What changed in this filing

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Item 1A. Risk Factors

2022-11-04 compared with 2022-08-04 · 101 added, 89 removed, 571 unchanged (25% of the section changed)

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

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

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

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

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

• An increasingly larger portion of our total revenues are derived from international sales and we are dependent on our international operations, which exposes us to foreign operational, political, military and other risks that may harm our business.

• A large portion of our total revenues are derived from international sales and we are dependent on our international operations, which exposes us to foreign operational, political, military and other risks that may harm our business.

• Our success depends on our ability to develop, successfully introduce, achieve market acceptance of, and manage new products and services.

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

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

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

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

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

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

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

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

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

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

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

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

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

employee retention, willingness of customers and suppliers to do business with us and willingness of investors to invest in us, and otherwise materially impact our business.

General Risk Factors

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

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

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

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

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

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

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

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

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

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

Inflation continues to adversely impact spending and trade activities and we are unable to predict the impacts of higher inflation on global and regional economies.

Higher inflation has also increased domestic and international shipping costs, raw material prices, and labor rates, which could adversely impact the costs of producing, procuring and shipping our products.

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

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

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

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

Increases in lending rates may reduce economic activity.

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

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

We have also observed increases in the cost of fuel and energy, food and other essential items along with climbing interest rates, all of which reduce consumers' disposable income and could adversely affect consumer spending on orthodontic procedures that may be considered discretionary purchases or they may choose to purchase orthodontic treatments that cost less than our Invisalign treatment options.

We are also unable to predict the impact of efforts by central banks and federal, state and local governments to combat elevated levels of inflation as well as shortages of fuel, energy and food.

If their efforts to create downward pressure on inflation are too aggressive, they may lead to a recession.

Alternatively, if they are insufficient or are not sustained long enough to bring inflation to lower, more acceptable levels, consumer spending may be adversely impacted for a prolonged period of time.

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

Although the U.S.

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

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

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

dollar have and may increasingly adversely affect our net revenues and

net income in our consolidated financial statements.

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

dollar has adversely impacted our operating results in Europe.

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

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

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

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

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

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

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

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

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

corporate headquarters and regional facilities worldwide, implementing remote working where feasible, and prohibiting non-essential travel.

Many of these actions remain in effect to varying degrees and we may implement new or revise existing measures as circumstances require.

The actions and reactions to voluntary and involuntary protective measures have been highly disruptive to our business and may continue to be disruptive.

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

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

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

These measures included closures of physical offices and implementation of remote working where feasible.

I n 2022 , we have gradually reopened many of our offices.

The rules and regulations for reopening and operating our offices can be complex and hard to manage in practice, making compliance more difficult.

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

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

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

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

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

We are continually evaluating the impact of COVID-19 on macroeconomic as well as industry-specific factors, including the extent our business and financial results and the business and financial results of our customers’ and suppliers’ have been and in the future may be impacted.

The financial health and stability of businesses and consumers overall depends on numerous evolving factors, many of which we cannot control nor accurately predict.

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• the duration, scope, and severity of governmental, business and societal actions in response to the pandemic;

• the impact on worldwide economic activity, employment rates as well as actions taken by central banks and governments, including in response to the growing impact of inflation, or the occurrence of regional or global recessions as a result of fiscal tightening or other factors;

• customer and consumer purchasing behavior changes as pandemic-related restrictions are curtailed, lifted or reinstated, and travel and discretionary spending patterns shift;

• the response of employees, customers and suppliers to the reimplementation or easing of social distancing mandates and returning to in-office or facility working, including anxieties regarding the continuing risks of the spread of the virus or any of its variants, vaccination requirements, and other mandates that may impact employee productivity and engagement, retention or require additional costly protective measures;

• the liquidity of funds and financial stability of consumers, customers, and patients, including their willingness to purchase our products and services, delays paying for products or services, requests for extended payment terms, or payment defaults;

• the impact on worldwide economic activity, employment rates as well as actions taken by central banks and governments or the occurrence of regional or global recessions as a result of fiscal tightening or other factors;

virus or any of its variants, vaccination requirements, and other mandates that may impact employee productivity and engagement, retention or require additional costly protective measures;

• disruptions and shortages impacting the cost, availability and timing of the procurement, delivery, manufacturing and overall supply chain for raw materials, components, parts and products, including semiconductor chips;

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

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

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

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The effects of the pandemic continue to linger and evolve and we cannot predict future direct and ancillary impacts on our business or results of operations, although they may have a material adverse effect on our business, financial condition, results of operations, cash flows and stock price as well as the businesses of our customers, suppliers and economic activity generally.

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

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

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

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

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

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

In September 2022, Russia announced a partial mobilization of reserve military personnel creating additional operational impacts for us, including reduced operational activities and prompting the relocation or departure of some of our employees.

This has caused and is expected to continue to cause significant uncertainty and unpredictability to our staffing and operations in Russia.

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

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

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

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trade disruptions;

energy shortages or rationing that may adversely impact our manufacturing facilities and consumer spending, particularly in Europe;

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

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

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

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

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

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

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

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

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

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• we introduce new or change existing products or services, or modify how we market or sell any of our new or existing products or services;

• pricing regulations are imposed by governments such as the proposed volume-based procurement regulations in China;

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

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

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

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

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

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

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

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

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

manufacture custom aligners in their offices using 3D printing technology.

Large consumer product companies may also start supplying orthodontic products.

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If we are unable to compete effectively with existing products or respond effectively to any new technologies, our business could be harmed.

Our iTero intraoral scanner can be used to start the clear aligner therapy, as well as other dental procedures, including restorative, implant planning and dentures, and also functions as a diagnostic tool.

The iTero intraoral scanner competes with PVS impressions that doctors use for clear aligner therapy or other dental procedures, as well as other intraoral scanners.

It also competes with traditional bite wing 2D dental x-rays for detecting interproxial caries.

If we are unable to compete effectively with these existing products or respond effectively to any new technologies, our Systems and Services segment could be harmed.

To stimulate product and services demand, we have a history of offering volume discounts, price reductions and other promotions to targeted customers and consumers.

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We cannot assure that we will be able to compete successfully against our current or future competitors or that competitive pressures will not have a material adverse effect on our business, results of operations and financial condition.

An increasingly larger portion of our total revenues are derived from international sales and we are dependent on our international operations, which exposes us to foreign operational, political, military and other risks that may harm our business.

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

A large portion of our total revenues are derived from international sales and we are dependent on our international operations, which exposes us to foreign operational, political, military and other risks that may harm our business.

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

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

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

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

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

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

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• fluctuations in currency exchange rates;

• import and export risks, including shipping delays, cost increases, penalties, controls, license requirements and restrictions;

• import and export risks, including shipping delays, cost increases, tariffs, sanctions, penalties, controls, license requirements and restrictions;

• controlling production volume and quality of the manufacturing process;

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• increased expense of developing, testing, manufacturing and marketing localized versions of our products;

• threats, tensions, actions and responses to any social, economic, business, geopolitical, military, terrorism, or acts of war, including the possibility, threat of, imposition of, or changes in sanctions, trade restrictions and tariffs, as well as retaliatory military actions, sanctions, trade restrictions and tariffs particularly involving key customers, development or manufacturing markets such as China, Mexico, Russia, the Middle East, Eastern Europe or other countries;

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

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

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

and our employees in Israel being obligated to perform annual reserve duty in the Israeli military and being called for

additional active duty under emergency circumstances .

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

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

• pricing regulations imposed by governments such as the proposed volume-based procurement regulations in China;

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

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

• potential adverse direct and indirect tax consequences.

• potential adverse direct and indirect tax (such as sales and use tax (“SUT”), value-added tax (“VAT”) and goods and services tax (“GST”)) consequences

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

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

• allocate our research and development funding to products with higher growth prospects;

• allocate our research and development funding to products and services with higher growth prospects;

• ensure compatibility of our technology, services and systems with those of our customers;

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

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

In addition, as part of our effort to accommodate our customers’ needs and demands, we periodically introduce new business and sales initiatives to meet these needs and demands.

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

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

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

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

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

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

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

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

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

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

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

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Failure to adequately protect and maintain the integrity of our products and IT systems and data may result in a material adverse effect on our financial position, results of operations and cash flows.

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

We retain confidential customer financial as well as patient health information in addition to our own proprietary information and data essential to our business operations.

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

We retain confidential customer financial, patient health information and our own proprietary information and data essential to our business operations.

Therefore, it is critical that the facilities and infrastructure on which we depend to run our business and the products we develop remain secure and are also perceived by the marketplace and our customers to be secure.

Despite the implementation of security features in our products and security measures in our IT systems, our products as well as the infrastructure and IT systems on which we depend are vulnerable to physical break-ins, computer viruses, programming errors or other technical malfunctions, hacking or phishing attacks, malware and ransomware, employee error or malfeasance or similar disruptive problems by third parties, including organized groups or state actors.

For example, we have experienced cybersecurity incidents and may again in the future.

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

For example, we have experienced, and may again experience in the future, cybersecurity incidents and unauthorized internal employee exfiltration of company information.

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

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

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In addition, patient care could suffer, and we could be liable if our products or IT systems fail to deliver accurate and complete information in a timely manner.

We have cybersecurity and other forms of insurance coverage related to a breach event covering expenses for notification, credit monitoring, investigation, crisis management, public relations and legal advice.

We have internal monitoring and detection systems as well as cybersecurity and other forms of insurance coverage related to a breach event covering expenses for notification, credit monitoring, investigation, crisis management, public relations and legal advice.

The policy also provides coverage for regulatory action defense including oversight, investigations and disclosure obligations as well as fines and penalties, potential payment card industry fines and penalties and costs related to cyber extortion;

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

In the EU, we must comply with the

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

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

Health Insurance Portability and Accountability Act regulations.

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

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

Due to the recent increase in fuel costs, we have

experienced a material increase in our freight costs.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Our failure or the failure of our suppliers, customers, advertisers and influencers to strictly adhere to clearances or approvals in the labeling, marketing and sales of our products and services could subject us to claims or litigation, including actions alleging false or misleading advertising, unfair or anti-competitive business practices or other violations of laws or regulations, which may result in costly investigations, fines, penalties, as well as material judgments, settlements or decrees.

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

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

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

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Any enforcement action by the FDA or foreign governments could have a material adverse effect on us.

In addition, while we provide significant training to our personnel, they may not properly adhere to our policies or applicable laws or regulations.

If our employees fail to comply with any or all laws or regulations or our policies or procedures, it could result in violations of laws or regulations and subject us to harm to our reputation, loss of customers, loss or revenues, or regulatory investigations and actions.

We are also subject to anti-corruption and anti-bribery laws such as the Foreign Corrupt Practices Act ("FCPA"), which generally prohibits corrupt payments to foreign officials for the purpose of obtaining or keeping business, securing an advantage and directing business to another, and requires the maintenance of accurate books and records and a system of internal accounting controls.

Under the FCPA, we may be held liable for any corrupt actions taken by directors, officers, employees, agents, or other strategic or local partners or representatives.

Failure to comply with anti-corruption and anti-bribery laws, such as the FCPA, could subject us to penalties and other adverse consequences.

In addition, while we provide significant training to our personnel, they may not properly adhere to our policies or applicable laws or regulations such as our policies on the use of certain electronic communications and maintaining accurate books and records.

If our employees fail to comply with any or all laws or regulations or our policies or procedures or we fail to audit and enforce such company policies or procedures, it could result in violations of laws or regulations and subject us to harm to our reputation, loss of customers, loss or revenues, or regulatory investigations and actions.

Consequently, if we cannot successfully obtain approval for our products or services or timely and cost-effectively maintain compliance with laws regulating our products and services, our results of operations and financial condition could be harmed.

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

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

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

scanners are provided by single suppliers.

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

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These distributors may also choose to sell alternative or competing products or services.

In addition, we may be held responsible for the actions of these distributors and their employees and agents for compliance with laws and regulations, including fair competition, bribery and corruption, trade compliance, and marketing and sales activities.

A distributor may also affect our ability to effectively market our products in certain foreign countries or regulatory jurisdictions if it holds the regulatory authorization in such countries or within such regions and causes, by action or inaction, the suspension of such marketing authorization or sanctions for non-compliance or prevents us from taking control of any such authorization.

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The effects of greenhouse gas emission limits on power generation that have been enacted already or that may be enacted in the future are subject to significant uncertainties, including the timing of any new requirements, levels of emissions reductions and the scope and types of emissions regulated.

Initiatives and legislation designed to reduce, restrict or eliminate greenhouse gas emissions from power generation may have the effect of increasing our costs and those of our suppliers and could result in manufacturing, transportation and supply chain disruptions and delays if clean energy alternatives are not readily available in adequate supply when required.

alternatives are not readily available in adequate supply when required.

Moreover, alternative energy sources that supply the power to meet our current and future demands as well as those of our suppliers and the global and regional economies in general, coupled with reduced investments in traditional energy sources and infrastructure, may fail to provide the predictable, reliable, and consistent energy that we, our suppliers and other businesses need for operations.

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

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

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

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

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

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

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

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

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

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

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

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

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Our effective tax rate may vary significantly from period to period.

Align operates globally and is subject to taxes in the U.S.

and foreign countries.

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

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

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

These factors include, but are not limited to, changes in the global economic environment, changes in legal entity structure or activities performed within our entities, changes in our business operations, changes in tax laws, regulations and/or rates, new or changes to accounting pronouncements, changing interpretations of existing tax laws or regulations, changes in the relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates, changes in overall levels of pretax earnings, the

future levels of tax benefits of stock-based compensation, settlement of income tax audits and non-deductible goodwill impairments.

Our effective tax rate is also dependent in part on forecasts of full year results which can vary materially.

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

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

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

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

The OECD continues to publish guidance pursuant to the BEPS and other projects which, if adopted by member countries, may affect our tax positions in many of the countries in which we do business.

Moreover, the application of indirect taxes (such as sales and use tax (“SUT”), value-added tax (“VAT”), goods and services tax (“GST”), and other indirect taxes) to our operations is complex and evolving.

Moreover, the application of indirect taxes (such as SUT, VAT, GST, and other indirect taxes) to our operations is complex and evolving.

states, local and foreign taxing jurisdictions have differing rules and regulations governing differing types of taxes, and these rules and regulations are subject to varying interpretations and exemptions that may change over time.

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If we dispute rulings or positions taken by tax authorities, we may incur expenses and expend significant time and effort to defend our positions, which may be costly.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law.

It contains a number of new U.S.

federal tax law provisions including a corporate alternative minimum tax on adjusted financial statement income and an excise tax on corporate stock repurchases, both effective after December 31, 2022.

We are continuing to evaluate the IRA’s impact to us, but it could have a material impact on our business.

The application of existing, new, or future tax laws, and results of audits, whether in the U.S.

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The factors include:

• the impact on global and regional economies as a result of the COVID-19 pandemic;

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

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• sales of stock by us, our officers or directors;

• the impact on global and regional economies as a result of the COVID-19 pandemic;

• general economic market conditions, including rising interest rates, inflationary pressures, recessions, and global political conflict.

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and austerity measures of governments intended to control budget deficits.

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

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

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There is no assurance that we will continue repurchasing our common stock in the future, consistent with historical levels or at all, or that our stock repurchase programs will have a beneficial impact on our stock price.

Additionally, the IRA, among other things, imposes a 1% excise tax on any domestic corporation that repurchases its stock after December 31, 2022, which will increase the cost to us of making repurchases and may impact the level at or whether we implement repurchase programs in the future.

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

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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 1A. Risk Factors