What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2021-11-02 · 231 added, 256 removed, 451 unchanged (52% of the section changed)

ITEM 1 FINANCIAL STATEMENTS

Financial Statements.

ALIGN TECHNOLOGY, INC.

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Net revenues $ 973,219 $ 894,771

10 unchanged sentences

Total interest income and other income (expense), net ( 10,596 ) 36,175

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 before provision for income taxes 187,486 261,621

Provision for income taxes 53,188 61,245

Net income $ 134,298 $ 200,376

10 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Net income $ 134,298 $ 200,376

Other comprehensive loss:

Change in foreign currency translation adjustment, net of tax ( 7,311 ) ( 14,451 )

Change in unrealized gains (losses) on investments, net of tax ( 2,728 ) ( 20 )

Other comprehensive income (loss)

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

Other comprehensive loss ( 10,039 ) ( 14,471 )

Comprehensive income $ 124,259 $ 185,905

3 unchanged sentences

(in thousands, except per share data)

September 30,

2022 December 31,

1 unchanged sentence

Cash and cash equivalents $ 926,119 $ 1,099,370

Marketable securities, short-term 86,749 71,972

Accounts receivable, net of allowance for doubtful accounts of $ 9,764 and $ 9,245 , respectively

3 unchanged sentences

Total current assets 2,480,768 2,494,075

Marketable securities, long-term 107,695 125,320

Property, plant and equipment, net 1,140,922 1,081,926

30 unchanged sentences

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

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 )

Issuance of common stock relating to employee equity compensation plans 69 — 12,490 — — 12,490

Tax withholdings related to net share settlements of equity awards — ` ( 2,454 ) — — ( 2,454 )

Common stock repurchased and retired ( 165 ) — ( 1,819 ) — ( 113,219 ) ( 115,038 )

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

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

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

Nine Months Ended September 30, 2021 Shares Amount

Three Months Ended March 31, 2022 Shares Amount

Balance as of December 31, 2021 78,710 $ 8 $ 999,006 $ 4,326 $ 2,619,374 $ 3,622,714

Net income — — — — 134,298 134,298

Net change in unrealized gains (losses) from investments — — — ( 2,728 ) — ( 2,728 )

Net change in foreign currency translation adjustment — — — ( 7,311 ) — ( 7,311 )

3 unchanged sentences

Stock-based compensation — — 31,621 — — 31,621

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.

ALIGN TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(in thousands)

Balance as of March 31, 2022 78,805 $ 8 $ 992,287 $ ( 5,713 ) $ 2,680,270 $ 3,666,852

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

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

Issuance of common stock relating to employee equity compensation plans 68 — 9,652 — — 9,652

Tax withholdings related to net share settlements of equity awards — — ( 1,636 ) — — ( 1,636 )

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

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

Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss), Net

Retained Earnings Total

Nine Months Ended September 30, 2020 Shares Amount

Three Months Ended March 31, 2021 Shares Amount

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

5 unchanged sentences

Stock-based compensation — — 27,241 — — 27,241

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

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

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

2 unchanged sentences

(in thousands)

Nine Months Ended

September 30,

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

5 unchanged sentences

Non-cash operating lease cost 7,526 5,911

Allowance for doubtful accounts provisions 1,559 13,090

Arbitration award gain — ( 43,403 )

Other non-cash operating activities 8,612 5,795

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

Changes in assets and liabilities:

Accounts receivable ( 55,543 ) ( 67,423 )

8 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition, net of cash acquired ( 8,002 ) ( 420,788 )

Purchase of property, plant and equipment ( 87,328 ) ( 43,431 )

5 unchanged sentences

Other investing activities ( 2,452 ) —

Net cash used in investing activities ( 255,719 ) ( 186,840 )

Net cash (used in) provided by investing activities ( 90,198 ) 4,566

CASH FLOWS FROM FINANCING ACTIVITIES:

4 unchanged sentences

Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash ( 1,826 ) ( 7,487 )

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

Net (decrease) increase in cash, cash equivalents, and restricted cash ( 173,268 ) 170,831

Cash, cash equivalents, and restricted cash at beginning of the period 1,100,139 961,474

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 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 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.

(“we”, “our”, "Company", or “Align”) on a consistent basis with the audited Consolidated Financial Statements for the year ended December 31, 2021, and contains all adjustments, including normal recurring adjustments, necessary to state fairly state the information set forth herein.

The unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), and, therefore, omit certain information and footnote disclosures necessary to present the unaudited Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (“U.S.”).

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, 2021.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any other future period, and we make no representations related thereto.

Use of Estimates

2 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 and stock-based compensation among others.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Certain Risks and Uncertainties

Due to the COVID-19 pandemic, we are subject to a greater degree of uncertainty than normal in making the judgments and estimates needed to apply our significant accounting policies.

The full extent to which the pandemic, including as a result of any new strains, business restrictions or lockdowns, and the impact of vaccinations, will directly or indirectly impact our business, results of operations, cash flows, and financial condition will depend on future developments that are highly uncertain and cannot be accurately determined.

As the pandemic continues and new variants of the virus emerge, we are seeing a resurgence of severe preventative measures to prevent its spread in China and, consequently, continuing fluctuations in the numbers of patients seeking treatment for dental services and the number of doctors providing services and treatments in other markets.

The full extent to which the pandemic, including as a result of any new variants, 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

(i) New Accounting Updates Recently Adopted

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

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

The amendments are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020.

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

(ii) Recent Accounting Updates Not Yet Effective

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

The military conflict between Russia and Ukraine and its related impacts on the economy has caused significant worldwide challenges.

While the situation is highly uncertain and evolving, its impact on the economy such as inflation, supply chain challenges, impacts on consumer confidence, purchasing power, sanctions and retaliatory sanctions among others, have impacted and could potentially subject our business to materially adverse consequences should any portion of its impacts become prolonged or escalate beyond its current scope.

Revenue Recognition

Our revenues are derived primarily from the sale of aligners, scanners, and services from our Clear Aligner and Systems and Services segments.

We enter into sales contracts that may consist of multiple distinct performance obligations where certain performance obligations of the sales contract are not delivered in one reporting period.

We measure and allocate revenues according to ASC 606-10, “Revenues from Contracts with Customers.”

We identify a performance obligation as distinct if both of the following criteria are met:

the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.

Determining the standalone selling price (“SSP”) in order to allocate consideration from the contract to the individual

performance obligations is the result of various factors, such as changing trends and market conditions, historical prices, costs, and gross margins.

While changes in the allocation of the SSP between performance obligations will not affect the amount of total revenues recognized for a particular contract, any material changes could impact the timing of revenue recognition, which would have a material effect on our financial position and result of operations.

This is because the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation.

Clear Aligner

We enter into contracts (“treatment plan(s)”) that involve multiple future performance obligations.

Invisalign Comprehensive, Invisalign First, Invisalign Moderate, and Lite and Express Packages include optional additional aligners at no charge for a certain period of time ranging from six months to five years after initial shipment, and Invisalign Go and Invisalign Go Plus includes optional additional aligners at no charge for a period of up to two years after initial shipment.

Our treatment plans comprise the following performance obligations that also represent distinct deliverables:

initial aligners, the option of additional aligners, case refinement, and replacement aligners.

We take the practical expedient to consider shipping and handling costs as activities to fulfill the performance obligation.

We allocate revenues for each treatment plan based on each unit’s SSP.

Management considers a variety of factors such as same or similar product historical sales, costs, and gross margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates.

In addition to historical data, we take into consideration changing trends and market conditions.

For treatment plans with multiple future performance obligations, we also consider usage rates, which is the number of times a customer is expected to order additional aligners.

Our process for estimating usage rates requires significant judgment and evaluation of inputs, including historical usage data by region, country and channel.

We recognize the revenues upon shipment, as the customers obtain physical possession, and we have enforceable rights to payment.

As we collect most consideration upfront, we consider whether a significant financing component exists;

however, as the delivery of the performance obligations are at the customer’s discretion, we conclude that no significant financing component exists.

Systems and Services

We sell intraoral scanners and CAD/CAM services through both our direct sales force and distribution partners.

The intraoral scanner sales price includes one year of warranty and unlimited scanning services.

The customer may also select, for additional fees, extended warranty and unlimited scanning services for periods beyond the initial year.

When intraoral scanners are sold with an unlimited scanning service agreement and/or extended warranty, we allocate revenues based on the respective SSP of the scanner and the subscription service.

We estimate the SSP of each element, taking into account factors such as same or similar historical prices and discounting strategies.

Revenues are then recognized over time as the monthly services are rendered and upon shipment of the scanner, as that is when we deem the customer to have obtained control.

CAD/CAM services, where sold separately, include the initial software license and maintenance and support.

We allocate revenues based upon the respective SSPs of the software license and the maintenance and support.

We estimate the SSP of each element using data such as historical prices.

Revenues related to the software license are recognized upfront and revenues related to the maintenance and support are recognized over time.

For both scanner and service sales, most consideration is collected upfront and in cases where there are payment plans, consideration is collected within one year and, therefore, there are no significant financing components.

Recent Accounting Pronouncements Not Yet Effective

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

Financial Instruments

Cash, Cash Equivalents and Marketable Securities

The following tables summarize our cash and cash equivalents, and marketable securities on our Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022 Amortized

Losses Fair Value Cash and Cash Equivalents Marketable securities, short-term Marketable securities, long-term

Cash $ 689,175 $ — $ — $ 689,175 $ 689,175 $ — $ —

Money market funds 236,960 — ( 16 ) 236,944 236,944 — —

Corporate bonds 116,307 3 ( 2,389 ) 113,921 — 41,164 72,757

government treasury bonds

46,638 — ( 511 ) 46,127 — 31,055 15,072

Asset-backed securities 27,453 — ( 197 ) 27,256 — 10,984 16,272

Municipal bonds 6,049 — ( 77 ) 5,972 — 3,546 2,426

government agency bonds 1,204 — ( 36 ) 1,168 — — 1,168

Total $ 1,123,786 $ 3 $ ( 3,226 ) $ 1,120,563 $ 926,119 $ 86,749 $ 107,695

December 31, 2021 Amortized

Losses Fair Value Cash and Cash Equivalents Marketable securities, short-term Marketable securities, long-term

Cash $ 754,802 $ — $ — $ 754,802 $ 754,802 $ — $ —

Money market funds 343,012 — ( 2 ) 343,010 343,010 — —

Corporate bonds 115,507 9 ( 398 ) 115,118 1,042 35,065 79,011

government treasury bonds

42,976 — ( 48 ) 42,928 — 22,251 20,677

Asset-backed securities 32,031 — ( 40 ) 31,991 — 10,999 20,992

Municipal bonds 7,628 — ( 15 ) 7,613 516 3,657 3,440

government agency bonds 1,201 — ( 1 ) 1,200 — — 1,200

Total $ 1,297,157 $ 9 $ ( 504 ) $ 1,296,662 $ 1,099,370 $ 71,972 $ 125,320

The following table summarizes the fair value of our available-for-sale marketable securities classified by contractual maturity as of March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022 December 31, 2021

Due in 1 year or less $ 67,225 $ 59,737

Due in 1 year through 5 years $ 127,219 139,113

Total $ 194,444 $ 198,850

The securities that we invest in are generally deemed to be low risk based on their credit ratings from the major rating agencies.

The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields.

As interest rates increase, those securities purchased at a lower yield show a mark-to-market unrealized loss.

Our unrealized losses as of March 31, 2022 and December 31, 2021 are primarily due to changes in interest rates and credit spreads.

Fair Value Measurements

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

The following tables summarize our financial assets measured at fair value as of March 31, 2022 and December 31, 2021 (in thousands):

Description Balance as of

September 30, 2021 Level 1

March 31, 2022 Level 1

Cash equivalents:

Money market funds $ 236,944 $ 236,944 $ — $ —

Prepaid expenses and other current assets:

Israeli funds 4,170 — 4,170

Short-term investments:

government treasury bonds 31,055 31,055 — —

Corporate bonds 41,164 — 41,164 —

Municipal bonds 3,546 — 3,546 —

Asset-backed securities 10,984 — 10,984 —

Long-term investments:

government treasury bonds 15,072 15,072 — —

Corporate bonds 72,757 — 72,757 —

Municipal bonds 2,426 — 2,426 —

government agency bonds 1,168 — 1,168 —

Asset-backed securities 16,272 — 16,272 —

Other assets:

Investments in privately held companies 11,225 — — 11,225

$ 442,613 $ 283,071 $ 148,317 $ 11,225

2 unchanged sentences

Money market funds $ 343,010 $ 343,010 $ — $ —

Prepaid expenses and other current assets:

Israeli funds 3,500 — 3,500 —

Current unsecured promissory note 1

Corporate bonds 1,042 — 1,042 —

Municipal bonds 516 — 516 —

Short-term investments:

government treasury bonds 22,251 22,251 — —

Corporate bonds 35,065 — 35,065 —

Municipal bonds 3,657 — 3,657 —

Asset-backed securities 10,999 — 10,999 —

Long-term investments:

government treasury bonds

20,677 20,677 — —

Corporate bonds 79,011 — 79,011 —

Municipal bonds

3,440 — 3,440 —

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 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.

government agency bonds

1,200 — 1,200 —

Asset-backed securities

20,992 — 20,992 —

Prepaid expenses and other current assets:

Israeli funds 3,841 — 3,841 —

Other assets:

Investments in privately held companies 8,621 — — 8,621

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.

$ 554,322 $ 385,938 $ 159,763 $ 8,621

Derivatives Not Designated as Hedging Instruments

Recurring foreign currency forward contracts

We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on certain trade and intercompany receivables and payables.

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

As a result of the settlement of foreign currency forward contracts, during the three months ended 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

As a result of the settlement of foreign currency forward contracts, the net losses we recognized during the three months ended March 31, 2022 were no t material and we recognized net gains of $ 12.4 million during the three months ended March 31, 2021.

The fair value of foreign exchange forward contracts outstanding was $ 8.4 million as of March 31, 2022 and was no t material as of December 31, 2021.

The following tables present the gross notional value of all our foreign exchange forward contracts outstanding as of March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022

Local Currency Amount Notional Contract Amount (USD)

1 unchanged sentence

Chinese Yuan ¥ 520,500 81,862

Polish Zloty PLN 324,500 77,086

Canadian Dollar C$ 96,000 76,733

Brazilian Real R$ 323,700 67,665

Japanese Yen ¥ 5,666,200 46,621

British Pound £ 32,275 42,394

Brazilian Real R$ 285,000 52,073

Polish Zloty PLN 142,000 35,710

Mexican Peso M$ 310,000 15,065

Israel Shekel ILS 38,400 11,914

Russian Ruble ₽ 3,700,000 35,885

Swiss Franc CHF 17,270 18,692

Israeli Shekel ILS 54,210 17,085

Mexican Peso M$ 281,560 14,127

Australian Dollar A$ 5,000 3,748

2 unchanged sentences

Euro € 165,110 $ 186,358

Chinese Yuan ¥ 936,000 143,393

Canadian Dollar C$ 99,800 78,018

British Pound £ 32,300 43,879

Japanese Yen ¥ 4,249,000 41,222

Chinese Yuan ¥ 494,500 77,358

Polish Zloty PLN 219,800 54,014

Brazilian Real R$ 286,500 50,894

Japanese Yen ¥ 5,548,700 48,206

British Pound £ 34,740 46,881

Israeli Shekel ILS 54,110 17,416

Mexican Peso M$ 311,500 15,133

Australian Dollar A$ 5,800 4,447

Swiss Franc CHF 9,950 10,883

Other foreign currency forward contract

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

During the 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.

Australian Dollar A$ 6,900 5,009

Balance Sheet Components

Inventories consist of the following (in thousands):

September 30,

2022 December 31,

3 unchanged sentences

Total inventories $ 275,669 $ 230,230

Prepaid expenses and other current assets consist of the following (in thousands):

2022 December 31,

Value added tax receivables $ 134,941 $ 93,610

Prepaid expenses 74,069 70,218

Other current assets 32,329 31,477

Total prepaid expenses and other current assets $ 241,339 $ 195,305

Accrued liabilities consist of the following (in thousands):

September 30,

2022 December 31,

1 unchanged sentence

Accrued expenses 66,211 67,169

Accrued sales and marketing expenses 55,310 34,488

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

Accrued income taxes 45,646 33,838

Accrued sales and marketing expenses 41,221 41,387

Accrued professional fees 36,340 31,457

Accrued property, plant and equipment 25,296 46,561

Current operating lease liabilities 25,243 22,719

2 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):

Nine Months Ended

September 30,

Three Months Ended

Balance at beginning of period $ 16,169 $ 12,615

3 unchanged sentences

Deferred revenues consist of the following (in thousands):

September 30,

2022 December 31,

3 unchanged sentences

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

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 .

During the three months ended March 31, 2022 and 2021, we recognized $ 973.2 million and $ 894.8 million of net revenues, respectively, of which $ 184.9 million and $ 125.8 million was included in the deferred revenues balance at December 31, 2021 and 2020, respectively.

Our unfulfilled pe rformance obligations, including deferred revenues and backlog, as of March 31, 2022 were $ 1,385.4 million.

These performance obligations are expected to be fulfilled over six months to five years .

Goodwill and Intangible Assets

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):

The change in the carrying value of goodwill for the three months ended March 31, 2022, categorized by reportable segments, is as follows (in thousands):

Clear Aligner Systems and Services Total

Balance as of December 31, 2021 $ 112,208 $ 306,339 $ 418,547

Additions from acquisition 3,646 — 3,646

Foreign currency translation adjustments

( 642 ) ( 5,940 ) ( 6,582 )

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

Balance as of March 31, 2022 $ 111,566 $ 300,399 $ 411,965

Intangible Long-Lived Assets

2 unchanged sentences

(in years) Gross Carrying Amount as of

September 30, 2021 Accumulated

March 31, 2022 Accumulated

Impairment Loss

September 30, 2021

March 31, 2022

Existing technology 10 $ 104,531 $ ( 25,068 ) $ ( 4,328 ) $ 75,135

1 unchanged sentence

Trademarks and tradenames 10 17,200 ( 5,006 ) ( 4,179 ) 8,015

Patents and other 8 6,511 ( 4,296 ) — 2,215

Patents 8 6,511 ( 4,693 ) — 1,818

$ 183,242 $ ( 61,661 ) $ ( 19,258 ) 102,323

Foreign currency translation 5,604

Total intangible assets $ 115,794

Foreign currency translation adjustments 1,176

Total intangible assets, net $ 103,499

Weighted Average Amortization Period

6 unchanged sentences

Trademarks and tradenames 10 17,200 ( 4,547 ) ( 4,179 ) 8,474

Patents and other 8 6,610 ( 3,785 ) — 2,825

Patents 8 6,511 ( 4,495 ) — 2,016

$ 183,242 $ ( 57,428 ) $ ( 19,258 ) 106,556

Foreign currency translation 13,037

Total intangible assets $ 130,072

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

Foreign currency translation adjustments 3,153

Total intangible assets, net $ 109,709

The total estimated annual future amortization expense for these acquired intangible assets as of March 31, 2022 is as follows (in thousands):

Fiscal Year Ending December 31, Amortization

2 unchanged sentences

Total $ 102,323

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.

Amortization expense for the three months ended March 31, 2022 and 2021 was $ 4.3 million and $ 3.9 million, respectively.

Credit Facility

On July 21, 2020 we entered into a credit facility for a $ 300.0 million unsecured revolving line of credit, with a $ 50.0 million letter of credit sublimit, and a maturity date of July 21, 2023 (“2020 Credit Facility”), replacing our previous credit facility which provided for a $ 200.0 million revolving line of credit with a $ 50.0 million letter of credit.

On July 21, 2020, we entered into a credit facility for a $ 300.0 million unsecured revolving line of credit, with a $ 50.0 million letter of credit sublimit, and a maturity date of July 21, 2023 (“2020 Credit Facility”).

The 2020 Credit Facility requires us to comply with specific financial conditions and performance requirements.

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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.

As of March 31, 2022, we had no outstanding borrowings under the 2020 Credit Facility and were in compliance with the conditions and performance requirements in all material respects.

Legal Proceedings

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

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

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

A hearing on that motion 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.

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

The Court granted final approval of the settlement on April 28, 2022 and dismissed the case with prejudice.

2019 Shareholder Derivative Lawsuit

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

The complaints seek unspecified monetary damages on behalf of Align, which is named solely as a nominal defendant against whom no recovery is sought, as well as disgorgement and the costs and expenses

associated with the litigation, including attorneys’ fees.

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

The consolidated action was stayed until the final disposition of the 2018 Securities Class Action Lawsuit on April 28, 2022.

Defendants have not yet responded to the complaints.

On April 12, 2019, a derivative lawsuit was also filed in California Superior Court for Santa Clara County, purportedly on behalf of Align, naming as defendants the members of our Board of Directors along with certain of our executive officers.

The allegations in the complaint are similar to those in the derivative suits described above.

The matter has been similarly stayed pending final disposition of the 2018 Securities Class Action Lawsuit.

The matter was similarly stayed until the final disposition of the 2018 Securities Class Action Lawsuit on April 28, 2022.

Defendants have not yet responded to the complaint.

Align believes these claims are without merit.

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

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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.

The defendants-appellees filed their answering brief on November 22, 2021.

The lead plaintiff-appellant’s reply brief was filed on January 12, 2022.

Oral argument was held on March 10, 2022 and the Panel took the matter under submission .

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

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

Align believes these claims are without merit.

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

3Shape Litigation

On November 14, 2017, Align filed several patent infringement lawsuits asserting patents against 3Shape, a Danish corporation, and a related U.S.

corporate entity, asserting that 3Shape’s Trios intraoral scanning system and Dental System software infringe Align patents.

These lawsuits were filed in the U.S.

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

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

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

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

District Court for the District of Delaware alleging patent infringement by Align’s iTero Element scanner of 3Shape patents.

On August 19, 2019, the Court consolidated the two actions, and on August 30, 2019, 3Shape filed an amended complaint.

On December 11, 2018, Align filed an additional complaint in the U.S.

District Court for the District of Delaware alleging patent infringement by 3Shape’s Trios intraoral scanning system, Lab Scanners and Dental and Ortho System Software.

3Shape filed business tort counterclaims.

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

The case is currently stayed.

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

District Court for the Western District of Texas alleging patent infringement by 3Shape ’s intraoral scanners and associated software products.

In response, 3Shape filed 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 a jury trial date of October 3, 2022.

No trial dates have been set in the remaining cases.

On August 28, 2018, 3Shape filed a complaint against Align in the U.S.

District Court for the District of Delaware alleging antitrust violations and seeking monetary damages and injunctive relief relating to Align’s alleged market activities, including Align’s assertion of its patent portfolio, in alleged clear aligner and intraoral scanner markets.

No trial date has been set.

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

On February 7, 2022, Align and 3Shape, a Danish corporation, settled their outstanding patent infringement and antitrust litigation, which began in November 2017.

The terms of the settlement are confidential, and the settlement has not had a material effect on Align’s ongoing operations and financial results.

The outstanding cases have all been dismissed with prejudice.

Antitrust Class Actions

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

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.

A jury trial is scheduled to begin in this matter on January 29, 2024.

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

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

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

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.

On March 2, 2022, Plaintiffs filed a third amended complaint.

Align filed a motion to dismiss the third amended complaint, which the Court denied.

Align has not yet responded to the third amended complaint.

A jury trial is scheduled to begin in this matter on January 29, 2024.

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

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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.

This arbitration hearing is set for July 18-29, 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.

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Commitments and Contingencies

Other Commitments

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

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

Off-Balance Sheet Arrangements

As of 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.

As of March 31, 2022, 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 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Indemnification Provisions

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

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

As of March 31, 2022, we did not have any material indemnification claims that were probable or reasonably possible.

Stockholders’ Equity

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.

As of March 31, 2022, the 2005 Incentive Plan, as amended, has a total reserve of 27,783,379 shares of which 3,752,174 shares are available for issuance.

Summary of Stock-Based Compensation Expense

Stock-based compensation is based on the estimated fair value of awards, net of estimated forfeitures, and recognized over the requisite service period.

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

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

The stock-based compensation related to our stock-based awards and employee stock purchase plan for the three months ended March 31, 2022 and 2021 is as follows (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Cost of net revenues $ 1,514 $ 1,306

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RSUs granted generally vest over a period of four years .

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

A summary for the three months ended March 31, 2022 is as follows:

Number of Shares

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Forfeited ( 11 ) 423.61

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.

Unvested as of March 31, 2022 522 $ 435.22 1.8 $ 227,614

As of March 31, 2022, we expect to recognize $ 192.2 million of total unamortized compensation costs, net of estimated forfeitures, related to RSUs over a weighted average period of 2.8 years.

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

We grant MSUs to our executive officers.

We grant MSUs to members of senior management.

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

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

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

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

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

The following table summarizes the MSU performance for the three months ended March 31, 2022:

Number of Shares

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Unvested as of December 31, 2021 174 $ 551.57

Granted 177 658.02

Vested and released ( 128 ) 396.10

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”)

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

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

As of September 30, 2021, we have 2,194,566 shares available for future issuance.

Forfeited ( 3 ) 744.39

Unvested as of March 31, 2022 144 $ 725.73 1.7 $ 62,814

1 Includes MSUs vested during the period above 100% of the grant as actual shares released is based on Align's stock performance over the vesting period

As of March 31, 2022, we expect to recognize $ 62.3 million of total unamortized compensation costs, net of estimated forfeitures, related to MSUs over a weighted average period of 1.7 years.

Employee Stock Purchase Plan

As of March 31, 2022, we have 2,156,295 shares available for future issuance under our Amended and Restated 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”).

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Expected term (in years) 1.5 1.0

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Weighted average fair value at grant date $ 196.97 $ 202.74

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 September 30, 2021, the authorization under the May 2018 Repurchase Program was completed.

As of March 31, 2022, we expect to recognize $ 20.0 million of total unamortized compensation costs related to future employee stock purchases over a weighted average period of 1.0 year.

Common Stock Repurchase Program

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 September 30, 2021, we have $ 825.0 million available for repurchase under the May 2021 Repurchase Program.

Accelerated Stock Repurchase Agreements ( “ ASRs ” )

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.

As of March 31, 2022, we have $ 649.9 million available for repurchase under the May 2021 Repurchase Program.

During February 2022, we repurchased on the open market approximately 0.1 million shares of our common stock at an average price of $ 522.61 per share, including commissions and fees, for an aggregate purchase price of $ 75.0 million.

Subsequent to the first quarter, on April 29, 2022, we entered into an ASR to repurchase $ 200.0 million of our common stock.

We paid $ 200.0 million and received an initial delivery of approximately 0.6 million shares based on current market prices.

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Accounting for Income Taxes

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 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.

Our provision for income taxes was $ 53.2 million and $ 61.2 million for the three months ended March 31, 2022 and 2021, respectively representing effective tax rates of 28.4 % and 23.4 %, respectively.

Our effective tax rate differs from the statutory federal income tax rate of 21% for both the three months ended March 31, 2022 and 2021 primarily due to the recognition of additional tax expense resulting from 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.

Additionally, a change in U.S.

tax laws effective January 1, 2022 which requires capitalization and amortization of research and development expenses incurred after December 31, 2021 has increased our effective tax rate for the three months ended March 31, 2022.

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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federal, the State of California and Switzerland.

We are no longer subject to U.S.

federal tax examination for years before 2017 and U.S.

state tax examination for years before 2016.

Our subsidiary in Israel is under audit by the local tax authorities for years 2015 through 2018.

federal and state tax returns, we are no longer subject to tax examinations for years before 2018 and 2016, respectively.

Our Israeli subsidiary is under tax audit for years 2016 through 2019.

During the fourth quarter of 2021, the Israel Tax Authority issued a tax assessment in connection with a 2016 transaction to which our Israeli subsidiary was a party.

We filed an administrative appeal challenging the assessment during the first quarter of 2022 and, by doing so, proceeded to the next administrative stage of the audit.

We will continue to vigorously defend our Israeli subsidiary’s tax return position.

Based on our assessment of the information currently available, we have not derecognized or remeasured our tax positions with respect to this matter during the three months ended March 31, 2022.

With few exceptions, we are no longer subject to examination by foreign tax authorities for years before 2015.

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.

Our total gross unrecognized tax benefits, excluding interest and penalties, were $ 68.3 million and $ 63.3 million as of March 31, 2022 and December 31, 2021, respectively, a material amount of which would impact our effective tax rate if recognized.

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

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

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

Our total deferred tax liabilities were $ 32.3 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.

Total interest and penalties accrued as of March 31, 2022 was not material.

While we defend income tax audits in various jurisdictions and the results of such audits may differ materially from the amounts accrued for each year, we cannot currently ascertain the bases on which any given audit will be ultimately resolved.

Accordingly, we are unable to estimate the range of possible adjustments to our balance of gross unrecognized tax benefits in the next 12 months.

Net Income per Share

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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Net income $ 134,298 $ 200,376

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

Nine Months Ended

September 30,

Three Months Ended

Non-cash investing and financing activities:

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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Clear Aligner $ 809,696 $ 753,269

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Systems and Services

5,827 5,092 14,994 11,882

Unallocated corporate expenses

8,596 8,981 27,666 26,656

Total depreciation and amortization $ 29,626 $ 25,635

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Total segment income from operations $ 363,518 $ 374,693

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Other income (expense), net ( 11,273 ) 34,532

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

Net income before provision for income taxes $ 187,486 $ 261,621

Geographical Information

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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Net revenues 1 :

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Switzerland 331,739 315,450

China 86,766 76,825 214,418 142,927

Other International 220,560 196,319

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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,

2022 December 31, 2021

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China 126,623 125,346

Costa Rica 94,308 97,804

Other International 453,019 423,050

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

What changed 10-Q

Item 1. Financial Statements