What changed in this filing

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Item 1A. Risk Factors

2022-08-04 compared with 2022-05-05 · 160 added, 172 removed, 500 unchanged (40% of the section changed)

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The risks below are not the only ones we face.

If any of the risks actually occur, our business, financial

condition and results of operations could be negatively affected, the trading price of our common stock could decline, and you may lose all or part of your investment.

If any of the risks actually occur, our business, financial condition and results of operations could be negatively affected, the trading price of our common stock could decline, and you may lose all or part of your investment.

Summary of Risk Factors

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Risks Relating to our Business Operations and Strategy

• Inflation, fluctuations in currency exchange rates, consumer confidence and demand, weakness in general economic conditions and recessions could negatively affect our financial condition and results of operations.

• Our results of operations have been materially adversely affected by global and regional efforts to mitigate the spread of COVID-19 and we expect this will continue in as yet unknown ways and to varying degrees as the virus evolves and circumstances dictate.

• The outbreak of military conflict between Russia and Ukraine has created a humanitarian crisis, materially impacted economic activities and may in the future materially impact our global and regional operations.

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

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

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• If we are unable or fail to protect our customer or patient information or if we are unable to comply with applicable privacy, security and data protection laws, our operations may be severely adversely impacted, patient care could suffer, we could be liable for related damages, and our business, operations and reputation could be harmed.

• If we fail to sustain or increase revenue growth while controlling expenses, our profitability may decline.

• Demand for our products may not increase as rapidly as we anticipate or may decrease due to resistance to non-traditional treatment methods, which could have a material adverse impact on our business and operating results.

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

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

Litigating claims of this type is costly and could distract our management and cause a decline in our results of operations and stock price.

Litigating claims of this type is costly and could distract our management and cause a decline in our results of operations and adversely impact our reputation.

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

• Obtaining approvals and complying with governmental regulations, particularly those related to personal healthcare information, financial information, quality systems and data privacy, is expensive and time-consuming, and any failure to obtain or maintain approvals or comply with regulations regarding our products or services or the products and services of our suppliers or customers could materially harm our sales, result in substantial penalties and cause harm to our reputation.

• Obtaining approvals and complying with governmental regulations, particularly those related to personal healthcare information, financial information, quality systems, competition, anti-trust, data governance and data privacy, is expensive and time-consuming, and any failure to obtain or maintain approvals or comply with regulations regarding our products or services or the products and services of our suppliers or customers could materially harm our sales, result in substantial penalties and cause harm to our reputation.

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

• We rely on highly skilled personnel and, if we fail to attract, motivate, train or retain highly skilled personnel, it may be more difficult to grow effectively and pursue our strategic priorities.

• We use distributors for a portion of the importation, marketing and sales efforts related to our products and services, which exposes us to risks that may be harmful to our sales and operations, including that these distributors do not comply with applicable laws or our internal procedures.

• We use distributors for a portion of the importation, marketing and sales efforts related to our products and services, which exposes us to risks that may be harmful to our sales and operations, including the risk that these distributors do not comply with applicable laws or our internal procedures.

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

• Compliance with current or future environmental, social, and governance (“ESG”) laws may materially increase our costs, expose us to potential liability and otherwise materially impact our business.

• Increased focus on compliance with current or future ESG laws and increased scrutiny of our ESG policies and practices may materially increase our costs, expose us to potential liability, may adversely impact our reputation, employee retention, willingness of customers and suppliers to do business with us and willingness of investors to invest in us, and otherwise materially impact our business.

General Risk Factors

• We rely on our personnel and, if we fail to attract, motivate or retain personnel, or if our growth harms our corporate culture, it may be more difficult to grow effectively and pursue our strategic priorities.

• We rely on our personnel and, if we fail to attract, motivate, train or retain personnel, or if our growth harms our corporate culture, it may be more difficult to grow effectively and pursue our strategic priorities.

• Business disruptions could seriously harm our financial condition.

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• We are required to annually assess our internal control over financial reporting and any adverse results from such assessment may result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

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

• If we fail to manage our exposure to global financial and securities market risks successfully, our operating results and financial statements could be materially impacted.

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

• Increased scrutiny of our ESG policies and practices have and will likely continue to result in additional costs and risks, and may adversely impact our reputation, employee retention, and willingness of customers and suppliers to do business with us.

Risks Relating to our Business Operations and Strategy

Inflation, fluctuations in currency exchange rates, consumer confidence and demand, weakness in general economic conditions and recessions could negatively affect our financial condition and results of operations.

Our operations and financial performance are affected by general macroeconomic conditions, consumer confidence and discretionary spending.

Consumer spending habits are affected by, among other things, inflation, weakness in general economic conditions, recessions, pandemics, wars and military actions, levels of employment, salaries and wage rates, debt obligations, discretionary income, interest rates, volatility in capital markets, consumer confidence and consumer perception of current and future economic conditions.

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

or certain international economies could adversely affect consumer spending habits which may, among other things, result in a decrease in the number of overall orthodontic and dental case starts, reduce patient traffic in dentists’ offices, reduce or shift spending away from elective, non-urgent, or higher value procedures or reduce demand for dental services generally, any of which could materially adversely affect our revenues and operating results.

Conversely, to the extent social distancing, travel, work and other restrictions have limited options for consumer spending, demand for our products may decline once any or all of these restrictions ease.

Inflation, weakness in the global or regional economies and recessions can decrease demand for dental technologies, causing dentists to postpone investments in capital equipment, such as intraoral scanners and CAD/CAM software.

We observed increased inflation in 2021 that has continued in 2022 and we are unable to predict the impacts of higher inflation on global and regional economies.

Higher inflation may also increase domestic and international shipping costs, raw material prices, and labor rates.

Our ability to recover these cost increases through price increases may continue to lag, resulting in downward pressure on our operating results.

Any attempts to offset cost increases with price increases may result in greater reductions in sales, increase customer dissatisfaction or otherwise harm our reputation.

The continued increase in fuel prices could also have an effect on consumer spending and on our costs of producing, procuring and shipping our products.

We are also unable to predict the impact of efforts by central banks to combat elevated levels of inflation.

Increases in lending rates may reduce economic activity.

If downward pressures continue due to these economic factors, this may lead to a recession.

If a recession occurs, economies weaken, fuel prices continue to increase or inflationary trends continue, our business and operating results could be materially adversely affected.

Although the U.S.

dollar is our reporting currency, a growing portion of our net revenues and net income are generated in foreign currencies.

In our foreign subsidiaries where the local currency is the functional currency, our net revenues and net income are translated into U.S.

dollars using the average period exchange rate which may fluctuate significantly.

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

dollar have and may increasingly adversely affect our net revenues and net income in our consolidated financial statements.

For example, the recent substantial decline in the value of the Euro compared to the U.S.

dollar has adversely impacted our operating results in Europe.

We enter into currency forward contract transactions in an effort to cover some of our exposure to currency fluctuations, but there is no assurance these transactions will fully or effectively hedge our exposure to currency fluctuations, and, under certain circumstances, these transactions could have a material adverse effect on our financial condition.

Our results of operations have been materially adversely affected by global and regional efforts to mitigate the spread of COVID-19 and we expect this will continue in as yet unknown ways and to varying degrees as the virus evolves and circumstances dictate.

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Therefore, comparing our financial results for the reporting periods of 2022 to the same reporting periods of 2021 or earlier may not be a useful means by which to evaluate the health of our business and our results of operations.

As a result of the pandemic, customer demand and doctor availability has been inconsistent and difficult to predict.

Although the practices of the doctors, dental service organizations and labs that are our principal customers have largely reopened, many continue to operate at less than pre-pandemic capacities.

In addition, new variants of the virus have caused unpredictable fluctuations in the number of patients seeking dental treatment and doctors providing services and treatments.

For instance, we believe recent outbreaks of the Omicron variant in the U.S., Europe and other regions in the fourth quarter of 2021 contributed to depressed demand for our products in that quarter and outbreaks in China in the first quarter of 2022 caused

widespread population lockdowns that broadly impacted economic activities there.

As a result of outbreaks of COVID-19 and new variants of the virus such as Delta and Omicron, customer demand and doctor availability has been inconsistent and difficult to predict.

Although the practices of the doctors, dental service organizations and labs that are our principal customers have largely reopened following the initial outbreak of COVID-19 in 2020, many continue to operate at less than pre-pandemic capacities.

For example, in China the impact of widespread population lockdowns under the country’s zero tolerance policies has been more pronounced in the first half of 2022 than in prior periods, leading to the complete closure of dental offices in major metropolitan and other areas for extended periods of time.

While the pandemic increased demand for digital solutions such as the products and solutions we offer for the dental field, it is unclear if this will continue.

For instance, if the use of video conferencing declines when employees return to office environments or travel, dining, entertainment and other consumer spending categories rebound, demand or growth rates for our products may decline.

These fluctuations have adversely impacted our results of operations from time to time and are expected to continue to impact our results, particularly in the near term.

In response to the pandemic, in 2020 we implemented measures aimed at limiting its spread for the health and safety of our employees, customers, patients and the communities in which we live and work as well as in accordance with orders and decrees of governmental agencies.

These fluctuations are currently and have previously adversely impacted our results of operations from time to time and are expected to continue to impact our results, particularly in the near term.

In response to the pandemic, we implemented measures aimed at limiting its spread for the health and safety of our employees, customers, patients and the communities in which we live and work as well as in accordance with orders and decrees of governmental agencies.

These measures included diagnostic screenings at our facilities, increased social distancing mandates, closures of physical offices, manufacturing and treatment planning facilities, including our U.S.

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The rules and regulations for reopening and operating our offices will likely increase in complexity, making compliance more difficult.

Furthermore, if employees perceive the protocols and requirements we implement to create a safe and effective work environment to be inadequate, overly burdensome or no longer necessary, or alternatively, if we require employees to return to the office when they prefer the safety or convenience of working from home, employees may choose to leave, productivity may decline or we may experience employee unrest, slowdowns, stoppages or other demands.

Beginning and continuing in 2022, we are gradually reopening many of our offices.

Where our offices have reopened, we have adopted a flexible hybrid schedule that will allow many of our employees the opportunity to collaborate and connect with others in our offices three days per week while having the option to work remotely other days.

If employees perceive our approach to reopening our offices to be inadequate, overly burdensome, or prefer the safety or convenience of working from home, employees may choose to terminate their employment with us, productivity may decline or we may experience employee unrest, slowdowns, stoppages or other demands.

Additionally, we may fail to timely meet customer demand or fulfill orders, the costs to maintain or implement protective measures or deliver our products may increase, and we may be subject to increased litigation, including product liability and occupational safety and condition claims.

For further discussion or the risks related to employee satisfaction, retention and engagement see the risk factor “ We rely on our personnel and, i f we fail to attract, motivate or retain personnel, or if our growth harms our corporate culture, it may be more difficult to grow effectively and pursue our strategic priorities.”

For further discussion or the risks related to our hybrid schedule approach to reopening our offices, employee satisfaction, retention and engagement see the risk factor “ We rely on our personnel and, i f we fail to attract, motivate or retain personnel, or if our growth harms our corporate culture, it may be more difficult to grow effectively and pursue our strategic priorities.”

As the economic and societal impact of the pandemic continues, we are continually evaluating macroeconomic as well as industry-specific factors, including the extent our business and financial results and the business and financial results of our customers’ and suppliers’ have been and in the future may be impacted.

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

• actions by competitors such as price reductions, aggressive product promotions, changes in or the launch or termination of products or product lines, and mergers, consolidations and liquidations;

• the confidence of our customers and patients that our products and solutions are sanitary and safe to use;

servers, software or software applications, overheard telephone conversations, viewable computer screens, stolen passwords or access information, increased phishing and other cyber threats;

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

• actions taken by competitors as a result of consumer demand or consumer spending pressures related to COVID-19, such as price reductions, aggressive product promotions, changes in or the launch or termination of products or product lines, and mergers, consolidations and liquidations;

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

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

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The global economy has been negatively impacted by the military conflict between Russia and Ukraine.

Governments in the U.S., United Kingdom, and European Union have imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia which has triggered retaliatory sanctions by the Russian government and its allies that have materially impacted business inside Russia.

Governments including the U.S., United Kingdom, and those of the European Union have imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia which has triggered retaliatory sanctions by the Russian government and its allies that have materially impacted business inside Russia.

Although immaterial to our consolidated financial statements, our commercial business operations in Russia have been materially impacted by the conflict.

Additionally, if due to the conflict, we are unable to retain key skilled personnel workforce located in Russia, particularly research and development personnel, or quickly replace such personnel with individuals of equivalent technical expertise and qualifications, our business and financial condition could be materially adversely effected.

The outcome and future impacts of the conflict remain highly uncertain, continue to evolve and are likely to grow more severe the longer the military action and sanctions remain in effect.

Moreover, this conflict and existing and future sanctions may have broad and pervasive impacts to the global economy and our operations, making m any of the risks listed in this Quarterly Report on Form 10-Q more likely to occur and more harmful when they do occur.

Accordingly, you should consider the risks described in this risk factor in addition to, and not in lieu of, the risks described elsewhere throughout these risk factors.

Moreover, this conflict and existing and future sanctions may have broad and pervasive impacts to the global economy and our operations, heightening and affecting many of the other risks listed in this Quarterly Report on Form 10-Q, any of which could materially and adversely affect our business and results of operations.

Such risks include, but are not limited to, adverse effects on general economic and political conditions, including inflation, supply chain disruptions and consumer spending;

disruptions to our information systems, including through network failures, malicious or disruptive software, or cyberattacks;

trade disruptions;

rising fuel and/or rising costs of producing, procuring and shipping our products;

our exposure to foreign currency exchange rate fluctuations;

and constraints, volatility or disruption in the financial markets.

We may not be successful in our efforts to mitigate all or any of the negative impacts of the conflict, particularly the longer sanctions and retaliatory sanctions remain in effect.

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The suspension or resumption of our commercial operations in Russia or our decision to continue supporting our personnel in Russia may result in reputational harm or boycotts of our products that could impact our sales and operations inside and outside of Russia or subject us to litigation for which we may be found liable in courts or other tribunals in Russia or elsewhere.

Moreover, should hostilities spread to other countries such as Poland, where we are building our new aligner fabrication facility scheduled to begin in the second quarter this year, completion could be delayed or production impaired, once it is operational.

Moreover, production could be impaired should hostilities spread to other countries such as Poland, where we have built our new aligner fabrication facility.

We have no way to predict the progress or outcome of the situation in Ukraine, as the conflict and governmental reactions are rapidly developing and beyond our control.

A prolonged conflict, intensified military activities or more extensive sanctions impacting the region and the resulting economic impact could have a material adverse effect on our operations, results of operations, financial condition, liquidity and business outlook.

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

Consumer spending habits are affected by, among other things, pandemics, inflation, weakness in general economic conditions, recessions, wars and military actions, levels of employment, salaries and wage rates, debt obligations, discretionary income, consumer confidence and consumer perception of current and future economic conditions.

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

In addition, Invisalign treatment represents a significant change from traditional metal wires and brackets orthodontic treatment, and customers and consumers may not find it cost-effective or preferable to traditional treatment.

For instance, a number of dental professionals continue to believe the Invisalign treatment is appropriate for only a limited percentage of patients.

Increased market acceptance of our products depends in part upon the recommendations of dental professionals, as well as other factors including efficacy, safety, ease of use, reliability, aesthetics, and price compared to competing products and treatment methods.

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

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

Our iTero scanners have become a material percentage of our overall revenues.

Our iTero business contributes a material percentage of our overall revenues.

Although exocad and its CAD/CAM software solutions are important to the continuing evolution of the Align Digital Platform, the contributions to our total net revenues from the exocad solutions remain immaterial.

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

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

• the growth of CAD/CAM solutions does not produce the results expected;

• sales of our iTero scanners decline or fail to grow sufficiently or as anticipated;

• the growth of CAD/CAM solutions does not produce the results anticipated;

• if the average selling price of our products declines.

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In addition, we sell a number of products at different list prices which may differ based on country.

Our average selling prices have been impacted in the past and may be adversely affected again in the future if:

Our average selling prices for our Invisalign system and iTero scanners have been impacted in the past and may be adversely affected again in the future if:

• we introduce new or change existing promotions, general or volume-based discount programs, product or services bundles, or consumer rebate programs;

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• our critical accounting estimates materially differ from actual behavior or results.

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

If our average selling prices decline, our net revenues, gross profit, gross margin and net income may be adversely affected.

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

The dental industry is in a period of immense and rapid digital transformation involving products, technologies, distribution channels and business models.

While solutions such as our Invisalign system, iTero scanners and CAD/CAM software facilitate this transition, whether our technologies will achieve market acceptance and, if adopted, whether and when they may become obsolete as new offerings become available remains unclear.

Currently, the Invisalign system competes directly against traditional metal wires and brackets and increasingly against clear aligners manufactured and distributed by new market entrants and manufacturers of traditional wires and brackets, both within and outside the U.S., and from traditional medical device companies, laboratories, startups and, in some cases, doctors and DSOs themselves.

Due in part to market opportunities and the expiration of certain of our key patents beginning in 2017, competition in the clear aligner market is increasing.

Due in part to market opportunities and the expiration of certain of our key patents beginning in 2017, competition from providers of clear aligners is increasing.

The number and types of competitors are diverse and growing rapidly.

They vary by segment, geography, and size, and include new and well-established regional competitors, as well as larger companies or divisions of larger companies with substantial sales, marketing, research financial capabilities, and existing dental market channels.

They vary by segment, geography, and size, and include new and well-established regional competitors, as well as

larger companies or divisions of larger companies with substantial sales, marketing, research financial capabilities, and existing dental market channels.

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

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Accordingly, we are committed to delivering our Invisalign system solutions primarily through trained and skilled doctors.

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

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

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

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We earn an increasingly larger portion of our total revenues from international sales generated through our foreign direct and indirect operations and we expect to increase our sales and presence outside the U.S., particularly in markets we believe have high-growth potential.

Moreover, we perform many of our key production steps in locations outside of the U.S.

For instance, our digital treatment planning and aligner fabrication are performed in multiple international locations, including large-scale operations in Mexico, Costa Rica and China and we continue to establish additional sites closer to our international customers, such as our manufacturing facility in Poland currently under construction.

Also, we maintain significant regional sales and marketing operations in Switzerland, Singapore and China along with research and development operations globally, including in the U.S., Russia, Israel and Germany.

Moreover, we perform most of our key production steps in locations outside of the U.S.

For instance, our digital treatment planning and aligner fabrication are performed in multiple international locations, including large-scale operations in Mexico, Costa Rica and China and we continue to establish additional sites closer to our international customers, such as our recently constructed manufacturing facility in Poland.

Also, we maintain significant global sales and marketing operations in Switzerland, Singapore and China along with research and development operations globally, including in the U.S., Russia, Israel and Germany.

Our reliance on international operations exposes us to risks and uncertainties that may affect our business or results of operations, including:

• difficulties managing international operations, including any travel restrictions on us or our customers;

• difficulties managing international operations, including any travel restrictions on us or our contractors, consultants or customers;

• fluctuations in currency exchange rates;

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• Some of our employees in Israel are obligated to perform annual reserve duty in the Israeli military and may be called for additional active duty under emergency circumstances which may materially impair all or a portion of our business critical to our iTero operations.

If any of these events or conditions occur, the impact to us, our employees and customers is uncertain, particularly if emergency circumstances, armed conflicts or an escalation in political instability or violence disrupts our product development, data or information exchange, payroll or banking operations, product or materials shipping by us or our suppliers and other unanticipated business disruptions, interruptions and limitations in telecommunication services or critical systems or applications reliant on a stable and uninterrupted communications infrastructure;

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

or violence disrupts our product development, data or information exchange, payroll or banking operations, product or materials shipping by us or our suppliers and other unanticipated business disruptions, interruptions and limitations in telecommunication services or critical systems or applications reliant on a stable and uninterrupted communications infrastructure;

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

• the impact of nationalism or initiatives to encourage the purchase or support of domestic vendors, which can influence customers to purchase products from, or collaborate to promote interoperability of products with, companies whose headquarters or primary operations are not domestic;

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• longer customer payment cycles and greater difficulty in accounts receivable collection;

• potential adverse tax consequences.

The potential impacts of the United Kingdom’s (“UK”) withdrawal from the EU are still unfolding and have impacted varying parts of its economy at different times since the withdrawal.

As the UK negotiates new trade deals and implements new laws and regulations following its withdrawal, the UK’s actions could, among other potential outcomes, adversely affect the tax, tax treaty, currency, operational, legal and regulatory regimes to which our businesses are subject, including those involving data privacy and the regulation of medical devices.

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

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

• potential adverse direct and indirect tax consequences.

Should any of these factors, either individually or in combination, occur they could materially impact our international operations and adversely affect our business as a whole.

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• successfully and timely obtain approval or clearance of new products or services from government agencies such as the FDA and analogous agencies in other countries ;

• cost effectively and efficiently manufacture, quality test, bring to market, market, and sell new products and services offerings;

• cost effectively and efficiently manufacture, quality test, dispose of, bring to market, market, and/or sell new products and services offerings;

• properly forecast the amount and timing of new product demand;

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Consequently, doctors may be unwilling to adopt our products until they successfully complete one or more cases or until more historical clinical results are available.

Moreover, we have a complex, global intraoral scanner install base of older and newer models.

These models are continually updated to add, expand or improve on existing or new features with our software releases or hardware improvements, updates from third party software or improvements to third party components, or part repair or replacement.

We have experienced hardware issues in the past and may in the future, including issues relating to manufacturing, design, quality, or safety, of which we become aware only after products or changes have been introduced into the market.

We also have not been and may not be able to ensure that third party components or third party software or any changes to the foregoing will not be incompatible with, or have a negative impact on the functionality of our intraoral scanners.

As a result, there have been and

may be widespread failures of our intraoral scanners or we may experience epidemic failures of our intraoral scanner to perform as anticipated.

Previously we have not been and in the future may not be prepared for, or have the infrastructure to, timely and adequately remediate or implement corrective measures for such failures, including due to our dependency on our third party providers or suppliers.

As a consequence, remediation has been and may be in the future time-consuming and difficult to achieve, which may significantly impact our customers and our business partners, damage our reputation and result in lost business and revenue opportunities, and prove costly, possibly materially.

In addition, as part of our effort to accommodate our customers’ needs and demands, we periodically introduce new business and sales initiatives, such as our commercial teeth whitening products announced in 2021.

In addition, as part of our effort to accommodate our customers’ needs and demands, we periodically introduce new business and sales initiatives to meet these needs and demands, such as our commercial teeth whitening products announced in 2021.

In general, our internal resources support these new businesses or sales initiatives, and we frequently provide such support without clear indications it will prove successful or be without short-term execution challenges.

Should these new business or sale initiatives be unsuccessful, our business, results of operations and financial condition could be materially impacted.

As we continue to grow, we are subject to growth related risks, including risks related to excess or constrained capacity and operational inefficiencies at our manufacturing and treat facilities.

We are subject to growth related risks, including excess or constrained capacity and pressure on our internal systems, personnel and suppliers.

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

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

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

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

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

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

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

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

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

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

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

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Then, as dental practices reopened we experienced a rapid increase in demand.

These fluctuations in demand and sales have recurred several times since the first quarter of 2020 corresponding with increases in the number of people infected with COVID-19 and variants such as Delta and Omicron, and may continue to arise in the future.

These fluctuations in demand and sales have recurred several times since the first quarter of 2020 corresponding with increases in the number of people infected with COVID-19 and its variants, and may continue to arise in the future.

If product demand decreases or increases more than forecast, we could be required to write off inventory or record excess capacity charges, we may be required to purchase or lease additional or larger facilities and additional equipment, or we may be unable to fulfill customer demand in the time frames and with the quantities required, any of which may take time to accomplish, lower our gross margin, inhibit sales or harm our reputation.

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

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

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

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

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Issues with product development or enhancements, IT system integration, implementation, updates and upgrades along with security and data protection risks have previously and could again in the future disrupt our operations, which could have a material adverse impact on our business and operating results.

We rely on the efficient, uninterrupted and secure operation of our own complex information technology systems (“IT systems”) and are dependent on key software of third parties embedded in our products and IT systems as well as third-party

hosted IT systems to support our operations.

All software and IT systems are vulnerable to damage, attack or interruption from a variety of sources.

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Delays in integration or disruptions to our business from implementation of these new or upgraded systems could have a material adverse impact on our financial condition and operating results.

We have a complex, global iTero intraoral scanner installed base of older and newer models.

These models are continually updated to add, expand or improve on existing or new features with hardware improvements, improvements to third party components, or part repair or replacement.

We also have not been and may not be able to ensure that third party components or any changes to the foregoing will not be incompatible with, or have a negative impact on the functionality of our iTero intraoral scanners.

As a result, there have been and may be widespread failures of our iTero intraoral scanners or we may experience epidemic failures of our iTero intraoral scanner to perform as anticipated.

Previously, we have not been and in the future may not be prepared for, or have the infrastructure to, timely and adequately remediate or implement corrective measures for such failures, including due to our dependency on third party providers or suppliers.

Additionally, we continuously upgrade and issue new releases of our products and customer facing software applications, such as our iTero intraoral scanners, exocad CAD/CAM solutions, my iTero, our ClinCheck software, MyAligntech and the Invisalign Doctor Site as well as our internal software applications upon which customer facing, manufacturing and treatment planning operations are dependent.

Software applications and products containing software frequently contain errors or defects, especially when first introduced or when new versions are released.

Additionally, the third-party software integrated into or interoperable with our products and services will routinely reach end of life, and as a consequence, certain models of our intraoral scanners may be exposed to additional vulnerabilities, including increased security risks, errors and malfunctions that may be irreparable or difficult to repair.

Additionally, the third-party software integrated into or interoperable with our products and services will routinely reach end of life, and as a consequence, certain models of our iTero intraoral scanners may be exposed to additional vulnerabilities, including increased security risks, errors and malfunctions that may be irreparable or difficult to repair.

The discovery of a defect, error or security vulnerability in our products, software applications or IT systems, incompatibility with customers’ computer operating systems and hardware configurations with a new release or upgraded version or the failure of our products or primary IT systems may cause adverse consequences, including:

delay or loss of revenues, significant remediation costs, delay in market acceptance, loss of data, disclosure of financial, health or other personal information of our customers or their patients, product recalls, damage to our reputation, loss of market share or increased service costs, any of which could have a material adverse effect on our business, financial condition or results of our operations and the operations of our customers or our business partners.

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

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

Failures of all or any portion of ours or third-party software or other components or systems to interoperate with iTero or third-party scanners, termination of interoperability with third-party scanners, malware or ransomware attacks, product or system vulnerabilities or defects, interference or disruptions for us, our customers, labs or other business partners in the use of our products or the transmission or processing of data needed for the use or ordering of our products, or a system outage for any reason have harmed our operations previously and in the future could affect materially and adversely our ability to accept scans, manufacture clear aligners or restorative procedures or treatments and services or otherwise service our customers which may, amongst other things, harm our sales, damage our reputation, adversely impact our strategic partners or result in litigation.

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We may also be required to respond to regulatory inquiries or actions, forced to defend against litigation or pay damages, penalties or fines, experience increases in operating and administrative expenses, find it necessary to recall or repair products, rebuild networks or systems, lose existing customers or strategic business partners, experience difficulties attracting new customers or implementing our growth strategies, or suffer other adverse consequences.

addition, experienced computer programmers and hackers, some of whom may be employed by state actors, organized groups, or be part of loosely aligned associations, may be able to penetrate the security features of our products, IT systems or our cloud-based software servers hosted by third parties and misappropriate, destroy or damage our confidential information or that of third parties, expose health, financial data, or other personal information of our customers and their patients, create system disruptions or cause shutdowns.

In addition, experienced computer programmers and hackers, some of whom may be employed by state actors, organized groups, or be part of loosely aligned associations, may be able to penetrate the security features of our products, IT systems or our cloud-based software servers hosted by third parties and misappropriate, destroy or damage our confidential information or that

of third parties, expose health, financial data, or other personal information of our customers and their patients, create system disruptions or cause shutdowns.

Furthermore, sophisticated hardware and operating system software and applications that we either internally develop or procure from third parties may contain defects or present risks in design, development, manufacture or distribution, including “bugs,” security vulnerabilities, and other problems that can unexpectedly interfere with the operation of the system or compromise or exploit the safety and security of our products, networks or data.

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Further, the frequency of third-party cyber attacks has increased since the onset of the COVID-19 pandemic and more recently the military conflict in Ukraine.

The military conflict in Ukraine may cause nation-state actors to carry out cyber attacks to achieve their goals, which may include espionage, information operations, monetary gain, ransomware, disruption, and destruction.

In response to potential increases in cyber attacks anticipated in response to the military conflict in Ukraine, we increased efforts to identify and respond to any attacks, including placing our cybersecurity operations team on high alert.

Significant service disruptions, breaches in our infrastructure and IT systems or other cybersecurity incidents could expose us to litigation or regulatory investigations, impair our reputation and competitive position, be distracting to our management, and require significant time and resources to address.

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

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

with data privacy and data security provisions of the U.S.

In the EU, we must comply with the

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

Health Insurance Portability and Accountability Act regulations.

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Additionally, our success may be dependent on the success of healthcare providers, many of whom are comprised of individual or small operations with limited IT experience and inadequate or untested security protocols, in managing data privacy and data security requirements.

If we fail to sustain or increase revenue growth while controlling expenses, our profitability may decline.

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

Because our business and the markets we target are evolving, it is difficult to predict our future operating results or levels of growth or declines.

We have not in the past and may be unable in the future to sustain or regain our historical growth rates which may cause our profitability to decline.

Demand for our products may not increase as rapidly as we anticipate or may decrease due to resistance to non-traditional treatment methods, which could have a material adverse impact on our business and operating results.

Invisalign treatment represents a significant change from traditional metal wires and brackets orthodontic treatment, and customers and consumers may not find it cost-effective or preferable to traditional treatment.

For instance, a number of dental professionals continue to believe the Invisalign treatment is appropriate for only a limited percentage of patients.

If demand for our products remains flat or decreases due to resistance to nontraditional treatment methods, this could materially adversely affect our business and operating results.

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

Our quarterly and annual operating results have and will continue to fluctuate for a variety of reasons, including as a result of changing doctor and consumer product demand.

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

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

• fluctuations in the number of patients seeking treatment and the number of doctors providing services and treatment as a result of the pandemic and new variants in the virus;

• changes in demand based on geographies, channels, or product mix;

• the level of confidence of doctors in our products and changes in the rates at which they recommend or utilize our products for their patients;

• weakness in consumer spending and confidence, inflation, a slowdown or recession in domestic or international economies;

In addition to the factors otherwise described herein, some of the other factors that have historically and in the future could cause our operating results to fluctuate include:

• higher manufacturing, delivery and inventory costs;

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

• competition in general and competitive developments in our target markets;

• new programs or business models, new product or services introductions or changes or modifications to existing products and services offerings, including any impacts related to the timing of orders, product mix or market cannibalization;

• changes in relationships with DSOs and distributors, including the timing of orders;

• changes in the timing of revenue recognition and changes in our average selling prices, including as a result of the timing of receipt of product orders and shipments, product and services mix, geographic mix, product and services deferrals, the introduction of new products and software releases, product pricing, bundling and promotions, pricing for fees or expenses, modifications to our terms and conditions such as payment terms, or as a result of new accounting pronouncements or changes to critical accounting estimates including, without limitation, those estimates based on such matters as our predicted usage of additional aligners;

• the creditworthiness, liquidity and solvency of our customers and their ability to timely make payments when due;

• fluctuations in currency exchange rates against the U.S.

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

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

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• timing and fluctuation of spending around marketing and brand awareness campaigns and industry trade shows.

• our reliance on our contract manufacturers for the production of sub-assemblies for our intraoral scanners;

• increased advertising or marketing efforts or aggressive price competition from competitors;

• changes to our effective tax rate;

• major changes in available technology or the preferences of customers may cause our current product offerings to become less competitive or obsolete;

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

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

• inaccurate forecasting of net revenues, production and other operating costs;

• investments in research and development to develop new products and enhancements;

• material impairments of goodwill and long-lived assets.

To respond to these and other factors, we may make business decisions that adversely affect our operating results such as modifications to our pricing policy and payment terms, promotions, development efforts, product releases, business structure or operations.

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As a result, if our net revenues for a particular period fall below expectations, we may be unable to timely or effectively reduce spending to offset any shortfall in net revenues.

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

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

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

If the operations of these carriers are disrupted for any reason, we may be unable to timely deliver our products to our customers who may choose alternative products causing our net revenues and gross margin to decline, possibly materially.

If the operations of these carriers are disrupted for any reason, we may be unable to timely deliver our products to our customers who may choose alternative products which could cause our net revenues and gross margin to materially decline.

For example, after Russia's military attacks began in Ukraine, UPS ceased shipments to Russia and we suspended our commercial operations there as well.

Moreover, when fuel costs increase, our freight costs generally do so as well.

Due to the recent increase in fuel costs, we have experienced a material increase in our freight costs.

In addition, we earn an increasingly larger portion of our total revenues from international sales.

International sales carry higher shipping costs which could negatively impact our gross margin and results of operations.

If freight costs materially increase and we are unable to successfully pass all or significant portions of the increase along to our customers, or we cannot otherwise offset such increases in our cost of net revenues, our gross margin and financial results could be adversely affected.

If freight costs materially increase and we are unable to successfully pass all or significant portions of the

increase along to our customers, or we cannot otherwise offset such increases in our cost of net revenues, our gross margin and financial results could be materially adversely affected.

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

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

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

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

In addition, various countries prohibit certain types of marketing activities.

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

Litigating claims of this type is costly and could distract our management and cause a decline in our results of operations and stock price.

Litigating claims of this type is costly and could distract our management and cause a decline in our results of operations and adversely impact our reputation.

Our success depends in part on our ability to maintain existing IP rights and to obtain and maintain further IP protection for our products.

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We generally enter into confidentiality agreements with our employees, consultants and collaborative partners upon commencement of a relationship with us.

however, these agreements may not provide meaningful protection against the unauthorized use or disclosure of our trade secrets or other confidential information, and adequate remedies may not exist when unauthorized uses or disclosures occur.

However, despite the existence of these agreements, we have experienced incidents in which our proprietary information has been misappropriated in the past and believe that it could be misappropriated again in the future.

If these agreements do not provide meaningful protection against the unauthorized use or disclosure of our trade secrets or other confidential information, adequate remedies may not exist when unauthorized uses or disclosures occur.

Our inability to maintain the proprietary nature of our technology through patents, copyrights or trade secrets would impair our competitive advantages and could have a material adverse effect on our operating results, financial condition and future growth prospects.

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and other jurisdictions and investigations and additional litigation based on the same or similar claims may be brought in the future.

The potential effects on our business operations resulting from litigation, whether or not ultimately determined in our favor or settled by us, are costly and could adversely affect our results of operations and stock price.

The potential effects on our business operations resulting from litigation, whether or not ultimately determined in our favor or settled by us, are costly and could materially adversely affect our results of operations and reputation.

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

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

Obtaining approvals and complying with governmental regulations, particularly those related to personal healthcare information, financial information, quality systems and data privacy, is expensive and time-consuming, and any failure to obtain or maintain approvals or comply with regulations regarding our products or services or the products and services of our suppliers or customers could materially harm our sales, result in substantial penalties and cause harm to our reputation.

As a supplier of medical devices and solutions, we and many of our healthcare provider customers, suppliers and distributors are subject to extensive and frequently changing regulations under numerous federal, state, local and foreign laws, including those regulating:

Obtaining approvals and complying with governmental regulations, particularly those related to personal healthcare information, financial information, quality systems, competition, anti-trust, data governance and data privacy, is expensive and time-consuming, and any failure to obtain or maintain approvals or comply with regulations regarding our products or services or the products and services of our suppliers or customers could materially harm our sales, result in substantial penalties and cause harm to our reputation.

As a technology company and supplier of medical devices and solutions, we and many of our healthcare provider customers, suppliers and distributors are subject to extensive and frequently changing regulations under numerous federal, state, local and foreign laws, including those regulating:

• the storage, transmission and disclosure of medical information and healthcare records;

• prohibitions against the offer, payment or receipt of remuneration to induce referrals to entities providing healthcare services or goods or to induce the order, purchase or recommendation of our products;

• the marketing and advertising of our products.

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

• the design, marketing and advertising of our products.

The healthcare and technology markets are also highly regulated and subject to changing political, economic and regulatory influences.

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

Additionally, we are expanding our product portfolio into the areas of software as a medical device and the use of artificial intelligence.

Global regulators are rapidly expanding and changing the regulations and guidance regarding the market access pathways for these innovative products, which could result in market withdrawal of existing products or protracted review timelines for new product introductions.

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

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There can be no assurance that we will adequately address the business risks associated with the implementation and compliance with such laws or that we will be able to take advantage of any resulting business opportunities.

We are and may be in the future subject to antitrust or competition related investigations, enforcement actions, and settlements, by governmental agencies, competitors, consumers, customers, and others which could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business.

Governments, enforcement authorities and other legislative bodies are actively developing new competition laws and regulations aimed at the technology sector, artificial intelligence and digital platforms, coordinating globally, and enforcing competition laws and regulations, and this includes scrutiny in potentially large markets such as the EU, U.S., and China.

Government regulatory actions and court decisions may result in fines or hinder our ability to provide certain benefits to our consumers, reducing the attractiveness of our products and the revenue that comes from them.

Furthermore, in general before we can sell a new medical device or market a new use of or claim for an existing product, we must obtain clearance or approval to gain market access unless an exemption applies.

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

In particular, our CT scanning and stereolithography equipment used in our aligner manufacturing and many of the critical components for the optics of our

scanners are provided by single suppliers.

In particular, our CT scanning and stereolithography equipment used in our aligner manufacturing and many of the critical components for the optics of our scanners are provided by single suppliers.

We rely on a single third-party manufacturer to supply key sub-assemblies for our iTero Element scanner.

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Any one of these occurrences would impact our supply chain.

Restrictions in response to the pandemic and other macroeconomic factors have affected and are expected to continue to affect our supply chain.

Restrictions in response to the COVID-19 pandemic and other macroeconomic factors have affected and are expected to continue to affect our supply chain.

The manufacture of product components, the final assembly of our products and other critical operations are concentrated in certain geographic locations, including China.

A significant portion of our finished goods product distribution occurs through China and EMEA.

Each of these areas has been affected by the pandemic and has implemented measures to try to contain its spread, including restrictions on manufacturing facilities, commerce, travel, our support operations and workforce, and our customers, strategic partners, vendors and suppliers.

Each of these areas has been affected by the COVID-19 pandemic and has implemented measures to try to contain its spread, including restrictions on manufacturing facilities, commerce, travel, our support operations and workforce, and our customers, strategic partners, vendors and suppliers.

There is considerable uncertainty regarding the current and future impact of such measures, including reduced availability or increased cost of air transport, port closures and increased border controls and closures.

Any or all restrictions can limit our manufacturers’ capacity to produce our parts or products and have a material adverse effect on our supply chain.

Due to the military conflict between Russia and Ukraine, some countries have placed export controls on certain products and financial and economic sanctions on various industry sectors and parties in Russia.

The outcome and future impacts of the conflict remain highly uncertain and are continuing to evolve but they have impacted and could materially affect our supply chain in the future.

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

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

For more discussion related to our personnel and corporate culture see the risk factor, “ We rely on our personnel and, i f we fail to attract, motivate or retain personnel, or if our growth harms our corporate culture, it may be more difficult to grow effectively and pursue our strategic priorities.”

If we are unable to expand our workforce, including key sales and other skilled personnel, retain key personnel or quickly replace personnel with individuals of equivalent technical expertise and qualifications, our net revenues and our ability to maintain market share could be materially harmed.

We use distributors for a portion of the importation, marketing and sales efforts related to our products and services, which exposes us to risks that may be harmful to our sales and operations, including that these distributors do not comply with applicable laws or our internal procedures.

If we are unable to retain our workforce, including key sales and other skilled personnel, or quickly replace personnel with individuals of equivalent technical expertise and qualifications, our results of operations and our ability to maintain market share could be materially adversely effected.

For more discussion related to our personnel and corporate culture see the risk factor, “ We rely on our personnel and, i f we fail to attract, motivate, train or retain personnel, or if our growth harms our corporate culture, it may be more difficult to grow effectively and pursue our strategic priorities.”

We use distributors for a portion of the importation, marketing and sales efforts related to our products and services, which exposes us to risks that may be harmful to our sales and operations, including the risk that these distributors do not comply with applicable laws or our internal procedures.

In addition to our direct sales force, we have and expect to continue to use distributors to import, market, sell, service and support our products.

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Any claim for product liability, sales, advertising and business practices, regardless of its merit or eventual outcome, could result in significant legal defense costs and damage our reputation, increase our expenses and divert management’s attention.

Compliance with current or future environmental, social, and governance (“ESG”) laws may materially increase our costs, expose us to potential liability and otherwise materially impact our business.

Increased focus on compliance with current or future ESG laws and increased scrutiny of our ESG policies and practices may materially increase our costs, expose us to potential liability, may adversely impact our reputation, employee retention, willingness of customers and suppliers to do business with us and willingness of investors to invest in us, and otherwise materially impact our business.

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

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

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

Although we do not believe that we or our suppliers source minerals

from this region, these laws and regulations may decrease the number of suppliers capable of supplying our needs for certain metals, thereby negatively affecting our ability to manufacture products in sufficient quantities or at competitive prices, leading customers to potentially choose competitive goods and services.

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

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In all of these situations, customers may stop purchasing products from us, and may take legal action against us, which could harm our reputation, revenues and results of operations.

Investor advocacy groups, institutional investors, investment funds, proxy advisory services, stockholders, and customers are also increasingly focused on ESG practices of companies.

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

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

In addition, as we work to align our ESG practices with industry standards, we have expanded and, in the future, will likely continue to expand our disclosures in these areas.

We also expect to incur additional costs and require additional resources to monitor, report, and comply with our various ESG practices.

If we fail to adopt ESG standards or practices as quickly as stakeholders desire, report on our ESG efforts or practices accurately, or satisfy the disclosure and other expectations of stakeholders, our reputation, business, financial performance, growth, and stock price may be adversely impacted.

General Risk Factors

We rely on our personnel and, i f we fail to attract, motivate or retain personnel, or if our growth harms our corporate culture, it may be more difficult to grow effectively and pursue our strategic priorities.

We rely on our personnel and, i f we fail to attract, motivate, train or retain personnel, or if our growth harms our corporate culture, it may be more difficult to grow effectively and pursue our strategic priorities.

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

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

We are considering adjusting our remote working policies, which may cause our culture to change, cause us to incur additional costs, or cause us to lose talent or fail to attract talent.

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

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

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

Beginning and continuing in 2022, we are gradually reopening many of our offices that have been substantially closed to employees during the COVID-19 pandemic.

This hybrid approach that we have adopted may materially increase our costs or create unforeseen challenges or complications, including:

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

• difficulties with hiring and retention, particularly considering tight labor markets and generous or broad remote working policies being adopted by companies against whom we compete for talent;

• negative impacts to collaboration, performance and productivity;

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

In addition, other internal and external factors can impact our ability to hire and retain talent, including insufficient advancement or career opportunities, restrictive

immigration policy and regulatory changes , an increase in employees choosing to retire or quit with no immediate intentions to continue working and significantly higher demand for technical and digital talent.

In addition, other internal and external factors can impact our ability to hire and retain talent, including insufficient advancement or career opportunities, restrictive immigration policy and regulatory changes , an increase in employees choosing to retire or quit with no immediate intentions to continue working and significantly higher demand for technical and digital talent.

This could have a material adverse effect on our results of operations and our ability to maintain market share.

Business disruptions could seriously harm our financial condition.

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Although this did not have a material adverse effect on our business, there is no assurance that such incidents may not impact us in a material way in the future.

Natural disasters can impact our business, including as a result of earthquakes, tsunamis, floods, droughts, hurricanes, wildfires, extreme weather conditions, power outages, restrictions and shortages, telecommunications failures, materials scarcity and price volatility, and medical epidemics or health pandemics.

Natural disasters can impact our business and third-party vendors that may be critical to our business, including as a result of earthquakes, tsunamis, floods, droughts, hurricanes, wildfires, extreme weather conditions, power outages, restrictions and shortages, telecommunications failures, materials scarcity and price volatility, and medical epidemics or health pandemics.

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

Our digital dental modeling and certain of our customer facing operations are primarily processed in our facilities located in Costa Rica.

Our aligner molds and finished aligners are fabricated in Mexico and China.

Our aligner molds and finished aligners are fabricated in China, Mexico and Poland.

Our locations in Costa Rica and Mexico as well as others are in earthquake zones and may be subject to other natural disasters.

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These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting policies.

A change in these policies or in the way these policies are interpreted by us or regulators can have a significant effect on our reported results and may even retroactively affect previously reported transactions.

A change in these policies or in the way these policies are interpreted by us or regulators could have a significant effect on our reported results and may even retroactively affect previously reported financial statements.

We are required to annually assess our internal control over financial reporting and any adverse results from such assessment may result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

We are required to furnish in our Form 10-K a report by our management regarding the effectiveness of our internal control over financial reporting that includes, among other things, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether our internal control over financial reporting is effective.

Our internal controls may become inadequate because of changes in personnel, updates and upgrades to existing software including our ERP software system, changes in accounting standards or interpretations of existing standards, and, as a result, the degree of compliance of our internal control over financial reporting with the existing policies or procedures may become ineffective.

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

reports could be delayed or we could be required to restate past reports, and cause us to lose investor confidence in the accuracy and completeness of our financial reports in the future, which could have an adverse effect on our stock price.

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

Although the U.S.

dollar is our reporting currency, a growing portion of our net revenues and net income are generated in foreign currencies.

Net revenues and net income generated by subsidiaries operating outside of the U.S.

are translated into U.S.

dollars using constantly, often substantially, fluctuating exchange rates.

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

dollar have and may increasingly adversely affect our net revenues and net income in our consolidated financial statements.

Our customers and consumers are experiencing rising inflation which decreases customer and consumer buying power and demand for our products.

We also experienced rising inflationary pressures in 2021 and those pressures are increasing in 2022.

In addition to reducing customer and consumer demand, cost inflation, including increases in ocean container rates, raw material prices, labor rates, and domestic transportation costs threaten to impact our profitability and our ability to recover these cost increases through price increases may continue to lag, resulting in downward pressure on our gross margin and operating margin.

Any attempts to offset cost increases with price increases may result in greater reductions in sales, increase customer dissatisfaction or otherwise harm our reputation.

Our internal controls may become inadequate because of changes in personnel, updates and upgrades to existing software, changes in accounting standards or interpretations of existing standards, and, as a result, the degree of compliance of our internal control over financial reporting with the existing policies or procedures may become ineffective.

Establishing, testing and maintaining an effective system of internal control over financial reporting requires significant

resources and time commitments on the part of our management and our finance staff, may require additional staffing and infrastructure investments and increases our costs of doing business.

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

If we fail to manage our exposure to global financial and securities market risks successfully, our operating results and financial statements could be materially impacted.

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We also have other contracts indexed to LIBOR.

We continue to monitor this matter and evaluate the related risks and potential impact of LIBOR’s expiration.

Any indebtedness that we incur may be indexed to a replacement benchmark, such as the Secured Overnight Financing Rate (“SOFR”).

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Various internal and external factors may have favorable or unfavorable effects on our future effective tax rate.

pronouncements, changing interpretations of existing tax laws or regulations, changes in the relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates, changes in overall levels of pretax earnings, the future levels of tax benefits of stock-based compensation, settlement of income tax audits and non-deductible goodwill impairments.

These factors include, but are not limited to, changes in the global economic environment, changes in legal entity structure or activities performed within our entities, changes in tax laws, regulations and/or rates, new or changes to accounting pronouncements, changing interpretations of existing tax laws or regulations, changes in the relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates, changes in overall levels of pretax earnings, the future levels of tax benefits of stock-based compensation, settlement of income tax audits and non-deductible goodwill impairments.

For example, our effective tax rate varied significantly in the first quarter of fiscal 2020 due to the relocation of our EMEA regional headquarters from the Netherlands to Switzerland.

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and significant judgment is required in determining our worldwide provision for income taxes.

Changes in tax laws or changes to how those laws are applied to our business in practice, could affect the amount of tax to which we are subject and the manner in which we operate.

Changes in tax laws or changes to how those laws are applied to our business in practice, could affect the amount of tax to which we are subject and the manner in which we

Additionally, the Organization for Economic Cooperation and Development’s (“OECD”) Base Erosion and Profit Shifting (“BEPS”) project has resulted in considerable new reporting obligations worldwide as OECD member countries have implemented its guidance.

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• invest in companies that generate net losses and the market for their products, services or technologies may be slow to develop;

• not realize a positive return on investment or determine that our investments have declined in value, such that we may be required to record impairments which could be material and could have an adverse impact on our financial results;

• not realize a positive return on investment or determine that our investments have declined in value, such that we may be required to record impairments such as future impairments of intangible assets and goodwill or the recording of stock-based compensation, which could have a material adverse impact on our financial results;

• have to pay cash, incur debt or issue equity securities to pay for an acquisition, adversely affecting our liquidity, financial condition or the value of our common stock.

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• unsuccessfully evaluate or utilize the acquired technology or acquired company’s know-how or fail to successfully integrate any acquisitions or the technologies acquired.

Moreover, opposition to one of more acquisitions could lead to negative ratings by analysts or investors, give rise to objections by one or more stockholders or result in stockholder activism, any of which could harm our stock price.

Acquisitions can also lead to large non-cash charges that can have an adverse effect on our results of operations as a result of write-offs for items such as future impairments of intangible assets and goodwill or the recording of stock-based compensation.

Moreover, opposition to one or more acquisitions could lead to negative ratings by analysts or investors, give rise to objections by one or more stockholders or result in stockholder activism, any of which could harm our stock price.

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

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• quarterly variations in our results of operations and liquidity or changes in our forecasts and guidance;

• our ability i n the future to sustain or regain our historical growth rates;

• changes in recommendations by the investment community or speculation in the press or investment community regarding estimates of our net revenues, operating results or other performance indicators;

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and austerity measures of governments intended to control budget deficits.

Historically, our stock has fluctuated materially based on broad economic and industry factors unrelated to our actual performance and future changes in monetary policies, austerity, and other market factors may seriously harm the market price of our common stock, regardless of our operating performance.

Historically, securities litigation, including securities class action lawsuits and securities derivative lawsuits, is often brought

against an issuing company following periods of volatility in the market price of its securities and we have not been excepted from such litigation.

Historically, our stock has fluctuated materially based on broad general economic market and industry factors unrelated to our actual performance and future changes in monetary policies, austerity, and other market factors may seriously harm the market price of our common stock, regardless of our actual operating performance.

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

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

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Sales of substantial amounts of our common stock in the public market by existing stockholders may adversely affect the market price of our common stock by creating the perception of difficulties or problems with our business that may depress our stock price.

Increased scrutiny of our ESG policies and practices have and will likely continue to result in additional costs and risks, and may adversely impact our reputation, employee retention, and willingness of customers and suppliers to do business with us.

Investor advocacy groups, institutional investors, investment funds, proxy advisory services, stockholders, and customers are increasingly focused on ESG practices of companies.

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

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

In addition, as we work to align our ESG practices with industry standards, we have expanded and, in the future, will likely continue to expand our disclosures in these areas.

We also expect to incur additional costs and require additional resources to monitor, report, and comply with our various ESG practices.

If we fail to adopt ESG standards or practices as quickly as stakeholders desire or regulators require, report on our ESG efforts or practices accurately, or satisfy the disclosure and other expectations of stakeholders or regulators, our reputation, business, financial performance, growth, and stock price may be adversely impacted.

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

What changed 10-Q

Item 1A. Risk Factors