What changed in this filing

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Item 1. Financial Statements

2022-11-04 compared with 2022-08-04 · 152 added, 111 removed, 615 unchanged (30% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

25 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net income $ 72,700 $ 180,969 $ 319,798 $ 581,059

Other comprehensive income (loss):

Other comprehensive loss:

Change in foreign currency translation adjustment, net of tax ( 20,246 ) ( 12,037 ) ( 41,313 ) ( 25,902 )

Change in unrealized gains (losses) on investments, net of tax ( 729 ) 20 ( 3,758 ) —

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

Other comprehensive loss ( 20,975 ) ( 12,017 ) ( 45,071 ) ( 25,902 )

Comprehensive income $ 51,725 $ 168,952 $ 274,727 $ 555,157

3 unchanged sentences

(in thousands, except per share data)

September 30,

2022 December 31,

40 unchanged sentences

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

Three Months Ended September 30, 2022 Shares Amount

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

Net income — — — — 72,700 72,700

3 unchanged sentences

Tax withholdings related to net share settlements of equity awards — — ( 424 ) — — ( 424 )

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

Stock-based compensation — — 32,918 — — 32,918

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

Balance as of September 30, 2022 78,111 $ 8 $ 1,060,698 $ ( 40,745 ) $ 2,674,661 $ 3,694,622

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

Six Months Ended June 30, 2022 Shares Amount

Nine Months Ended September 30, 2022 Shares Amount

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

6 unchanged sentences

Stock-based compensation — — 98,679 — — 98,679

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

Balance as of September 30, 2022 78,111 $ 8 $ 1,060,698 $ ( 40,745 ) $ 2,674,661 $ 3,694,622

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

3 unchanged sentences

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

Three Months Ended September 30, 2021 Shares Amount

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

Net income — — — — 180,969 180,969

Net change in unrealized gains (losses) from investments — — — 20 — 20

Net change in foreign currency translation adjustment — — — ( 12,037 ) — ( 12,037 )

5 unchanged sentences

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

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

Balance as of September 30, 2021 78,852 $ 8 $ 972,450 $ 17,599 $ 2,526,705 $ 3,516,762

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

Six Months Ended June 30, 2021 Shares Amount

Nine Months Ended September 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 — — — — 581,059 581,059

Net change in unrealized gains (losses) from investments — — ( 20 ) — ( 20 )

Net change in foreign currency translation adjustment — — — ( 25,902 ) — ( 25,902 )

2 unchanged sentences

Common stock repurchased and retired ( 442 ) — ( 4,884 ) — ( 270,154 ) ( 275,038 )

Equity forward contract related to

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

Stock-based compensation — — 84,498 — — 84,498

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

Balance as of September 30, 2021 78,852 $ 8 $ 972,450 $ 17,599 $ 2,526,705 $ 3,516,762

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

2 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

7 unchanged sentences

Other non-cash operating activities 26,216 15,651

Changes in assets and liabilities:

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

Accounts receivable 32,284 ( 216,081 )

8 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisitions, net of cash acquired ( 12,304 ) ( 8,002 )

Purchase of property, plant and equipment ( 238,696 ) ( 292,002 )

9 unchanged sentences

Common stock repurchases ( 275,036 ) ( 275,038 )

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

Payroll taxes paid upon the vesting of equity awards ( 52,611 ) ( 107,344 )

10 unchanged sentences

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.

The results of operations for the three and nine months ended September 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

5 unchanged sentences

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.

Our business has been materially impacted by fluctuations in macroeconomic conditions, exacerbated by the ongoing geopolitical issues between Russia and Ukraine.

While the situation is highly uncertain and evolving, we have been and continue to be impacted by factors such as inflation, supply chain challenges, rising interest rates, volatilities in the financial market, foreign currency exchange rate fluctuations, impacts on consumer confidence and purchasing power, and global recession concerns which could further subject our business to materially adverse consequences should any portion of its impacts become prolonged or escalate beyond its current scope.

Additionally, we could also be materially adversely affected by uncertain or reduced demand, labor shortages, delays in collection of outstanding receivables and the impact of any initiatives or programs that we may undertake to address financial and operational challenges faced by our customers.

While the overall impact of the COVID-19 pandemic is gradually declining, we continue to be exposed to risks and uncertainties posed by it which varies by geographic regions at different levels.

The extent to which our business could be impacted in the future by the pandemic is highly uncertain and difficult to predict.

Revenue Recognition

4 unchanged sentences

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

Determining the standalone selling price (“SSP”) in order to allocate consideration from the contract to the individual performance obligations is the result of various factors, such as changing trends and market conditions, historical prices, costs, and gross margins.

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.

26 unchanged sentences

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.

Recent Accounting Pronouncements

(i) New Accounting Updates Recently Adopted

In October 2021, the Financial Accounting Standards Board ( “ FASB ” ) issued Accounting Standards Update 2021-08, “ Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, ” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with ASC 606, Revenue from Contracts with Customers as if the acquirer had originated the contracts.

The updated guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2022 on a prospective basis and early adoption is permitted.

We early adopted this standard in the third quarter of 2022 which did not have a material impact on our consolidated financial statements and related disclosures.

(ii) Recent Accounting Pronouncements Not Yet Effective

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

Financial Instruments

Cash, Cash Equivalents and Marketable Securities

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

June 30, 2022 Amortized

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

September 30, 2022 Amortized

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

19 unchanged sentences

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

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

June 30, 2022 December 31, 2021

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

September 30, 2022 December 31, 2021

Due in 1 year or less $ 35,157 $ 59,737

4 unchanged sentences

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

Our unrealized losses as of June 30, 2022 and December 31, 2021 are primarily due to changes in interest rates and credit spreads.

Our unrealized losses as of September 30, 2022 and December 31, 2021 are primarily due to changes in interest rates and credit spreads.

Accounts Receivable Factoring

During the third quarter of 2022, we entered into factoring transactions on a non-recourse basis with financial institutions to sell certain of our non-U.S.

accounts receivable.

We account for these transactions as sales of accounts receivables and include the cash proceeds as a part of our cash flows from operations in the Condensed Consolidated Statements of Cash Flows.

Total accounts receivable sold under the factoring arrangements was $ 22.9 million during the three months ended September 30, 2022.

Factoring fees on the sales of receivables were recorded in other income (expense), net in our Condensed Consolidated Statement of Operations and were not material.

Fair Value Measurements

9 unchanged sentences

Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

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

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

Description Balance as of

June 30, 2022 Level 1

September 30, 2022 Level 1

Cash equivalents:

42 unchanged sentences

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

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

As a result of the settlement of foreign currency forward contracts, during the three months ended September 30, 2022 and 2021, we recognized net gains of $ 34.6 million and $ 14.7 million, respectively, and during the nine months ended September 30, 2022 and 2021, we recognized net gains of $ 43.8 million and $ 14.1 million, respectively.

As of September 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 September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022

Local Currency Amount Notional Contract Amount (USD)

1 unchanged sentence

Chinese Yuan ¥ 569,000 79,875

Polish Zloty PLN 351,500 77,556

Canadian Dollar C$ 92,800 67,607

Brazilian Real R$ 317,000 59,913

Japanese Yen ¥ 6,081,000 44,744

Polish Zloty PLN 315,800 63,306

British Pound £ 44,200 48,974

Japanese Yen ¥ 6,224,000 43,194

Brazilian Real R$ 200,000 36,666

Swiss Franc CHF 24,800 25,391

Mexican Peso M$ 282,700 13,988

Israeli Shekel ILS 78,390 22,021

Mexican Peso M$ 283,900 14,088

Korean Won ₩ 8,200,000 5,710

Australian Dollar A$ 4,090 2,653

New Taiwan Dollar NT$ 70,000 2,200

Czech Koruna Kč 40,000 1,585

New Zealand Dollar NZ$ 2,500 1,419

December 31, 2021

13 unchanged sentences

Inventories consist of the following (in thousands):

September 30,

2022 December 31,

4 unchanged sentences

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

September 30,

2022 December 31,

4 unchanged sentences

Accrued liabilities consist of the following (in thousands):

September 30,

2022 December 31,

2 unchanged sentences

Accrued sales and marketing expenses 35,661 41,387

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

Current operating lease liabilities 24,173 22,719

Accrued property, plant and equipment 22,648 46,561

Accrued professional fees 21,260 31,457

2 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

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

3 unchanged sentences

Deferred revenues consist of the following (in thousands):

September 30,

2022 December 31,

3 unchanged sentences

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

During the three months ended 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.

During the three months ended September 30, 2022 and 2021, we recognized $ 890.3 million and $ 1,015.9 million of net revenues, respectively, of which $ 156.5 million and $ 122.2 million was included in the deferred revenues balance at December 31, 2021 and 2020, respectively.

During the nine months ended September 30, 2022 and 2021, we recognized $ 2,833.1 million and $ 2,921.5 million of net revenues, respectively, of which $ 519.8 million and $ 382.4 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 September 30, 2022 were $ 1,442.5 million.

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

Goodwill and Intangible Assets

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

During the three months ended September 30, 2022, we completed an immaterial business combination which increased goodwill and existing technology intangible assets.

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

Clear Aligner Systems and Services Total

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

Additions from acquisition — 8,729 8,729

Foreign currency translation adjustments

( 6,694 ) ( 42,966 ) ( 49,660 )

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

Balance as of September 30, 2022 $ 105,514 $ 272,102 $ 377,616

Intangible Long-Lived Assets

2 unchanged sentences

(in years) Gross Carrying Amount as of

June 30, 2022 Accumulated

September 30, 2022

Impairment Loss

June 30, 2022

September 30, 2022

Existing technology 10 $ 112,051 $ ( 30,589 ) $ ( 4,328 ) $ 77,134

8 unchanged sentences

(in years) Gross Carrying

Amount as of December 31, 2021 Accumulated

Amount as of December 31, 2021

Accumulated Impairment Loss Net Carrying

7 unchanged sentences

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):

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

Fiscal Year Ending December 31, Amortization

2 unchanged sentences

Total $ 101,776

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.

Amortization expense for the three months ended September 30, 2022 and 2021 was $ 3.9 million and $ 4.4 million, respectively, and amortization expense for the nine months ended September 30, 2022 and 2021 was $ 12.1 million and $ 12.2 million, respectively.

Credit Facility

7 unchanged sentences

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.

As of September 30, 2022, we had no outstanding borrowings under the 2020 Credit Facility and were in compliance with the conditions and performance requirements in all material respects.

Legal Proceedings

4 unchanged sentences

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.

The consolidated action is currently stayed.

Defendants have not yet responded to the complaints.

1 unchanged sentence

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

The matter was similarly stayed until April 28, 2022.

The matter is currently stayed.

Defendants have not yet responded to the complaint.

15 unchanged sentences

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.

On July 21, 2022, plaintiff-appellant filed a petition for rehearing or hearing en banc, which the court denied on August 15, 2022.

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

3 unchanged sentences

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.

The allegations in the complaint were similar to those presented in the 2020 Securities Class Action Lawsuit, but this complaint asserted state law claims for breach of fiduciary duty and insider trading.

The complaint sought unspecified monetary damages on behalf of Align, which was 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.

Following the denial of the petition for rehearing or hearing en banc in the 2020 Securities Class Action appeal, Plaintiff in the derivative lawsuit agreed to voluntarily dismiss the case.

The parties filed a stipulation of dismissal on August 26, 2022, which the court granted.

Antitrust Class Actions

9 unchanged sentences

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

On October 3, 2022, Plaintiffs filed a fourth amended complaint.

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

1 unchanged sentence

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.

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.

3 unchanged sentences

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.

Align denies SDC's allegations in the counterclaims and intends to 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.

On October 27, 2022, the arbitrator issued an interim award on Align’s claims and SDC’s first counterclaim finding that SDC breached the Supply Agreement, Align did not breach the Supply Agreement, and SDC caused harm to Align.

Based on these findings, the arbitrator awarded Align an interim award that, when confirmed, may be material to our results in the quarter reported.

Unless otherwise accelerated by the arbitrator, the final amount payable to Align will be determined after the disposition of SDC’s second counterclaim.

Align anticipates recognizing the amount ultimately realizable following confirmation of the final award.

Align is currently unable to predict the outcome of SDC’s second counterclaim and therefore cannot determine the likelihood of loss or success nor estimate a range of possible loss or success, if any.

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

Regardless of the

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

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

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

2 unchanged sentences

Off-Balance Sheet Arrangements

As of 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.

As of September 30, 2022, we had no material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources other than certain items disclosed in Note 11 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Indemnification Provisions

6 unchanged sentences

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

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

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

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.

As of September 30, 2022, the 2005 Incentive Plan, as amended, has a total reserve of 27,783,379 shares of which 3,757,122 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):

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

6 unchanged sentences

RSUs granted generally vest over a period of four years .

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

A summary for the nine months ended September 30, 2022 is as follows:

Number of Shares

8 unchanged sentences

Forfeited ( 35 ) 433.42

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.

Unvested as of September 30, 2022

500 $ 430.73 1.4 $ 103,619

As of September 30, 2022, we expect to recognize $ 154.1 million of total unamortized compensation costs, net of estimated forfeitures, related to RSUs over a weighted average period of 2.4 years.

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

3 unchanged sentences

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:

The following table summarizes the MSU performance for the nine months ended September 30, 2022:

Number of Shares

8 unchanged sentences

Forfeited ( 3 ) 744.39

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

Unvested as of September 30, 2022

144 $ 725.73 1.2 $ 29,838

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.

As of September 30, 2022, we expect to recognize $ 47.7 million of total unamortized compensation costs, net of estimated forfeitures, related to MSUs over a weighted average period of 1.2 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”).

As of September 30, 2022, we have 2,108,898 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:

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Three Months Ended

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September 30,

2022 2021 2022 2021

Expected term (in years) 1.5 1.2 1.5 1.1

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Weighted average fair value at grant date $ 112.84 $ 257.89 $ 159.44 $ 246.84

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.

As of September 30, 2022, we expect to recognize $ 22.0 million of total unamortized compensation costs related to future employee stock purchases over a weighted average period of 1.1 years.

Common Stock Repurchase Program

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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.

As of September 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.

During the nine months ended September 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:

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Q3 2021 May 2021 $ 75.0 Q3 2021 109,239 $ 686.91

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

Subsequent to the third quarter, on October 28, 2022, we entered into an ASR to repurchase $ 200.0 million of our common stock.

We paid $ 200.0 million and received an initial delivery of approximately 0.8 million shares based on current market prices.

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

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.

During the nine months ended September 30, 2022, we repurchased on the open market approximately 0.1 million shares of our common stock at an average price of $ 522.61 per share, including commissions and fees, for an aggregate purchase price of $ 75.0 million.

Accounting for Income Taxes

Our provision for income taxes was $ 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.

Our provision for income taxes was $ 49.9 million and $ 81.0 million for the three months ended September 30, 2022 and 2021, respectively, representing effective tax rates of 40.7 % and 30.9 %, respectively.

Our provision for income taxes was $ 163.9 million and $ 211.4 million for the nine months ended September 30, 2022 and 2021, respectively, representing effective tax rates of 33.9 % and 26.7 %, respectively.

Our effective tax rate differs from the statutory federal income tax rate of 21% for the three and nine months ended September 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.

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federal, the State of California and Switzerland.

federal and state tax returns, we are no longer subject to tax examinations for years before 2018 and 2017, respectively.

federal and state tax returns, we are no longer subject to tax examinations for years before 2017.

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

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

Based on our assessment of the information currently available, we have not derecognized or remeasured our tax positions with respect to this matter during the six months ended June 30, 2022.

Based on our assessment of the information currently available, we have not derecognized or remeasured our tax positions with respect to this matter during the nine months ended September 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

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.

Our total gross unrecognized tax benefits, excluding interest and penalties, were $ 134.2 million and $ 63.3 million as of September 30, 2022 and December 31, 2021, respectively, a material amount of which would impact our effective tax rate if recognized.

The increase in our unrecognized tax benefits relates primarily to positions taken on income tax return calculations finalized during the three months ended September 30, 2022 .

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

Total interest and penalties accrued as of September 30, 2022 was $ 5.5 million.

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

Inflation Reduction Act of 2022 ( “ IRA ”) was enacted in the United States on August 16, 2022.

The IRA imposes a 15% alternative minimum tax on the financial statement income of certain corporations which is effective for tax years beginning after December 31, 2022, as well as a 1% excise tax on the net fair market value of stock repurchases made after December 31, 2022.

Based upon our analysis of the IRA, we have determined there is no impact to our tax provision for the three and nine months ended September 30, 2022.

We will continue to evaluate the impact of these tax law changes on future periods.

Net Income per Share

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September 30, Nine Months Ended

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2022 2021 2022 2021

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

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Non-cash investing and financing activities:

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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.

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:

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June 30, Six Months Ended

September 30, Nine Months Ended

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2022 2021 2022 2021

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June 30, Six Months Ended

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September 30, Nine Months Ended

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2022 2021 2022 2021

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Tangible long-lived assets, which includes Property, plant and equipment, net, and Operating lease right-of-use assets, net, are presented below by geographic area (in thousands):

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2022 December 31, 2021

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

What changed 10-Q

Item 1. Financial Statements