What changed in this filing

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Item 1. Financial Statements

2023-08-04 compared with 2023-05-05 · 146 added, 90 removed, 558 unchanged (30% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net revenues $ 1,002,173 $ 969,553 $ 1,945,320 $ 1,942,772

24 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net income $ 111,814 $ 112,800 $ 199,612 $ 247,098

50 unchanged sentences

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

Three Months Ended March 31, 2023 Shares Amount

Three Months Ended June 30, 2023 Shares Amount

Balance as of March 31, 2023

76,516 $ 8 $ 1,104,693 $ 1,835 $ 2,373,513 $ 3,480,049

Net income — — — — 111,814 111,814

Net change in unrealized gains (losses) from investments — — — 350 — 350

Net change in foreign currency translation adjustment — — — 9,158 — 9,158

Issuance of common stock relating to employee equity compensation plans 16 — — — — —

Tax withholdings related to net share settlements of equity awards — — ( 930 ) — — ( 930 )

Stock-based compensation — — 37,860 — 37,860

Balance as of June 30, 2023 76,532 $ 8 $ 1,141,623 $ 11,343 $ 2,485,327 $ 3,638,301

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

Six Months Ended June 30, 2023 Shares Amount

Balance as of December 31, 2022 77,267 $ 8 $ 1,044,946 $ ( 10,284 ) $ 2,566,688 $ 3,601,358

7 unchanged sentences

Stock-based compensation — — 75,595 — — 75,595

Balance as of June 30, 2023 76,532 $ 8 $ 1,141,623 $ 11,343 $ 2,485,327 $ 3,638,301

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

ALIGN TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

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

Three Months Ended June 30, 2022 Shares Amount

Balance as of March 31, 2022

78,805 $ 8 $ 992,287 $ ( 5,713 ) $ 2,680,270 $ 3,666,852

Net income — — — — 112,800 112,800

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

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

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

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

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

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

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

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

Three Months Ended March 31, 2022 Shares Amount

Six Months Ended June 30, 2022 Shares Amount

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

6 unchanged sentences

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

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

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

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

2 unchanged sentences

(in thousands)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

21 unchanged sentences

Proceeds from sales of marketable securities 4,048 92,235

Purchase of equity investments ( 75,000 ) —

Other investing activities 74 ( 2,189 )

7 unchanged sentences

Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash ( 3,523 ) 4,978

Net decrease in cash, cash equivalents, and restricted cash ( 109,674 ) ( 173,268 )

Net increase (decrease) in cash, cash equivalents, and restricted cash 9,943 ( 221,953 )

Cash, cash equivalents, and restricted cash at beginning of the period 942,355 1,100,139

6 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, 2022, and contains all adjustments, including normal recurring adjustments, necessary to fairly state the information set forth herein.

(“we”, “our”, "Company", or “Align”) on a consistent basis with the audited Consolidated Financial Statements for the year ended December 31, 2022, and contain all adjustments, including normal recurring adjustments, necessary to 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, 2022.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or any other future period, and we make no representations related thereto.

The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or any other future period, and we make no representations related thereto.

Use of Estimates

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Certain Risks and Uncertainties

Our business has been materially impacted by fluctuations in macroeconomic conditions and exacerbated by ongoing geopolitical issues.

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.

Our business has been materially impacted by fluctuations in macroeconomic conditions, which have been exacerbated by ongoing geopolitical issues.

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 markets, 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.

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 region 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.

1 unchanged sentence

(i) 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.

We continue to monitor new accounting pronouncements issued by the Financial Accounting Standards Board ( “ 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 March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023 Amortized

The following tables summarize our cash and cash equivalents, and marketable securities on our Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 (in thousands):

June 30, 2023 Amortized

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

19 unchanged sentences

Total $ 1,045,191 $ 2 $ ( 3,631 ) $ 1,041,562 $ 942,050 $ 57,534 $ 41,978

The following table summarizes the fair value of our available-for-sale marketable securities classified by contractual maturity as of March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023 December 31, 2022

The following table summarizes the fair value of our available-for-sale marketable securities classified by contractual maturity as of June 30, 2023 and December 31, 2022 (in thousands):

June 30, 2023 December 31, 2022

Due in 1 year or less $ 50,644 $ 51,037

4 unchanged sentences

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

Our unrealized losses as of March 31, 2023 and December 31, 2022 are primarily due to changes in interest rates and credit spreads.

The following tables summarize the gross unrealized losses as of March 31, 2023 and December 31, 2022, aggregated by investment category and length of time that individual securities have been in a continuous loss position (in thousands):

As of March 31, 2023

Our unrealized losses as of June 30, 2023 and December 31, 2022 are primarily due to changes in interest rates and credit spreads.

The following tables summarize the gross unrealized losses as of June 30, 2023 and December 31, 2022, aggregated by investment category and length of time that individual securities have been in a continuous loss position (in thousands):

As of June 30, 2023

Less than 12 months 12 Months of Greater Total

March 31, 2023 Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss

June 30, 2023 Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss

Corporate bonds $ 1,514 $ ( 15 ) $ 56,155 $ ( 1,725 ) $ 57,669 $ ( 1,740 )

19 unchanged sentences

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 $ 8.0 million during the three months ended March 31, 2023.

Total accounts receivable sold under the factoring arrangements was $ 8.2 million during the three months and $ 16.2 million for the six months ended June 30, 2023.

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.

10 unchanged sentences

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

The following tables summarize our financial assets measured at fair value as of March 31, 2023 and December 31, 2022 (in thousands):

The following tables summarize our financial assets measured at fair value as of June 30, 2023 and December 31, 2022 (in thousands):

Description Balance as of

March 31, 2023 Level 1

June 30, 2023 Level 1

Cash equivalents:

1 unchanged sentence

Short-term investments:

government agency bonds 4,133 — 4,133

government treasury bonds 9,096 9,096 —

5 unchanged sentences

Corporate bonds 18,818 — 18,818

Municipal bonds — — —

government agency bonds 997 — 997

4 unchanged sentences

Money market funds $ 229,129 $ 229,129 $ —

Corporate bonds — — —

Municipal bonds — — —

Short-term investments:

18 unchanged sentences

We record any change in carrying value of our equity securities, in other income (expense), net in our Consolidated Statement of Operations.

The carrying value of our equity investments in privately held companies without readily determinable fair values were not material as of March 31, 2023 or 2022 and the associated adjustments to the carrying values of the investments were not material during the quarter ended March 31, 2023 and 2022.

The carrying value of our equity investments in privately held companies without readily determinable fair values were not material, excluding Heartland, as of June 30, 2023 or 2022 and the associated adjustments to the carrying values of the investments were not material during the quarters ended June 30, 2023 and 2022.

On April 24, 2023, we entered into a Subscription Agreement (the "Subscription Agreement") with Heartland Dental Holding Corporation (“Heartland”) who is an affiliate of KKR Core Holding Company LLC, which is an investment vehicle

managed or advised by, or otherwise affiliated with, Kohlberg Kravis Roberts & Co.

Heartland is a dental support organization (“DSO”) that provides nonclinical administrative and support services to supported dental professional corporations (“PCs”).

Pursuant to the Subscription Agreement we acquired less than a 5 % equity interest and have no significant influence in Heartland through the purchase of Class A Common Stock for $ 75 million.

In connection with the Subscription Agreement, we entered into a Stockholders’ Agreement, by and among us, Heartland Dental Topco, LLC (“Topco”) and funds and accounts managed by affiliates of KKR & Co.

(“KKR”), and a Side Letter, by and among us, Heartland, Topco and KKR (the "Side Letter").

Subject to certain restrictions set forth in the Side Letter, we agreed to provisions applicable to Heartland’s stockholders, including certain drag-along and voting obligations.

Similar to our other private equity investments Heartland is accounted for under the measurement alternative.

Based on review of our equity investment, we determined there were no adjustments to the carrying value and it is properly reflected on our Consolidated Balance Sheet in other assets at $ 75 million as of June 30, 2023.

Derivatives Not Designated as Hedging Instruments

1 unchanged sentence

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

As a result of the settlement of foreign currency forward contracts, we recognized a net loss of $ 6.4 million during the three months ended March 31, 2023 and the net losses we recognized during the three months ended March 31, 2022 were no t material.

As of March 31, 2023 and December 31, 2022, 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 March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023

As a result of the settlement of foreign currency forward contracts, during the three months ended June 30, 2023 and 2022, we recognized net gains of $ 1.1 million and of $ 10.8 million, respectively, and during the six months ended June 30, 2023 and 2022, we recognized a net loss of $ 5.3 million and a net gain of $ 9.2 million, respectively.

As of June 30, 2023 and December 31, 2022, 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, 2023 and December 31, 2022 (in thousands):

June 30, 2023

Local Currency Amount Notional Contract Amount (USD)

1 unchanged sentence

Canadian Dollar C$ 106,000 79,959

Chinese Yuan ¥ 478,805 69,842

Polish Zloty PLN 279,700 68,452

Chinese Yuan ¥ 408,000 56,266

British Pound £ 43,900 55,704

Japanese Yen ¥ 5,340,000 37,136

Brazilian Real R$ 158,800 31,055

Swiss Franc CHF 30,000 33,526

Israeli Shekel ILS 53,600 14,864

Brazilian Real R$ 143,300 29,532

Mexican Peso M$ 230,000 13,491

Israeli Shekel ILS 49,380 13,300

New Zealand Dollar NZ$ 9,900 6,046

Korean Won ₩ 6,400,000 4,946

Czech Koruna Kč 60,000 2,750

New Taiwan Dollar NT$ 82,000 2,629

Australian Dollar A$ 3,460 $ 2,302

Czech Koruna Kč 56,000 2,589

Korean Won ₩ 1,800,000 1,365

December 31, 2022

2 unchanged sentences

Polish Zloty PLN 365,988 83,307

Canadian Dollar $ 109,000 80,514

Canadian Dollar C$ 109,000 80,514

Chinese Yuan ¥ 471,000 68,223

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

Three Months Ended

Six Months Ended

Balance at beginning of period $ 17,873 $ 16,169

8 unchanged sentences

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

During the three months ended March 31, 2023 and 2022, we recognized $ 943.1 million and $ 973.2 million of net revenues, respectively, of which $ 205.7 million and $ 184.9 million was included in the deferred revenues balance at December 31, 2022 and 2021, respectively.

Our unfulfilled performance obligations, including deferred revenues and backlog, as of March 31, 2023 were $ 1,540.9 million.

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

During the three months ended June 30, 2023 and 2022, we recognized $ 1,002.2 million and $ 969.6 million of net revenues, respectively, of which $ 199.0 million and $ 178.4 million was included in the deferred revenues balance at December 31, 2022 and 2021, respectively.

During the six months ended June 30, 2023 and 2022, we recognized $ 1,945.3 million and $ 1,942.8 million of net revenues, respectively, of which $ 404.7 million and $ 363.3 million was included in the deferred revenues balance at December 31, 2022 and 2021, respectively.

Our unfulfilled performance obligations, including deferred revenues and backlog, as of June 30, 2023 were $ 1,552.6 million.

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

Goodwill and Intangible Assets

The change in the carrying value of goodwill for the three months ended March 31, 2023, categorized by reportable segments, is as follows (in thousands):

The change in the carrying value of goodwill for the six months ended June 30, 2023, categorized by reportable segments, is as follows (in thousands):

Clear Aligner Systems and Services Total

2 unchanged sentences

959 6,255 7,214

Balance as of March 31, 2023 $ 110,332 $ 303,890 $ 414,222

Balance as of June 30, 2023 $ 110,439 $ 304,326 $ 414,765

Intangible Long-Lived Assets

2 unchanged sentences

(in years) Gross Carrying Amount as of

March 31, 2023

June 30, 2023

Impairment Loss

March 31, 2023

June 30, 2023

Existing technology 10 $ 112,051 $ ( 39,434 ) $ ( 4,328 ) $ 68,289

18 unchanged sentences

Total intangible assets, net 1

The total estimated annual future amortization expense for these acquired intangible assets as of March 31, 2023 is as follows (in thousands):

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

The total estimated annual future amortization expense for these acquired intangible assets as of June 30, 2023 is as follows (in thousands):

Fiscal Year Ending December 31, Amortization

2 unchanged sentences

Total $ 89,344

Amortization expense for the three months ended March 31, 2023 and 2022 was $ 4.1 million and $ 4.3 million, respectively.

Amortization expense for the three months ended June 30, 2023 and 2022 was $ 4.1 million and $ 3.9 million, respectively, and amortization expense for both the six months ended June 30, 2023 and 2022 was $ 8.2 million.

Credit Facility

3 unchanged sentences

Loans under the 2022 Credit Facility bear interest, at our option, at either a rate based on the SOFR for the applicable interest period or a base rate, in each case plus a margin.

As of March 31, 2023, we had no outstanding borrowings under the 2022 Credit Facility and were in compliance with the conditions and performance requirements in all material respects.

As of June 30, 2023, we had no outstanding borrowings under the 2022 Credit Facility and were in compliance with the conditions and performance requirements in all material respects.

Legal Proceedings

19 unchanged sentences

On May 3, 2021, an individual named Misty Snow brought an antitrust action in the U.S.

District Court for the Northern District of California on behalf of herself and a putative class of similarly situated individuals seeking monetary damages and injunctive relief relating to our alleged market activities in alleged clear aligner and intraoral scanner markets.

Plaintiff filed an amended complaint on July 30, 2021 adding new plaintiffs and various state law claims.

Plaintiffs filed a second amended

complaint on October 21, 2021.

Plaintiffs filed a second amended complaint on October 21, 2021.

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

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

On March 24, 2023, Plaintiffs requested the court grant leave to file a fifth amended complaint.

That motion is pending before the court.

On May 18, 2023, the court granted plaintiffs leave to file a fifth amended complaint.

The amended complaints added allegations based on Section 1 of the Sherman Act.

A jury trial is scheduled to begin in this matter on June 29, 2024 for issues related to Section 2 allegations.

A jury trial is scheduled to begin in this matter on September 30, 2024 for issues related to Section 1 allegations.

A jury trial is scheduled to begin in this matter on January 21, 2025 for issues related to Section 1 allegations.

We believe the plaintiffs’ claims are without merit and we intend to vigorously defend ourselves.

11 unchanged sentences

On March 3, 2023, the arbitrator denied SDC ’ s motion to re-open.

On March 6, 2023, Align filed a petition to confirm the arbitrator ’ s interim award.

When confirmed, the interim award may be material to our results in the quarter reported.

We anticipate recognizing the amount ultimately realizable following confirmation of the final award.

On March 6, 2023, Align filed a petition to confirm the arbitrator ’ s interim award in the Superior Court for Santa Clara County.

The arbitration hearing on SDC’s second counterclaim was held on February 21-23, 2023 in Chicago, Illinois.

We are 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.

On May 18, 2023, the arbitrator issued a final award on SDC ’ s second counterclaim, finding that Align did not breach the Supply Agreement.

The final award subsumed the interim award on our claims and SDC ’ s first counterclaim and concluded the Supply Agreement arbitration proceedings.

On May 30, 2023, Align filed a petition to confirm the final award in the Superior Court of Santa Clara County.

Confirmation of the final award may be material to our results in the quarter reported.

On June 16, 2023, SDC filed a petition to vacate the final award before the same court.

On August 3, 2023, the Superior Court held arguments on Align's petition to confirm and SDC’s petition to vacate the final award in Align’s favor.

Depending on how the Superior Court rules on those petitions, we anticipate recognizing the amount ultimately realizable following confirmation of the final award.

In addition to the above, in the ordinary course of our operations, we are 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.

4 unchanged sentences

Off-Balance Sheet Arrangements

As of March 31, 2023, 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 8 “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, 2022.

As of June 30, 2023, 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 8 “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, 2022.

Indemnification Provisions

6 unchanged sentences

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

As of March 31, 2023, we did not have any material indemnification claims that were probable or reasonably possible.

As of June 30, 2023, we did not have any material indemnification claims that were probable or reasonably possible.

Stockholders’ Equity

As of March 31, 2023, the 2005 Incentive Plan, as amended, has a total reserve of 27,783,379 shares of which 2,736,263 shares are available for issuance.

As of June 30, 2023, the 2005 Incentive Plan, as amended, has a total reserve of 27,783,379 shares of which 2,734,533 shares are available for issuance.

Summary of Stock-Based Compensation Expense

The stock-based compensation related to our stock-based awards and employee stock purchase plan for the three months ended March 31, 2023 and 2022 is as follows (in thousands):

The stock-based compensation related to our stock-based awards and employee stock purchase plan for the three and six months ended June 30, 2023 and 2022 is as follows (in thousands):

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Cost of net revenues $ 1,901 $ 1,614 $ 3,708 $ 3,128

5 unchanged sentences

RSUs granted generally vest over a period of four years .

A summary for the three months ended March 31, 2023 is as follows:

A summary for the six months ended June 30, 2023 is as follows:

Number of Shares

8 unchanged sentences

Forfeited ( 27 ) 394.18

Unvested as of March 31, 2023

Unvested as of June 30, 2023

773 $ 367.66 1.8 $ 273,404

As of March 31, 2023, we expect to recognize $ 246.2 million of total unamortized compensation costs, net of estimated forfeitures, related to RSUs over a weighted average period of 3.2 years.

As of June 30, 2023, we expect to recognize $ 224.7 million of total unamortized compensation costs, net of estimated forfeitures, related to RSUs over a weighted average period of 3.0 years.

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

1 unchanged sentence

Each MSU represents the right to one share of our common stock.

The actual number of MSUs which will be eligible to vest will be based on the performance of Align’s stock price relative to the performance of a stock market index over the vesting period.

The actual number of MSUs which will be eligible to vest will be based on the performance of Align’s stock price relative to

the performance of a stock market index over the vesting period.

MSUs vest over a period of three years and the maximum number eligible to vest in the future is 250 % of the MSUs initially granted.

The following table summarizes the MSU performance activity for the three months ended March 31, 2023:

The following table summarizes the MSU performance activity for the six months ended June 30, 2023:

Number of Shares

8 unchanged sentences

Forfeited ( 41 ) 392.67

Unvested as of March 31, 2023

Unvested as of June 30, 2023

160 $ 812.75 1.9 $ 56,670

1 Includes MSUs vested during the period above 100% of the grant as actual shares released is based on Align ’ s stock performance over the vesting period.

As of March 31, 2023, we expect to recognize $ 76.1 million of total unamortized compensation costs, net of estimated forfeitures, related to MSUs over a weighted average period of 2.2 years.

As of June 30, 2023, we expect to recognize $ 67.2 million of total unamortized compensation costs, net of estimated forfeitures, related to MSUs over a weighted average period of 1.9 years.

Restricted Stock Units with Performance Conditions (“PSUs”)

In the first quarter of 2023, we did not grant any PSUs to any employees.

As of March 31, 2023, we expect to recognize $ 0.7 million of total unamortized compensation costs, net of estimated forfeitures, related to PSUs over a weighted average term of 1.8 years.

During the six months ended June 30, 2023, we did not grant any PSUs to any employees.

As of June 30, 2023, we expect to recognize $ 0.6 million of total unamortized compensation costs, net of estimated forfeitures, related to PSUs over a weighted average term of 1.5 years.

Total PSUs granted were 4,728 and the weighted average grant date fair value for the PSUs was $ 201.63 .

Employee Stock Purchase Plan

As of March 31, 2023, we have 2,046,725 shares available for future issuance under our Amended and Restated 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”).

As of June 30, 2023, we have 2,046,725 shares available for future issuance under our Amended and Restated 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”).

The fair value of the option component of the 2010 Purchase Plan shares was estimated at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:

Three Months Ended

Six Months Ended

Expected term (in years) 1.0 1.5

3 unchanged sentences

Weighted average fair value at grant date $ 105.75 $ 196.97

As of March 31, 2023, we expect to recognize $ 34.7 million of total unamortized compensation costs related to future employee stock purchases over a weighted average period of 1.2 years.

As of June 30, 2023, we expect to recognize $ 14.5 million of total unamortized compensation costs related to future employee stock purchases over a weighted average period of 0.6 years.

Common Stock Repurchase Programs

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

As of March 31, 2023, the authorization under the May 2021 Repurchase Program was completed.

In January 2023, our Board of Directors authorized a plan to repurchase up to $ 1.0 billion of our common stock (“January 2023 Repurchase Program”), none of which had been utilized as of March 31, 2023.

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”), which was completed in March 2023.

In January 2023, our Board of Directors authorized a new plan to repurchase up to $ 1.0 billion of our common stock (“January 2023 Repurchase Program”), none of which had been utilized as of June 30, 2023.

The January 2023 Repurchase Program does not have an expiration date.

1 unchanged sentence

During the three months ended March 31, 2023, we entered into or completed 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.

We did not enter into any ASRs during the three months ended June 30, 2023.

The following table summarizes the information regarding repurchases of our common stock under the ASRs:

9 unchanged sentences

During the first quarter of 2023, we paid a final $ 40.0 million related to the $ 200.0 million ASR, closing this ASR with the final delivery of shares.

As of June 30, 2023, $ 1.0 billion remains available for repurchases under the January 2023 Stock Repurchase Program.

Accounting for Income Taxes

Our provision for income taxes was $ 46.8 million and $ 53.2 million for the three months ended March 31, 2023 and 2022, respectively, representing effective tax rates of 34.8 % and 28.4 %, respectively.

Our effective tax rate differs from the statutory federal income tax rate of 21% for both the three months ended March 31, 2023 and 2022 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.

Our provision for income taxes was $ 59.8 million and $ 60.8 million for the three months ended June 30, 2023 and 2022, respectively, representing effective tax rates of 34.8 % and 35.0 %, respectively.

Our provision for income taxes was $ 106.6 million and $ 114.0 million for the six months June 30, 2023 and 2022, respectively, representing effective tax rates of 34.8 % and 31.6 %.

Our effective tax rate differs from the statutory federal income tax rate of 21% for both the three and six months ended June 30, 2023 and 2022 primarily due to the recognition of additional tax expense resulting from U.S.

taxes on foreign earnings, foreign income taxed at different rates, state income taxes, and non-deductible expenses in the U.S.

We exercise significant judgment in regards to estimates of future market growth, forecasted earnings and projected taxable income in determining the provision for income taxes and for purposes of assessing our ability to utilize any future benefit from deferred tax assets.

We continue to assess the realizability of the deferred tax assets as we take into account new information.

Our total gross unrecognized tax benefits, excluding interest and penalties, were $ 145.3 million and $ 141.6 million as of March 31, 2023 and December 31, 2022, 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 March 31, 2023 .

Our total gross unrecognized tax benefits, excluding interest and penalties, were $ 148.2 million and $ 141.6 million as of June 30, 2023 and December 31, 2022, 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 and six months ended June 30, 2023 .

Net Income per Share

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net income $ 111,814 $ 112,800 $ 199,612 $ 247,098

5 unchanged sentences

Anti-dilutive potential common shares 1

329 361 367 314

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

1 unchanged sentence

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

Three Months Ended

Six Months Ended

Non-cash investing and financing activities:

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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 and restructuring costs.

We group our operations into two reportable segments:

Clear Aligner segment and Imaging Systems and CAD/CAM services (“Systems and Services”) segment.

We group our operations into two reportable segments (i) Clear Aligner segment and (ii) Imaging Systems and CAD/CAM services (“Systems and Services”) segment.

Summarized financial information by segment is as follows (in thousands):

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Clear Aligner $ 832,674 $ 798,398 $ 1,622,478 $ 1,608,094

18 unchanged sentences

Systems and Services

7,743 6,776 15,889 13,698

Unallocated corporate expenses

11,486 9,476 22,762 18,413

Total depreciation and amortization $ 35,819 $ 30,281 $ 71,639 $ 59,907

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Total segment income from operations $ 358,142 $ 352,808 $ 671,239 $ 716,326

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net revenues 1 :

15 unchanged sentences

Restructuring and Other Charges

During the fourth quarter of 2022, we initiated a restructuring plan to increase efficiencies across the organization which is expected to be completed in the first half of 2023.

During the fourth quarter of 2022, we initiated a restructuring plan to increase efficiencies across the organization which was completed during the first half of 2023.

During fiscal 2022, we incurred approximately $ 10.2 million in restructuring expenses, of which $ 3.9 million remained unpaid and was included in Accrued liabilities as of December 31, 2022.

During the first quarter of 2023, we paid $ 3.7 million, and recorded incremental restructuring expenses in Restructuring and other charges of approximately $ 0.1 million, with $ 0.3 million remaining unpaid and included in Accrued liabilities as of March 31, 2023.

Subsequent Event

Subsequent to our quarter end on April 24, 2023, we entered into a Subscription Agreement (the "Subscription Agreement") with Heartland Dental Holding Corporation (“Heartland”) which provides, among other things, for us to acquire less than a 5 % equity interest in Heartland through the purchase of Class A Common Stock for $ 75 million.

(“KKR”), and a Side Letter, by and among us, Heartland, Topco and KKR (the "Side Letter").

Subject to certain restrictions set forth in the Side Letter, we agreed to provisions applicable to Heartland’s stockholders, including certain drag-along and voting obligations.

During the first quarter of 2023, we paid $ 3.7 million, and recorded incremental restructuring expenses of approximately $ 0.1 million.

The remaining $ 0.3 million balance as of March 31, 2023 was paid during the three months ended June 30, 2023.

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