Item 1. Financial Statements
Item 1. Financial Statements.
ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021
Net revenues $ 969,553 $ 1,010,808 $ 1,942,772 $ 1,905,579
Cost of net revenues 281,994 252,270 545,867 469,943
Gross profit 687,559 758,538 1,396,905 1,435,636
Operating expenses:
Selling, general and administrative 426,398 431,921 865,855 829,036
Research and development 72,965 57,715 144,772 112,252
Total operating expenses 499,363 489,636 1,010,627 941,288
Income from operations 188,196 268,902 386,278 494,348
Interest income and other income (expense), net:
Interest income 245 383 922 2,026
Other income (expense), net ( 14,832 ) ( 483 ) ( 26,105 ) 34,049
Total interest income and other income (expense), net ( 14,587 ) ( 100 ) ( 25,183 ) 36,075
Net income before provision for income taxes 173,609 268,802 361,095 530,423
Provision for income taxes 60,809 69,088 113,997 130,333
Net income $ 112,800 $ 199,714 $ 247,098 $ 400,090
Net income per share:
Basic
$ 1.44 $ 2.53 $ 3.15 $ 5.06
Diluted
$ 1.44 $ 2.51 $ 3.13 $ 5.02
Shares used in computing net income per share:
Basic
78,395 79,008 78,568 79,004
Diluted
78,545 79,638 78,840 79,737
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021
Net income $ 112,800 $ 199,714 $ 247,098 $ 400,090
Other comprehensive income (loss):
Change in foreign currency translation adjustment, net of tax ( 13,756 ) 586 ( 21,067 ) ( 13,865 )
Change in unrealized gains (losses) on investments, net of tax ( 301 ) — ( 3,029 ) ( 20 )
Other comprehensive income (loss) ( 14,057 ) 586 ( 24,096 ) ( 13,885 )
Comprehensive income $ 98,743 $ 200,300 $ 223,002 $ 386,205
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
June 30,
2022 December 31,
2021
ASSETS
Current assets:
Cash and cash equivalents $ 877,501 $ 1,099,370
Marketable securities, short-term 22,138 71,972
Accounts receivable, net of allowance for doubtful accounts of $ 9,520 and $ 9,245 , respectively
931,854 897,198
Inventories 310,046 230,230
Prepaid expenses and other current assets 235,265 195,305
Total current assets 2,376,804 2,494,075
Marketable securities, long-term 77,551 125,320
Property, plant and equipment, net 1,182,444 1,081,926
Operating lease right-of-use assets, net 117,912 121,257
Goodwill 390,100 418,547
Intangible assets, net 93,817 109,709
Deferred tax assets 1,518,648 1,533,767
Other assets 52,843 57,509
Total assets $ 5,810,119 $ 5,942,110
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 145,607 $ 163,886
Accrued liabilities 416,459 607,315
Deferred revenues 1,242,348 1,152,870
Total current liabilities 1,804,414 1,924,071
Income tax payable 116,414 118,072
Operating lease liabilities 98,332 102,656
Other long-term liabilities 191,878 174,597
Total liabilities 2,211,038 2,319,396
Commitments and contingencies (Notes 6 and 7)
Stockholders’ equity:
Preferred stock, $ 0.0001 par value ( 5,000 shares authorized; none issued)
— —
Common stock, $ 0.0001 par value ( 200,000 shares authorized; 78,059 and 78,710 issued and outstanding, respectively)
8 8
Additional paid-in capital 1,016,882 999,006
Accumulated other comprehensive income (loss), net ( 19,770 ) 4,326
Retained earnings 2,601,961 2,619,374
Total stockholders’ equity 3,599,081 3,622,714
Total liabilities and stockholders’ equity $ 5,810,119 $ 5,942,110
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss), Net Retained Earnings Total
Three Months Ended June 30, 2022 Shares Amount
Balance as of March 31, 2022 78,805 $ 8 $ 992,287 $ ( 5,713 ) $ 2,680,270 $ 3,666,852
Net income — — — — 112,800 112,800
Net change in unrealized gains (losses) from investments — — — ( 301 ) — ( 301 )
Net change in foreign currency translation adjustment — — — ( 13,756 ) — ( 13,756 )
Issuance of common stock relating to employee equity compensation plans 11 — — — — —
Tax withholdings related to net share settlements of equity awards — — ( 654 ) — — ( 654 )
Common stock repurchased and retired ( 757 ) — ( 8,891 ) — ( 191,109 ) ( 200,000 )
Stock-based compensation — — 34,140 — — 34,140
Balance as of June 30, 2022 78,059 $ 8 $ 1,016,882 $ ( 19,770 ) $ 2,601,961 $ 3,599,081
Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss), Net Retained Earnings Total
Six Months Ended June 30, 2022 Shares Amount
Balance as of December 31, 2021 78,710 $ 8 $ 999,006 $ 4,326 $ 2,619,374 $ 3,622,714
Net income — — — — 247,098 247,098
Net change in unrealized gains (losses) from investments — — — ( 3,029 ) — ( 3,029 )
Net change in foreign currency translation adjustment — — — ( 21,067 ) — ( 21,067 )
Issuance of common stock relating to employee equity compensation plans 250 — 14,827 — — 14,827
Tax withholdings related to net share settlements of equity awards — — ( 52,187 ) — — ( 52,187 )
Common stock repurchased and retired ( 901 ) — ( 10,525 ) — ( 264,511 ) ( 275,036 )
Stock-based compensation — — 65,761 — — 65,761
Balance as of June 30, 2022 78,059 $ 8 $ 1,016,882 $ ( 19,770 ) $ 2,601,961 $ 3,599,081
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)
(in thousands)
(unaudited)
Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss), Net Retained Earnings Total
Three Months Ended June 30, 2021 Shares Amount
Balance as of March 31, 2021 79,136 $ 8 $ 948,362 $ 29,030 $ 2,416,176 $ 3,393,576
Net income — — — — 199,714 199,714
Net change in foreign currency translation adjustment — — — 586 — 586
Issuance of common stock relating to employee equity compensation plans 89 — — — — —
Tax withholdings related to net share settlements of equity awards — — ( 38,321 ) — — ( 38,321 )
Common stock repurchased and retired ( 277 ) — ( 3,065 ) — ( 156,935 ) ( 160,000 )
Equity forward contract related to
accelerated stock repurchase — — ( 40,000 ) — — ( 40,000 )
Stock-based compensation — — 28,855 — — 28,855
Balance as of June 30, 2021 78,948 $ 8 $ 895,831 $ 29,616 $ 2,458,955 $ 3,384,410
Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss), Net Retained Earnings Total
Six Months Ended June 30, 2021 Shares Amount
Balance as of December 31, 2020 78,860 $ 8 $ 974,556 $ 43,501 $ 2,215,800 $ 3,233,865
Net income — — — — 400,090 400,090
Net change in unrealized gains (losses) from investments — — ( 20 ) — ( 20 )
Net change in foreign currency translation adjustment — — — ( 13,865 ) — ( 13,865 )
Issuance of common stock relating to employee equity compensation plans 365 — 13,133 — — 13,133
Tax withholdings related to net share settlements of equity awards — — ( 104,889 ) — — ( 104,889 )
Common stock repurchased and retired ( 277 ) — ( 3,065 ) — ( 156,935 ) ( 160,000 )
Equity forward contract related to
accelerated stock repurchase — — ( 40,000 ) — — ( 40,000 )
Stock-based compensation — — 56,096 — — 56,096
Balance as of June 30, 2021 78,948 $ 8 $ 895,831 $ 29,616 $ 2,458,955 $ 3,384,410
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited )
Six Months Ended
June 30,
2022 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 247,098 $ 400,090
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes 14,747 39,961
Depreciation and amortization 59,907 51,527
Stock-based compensation 65,761 56,096
Non-cash operating lease cost 15,075 12,413
Arbitration award gain — ( 43,403 )
Other non-cash operating activities 16,172 13,174
Changes in assets and liabilities:
Accounts receivable ( 53,462 ) ( 164,822 )
Inventories ( 91,060 ) ( 49,070 )
Prepaid expenses and other assets ( 14,219 ) ( 70,132 )
Accounts payable ( 23,944 ) ( 5,736 )
Accrued and other long-term liabilities ( 212,896 ) 65,650
Long-term income tax payable ( 1,657 ) 7,535
Deferred revenues 136,021 231,408
Net cash provided by operating activities
157,543 544,691
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ( 163,348 ) ( 167,668 )
Purchase of marketable securities ( 20,466 ) —
Proceeds from maturities of marketable securities 21,690 —
Proceeds from sales of marketable securities 92,235 —
Repayment on unsecured promissory note — 4,594
Proceeds from arbitration award — 43,403
Other investing activities ( 2,189 ) ( 4,249 )
Net cash used in investing activities ( 72,078 ) ( 123,920 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 14,827 13,133
Common stock repurchases ( 275,036 ) ( 160,000 )
Payments for equity forward contracts related to accelerated share repurchase agreements — ( 40,000 )
Payroll taxes paid upon the vesting of equity awards ( 52,187 ) ( 104,889 )
Net cash used in financing activities ( 312,396 ) ( 291,756 )
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash 4,978 ( 3,511 )
Net (decrease) increase in cash, cash equivalents, and restricted cash ( 221,953 ) 125,504
Cash, cash equivalents, and restricted cash at beginning of the period 1,100,139 961,474
Cash, cash equivalents, and restricted cash at end of the period $ 878,186 $ 1,086,978
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by Align Technology, Inc. (“we”, “our”, "Company", or “Align”) on a consistent basis with the audited Consolidated Financial Statements for the year ended December 31, 2021, and contains all adjustments, including normal recurring adjustments, necessary to state fairly state the information set forth herein. The unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), and, therefore, omit certain information and footnote disclosures necessary to present the unaudited Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (“U.S.”).
The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any other future period, and we make no representations related thereto.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the U.S. requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, useful lives of intangible assets and property and equipment, long-lived assets and goodwill, income taxes, contingent liabilities, the fair values of financial instruments, stock-based compensation and the valuation of investments in privately held companies among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Certain Risks and Uncertainties
The military conflict between Russia and Ukraine and its impact on the economy has caused significant worldwide challenges. While the situation is highly uncertain and evolving, its impact on the economy, including inflation, volatilities in the financial market, supply chain challenges, impacts on consumer confidence, purchasing power, sanctions and retaliatory sanctions among others, have impacted and could potentially subject our business to materially adverse consequences should any portion of its impacts become prolonged or escalate beyond its current scope.
Further, as the COVID-19 pandemic continues and new variants of the virus emerge, we are continuing to see fluctuations in the numbers of patients seeking treatment for dental services and the number of doctors providing services and treatments globally. The full extent to which the pandemic, including as a result of any new variants, business restrictions or lockdowns, and the impact of vaccinations, will directly or indirectly impact our business, results of operations, cash flows, and financial condition will depend on future developments that are highly uncertain and cannot be accurately determined. Additionally, we could also be materially adversely affected by uncertain or reduced demand, labor shortages, delays in collection of outstanding receivables and the impact of any initiatives or programs that we may undertake to address financial and operational challenges faced by our customers.
Revenue Recognition
Our revenues are derived primarily from the sale of aligners, scanners, and services from our Clear Aligner and Systems and Services segments. We enter into sales contracts that may consist of multiple distinct performance obligations where certain performance obligations of the sales contract are not delivered in one reporting period. We measure and allocate revenues according to ASC 606-10, “Revenues from Contracts with Customers.”
We identify a performance obligation as distinct if both of the following criteria are met: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.
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Determining the standalone selling price (“SSP”) in order to allocate consideration from the contract to the individual performance obligations is the result of various factors, such as changing trends and market conditions, historical prices, costs, and gross margins. While changes in the allocation of the SSP between performance obligations will not affect the amount of total revenues recognized for a particular contract, any material changes could impact the timing of revenue recognition, which would have a material effect on our financial position and result of operations. This is because the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation.
Clear Aligner
We enter into contracts (“treatment plan(s)”) that involve multiple future performance obligations. Invisalign Comprehensive, Invisalign First, Invisalign Moderate, and Lite and Express Packages include optional additional aligners at no charge for a certain period of time ranging from six months to five years after initial shipment, and Invisalign Go and Invisalign Go Plus includes optional additional aligners at no charge for a period of up to two years after initial shipment.
Our treatment plans comprise the following performance obligations that also represent distinct deliverables: initial aligners, the option of additional aligners, case refinement, and replacement aligners. We take the practical expedient to consider shipping and handling costs as activities to fulfill the performance obligation. We allocate revenues for each treatment plan based on each unit’s SSP. Management considers a variety of factors such as same or similar product historical sales, costs, and gross margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. In addition to historical data, we take into consideration changing trends and market conditions. For treatment plans with multiple future performance obligations, we also consider usage rates, which is the number of times a customer is expected to order additional aligners. Our process for estimating usage rates requires significant judgment and evaluation of inputs, including historical usage data by region, country and channel. We recognize the revenues upon shipment, as the customers obtain physical possession, and we have enforceable rights to payment. As we collect most consideration upfront, we consider whether a significant financing component exists; however, as the delivery of the performance obligations are at the customer’s discretion, we conclude that no significant financing component exists.
Systems and Services
We sell intraoral scanners and CAD/CAM services through both our direct sales force and distribution partners. The intraoral scanner sales price includes one year of warranty and unlimited scanning services. The customer may also select, for additional fees, extended warranty and unlimited scanning services for periods beyond the initial year. When intraoral scanners are sold with an unlimited scanning service agreement and/or extended warranty, we allocate revenues based on the respective SSP of the scanner and the subscription service. We estimate the SSP of each element, taking into account factors such as same or similar historical prices and discounting strategies. Revenues are then recognized over time as the monthly services are rendered and upon shipment of the scanner, as that is when we deem the customer to have obtained control. CAD/CAM services, where sold separately, include the initial software license and maintenance and support. We allocate revenues based upon the respective SSPs of the software license and the maintenance and support. We estimate the SSP of each element using data such as historical prices. Revenues related to the software license are recognized upfront and revenues related to the maintenance and support are recognized over time. For both scanner and service sales, most consideration is collected upfront and in cases where there are payment plans, consideration is collected within one year and, therefore, there are no significant financing components.
Recent Accounting Pronouncements Not Yet Effective
We continue to monitor new accounting pronouncements issued by the Financial Accounting Standards Board and do not believe any of the recently issued accounting pronouncements will have a material impact on our consolidated financial statements or related disclosures.
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Note 2. Financial Instruments
Cash, Cash Equivalents and Marketable Securities
The following tables summarize our cash and cash equivalents, and marketable securities on our Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (in thousands):
Reported as:
June 30, 2022 Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value Cash and Cash Equivalents Marketable securities, short-term Marketable securities, long-term
Cash $ 758,365 $ — $ — $ 758,365 $ 758,365 $ — $ —
Money market funds 119,148 — ( 12 ) 119,136 119,136 — —
Corporate bonds 70,808 — ( 2,812 ) 67,996 — 8,488 59,508
U.S. government treasury bonds
18,609 — ( 495 ) 18,114 — 6,490 11,624
Asset-backed securities 7,042 — ( 59 ) 6,983 — 3,113 3,870
Municipal bonds 5,541 — ( 100 ) 5,441 — 4,047 1,394
U.S. government agency bonds 1,201 — ( 46 ) 1,155 — — 1,155
Total $ 980,714 $ — $ ( 3,524 ) $ 977,190 $ 877,501 $ 22,138 $ 77,551
Reported as:
December 31, 2021 Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value Cash and Cash Equivalents Marketable securities, short-term Marketable securities, long-term
Cash $ 754,802 $ — $ — $ 754,802 $ 754,802 $ — $ —
Money market funds 343,012 — ( 2 ) 343,010 343,010 — —
Corporate bonds 115,507 9 ( 398 ) 115,118 1,042 35,065 79,011
U.S. government treasury bonds
42,976 — ( 48 ) 42,928 — 22,251 20,677
Asset-backed securities 32,031 — ( 40 ) 31,991 — 10,999 20,992
Municipal bonds 7,628 — ( 15 ) 7,613 516 3,657 3,440
U.S. government agency bonds 1,201 — ( 1 ) 1,200 — — 1,200
Total $ 1,297,157 $ 9 $ ( 504 ) $ 1,296,662 $ 1,099,370 $ 71,972 $ 125,320
The following table summarizes the fair value of our available-for-sale marketable securities classified by contractual maturity as of June 30, 2022 and December 31, 2021 (in thousands):
June 30, 2022 December 31, 2021
Due in 1 year or less $ 17,185 $ 59,737
Due in 1 year through 5 years 82,504 139,113
Total $ 99,689 $ 198,850
The securities that we invest in are generally deemed to be low risk based on their credit ratings from the major rating agencies. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As interest rates increase, those securities purchased at a lower yield show a mark-to-market unrealized loss. Our unrealized losses as of June 30, 2022 and December 31, 2021 are primarily due to changes in interest rates and credit spreads.
Fair Value Measurements
Fair value is an exit price, representing the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use the GAAP fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value:
Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.
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Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. We obtain fair values for our Level 2 investments. Our custody bank and asset managers independently use professional pricing services to gather pricing data which may include quoted market prices for identical or comparable financial instruments, or inputs other than quoted prices that are observable either directly or indirectly, and we are ultimately responsible for these underlying estimates.
Level 3 — Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.
The following tables summarize our financial assets measured at fair value as of June 30, 2022 and December 31, 2021 (in thousands):
Description Balance as of
June 30, 2022 Level 1
Level 2
Level 3
Cash equivalents:
Money market funds $ 119,136 $ 119,136 $ — $ —
Short-term investments:
U.S. government treasury bonds 6,490 6,490 — —
Corporate bonds 8,488 — 8,488 —
Municipal bonds 4,047 — 4,047 —
Asset-backed securities 3,113 — 3,113 —
Long-term investments:
U.S. government treasury bonds 11,624 11,624 — —
Corporate bonds 59,508 — 59,508 —
Municipal bonds 1,394 — 1,394 —
U.S. government agency bonds 1,155 — 1,155 —
Asset-backed securities 3,870 — 3,870 —
Other assets:
Investments in privately held companies 11,793 — — 11,793
$ 230,618 $ 137,250 $ 81,575 $ 11,793
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Description Balance as of December 31, 2021 Level 1 Level 2 Level 3
Cash equivalents:
Money market funds $ 343,010 $ 343,010 $ — $ —
Corporate bonds 1,042 — 1,042 —
Municipal bonds 516 — 516 —
Short-term investments:
U.S. government treasury bonds 22,251 22,251 — —
Corporate bonds 35,065 — 35,065 —
Municipal bonds 3,657 — 3,657 —
Asset-backed securities 10,999 — 10,999 —
Long-term investments:
U.S. government treasury bonds
20,677 20,677 — —
Corporate bonds 79,011 — 79,011 —
Municipal bonds
3,440 — 3,440 —
U.S. government agency bonds
1,200 — 1,200 —
Asset-backed securities
20,992 — 20,992 —
Prepaid expenses and other current assets:
Israeli funds 3,841 — 3,841 —
Other assets:
Investments in privately held companies 8,621 — — 8,621
$ 554,322 $ 385,938 $ 159,763 $ 8,621
Derivatives Not Designated as Hedging Instruments
We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on certain trade and intercompany receivables and payables. These forward contracts are classified within Level 2 of the fair value hierarchy. As a result of the settlement of foreign currency forward contracts, during the three months ended June 30, 2022 and 2021, we recognized a net gain of $ 10.8 million and a net loss of $ 13.0 million, respectively, and during the six months ended June 30, 2022 we recognized a net gain of $ 9.2 million. The net loss recognized during the six months ended June 30, 2021 was no t material. As of June 30, 2022 and December 31, 2021, the fair value of foreign exchange forward contracts outstanding was no t material.
The following tables present the gross notional value of all our foreign exchange forward contracts outstanding as of June 30, 2022 and December 31, 2021 (in thousands):
June 30, 2022
Local Currency Amount Notional Contract Amount (USD)
Euro € 147,830 $ 154,164
Chinese Yuan ¥ 719,300 107,297
Polish Zloty PLN 351,500 77,556
Canadian Dollar C$ 95,200 73,748
Brazilian Real R$ 317,000 59,913
Japanese Yen ¥ 6,081,000 44,744
British Pound £ 34,097 41,333
Swiss Franc CHF 22,500 23,536
Mexican Peso M$ 282,700 13,988
Israeli Shekel ILS 43,160 12,380
Australian Dollar A$ 4,600 3,170
$ 611,829
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December 31, 2021
Local Currency Amount Notional Contract Amount (USD)
Euro € 165,110 $ 186,358
Canadian Dollar C$ 99,800 78,018
Chinese Yuan ¥ 494,500 77,358
Polish Zloty PLN 219,800 54,014
Brazilian Real R$ 286,500 50,894
Japanese Yen ¥ 5,548,700 48,206
British Pound £ 34,740 46,881
Israeli Shekel ILS 54,110 17,416
Mexican Peso M$ 311,500 15,133
Swiss Franc CHF 9,950 10,883
Australian Dollar A$ 6,900 5,009
$ 590,170
Note 3. Balance Sheet Components
Inventories consist of the following (in thousands):
June 30,
2022 December 31,
2021
Raw materials $ 159,037 $ 123,234
Work in process 82,292 51,706
Finished goods 68,717 55,290
Total inventories $ 310,046 $ 230,230
Prepaid expenses and other current assets consist of the following (in thousands):
June 30,
2022 December 31,
2021
Value added tax receivables $ 110,988 $ 93,610
Prepaid expenses 61,628 70,218
Other current assets 62,649 31,477
Total prepaid expenses and other current assets $ 235,265 $ 195,305
Accrued liabilities consist of the following (in thousands):
June 30,
2022 December 31,
2021
Accrued payroll and benefits $ 152,849 $ 288,355
Accrued expenses 74,281 67,169
Accrued sales and marketing expenses 37,250 41,387
Accrued property, plant and equipment 35,563 46,561
Current operating lease liabilities 24,613 22,719
Accrued professional fees 18,433 31,457
Other accrued liabilities 73,470 109,667
Total accrued liabilities $ 416,459 $ 607,315
Accrued warranty, which is included in the "Other accrued liabilities" category of the accrued liabilities table above, consists of the following activity (in thousands):
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Six Months Ended
June 30,
2022 2021
Balance at beginning of period $ 16,169 $ 12,615
Charged to cost of net revenues 7,660 8,936
Actual warranty expenditures ( 7,334 ) ( 7,105 )
Balance at end of period $ 16,495 $ 14,446
Deferred revenues consist of the following (in thousands):
June 30,
2022 December 31,
2021
Deferred revenues - current $ 1,242,348 $ 1,152,870
Deferred revenues - long-term 1
$ 155,510 $ 136,684
1 Included in Other long-term liabilities within our Condensed Consolidated Balance Sheet
During the three months ended June 30, 2022 and 2021, we recognized $ 969.6 million and $ 1,010.8 million of net revenues, respectively, of which $ 178.4 million and $ 134.4 million was included in the deferred revenues balance at December 31, 2021 and 2020, respectively.
During the six months ended June 30, 2022 and 2021, we recognized $ 1,942.8 million and $ 1,905.6 million of net revenues, respectively, of which $ 363.3 million and $ 260.2 million was included in the deferred revenues balance at December 31, 2021 and 2020, respectively.
Our unfulfilled performance obligations, including deferred revenues and backlog, as of June 30, 2022 were $ 1,409.4 million. These performance obligations are expected to be fulfilled over six months to five years .
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Note 4. Goodwill and Intangible Assets
Goodwill
The change in the carrying value of goodwill for the six months ended June 30, 2022, categorized by reportable segments, is as follows (in thousands):
Clear Aligner Systems and Services Total
Balance as of December 31, 2021 $ 112,208 $ 306,339 $ 418,547
Foreign currency translation adjustments
( 3,804 ) ( 24,643 ) ( 28,447 )
Balance as of June 30, 2022 $ 108,404 $ 281,696 $ 390,100
Intangible Long-Lived Assets
Acquired intangible long-lived assets were as follows, excluding intangibles that were fully amortized (in thousands):
Weighted Average Amortization Period
(in years) Gross Carrying Amount as of
June 30, 2022 Accumulated
Amortization
Accumulated
Impairment Loss
Net Carrying
Value as of
June 30, 2022
Existing technology 10 $ 104,531 $ ( 27,640 ) $ ( 4,328 ) $ 72,563
Customer relationships 10 21,500 ( 4,838 ) — 16,662
Trademarks and tradenames 10 17,200 ( 5,466 ) ( 4,179 ) 7,555
Patents 8 6,511 ( 4,891 ) — 1,620
$ 149,742 $ ( 42,835 ) $ ( 8,507 ) 98,400
Foreign currency translation adjustments ( 4,583 )
Total intangible assets, net 1
$ 93,817
1 Also includes $ 33.5 million of fully amortized intangible assets related to customer relationships.
Weighted Average Amortization Period
(in years) Gross Carrying
Amount as of December 31, 2021 Accumulated
Amortization
Accumulated Impairment Loss Net Carrying
Value as of
December 31, 2021
Existing technology 10 $ 104,531 $ ( 22,495 ) $ ( 4,328 ) $ 77,708
Customer relationships 11 55,000 ( 25,891 ) ( 10,751 ) 18,358
Trademarks and tradenames 10 17,200 ( 4,547 ) ( 4,179 ) 8,474
Patents 8 6,511 ( 4,495 ) — 2,016
$ 183,242 $ ( 57,428 ) $ ( 19,258 ) 106,556
Foreign currency translation adjustments 3,153
Total intangible assets, net $ 109,709
The total estimated annual future amortization expense for these acquired intangible assets as of June 30, 2022 is as follows (in thousands):
Fiscal Year Ending December 31, Amortization
Remainder of 2022 $ 7,536
2023 14,997
2024 13,831
2025 13,455
2026 12,849
Thereafter 35,732
Total $ 98,400
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Amortization expense for both the three months ended June 30, 2022 and 2021 was $ 3.9 million and amortization expense for the six months ended June 30, 2022 and 2021 was $ 8.2 million and $ 7.8 million, respectively.
Note 5. Credit Facility
On July 21, 2020, we entered into a credit facility for a $ 300.0 million unsecured revolving line of credit with a $ 50.0 million letter of credit sublimit and a maturity date of July 21, 2023 (“2020 Credit Facility”). The 2020 Credit Facility requires us to comply with specific financial conditions and performance requirements. Loans under the 2020 Credit Facility bear interest, at our option, at either a rate based on the reserve adjusted LIBOR for the applicable interest period or a base rate, in each case plus a margin. The base rate is the highest of the credit facility's publicly announced prime rate, the federal funds rate plus 0.50 % and one-month LIBOR plus 1.0 %. The margin ranges from 1.50 % to 2.25 % for LIBOR loans and 0.50 % to 1.25 % for base rate loans. The 2020 Credit Facility allows for an alternative rate to be identified if LIBOR is no longer available. Interest on the loans is payable quarterly in arrears with respect to base rate loans and at the end of an interest period (and at three month intervals if the interest period exceeds three months) in the case of LIBOR loans. The outstanding principal, together with accrued and unpaid interest, is due on the maturity date. As of June 30, 2022, we had no outstanding borrowings under the 2020 Credit Facility and were in compliance with the conditions and performance requirements in all material respects.
Note 6. Legal Proceedings
2019 Shareholder Derivative Lawsuit
In January 2019, three derivative lawsuits were filed in the U.S. District Court for the Northern District of California which were later consolidated, purportedly on behalf of Align, naming as defendants the then current members of our Board of Directors along with certain of our executive officers. The complaints assert various state law causes of action, including for breaches of fiduciary duty, insider trading, and unjust enrichment. The complaints seek unspecified monetary damages on behalf of Align, which is named solely as a nominal defendant against whom no recovery is sought, as well as disgorgement and the costs and expenses associated with the litigation, including attorneys’ fees. The consolidated action was stayed until April 28, 2022. Defendants have not yet responded to the complaints.
On April 12, 2019, a derivative lawsuit was also filed in California Superior Court for Santa Clara County, purportedly on behalf of Align, naming as defendants the members of our Board of Directors along with certain of our executive officers. The allegations in the complaint are similar to those in the derivative suits described above. The matter was similarly stayed until April 28, 2022. Defendants have not yet responded to the complaint.
Align believes these claims are without merit. Align is currently unable to predict the outcome of these lawsuits and therefore cannot determine the likelihood of loss nor estimate a range of possible loss .
2020 Securities Class Action Lawsuit
On March 2, 2020, a class action lawsuit against Align and two of our executive officers was filed in the U.S. District Court for the Southern District of New York (later transferred to the U.S. District Court for the Northern District of California) on behalf of a purported class of purchasers of our common stock. The complaint alleged claims under the federal securities laws and sought monetary damages in an unspecified amount and costs and expenses incurred in the litigation. The lead plaintiff filed an amended complaint on August 4, 2020 against Align and three of our executive officers alleging similar claims as in the initial complaint on behalf of a purported class of purchasers of our common stock from April 25, 2019 to July 24, 2019. On March 29, 2021, defendants’ motion to dismiss the amended complaint was granted with leave for the lead plaintiff to file a further amended complaint. On April 22, 2021, lead plaintiff filed a notice stating it would not file a further amended complaint. On April 23, 2021, the Court dismissed the action with prejudice and judgment was entered. Lead plaintiff filed a notice of appeal on April 28, 2021 and filed its opening appeal brief with the United States Court of Appeals for the Ninth Circuit on September 1, 2021. The defendants-appellees filed their answering brief on November 22, 2021. The lead plaintiff-appellant’s reply brief was filed on January 12, 2022. Oral argument was held on March 10, 2022. On July 8, 2022, a panel of the Ninth Circuit affirmed the district court order dismissing the compla int. On July 21, 2022, plaintiff-appellant filed a petition for rehearing or hearing en banc, which is pending. Align believes th ese claims are without merit and intends to vigorously defend itself. Align is currently unable to predict the outcome of this lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.
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2020 Shareholder Derivative Lawsuit
On May 4, 2020, a derivative lawsuit was filed in the U.S. District Court for the Northern District of California, purportedly on behalf of Align, naming as defendants the members of our Board of Directors along with certain of our executive officers. The allegations in the complaint are similar to those presented in the 2020 Securities Class Action Lawsuit, but this complaint asserts state law claims for breach of fiduciary duty and insider trading. The complaint seeks unspecified monetary damages on behalf of Align, which is named solely as a no minal defendant against whom no recovery is sought, as well as disgorgement and the costs and expenses associated with the litigation, including attorneys’ fees. This action is stayed pending resolution of the appeal in the 2020 Securities Class Action Lawsuit. Align believes these claims are without merit. Align is currently unable to predict the outcome of this lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.
Antitrust Class Actions
On June 5, 2020, a dental practice named Simon and Simon, PC doing business as City Smiles brought an antitrust action in the U.S. District Court for the Northern District of California on behalf of itself and a putative class of similarly situated practices seeking monetary damages and injunctive relief relating to Align’s alleged market activities in alleged clear aligner and intraoral scanner markets. Plaintiff filed an amended complaint and added VIP Dental Spas as a plaintiff on August 14, 2020. A jury trial is scheduled to begin in this matter on June 29, 2024. Align believes the plaintiffs’ claims are without merit and intends to vigorously defend itself.
On May 3, 2021, an individual named Misty Snow brought an antitrust action in the U.S. District Court for the Northern District of California on behalf of herself and a putative class of similarly situated individuals seeking monetary damages and injunctive relief relating to Align’s alleged market activities in alleged clear aligner and intraoral scanner markets. Plaintiff filed an amended complaint on July 30, 2021 adding new plaintiffs and various state law claims. Plaintiffs filed a second amended complaint on October 21, 2021. On March 2, 2022, Plaintiffs filed a third amended complaint. A jury trial is scheduled to begin in this matter on June 29, 2024. Align believes the plaintiffs’ claims are without merit and intends to vigorously defend itself.
Align is currently unable to predi ct the outcome of these lawsuits and therefore cannot determine the likelihood of loss, if any, nor estimate a range of possible loss.
SDC Dispute
In April 2018, SDC Financial LLC, SmileDirectClub LLC, and the Members of SDC Financial LLC other than the Company (collectively, the “SDC Entities”) initiated confidential arbitration proceedings against Align. In an award dated March 4, 2019, (“Award”) an arbitrator found that Align breached a restrictive covenant and that Align misused the SDC Entities’ confidential information and violated fiduciary duties to SDC Financial LLC. As part of the Award, Align was enjoined from opening new Invisalign stores or providing certain services in physical retail establishments in connection with the marketing and sale of clear aligners in the U.S., and enjoined from using the SDC Entities’ confidential information. The arbitrator extended the expiration date of specified aspects of the restrictive covenant to August 18, 2022. The arbitrator also ordered Align to tender its SDC Financial LLC membership interests to the SDC Entities for a purchase price equal to the “capital account” balance as of October 31, 2017, to be determined in accordance with the applicable provisions of the SDC Operating Agreements. No financial damages were awarded to the SDC Entities. The Circuit Court for Cook County, Illinois confirmed the Award on April 29, 2019.
On August 27, 2020, Align initiated a confidential arbitration proceeding against SmileDirectClub LLC (“SDC”) before the American Arbitration Association in San Jose, California. This arbitration relates to the Strategic Supply Agreement (“Supply Agreement”) entered into between the parties in 2016. The complaint alleges that SDC breached the Supply Agreement ’ s terms, causing damages to Align in an amount to be determined. On January 19, 2021, SDC filed a counterclaim alleging that Align breached the Supply Agreement. On May 3, 2022, SDC filed an additional counterclaim alleging that Align breached the Supply Agreement. Align denies SDC's allegations in the counterclaims and will vigorously defend itself against them. The arbitration hearing on Align’s claims and SDC’s first counterclaim was held on July 18-27, 2022 in Chicago, Illinois. The arbitration hearing on SDC’s second counterclaim is set for February 20-24, 2023.
Align is currently unable to predict the outcome of these disputes and therefore cannot determine the likelihood of loss or success nor estimate a range of possible loss or success, if any.
In addition to the above, in the ordinary course of Align’s operations, Align is involved in a variety of claims, suits, investigations, and proceedings, including actions with respect to intellectual property claims, patent infringement claims, government investigations, labor and employment claims, breach of contract claims, tax, and other matters. Regardless of the
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outcome, these proceedings can have an adverse impact on us because of defense costs, diversion of management resources, and other factors. Although the results of complex legal proceedings are difficult to predict and Align’s view of these matters may change in the future as litigation and events related thereto unfold; Align currently does not believe that these matters, individually or in the aggregate, will materially affect Align’s financial position, results of operations or cash flows.
Note 7. Commitments and Contingencies
Off-Balance Sheet Arrangements
As of June 30, 2022, we had no material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources other than certain items disclosed in Note 11 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Indemnification Provisions
In the normal course of business to facilitate transactions in our services and products, we indemnify certain parties: customers, vendors, lessors, and other parties with respect to certain matters, including, but not limited to, services to be provided by us and intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and our executive officers that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. Several of these agreements limit the time within which an indemnification claim can be made and the amount of the claim.
It is not possible to make a reasonable estimate of the maximum potential amount under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Additionally, we have a limited history of prior indemnification claims and the payments we have made under such agreements have not had a material adverse effect on our results of operations, cash flows or financial position. However, to the extent that valid indemnification claims arise in the future, future payments by us could be significant and could have a material adverse effect on our results of operations or cash flows in a particular period. As of June 30, 2022, we did not have any material indemnification claims that were probable or reasonably possible.
Note 8. Stockholders’ Equity
As of June 30, 2022, the 2005 Incentive Plan, as amended, has a total reserve of 27,783,379 shares of which 3,744,033 shares are available for issuance.
Summary of Stock-Based Compensation Expense
The stock-based compensation related to our stock-based awards and employee stock purchase plan for the three and six months ended June 30, 2022 and 2021 is as follows (in thousands):
Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021
Cost of net revenues $ 1,614 $ 1,418 $ 3,128 $ 2,724
Selling, general and administrative 26,491 23,058 51,216 44,902
Research and development 6,035 4,379 11,417 8,470
Total stock-based compensation $ 34,140 $ 28,855 $ 65,761 $ 56,096
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Restricted Stock Units (“RSUs”)
The fair value of RSUs is based on our closing stock price on the date of grant. RSUs granted generally vest over a period of four years . A summary for the six months ended June 30, 2022 is as follows:
Number of Shares
Underlying RSUs
(in thousands)
Weighted Average Grant Date Fair Value Weighted Average Remaining
Contractual Term (in years) Aggregate
Intrinsic Value
(in thousands)
Unvested as of December 31, 2021 492 $ 369.17
Granted
232 485.01
Vested and released ( 189 ) 333.28
Forfeited ( 22 ) 429.13
Unvested as of June 30, 2022 513 $ 432.28 1.6 $ 121,475
As of June 30, 2022, we expect to recognize $ 174.7 million of total unamortized compensation costs, net of estimated forfeitures, related to RSUs over a weighted average period of 2.6 years.
Market-Performance Based Restricted Stock Units (“MSUs”)
We grant MSUs to members of senior management. Each MSU represents the right to one share of Align’s common stock. The actual number of MSUs which will be eligible to vest will be based on the performance of Align’s stock price relative to the performance of a stock market index over the vesting period. MSUs vest over a period of three years and the maximum number eligible to vest in the future is 250 % of the MSUs initially granted.
The following table summarizes the MSU performance for the six months ended June 30, 2022:
Number of Shares
Underlying MSUs
(in thousands)
Weighted Average Grant Date Fair Value Weighted Average
Remaining
Contractual Term (in years)
Aggregate
Intrinsic Value
(in thousands)
Unvested as of December 31, 2021 174 $ 551.57
Granted 1
101 607.96
Vested and released ( 128 ) 396.10
Forfeited ( 3 ) 744.39
Unvested as of June 30, 2022 144 $ 725.73 1.5 $ 34,097
1 Includes MSUs vested during the period above 100% of the grant as actual shares released is based on Align ’ s stock performance over the vesting period.
As of June 30, 2022, we expect to recognize $ 55.2 million of total unamortized compensation costs, net of estimated forfeitures, related to MSUs over a weighted average period of 1.5 years.
Employee Stock Purchase Plan
As of June 30, 2022, we have 2,156,295 shares available for future issuance under our Amended and Restated 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”).
The fair value of the option component of the 2010 Purchase Plan shares was estimated at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:
Six Months Ended
June 30,
2022 2021
Expected term (in years) 1.5 1.0
Expected volatility 48.6 % 58.8 %
Risk-free interest rate 1.0 % 0.1 %
Expected dividends — —
Weighted average fair value at grant date $ 196.97 $ 202.74
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As of June 30, 2022, we expect to recognize $ 14.3 million of total unamortized compensation costs related to future employee stock purchases over a weighted average period of 0.8 year.
Note 9. Common Stock Repurchase Program
In May 2018, our Board of Directors authorized a plan to repurchase up to $ 600.0 million of our common stock (“May 2018 Repurchase Program”). As of December 31, 2021, the authorization under the May 2018 Repurchase Program was completed. In May 2021, our Board of Directors authorized a plan to repurchase up to $ 1.0 billion of our common stock (“May 2021 Repurchase Program”). As of June 30, 2022, we have $ 449.9 million available for repurchases under the May 2021 Repurchase Program.
Accelerated Share Repurchase Agreements (“ASRs”)
During the six months ended June 30, 2022 and 2021, we entered into ASRs providing for the repurchase of our common stock based on the volume-weighted average price during the term of the agreement, less an agreed upon discount. The following table summarizes the information regarding repurchases of our common stock under ASRs:
Agreement
Date Repurchase
Program Amount Paid
(in millions) Completion
Date Total Shares
Received Average Price per Share
Q2 2021 May 2018 $ 100.0 Q3 2021 171,322 $ 583.70
Q2 2021 May 2021 $ 100.0 Q3 2021 161,707 $ 618.40
Q2 2022 May 2021 $ 200.0 Q2 2022 756,502 $ 264.37
Open Market Common Stock Repurchases
During the six months ended June 30, 2022, we repurchased on the open market approximately 0.1 million shares of our common stock at an average price of $ 522.61 per share, including commissions and fees, for an aggregate purchase price of $ 75.0 million.
Note 10. Accounting for Income Taxes
Our provision for income taxes was $ 60.8 million and $ 69.1 million for the three months ended June 30, 2022 and 2021, respectively, representing effective tax rates of 35.0 % and 25.7 %, respectively. Our provision for income taxes was $ 114.0 million and $ 130.3 million for the six months ended June 30, 2022 and 2021, respectively, representing effective tax rates of 31.6 % and 24.6 %, respectively. Our effective tax rate differs from the statutory federal income tax rate of 21% for the three and six months ended June 30, 2022 and 2021 primarily due to the recognition of additional tax expense resulting from foreign income taxed at different rates, state income taxes, and non-deductible expenses in the U.S., partially offset by the recognition of excess tax benefits related to stock-based compensation. Additionally, a change in U.S. tax laws effective January 1, 2022 which requires capitalization and amortization of research and development expenses incurred after December 31, 2021 has increased our effective tax rate for the three and six months ended June 30, 2022.
We exercise significant judgment in regards to estimates of future market growth, forecasted earnings and projected taxable income in determining the provision for income taxes and for purposes of assessing our ability to utilize any future benefit from deferred tax assets. We continue to assess the realizability of the deferred tax assets as we take into account new information.
We file U.S. federal, U.S. state, and non-U.S. income tax returns. Our major tax jurisdictions include U.S. federal, the State of California and Switzerland. For U.S. federal and state tax returns, we are no longer subject to tax examinations for years before 2018 and 2017, respectively. Our Israeli subsidiary is under tax audit for years 2016 through 2019. During the fourth quarter of 2021, the Israel Tax Authority issued a tax assessment in connection with a 2016 transaction to which our Israeli subsidiary was a party. We filed an administrative appeal challenging the assessment during the first quarter of 2022 and, by doing so, proceeded to the next administrative stage of the audit. We will continue to vigorously defend our Israeli subsidiary’s tax return position. Based on our assessment of the information currently available, we have not derecognized or remeasured our tax positions with respect to this matter during the six months ended June 30, 2022. With few exceptions, we are no longer subject to examination by foreign tax authorities for years before 2015.
Our total gross unrecognized tax benefits, excluding interest and penalties, were $ 73.2 million and $ 63.3 million as of June 30, 2022 and December 31, 2021, respectively, a material amount of which would impact our effective tax rate if recognized. We have elected to recognize interest and penalties related to unrecognized tax benefits as a component of income
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taxes. Total interest and penalties accrued as of June 30, 2022 was not material. While we defend income tax audits in various jurisdictions and the results of such audits may differ materially from the amounts accrued for each year, we cannot currently ascertain the bases on which any given audit will be ultimately resolved. Accordingly, we are unable to estimate the range of possible adjustments to our balance of gross unrecognized tax benefits in the next 12 months.
Note 11. Net Income per Share
The following table sets forth the computation of basic and diluted net income per share attributable to common stock (in thousands, except per share amounts):
Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021
Numerator:
Net income $ 112,800 $ 199,714 $ 247,098 $ 400,090
Denominator:
Weighted average common shares outstanding, basic 78,395 79,008 78,568 79,004
Dilutive effect of potential common stock 150 630 272 733
Total shares, diluted 78,545 79,638 78,840 79,737
Net income per share, basic $ 1.44 $ 2.53 $ 3.15 $ 5.06
Net income per share, diluted $ 1.44 $ 2.51 $ 3.13 $ 5.02
Anti-dilutive potential common shares 1
361 49 314 38
1 Represents RSUs and MSUs not included in the calculation of diluted net income per share as the effect would have been anti-dilutive.
Note 12. Supplemental Cash Flow Information
The supplemental cash flow information consists of the following (in thousands):
Six Months Ended
June 30,
2022 2021
Non-cash investing and financing activities:
Acquisition of property, plant and equipment in accounts payable and accrued liabilities $ 60,115 $ 133,530
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 15,048 $ 14,030
Right-of-use assets obtained in exchange for lease obligations:
Operating leases $ 16,351 $ 24,338
Note 13. Segments and Geographical Information
Segment Information
We report segment information based on the management approach. The management approach designates the internal reporting used by our Chief Operating Decision Maker for decision making and performance assessment as the basis for determining our reportable segments. The performance measures of our reportable segments include net revenues, gross profit and income from operations. Income from operations for each segment includes all geographic revenues, related cost of net revenues and operating expenses directly attributable to the segment. Certain operating expenses are attributable to operating segments and each allocation is measured differently based on the specific facts and circumstances of the costs being allocated. Costs not specifically allocated to segment income from operations include various corporate expenses such as stock-based compensation and costs related to IT, facilities, human resources, accounting and finance, legal and regulatory, and other separately managed general and administrative costs outside the operating segments. We group our operations into two reportable segments: Clear Aligner segment and Imaging Systems and CAD/CAM services (“Systems and Services”) segment.
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Summarized financial information by segment is as follows (in thousands):
Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021
Net revenues
Clear Aligner $ 798,398 $ 840,959 $ 1,608,094 $ 1,594,228
Systems and Services 171,155 169,849 334,678 311,351
Total net revenues $ 969,553 $ 1,010,808 $ 1,942,772 $ 1,905,579
Gross profit
Clear Aligner $ 585,245 $ 646,665 $ 1,190,941 $ 1,231,199
Systems and Services 102,314 111,873 205,964 204,437
Total gross profit $ 687,559 $ 758,538 $ 1,396,905 $ 1,435,636
Income from operations
Clear Aligner $ 307,209 $ 347,626 $ 619,928 $ 675,091
Systems and Services 45,599 64,675 96,398 111,903
Unallocated corporate expenses ( 164,612 ) ( 143,399 ) ( 330,048 ) ( 292,646 )
Total income from operations $ 188,196 $ 268,902 $ 386,278 $ 494,348
Stock-based compensation
Clear Aligner $ 3,001 $ 2,632 $ 5,855 $ 4,926
Systems and Services 236 174 450 345
Unallocated corporate expenses 30,903 26,049 59,456 50,825
Total stock-based compensation $ 34,140 $ 28,855 $ 65,761 $ 56,096
Depreciation and amortization
Clear Aligner
$ 14,029 $ 12,170 $ 27,796 $ 23,290
Systems and Services
6,776 4,622 13,698 9,167
Unallocated corporate expenses
9,476 9,100 18,413 19,070
Total depreciation and amortization $ 30,281 $ 25,892 $ 59,907 $ 51,527
The following table reconciles total segment income from operations in the table above to net income before provision for income taxes (in thousands):
Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021
Total segment income from operations $ 352,808 $ 412,301 $ 716,326 $ 786,994
Unallocated corporate expenses ( 164,612 ) ( 143,399 ) ( 330,048 ) ( 292,646 )
Total income from operations 188,196 268,902 386,278 494,348
Interest income 245 383 922 2,026
Other income (expense), net ( 14,832 ) ( 483 ) ( 26,105 ) 34,049
Net income before provision for income taxes $ 173,609 $ 268,802 $ 361,095 $ 530,423
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Geographical Information
Net revenues are presented below by geographic area (in thousands):
Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021
Net revenues 1 :
U.S. $ 430,053 $ 434,398 $ 850,973 $ 817,400
Switzerland 330,351 366,334 662,090 681,784
Other International 209,149 210,076 429,709 406,395
Total net revenues $ 969,553 $ 1,010,808 $ 1,942,772 $ 1,905,579
1 Net revenues are attributed to countries based on the location of where revenues are recognized by our legal entities.
Tangible long-lived assets, which includes Property, plant and equipment, net, and Operating lease right-of-use assets, net, are presented below by geographic area (in thousands):
June 30,
2022 December 31, 2021
Long-lived assets 1 :
Switzerland $ 499,626 $ 444,205
U.S. 212,071 210,582
China 123,180 125,346
Other International 465,479 423,050
Total long-lived assets $ 1,300,356 $ 1,203,183
1 Long-lived assets are attributed to countries based on the location of our entity that owns or leases the assets.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.