What changed in this filing

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Item 1. Financial Statements

2022-08-04 compared with 2022-05-05 · 145 added, 101 removed, 581 unchanged (30% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Net revenues $ 969,553 $ 1,010,808 $ 1,942,772 $ 1,905,579

24 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Net income $ 112,800 $ 199,714 $ 247,098 $ 400,090

Other comprehensive loss:

Other comprehensive income (loss):

Change in foreign currency translation adjustment, net of tax ( 13,756 ) 586 ( 21,067 ) ( 13,865 )

Change in unrealized gains (losses) on investments, net of tax ( 301 ) — ( 3,029 ) ( 20 )

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

Other comprehensive income (loss) ( 14,057 ) 586 ( 24,096 ) ( 13,885 )

Comprehensive income $ 98,743 $ 200,300 $ 223,002 $ 386,205

45 unchanged sentences

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

Three Months Ended March 31, 2022 Shares Amount

Three Months Ended June 30, 2022 Shares Amount

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

Net income — — — — 112,800 112,800

Net change in unrealized gains (losses) from investments — — — ( 301 ) — ( 301 )

Net change in foreign currency translation adjustment — — — ( 13,756 ) — ( 13,756 )

Issuance of common stock relating to employee equity compensation plans 11 — — — — —

Tax withholdings related to net share settlements of equity awards — — ( 654 ) — — ( 654 )

Common stock repurchased and retired ( 757 ) — ( 8,891 ) — ( 191,109 ) ( 200,000 )

Stock-based compensation — — 34,140 — — 34,140

Balance as of June 30, 2022 78,059 $ 8 $ 1,016,882 $ ( 19,770 ) $ 2,601,961 $ 3,599,081

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

Six Months Ended June 30, 2022 Shares Amount

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

6 unchanged sentences

Stock-based compensation — — 65,761 — — 65,761

Balance as of June 30, 2022 78,059 $ 8 $ 1,016,882 $ ( 19,770 ) $ 2,601,961 $ 3,599,081

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

ALIGN TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(in thousands)

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

Three Months Ended June 30, 2021 Shares Amount

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

Net income — — — — 199,714 199,714

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

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

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

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

Equity forward contract related to

accelerated stock repurchase — — ( 40,000 ) — — ( 40,000 )

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

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

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

Three Months Ended March 31, 2021 Shares Amount

Six Months Ended June 30, 2021 Shares Amount

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

4 unchanged sentences

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

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

Equity forward contract related to

accelerated stock repurchase — — ( 40,000 ) — — ( 40,000 )

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

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

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

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

2 unchanged sentences

(in thousands)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

25 unchanged sentences

Other investing activities ( 2,189 ) ( 4,249 )

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

Net cash used in investing activities ( 72,078 ) ( 123,920 )

CASH FLOWS FROM FINANCING ACTIVITIES:

1 unchanged sentence

Common stock repurchases ( 275,036 ) ( 160,000 )

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

Payroll taxes paid upon the vesting of equity awards ( 52,187 ) ( 104,889 )

13 unchanged sentences

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.

The results of operations for the three and six months ended June 30, 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, stock-based compensation and the valuation of investments in privately held companies among others.

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, contingent liabilities, the fair values of financial instruments, stock-based compensation and the valuation of investments in privately held companies 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

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

While the situation is highly uncertain and evolving, its impact on the economy, including inflation, volatilities in the financial market, 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.

Further, as the COVID-19 pandemic continues and new variants of the virus emerge, we are continuing to see fluctuations in the numbers of patients seeking treatment for dental services and the number of doctors providing services and treatments globally.

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.

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.

Additionally, we could also be materially adversely affected by 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.

Revenue Recognition

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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.

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.

27 unchanged sentences

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.

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 a material 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

The following tables summarize our cash and cash equivalents, and marketable securities on our Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (in thousands):

June 30, 2022 Amortized

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

19 unchanged sentences

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

The following table summarizes the fair value of our available-for-sale marketable securities classified by contractual maturity as of June 30, 2022 and December 31, 2021 (in thousands):

June 30, 2022 December 31, 2021

Due in 1 year or less $ 17,185 $ 59,737

4 unchanged sentences

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.

Our unrealized losses as of June 30, 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 as of March 31, 2022 and December 31, 2021 (in thousands):

The following tables summarize our financial assets measured at fair value as of June 30, 2022 and December 31, 2021 (in thousands):

Description Balance as of

March 31, 2022 Level 1

June 30, 2022 Level 1

Cash equivalents:

42 unchanged sentences

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

As a result of the settlement of foreign currency forward contracts, 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

As a result of the settlement of foreign currency forward contracts, during the three months ended June 30, 2022 and 2021, we recognized a net gain of $ 10.8 million and a net loss of $ 13.0 million, respectively, and during the six months ended June 30, 2022 we recognized a net gain of $ 9.2 million.

The net loss recognized during the six months ended June 30, 2021 was no t material.

As of June 30, 2022 and December 31, 2021, the fair value of foreign exchange forward contracts outstanding was no t material.

The following tables present the gross notional value of all our foreign exchange forward contracts outstanding as of June 30, 2022 and December 31, 2021 (in thousands):

June 30, 2022

Local Currency Amount Notional Contract Amount (USD)

6 unchanged sentences

British Pound £ 34,097 41,333

Russian Ruble ₽ 3,700,000 35,885

Swiss Franc CHF 22,500 23,536

Israeli Shekel ILS 54,210 17,085

Mexican Peso M$ 282,700 13,988

Israeli Shekel ILS 43,160 12,380

Australian Dollar A$ 4,600 3,170

29 unchanged sentences

Accrued expenses 74,281 67,169

Accrued income taxes 45,646 33,838

Accrued sales and marketing expenses 37,250 41,387

Accrued professional fees 36,340 31,457

Accrued property, plant and equipment 35,563 46,561

Current operating lease liabilities 24,613 22,719

Accrued professional fees 18,433 31,457

Other accrued liabilities 73,470 109,667

1 unchanged sentence

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

Three Months Ended

Six Months Ended

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

8 unchanged sentences

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

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.

During the three months ended June 30, 2022 and 2021, we recognized $ 969.6 million and $ 1,010.8 million of net revenues, respectively, of which $ 178.4 million and $ 134.4 million was included in the deferred revenues balance at December 31, 2021 and 2020, respectively.

During the six months ended June 30, 2022 and 2021, we recognized $ 1,942.8 million and $ 1,905.6 million of net revenues, respectively, of which $ 363.3 million and $ 260.2 million was included in the deferred revenues balance at December 31, 2021 and 2020, respectively.

Our unfulfilled performance obligations, including deferred revenues and backlog, as of June 30, 2022 were $ 1,409.4 million.

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

Goodwill and Intangible Assets

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):

The change in the carrying value of goodwill for the six months ended June 30, 2022, categorized by reportable segments, is as follows (in thousands):

Clear Aligner Systems and Services Total

2 unchanged sentences

( 3,804 ) ( 24,643 ) ( 28,447 )

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

Balance as of June 30, 2022 $ 108,404 $ 281,696 $ 390,100

Intangible Long-Lived Assets

2 unchanged sentences

(in years) Gross Carrying Amount as of

March 31, 2022 Accumulated

June 30, 2022 Accumulated

Impairment Loss

March 31, 2022

June 30, 2022

Existing technology 10 $ 104,531 $ ( 27,640 ) $ ( 4,328 ) $ 72,563

5 unchanged sentences

Total intangible assets, net 1

1 Also includes $ 33.5 million of fully amortized intangible assets related to customer relationships.

Weighted Average Amortization Period

10 unchanged sentences

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):

The total estimated annual future amortization expense for these acquired intangible assets as of June 30, 2022 is as follows (in thousands):

Fiscal Year Ending December 31, Amortization

2 unchanged sentences

Total $ 98,400

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

Amortization expense for both the three months ended June 30, 2022 and 2021 was $ 3.9 million and amortization expense for the six months ended June 30, 2022 and 2021 was $ 8.2 million and $ 7.8 million, respectively.

Credit Facility

7 unchanged sentences

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

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.

As of June 30, 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

2018 Securities Class Action Lawsuit

On November 5, 2018, a class action lawsuit against Align and three of our executive officers was filed in the U.S.

District Court for the Northern District of California on behalf of a purported class of purchasers of our common stock.

The complaint generally alleged claims under the federal securities laws and sought monetary damages in an unspecified amount and costs and expenses incurred in the litigation.

On December 12, 2018, a similar lawsuit was filed in the same court on behalf of a purported class of purchasers of our common stock.

On November 29, 2019, the lead plaintiff filed an amended consolidated complaint against Align and two of our executive officers alleging similar claims as the initial complaints on behalf of a purported class of purchasers of our common stock from May 23, 2018 and October 24, 2018.

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

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

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

1 unchanged sentence

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

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

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

The consolidated action was stayed until April 28, 2022.

Defendants have not yet responded to the complaints.

1 unchanged sentence

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

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

The matter was similarly stayed until April 28, 2022.

Defendants have not yet responded to the complaint.

13 unchanged sentences

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.

Oral argument was held on March 10, 2022.

On July 8, 2022, a panel of the Ninth Circuit affirmed the district court order dismissing the compla int.

On July 21, 2022, plaintiff-appellant filed a petition for rehearing or hearing en banc, which is pending.

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

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

7 unchanged sentences

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 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

2 unchanged sentences

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 January 29, 2024.

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

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

4 unchanged sentences

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.

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

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

7 unchanged sentences

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

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

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

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

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

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

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

On August 27, 2020, Align initiated a confidential arbitration proceeding against SmileDirectClub LLC (“SDC”) before the American Arbitration Association in San Jose, California.

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

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

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

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

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

This arbitration hearing is set for July 18-29, 2022.

On May 3, 2022, SDC filed an additional counterclaim alleging that Align breached the Supply Agreement.

Align denies SDC's allegations in the counterclaims and will vigorously defend itself against them.

The arbitration hearing on Align’s claims and SDC’s first counterclaim was held on July 18-27, 2022 in Chicago, Illinois.

The arbitration hearing on SDC’s second counterclaim is set for February 20-24, 2023.

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

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

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

Regardless of the

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

Although the results of complex legal proceedings are difficult to predict and Align’s view of these matters may change in the future as litigation and events related thereto unfold;

2 unchanged sentences

Off-Balance Sheet Arrangements

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.

As of June 30, 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

6 unchanged sentences

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

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

As of June 30, 2022, we did not have any material indemnification claims that were probable or reasonably possible.

Stockholders’ Equity

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.

As of June 30, 2022, the 2005 Incentive Plan, as amended, has a total reserve of 27,783,379 shares of which 3,744,033 shares are available for issuance.

Summary of Stock-Based Compensation Expense

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):

The stock-based compensation related to our stock-based awards and employee stock purchase plan for the three and six months ended June 30, 2022 and 2021 is as follows (in thousands):

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Cost of net revenues $ 1,614 $ 1,418 $ 3,128 $ 2,724

5 unchanged sentences

RSUs granted generally vest over a period of four years .

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

A summary for the six months ended June 30, 2022 is as follows:

Number of Shares

8 unchanged sentences

Forfeited ( 22 ) 429.13

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.

Unvested as of June 30, 2022 513 $ 432.28 1.6 $ 121,475

As of June 30, 2022, we expect to recognize $ 174.7 million of total unamortized compensation costs, net of estimated forfeitures, related to RSUs over a weighted average period of 2.6 years.

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

2 unchanged sentences

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 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:

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.

The following table summarizes the MSU performance for the six months ended June 30, 2022:

Number of Shares

8 unchanged sentences

Forfeited ( 3 ) 744.39

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

Unvested as of June 30, 2022 144 $ 725.73 1.5 $ 34,097

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.

As of June 30, 2022, we expect to recognize $ 55.2 million of total unamortized compensation costs, net of estimated forfeitures, related to MSUs over a weighted average period of 1.5 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”).

As of June 30, 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

Six Months Ended

Expected term (in years) 1.5 1.0

3 unchanged sentences

Weighted average fair value at grant date $ 196.97 $ 202.74

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.

As of June 30, 2022, we expect to recognize $ 14.3 million of total unamortized compensation costs related to future employee stock purchases over a weighted average period of 0.8 year.

Common Stock Repurchase Program

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 December 31, 2021, the authorization under the May 2018 Repurchase Program was completed.

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

As of 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.

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

As of June 30, 2022, we have $ 449.9 million available for repurchases under the May 2021 Repurchase Program.

Accelerated Share Repurchase Agreements (“ASRs”)

During the six months ended June 30, 2022 and 2021, we entered into 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 following table summarizes the information regarding repurchases of our common stock under ASRs:

Date Repurchase

Program Amount Paid

(in millions) Completion

Date Total Shares

Received Average Price per Share

Q2 2021 May 2018 $ 100.0 Q3 2021 171,322 $ 583.70

Q2 2021 May 2021 $ 100.0 Q3 2021 161,707 $ 618.40

Q2 2022 May 2021 $ 200.0 Q2 2022 756,502 $ 264.37

Open Market Common Stock Repurchases

During the six months ended June 30, 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.

Accounting for Income Taxes

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.

Our provision for income taxes was $ 60.8 million and $ 69.1 million for the three months ended June 30, 2022 and 2021, respectively, representing effective tax rates of 35.0 % and 25.7 %, respectively.

Our provision for income taxes was $ 114.0 million and $ 130.3 million for the six months ended June 30, 2022 and 2021, respectively, representing effective tax rates of 31.6 % and 24.6 %, respectively.

Our effective tax rate differs from the statutory federal income tax rate of 21% for the three and six months ended June 30, 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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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.

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 six months ended June 30, 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 $ 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.

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

Our total gross unrecognized tax benefits, excluding interest and penalties, were $ 73.2 million and $ 63.3 million as of June 30, 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

Total interest and penalties accrued as of June 30, 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.

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Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Net income $ 112,800 $ 199,714 $ 247,098 $ 400,090

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Anti-dilutive potential common shares 1

361 49 314 38

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

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

Three Months Ended

Six Months Ended

Non-cash investing and financing activities:

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Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Clear Aligner $ 798,398 $ 840,959 $ 1,608,094 $ 1,594,228

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Systems and Services

6,776 4,622 13,698 9,167

Unallocated corporate expenses

9,476 9,100 18,413 19,070

Total depreciation and amortization $ 30,281 $ 25,892 $ 59,907 $ 51,527

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Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Total segment income from operations $ 352,808 $ 412,301 $ 716,326 $ 786,994

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Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Net revenues 1 :

14 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements