safety and workforce laws and regulations, and we will likely be required to comply with new, broader, more complex and costly laws and regulations that focus on societal and environmental matters in the future.

Our compliance obligations will likely span all aspects of our business and operations, including product design and development, materials sourcing and other procurement activities, energy and natural resources usage, facilities design and utilization, recycling and collection, transportation, and disposal activities.

For instance, many U.S.

and foreign regulators have enacted or are considering enacting new or additional limits on the emissions of greenhouse gases, including, but not limited to, carbon dioxide and methane, from power generation units using fossil fuels like coal and natural gas.

The effects of greenhouse gas emission limits on power generation that have been enacted already or that may be enacted in the future are subject to significant uncertainties, including the timing of any

new requirements and levels of emissions reductions.

Moreover, alternative energy sources that supply the power to meet current and future demands of Align, our suppliers and the global and regional economies in general, coupled with reduced investments in traditional energy sources and infrastructure, may fail to provide the predictable, reliable, and consistent energy that Align, its suppliers and other businesses need for operations.

Meeting our obligations under existing laws, rules, or regulations is already costly, and we expect those costs to increase in the future, possibly materially.

Additionally, we expect regulators to perform investigations, inspections and periodically audit our compliance with these laws and regulations, and we cannot provide assurance that our compliance efforts or operations will be compliant or adequate.

If we fail to comply with applicable laws, rules and regulations, we could be subject to significant penalties or liabilities and we may be required to implement new and significantly more costly processes and procedures to come into compliance.

In addition to us, our suppliers are also subject to environmental, health and safety and workforce laws and regulations, that may impact their businesses.

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

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

Although we do not believe that we or our suppliers source minerals from this region, these laws and regulations may decrease the number of suppliers capable of supplying our needs for certain metals, thereby negatively affecting our ability to manufacture products in sufficient quantities or at competitive prices, leading customers to potentially choose competitive goods and services.

We may furthermore suffer financial and reputational harm if customers require, and we are unable to deliver, certification that our products are conflict free.

Regardless, compliance with these laws and regulations will require time and effort by our personnel and others, and we will incur additional costs which may negatively impact our revenues and results of operations.

General Risk Factors

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Moreover, competition for qualified employees in our industry is intense, and our employees are targeted by other employers.

Our compensation and benefit arrangements, such as our equity award programs and telecommuting policies, may not always be successful in attracting new employees and retaining and motivating our existing employees.

Furthermore, other internal and external factors can impact our ability to hire and retain talent, including insufficient advancement or career opportunities and restrictive immigration policy and regulatory changes.

Additionally, are committed to a corporate culture that focuses on values emphasizing agility, customer and accountability.

Our compensation and benefit arrangements, such as our equity award programs, may not always be successful in attracting new employees and retaining and motivating our existing employees.

Furthermore, other internal and external factors can impact our ability to hire and retain talent, including insufficient advancement or career opportunities, restrictive immigration policy and regulatory changes , and, more recently, an increase in employees choosing to retire or quit with no immediate intentions to continue working.

We also believe a key factor in our success has been the culture we have created that emphasizes a shared vision and values focusing on agility, customer success and accountability.

We believe this culture fosters an environment of integrity, innovation, creativity, and teamwork but we have also experienced in the past and expect to experience in the future, difficulties attracting and retaining employees that meet the qualifications, experience, compliance mindset and values we expect.

If we are unable to attract and retain personnel that meet our selection criteria or we relax our standards in order to meet the demands of our growth or if our growth is not managed effectively, our corporate culture, ability to achieve our strategic objectives, and our compliance with obligations under our internal controls and other requirements may be harmed.

Additionally, many of our employees have worked remotely during the COVID-19 pandemic, which makes it difficult to maintain or enhance our culture, especially for employees onboarded remotely.

As we evaluate when and how to return employees to our offices globally, we continue to assess the impact various return-to-office plans may have on our culture, morale, and hiring and retention, particularly considering tight labor markets and generous or broad remote working policies being adopted by companies against whom we compete for talent.

Should we choose to require employees to return to the office, implement or modify a remote working policy, and/or allow or modify a hybrid approach in which employees can continue to work from home or other remote locations on a limited or part time basis only, it may materially increase our costs or create unforeseen challenges or complications, including:

• difficulties maintaining our corporate culture, disruption of morale or decreased loyalty;

• negative impacts to collaboration, performance and productivity;

• increased employee stress, fatigue or “burn out” by employees unable to disengage their work life from the home life;

• increased operational, governance, compliance, and tax risks;

• increased attrition or limits to our ability to attract employees who prefer to continue working remotely full time, in the office or in geographies different from where they were hired to work or are expected to work;

• problems managing office space requirements;

• greater risk of breaches of data protection and cybersecurity protocols, inadvertent or unauthorized use or dissemination of our confidential information, including information that may be deemed material;

• concerns regarding favoritism or discrimination;

• strains to our business continuity plans and difficulties achieving our strategic objectives;

• increased labor and employment claims and litigation.

If we are unable to attract and retain personnel that meet our selection criteria or relax our standards in order to meet the demands of our growth or if our growth is not managed effectively, our corporate culture, ability to achieve our strategic objectives, and our compliance with obligations under our internal controls and other requirements may be harmed.

Business disruptions could seriously harm our financial condition.

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

Our global operations have been disrupted by natural or human induced disasters in the past and will likely be disrupted and harmed again in the future, including as a result of earthquakes, tsunamis, floods, droughts, hurricanes, typhoons, wildfires, extreme weather conditions, power outages, restrictions and shortages, telecommunications failures, materials scarcity and price volatility, and medical epidemics or health pandemics.

For instance, the COVID-19 pandemic and subsequent recovery materially impacted our sales and business operations in 2020, the operations of our customers and the global economy overall.

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

The occurrence of business disruptions could harm our growth and expansion, result in significant losses, seriously harm our revenue, profitability and financial condition, adversely affect our competitive position, increase our costs and expenses, and require substantial expenditures and recovery time in order to fully resume operations.

Further, initiatives and legislation designed to reduce, restrict or eliminate greenhouse gas emissions from power generation may have the effect of increasing our costs and those of our suppliers and could result in manufacturing, transportation and supply chain disruptions and delays if clean energy alternatives are not readily available in adequate supply when required.

When such events occur, they may, individually or in the aggregate, affect our ability to provide products, services and solutions to our customers, and could cause production delays or limitations, create adverse effects on distributors, disrupt supply chains, result in shipping and distribution disruptions and reduce the availability of or access to one or more facilities.

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

The occurrence of any material or prolonged business disruptions could harm our growth and expansion, result in significant losses, seriously harm our revenue, profitability and financial condition, adversely affect our competitive position, increase our costs and expenses, and require substantial expenditures and recovery time in order to fully resume operations.

Our digital dental modeling is primarily processed in our facility located in San Jose, Costa Rica.

The operations teams in Costa Rica and

other global locations create ClinCheck treatment plans using sophisticated computer software.

The operations teams in Costa Rica and other global locations create ClinCheck treatment plans using sophisticated computer software.

In addition, certain of our customer facing operations are located in Costa Rica.

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If there is a major earthquake or any other natural disaster in a region where one of these facilities is located, our ability to create ClinCheck treatment plans, respond to customer inquiries or manufacture and ship our aligners could be compromised which could result in our customers experiencing significant delays receiving their aligners and a decrease in service levels for a period of time.

Moreover, a significant portion of our research and development activities are located in California, which suffers from earthquakes, periodic droughts, and wildfires affecting the health and safety of our employees.

Moreover, a significant portion of our research and development activities are located in California, which suffers from earthquakes, periodic droughts, power shortages and wildfires affecting the health and safety of our employees.

Any such business interruptions could materially and adversely affect our business, financial condition and results of operations.

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

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

If we are unable to assert that our internal control over financial reporting is effective in any future period (or if our auditors are unable to express an

opinion on the effectiveness of our internal controls or conclude that our internal controls are ineffective), the timely filing of our financial reports could be delayed or we could be required to restate past reports, and cause us to lose investor confidence in the accuracy and completeness of our financial reports in the future, which could have an adverse effect on our stock price.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.

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are translated into U.S.

dollars using constantly fluctuating, often substantially, exchange rates.

dollars using constantly, often substantially, fluctuating exchange rates.

As a result, negative movements in exchange rates against the U.S.

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financial sector.

In an unstable credit or economic environment, it is necessary to assess the

value of our investments more frequently and we might incur significant realized, unrealized or impairment losses associated with these investments.

In an unstable credit or economic environment, it is necessary to assess the value of our investments more frequently and we might incur significant realized, unrealized or impairment losses associated with these investments.

Additionally, in July 2017, the United Kingdom Financial Conduct Authority announced that it intends to stop compelling banks to submit interest rates for the calculation of the London Interbank Offered Rate ("LIBOR") after 2021.

Although we do not have any outstanding debt under our 2020 Credit Facility, were we to draw on it, the outstanding amounts would bear interest at fluctuating interest rates, primarily based on LIBOR or an approved replacement benchmark.

We also have other contracts that may be indexed to LIBOR.

We are monitoring this matter and evaluating the related risks and potential impact of the expiration of LIBOR.

If LIBOR is discontinued, reformed or replaced, any indebtedness that we incur may be indexed to a replacement benchmark, such as the Secured Overnight Financing Rate ("SOFR").

Any such change could cause the effective interest rate under an agreement, including our 2020 Credit Facility, and our overall interest expense to increase, adversely affecting our cash flows and results of operations.

If our goodwill or long-lived assets become impaired, we may be required to record a significant charge to earnings.

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Changes in certain assumptions including revenue growth rates, discount rates, earnings multiples and future cash flows may cause a change in circumstances indicating that the carrying value of goodwill or the asset group may be impaired and assessing these assumptions and predicting and forecasting future events can be difficult.

Large acquisitions, such as our acquisition of exocad in 2020, require periodic fair value assessments of goodwill and purchased assets to determine if they have become impaired.

Goodwill and purchased assets require periodic fair value assessments to determine if they have become impaired.

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

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Our effective tax rate is also dependent in part on forecasts of full year results which can vary materially.

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

Furthermore, we may continue to experience significant

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

New tax laws, or changes in existing tax laws or tax rulings, or the way they are applied to our business could negatively impact our income tax provision and net income or subject us to new or greater tax burdens that may harm our sales or results of operations.

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Alternatively, we may be unable to find suitable acquisition targets in the future, and we may not be able to complete acquisitions on favorable terms, if at all.

If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals or desired synergies, and any acquisitions we complete could be viewed negatively by our customers, securities analysts and investors.

If we do make investments or complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals or desired synergies, and any investments that we make or acquisitions we complete could be viewed negatively by our customers, securities analysts and investors.

Moreover, to the extent we make strategic investments, the companies in which we invest may fail or we may ultimately own less than a majority of the outstanding shares of the company and be outvoted on critical matters or issues that could harm us or the value of our investment.

Additionally, as an organization we do not have a history of significant acquisitions or integrating their operations and cultures with our own.

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Historically, class action litigation is often brought against an issuing company following periods of volatility in the market price of its securities and we have not been excepted from such litigation.

We cannot guarantee we will repurchase our common stock again in the future, and any repurchases may not achieve our objectives.

We cannot guarantee that we will continue to repurchase our common stock in the future, and any repurchases that we may make may not achieve our desired objectives.

We have a history of recurring stock repurchase programs intended to return capital to our investors.

Although repurchases were suspended in 2020 primarily as a result of uncertainties regarding the pandemic, we ended the suspension in the second quarter of 2021 with two accelerated stock repurchase programs in the aggregate amount of $200 million which also

included the announcement of a $1 billion stock repurchase authorization by our Board of Directors.

Any further authorizations or continuance of existing stock repurchase programs is contingent on a variety of factors, including our financial condition, results of operations, business requirements, and our Board of Directors' continuing determination that stock repurchases are in the best interests of our stockholders and in compliance with all applicable laws and agreements.

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Investor advocacy groups, institutional investors, investment funds, proxy advisory services, stockholders, and customers are increasingly focused on environmental, social and governance ("ESG") practices of companies.

Additionally, public interest and legislative pressure related to public companies’ ESG practices continues to grow.

Additionally, public interest

and legislative pressure related to public companies’ ESG practices continues to grow.

If our ESG practices fail to meet regulatory requirements or investor or other industry stakeholders' evolving expectations and standards for responsible corporate citizenship in areas including environmental stewardship, support for local communities, Board of Director and employee diversity, human capital management, employee health and safety practices, product quality, supply chain management, corporate governance and transparency and employing ESG strategies in our operations, our brand, reputation and employee retention may be negatively impacted and customers and suppliers may be unwilling to do business with us.

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

What changed 10-Q

Item 1A. Risk Factors