Item 1. Financial Statements
Item 1. Financial Statements.
ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Net revenues $ 1,002,173 $ 969,553 $ 1,945,320 $ 1,942,772
Cost of net revenues 288,564 281,994 571,057 545,867
Gross profit 713,609 687,559 1,374,263 1,396,905
Operating expenses:
Selling, general and administrative 453,193 426,398 892,884 865,855
Research and development 88,485 72,965 175,932 144,772
Total operating expenses 541,678 499,363 1,068,816 1,010,627
Income from operations 171,931 188,196 305,447 386,278
Interest income and other income (expense), net:
Interest income 4,421 245 6,758 922
Other income (expense), net ( 4,763 ) ( 14,832 ) ( 5,992 ) ( 26,105 )
Total interest income and other income (expense), net ( 342 ) ( 14,587 ) 766 ( 25,183 )
Net income before provision for income taxes 171,589 173,609 306,213 361,095
Provision for income taxes 59,775 60,809 106,601 113,997
Net income $ 111,814 $ 112,800 $ 199,612 $ 247,098
Net income per share:
Basic
$ 1.46 $ 1.44 $ 2.60 $ 3.15
Diluted
$ 1.46 $ 1.44 $ 2.60 $ 3.13
Shares used in computing net income per share:
Basic
76,524 78,395 76,722 78,568
Diluted
76,689 78,545 76,897 78,840
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Net income $ 111,814 $ 112,800 $ 199,612 $ 247,098
Other comprehensive income (loss):
Change in foreign currency translation adjustment, net of tax 9,158 ( 13,756 ) 19,632 ( 21,067 )
Change in unrealized gains (losses) on investments, net of tax 350 ( 301 ) 1,995 ( 3,029 )
Other comprehensive income (loss) 9,508 ( 14,057 ) 21,627 ( 24,096 )
Comprehensive income $ 121,322 $ 98,743 $ 221,239 $ 223,002
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
June 30,
2023 December 31,
2022
ASSETS
Current assets:
Cash and cash equivalents $ 951,956 $ 942,050
Marketable securities, short-term 55,805 57,534
Accounts receivable, net of allowance for doubtful accounts of $ 13,244 and $ 10,343 , respectively
908,395 859,685
Inventories 312,736 338,752
Prepaid expenses and other current assets 236,564 226,370
Total current assets 2,465,456 2,424,391
Marketable securities, long-term 26,023 41,978
Property, plant and equipment, net 1,279,042 1,231,855
Operating lease right-of-use assets, net 125,881 118,880
Goodwill 414,765 407,551
Intangible assets, net 89,296 95,720
Deferred tax assets 1,605,926 1,571,746
Other assets 138,161 55,826
Total assets $ 6,144,550 $ 5,947,947
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 110,155 $ 127,870
Accrued liabilities 600,163 454,374
Deferred revenues 1,396,747 1,343,643
Total current liabilities 2,107,065 1,925,887
Income tax payable 113,309 124,393
Operating lease liabilities 104,650 100,334
Other long-term liabilities 181,225 195,975
Total liabilities 2,506,249 2,346,589
Commitments and contingencies (Notes 6 and 7)
Stockholders’ equity:
Preferred stock, $ 0.0001 par value ( 5,000 shares authorized; none issued)
— —
Common stock, $ 0.0001 par value ( 200,000 shares authorized; 76,532 and 77,267 issued and outstanding, respectively)
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Additional paid-in capital 1,141,623 1,044,946
Accumulated other comprehensive income (loss), net 11,343 ( 10,284 )
Retained earnings 2,485,327 2,566,688
Total stockholders’ equity 3,638,301 3,601,358
Total liabilities and stockholders’ equity $ 6,144,550 $ 5,947,947
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss), Net Retained Earnings Total
Three Months Ended June 30, 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
Net income — — — — 199,612 199,612
Net change in unrealized gains (losses) from investments — — — 1,995 — 1,995
Net change in foreign currency translation adjustment — — — 19,632 — 19,632
Issuance of common stock relating to employee equity compensation plans 207 — 14,256 — — 14,256
Tax withholdings related to net share settlements of equity awards — — ( 21,787 ) — — ( 21,787 )
Common stock repurchased and retired ( 942 ) — ( 11,387 ) — ( 280,973 ) ( 292,360 )
Equity forward contract related to accelerated stock repurchase — — 40,000 — — 40,000
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)
(unaudited)
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Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss), Net Retained Earnings Total
Three Months Ended June 30, 2022 Shares Amount
Balance as of March 31, 2022
78,805 $ 8 $ 992,287 $ ( 5,713 ) $ 2,680,270 $ 3,666,852
Net income — — — — 112,800 112,800
Net change in unrealized gains (losses) from investments — — — ( 301 ) — ( 301 )
Net change in foreign currency translation adjustment — — — ( 13,756 ) — ( 13,756 )
Issuance of common stock relating to employee equity compensation plans 11 — — — — —
Tax withholdings related to net share settlements of equity awards — — ( 654 ) — — ( 654 )
Common stock repurchased and retired ( 757 ) — ( 8,891 ) — ( 191,109 ) ( 200,000 )
Stock-based compensation — — 34,140 — 34,140
Balance as of June 30, 2022 78,059 $ 8 $ 1,016,882 $ ( 19,770 ) $ 2,601,961 $ 3,599,081
Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss), Net Retained Earnings Total
Six Months Ended June 30, 2022 Shares Amount
Balance as of December 31, 2021 78,710 $ 8 $ 999,006 $ 4,326 $ 2,619,374 $ 3,622,714
Net income — — — — 247,098 247,098
Net change in unrealized gains (losses) from investments — — — ( 3,029 ) — ( 3,029 )
Net change in foreign currency translation adjustment — — — ( 21,067 ) — ( 21,067 )
Issuance of common stock relating to employee equity compensation plans 250 — 14,827 — — 14,827
Tax withholdings related to net share settlements of equity awards — — ( 52,187 ) — — ( 52,187 )
Common stock repurchased and retired ( 901 ) — ( 10,525 ) — ( 264,511 ) ( 275,036 )
Stock-based compensation — — 65,761 — — 65,761
Balance as of June 30, 2022 78,059 $ 8 $ 1,016,882 $ ( 19,770 ) $ 2,601,961 $ 3,599,081
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited )
Six Months Ended
June 30,
2023 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 199,612 $ 247,098
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes ( 36,688 ) 14,747
Depreciation and amortization 71,639 59,907
Stock-based compensation 75,595 65,761
Non-cash operating lease cost 15,531 15,075
Other non-cash operating activities 21,860 16,172
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable ( 73,680 ) ( 53,462 )
Inventories 19,064 ( 91,060 )
Prepaid expenses and other assets ( 16,799 ) ( 14,219 )
Accounts payable ( 10,351 ) ( 23,944 )
Accrued and other long-term liabilities 140,284 ( 212,896 )
Long-term income tax payable ( 11,113 ) ( 1,657 )
Deferred revenues 56,718 136,021
Net cash provided by operating activities
451,672 157,543
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ( 122,664 ) ( 163,348 )
Purchase of marketable securities ( 2,373 ) ( 20,466 )
Proceeds from maturities of marketable securities 17,601 21,690
Proceeds from sales of marketable securities 4,048 92,235
Purchase of equity investments ( 75,000 ) —
Other investing activities 74 ( 2,189 )
Net cash used in investing activities ( 178,314 ) ( 72,078 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 14,256 14,827
Common stock repurchases ( 292,360 ) ( 275,036 )
Payments for equity forward contracts related to accelerated share repurchase agreements 40,000 —
Payroll taxes paid upon the vesting of equity awards ( 21,788 ) ( 52,187 )
Net cash used in financing activities ( 259,892 ) ( 312,396 )
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash ( 3,523 ) 4,978
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
Cash, cash equivalents, and restricted cash at end of the period $ 952,298 $ 878,186
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by Align Technology, Inc. (“we”, “our”, "Company", or “Align”) on a consistent basis with the audited Consolidated Financial Statements for the year ended December 31, 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 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
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the U.S. requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, useful lives of intangible assets and property and equipment, long-lived assets and goodwill, income taxes, contingent liabilities, the fair values of financial instruments, stock-based compensation and the valuation of investments in privately held companies, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Certain Risks and Uncertainties
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 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.
Recent Accounting Pronouncements
(i) Recent Accounting Pronouncements Not Yet Effective
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.
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Note 2. Financial Instruments
Cash, Cash Equivalents and Marketable Securities
The following tables summarize our cash and cash equivalents, and marketable securities on our Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 (in thousands):
Reported as:
June 30, 2023 Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value Cash and Cash Equivalents Marketable securities, short-term Marketable securities, long-term
Cash $ 759,407 $ — $ — $ 759,407 $ 759,407 $ — $ —
Money market funds 192,549 — — 192,549 192,549 — —
Corporate bonds 59,703 — ( 1,740 ) 57,963 — 39,145 18,818
U.S. government treasury bonds
14,054 — ( 325 ) 13,729 — 9,096 4,633
Asset-backed securities 3,600 — ( 13 ) 3,587 — 2,012 1,575
Municipal bonds 1,437 — ( 18 ) 1,419 — 1,419 —
U.S. government agency bonds 5,214 — ( 84 ) 5,130 — 4,133 997
Total $ 1,035,964 $ — $ ( 2,180 ) $ 1,033,784 $ 951,956 $ 55,805 $ 26,023
Reported as:
December 31, 2022 Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value Cash and Cash Equivalents Marketable securities, short-term Marketable securities, long-term
Cash $ 712,921 $ — $ — $ 712,921 $ 712,921 $ — $ —
Money market funds 229,129 — — 229,129 229,129 — —
Corporate bonds 69,390 — ( 2,915 ) 66,475 — 36,510 29,965
U.S. government treasury bonds
20,559 — ( 549 ) 20,010 — 15,404 4,606
Asset-backed securities 4,514 1 ( 37 ) 4,478 — 2,909 1,569
Municipal bonds 3,447 — ( 61 ) 3,386 — 2,711 675
U.S. government agency bonds 5,231 1 ( 69 ) 5,163 — — 5,163
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 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
Due in 1 year through 5 years 31,184 48,475
Total $ 81,828 $ 99,512
The securities that we invest in are generally deemed to be low risk based on their credit ratings from the major rating agencies. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As interest rates increase, those securities purchased at a lower yield show a mark-to-market unrealized loss. Our unrealized losses as of June 30, 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):
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As of June 30, 2023
Less than 12 months 12 Months of Greater Total
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 )
U.S. government treasury bonds
1,986 ( 32 ) 11,743 ( 293 ) 13,729 ( 325 )
Asset-backed securities 2,565 ( 5 ) 1,022 ( 8 ) 3,587 ( 13 )
Municipal bonds — — 685 ( 18 ) 685 ( 18 )
U.S. government agency bonds 3,980 ( 33 ) 1,150 ( 51 ) 5,130 ( 84 )
Total $ 10,045 $ ( 85 ) $ 70,755 $ ( 2,095 ) $ 80,800 $ ( 2,180 )
As of December 31, 2022
Less than 12 months 12 Months of Greater Total
December 31, 2022 Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss
Corporate bonds $ 10,639 $ ( 440 ) $ 54,634 $ ( 2,475 ) $ 65,273 $ ( 2,915 )
U.S. government treasury bonds
5,262 ( 177 ) 14,748 ( 372 ) 20,010 ( 549 )
Asset-backed securities 2,636 ( 17 ) 1,275 ( 20 ) 3,911 ( 37 )
Municipal bonds — — 2,412 ( 61 ) 2,412 ( 61 )
U.S. government agency bonds 3,017 ( 5 ) 1,136 ( 64 ) 4,153 ( 69 )
Total $ 21,554 $ ( 639 ) $ 74,205 $ ( 2,992 ) $ 95,759 $ ( 3,631 )
Accounts Receivable Factoring
We enter into factoring transactions on a non-recourse basis with financial institutions to sell certain of our non-U.S. accounts receivable. We account for these transactions as sales of accounts receivables and include the cash proceeds as a part of our cash flows from operations in the Condensed Consolidated Statements of Cash Flows. Total accounts receivable sold under the factoring arrangements was $ 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.
Fair Value Measurements
Fair value is an exit price, representing the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use the GAAP fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value:
Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. We obtain fair values for our Level 2 investments. Our custody bank and asset managers independently use professional pricing services to gather pricing data which may include quoted market prices for identical or comparable financial instruments, or inputs other than quoted prices that are observable either directly or indirectly, and we are ultimately responsible for these underlying estimates.
Level 3 — Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.
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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
June 30, 2023 Level 1
Level 2
Cash equivalents:
Money market funds $ 192,549 $ 192,549 $ —
Short-term investments:
U.S. government agency bonds 4,133 — 4,133
U.S. government treasury bonds 9,096 9,096 —
Corporate bonds 39,145 — 39,145
Municipal bonds 1,419 — 1,419
Asset-backed securities 2,012 — 2,012
Long-term investments:
U.S. government treasury bonds 4,633 4,633 —
Corporate bonds 18,818 — 18,818
U.S. government agency bonds 997 — 997
Asset-backed securities 1,575 — 1,575
$ 274,377 $ 206,278 $ 68,099
Description Balance as of December 31, 2022 Level 1 Level 2
Cash equivalents:
Money market funds $ 229,129 $ 229,129 $ —
Short-term investments:
U.S. government treasury bonds 15,404 15,404 —
Corporate bonds 36,510 — 36,510
Municipal bonds 2,711 — 2,711
Asset-backed securities 2,909 — 2,909
Long-term investments:
U.S. government treasury bonds
4,606 4,606 —
Corporate bonds 29,965 — 29,965
Municipal bonds
675 — 675
U.S. government agency bonds
5,163 — 5,163
Asset-backed securities
1,569 — 1,569
$ 328,641 $ 249,139 $ 79,502
Investments in Privately Held Companies
Our investments in privately held companies in which we cannot exercise significant influence and do not own a majority equity interest or otherwise control are accounted for under the measurement alternative. Under the measurement alternative, the carrying value of our equity investment is adjusted to fair value for observable transactions for identical or similar investments of the same issuer. Investments in equity securities are reported on our Consolidated Balance Sheet as other assets, and we periodically evaluate them for impairment. 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, 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
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managed or advised by, or otherwise affiliated with, Kohlberg Kravis Roberts & Co. L.P. (“KKR”). 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. Inc. (“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
We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on certain trade and intercompany receivables and payables. These forward contracts are classified within Level 2 of the fair value hierarchy. As a result of the settlement of foreign currency forward contracts, during the three months ended June 30, 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.
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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)
Euro € 218,700 $ 238,786
Canadian Dollar C$ 106,000 79,959
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
Swiss Franc CHF 30,000 33,526
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
Czech Koruna Kč 60,000 2,750
New Taiwan Dollar NT$ 82,000 2,629
Australian Dollar A$ 3,460 $ 2,302
Korean Won ₩ 1,800,000 1,365
$ 641,244
December 31, 2022
Local Currency Amount Notional Contract Amount (USD)
Euro € 186,900 $ 200,010
Polish Zloty PLN 365,988 83,307
Canadian Dollar C$ 109,000 80,514
Chinese Yuan ¥ 471,000 68,223
British Pound £ 41,200 49,677
Japanese Yen ¥ 6,200,000 47,196
Israeli Shekel ILS 110,030 31,383
Swiss Franc CHF 25,000 27,165
Brazilian Real R$ 141,200 26,839
Mexican Peso M$ 230,000 11,746
New Zealand Dollar NZ$ 6,000 3,806
Australian Dollar A$ 4,000 2,721
Czech Koruna Kč 56,000 2,469
New Taiwan Dollar NT$ 60,000 1,959
$ 637,015
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Note 3. Balance Sheet Components
Inventories consist of the following (in thousands):
June 30,
2023 December 31,
2022
Raw materials $ 148,793 $ 172,758
Work in process 100,468 96,558
Finished goods 63,475 69,436
Total inventories $ 312,736 $ 338,752
Prepaid expenses and other current assets consist of the following (in thousands):
June 30,
2023 December 31,
2022
Value added tax receivables $ 137,248 $ 140,484
Prepaid expenses 76,608 69,124
Other current assets 22,708 16,762
Total prepaid expenses and other current assets $ 236,564 $ 226,370
Accrued liabilities consist of the following (in thousands):
June 30,
2023 December 31,
2022
Accrued payroll and benefits $ 211,889 $ 149,508
Accrued income taxes 147,618 74,323
Accrued expenses 63,004 64,341
Accrued sales and marketing expenses 43,628 36,407
Current operating lease liabilities 28,770 26,574
Accrued property, plant and equipment 11,992 19,922
Other accrued liabilities 93,262 83,299
Total accrued liabilities $ 600,163 $ 454,374
Accrued warranty, which is included in the "Other accrued liabilities" category of the accrued liabilities table above, consists of the following activity (in thousands):
Six Months Ended
June 30,
2023 2022
Balance at beginning of period $ 17,873 $ 16,169
Charged to cost of net revenues 9,421 7,660
Actual warranty expenditures ( 6,797 ) ( 7,334 )
Balance at end of period $ 20,497 $ 16,495
Deferred revenues consist of the following (in thousands):
June 30,
2023 December 31,
2022
Deferred revenues - current $ 1,396,747 $ 1,343,643
Deferred revenues - long-term 1
$ 148,277 $ 160,662
1 Included in Other long-term liabilities within our Condensed Consolidated Balance Sheet
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.
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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 .
Note 4. Goodwill and Intangible Assets
Goodwill
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
Balance as of December 31, 2022 $ 109,480 $ 298,071 $ 407,551
Foreign currency translation adjustments
959 6,255 7,214
Balance as of June 30, 2023 $ 110,439 $ 304,326 $ 414,765
Intangible Long-Lived Assets
Acquired intangible long-lived assets were as follows, excluding intangibles that were fully amortized (in thousands):
Weighted Average Amortization Period
(in years) Gross Carrying Amount as of
June 30, 2023
Accumulated
Amortization
Accumulated
Impairment Loss
Net Carrying
Value as of
June 30, 2023
Existing technology 10 $ 112,051 $ ( 39,434 ) $ ( 4,328 ) $ 68,289
Customer relationships 10 21,500 ( 6,988 ) — 14,512
Trademarks and tradenames 10 17,200 ( 7,361 ) ( 4,122 ) 5,717
Patents 8 6,511 ( 5,685 ) — 826
$ 157,262 $ ( 59,468 ) $ ( 8,450 ) 89,344
Foreign currency translation adjustments ( 48 )
Total intangible assets, net 1
$ 89,296
1 Also includes $ 33.5 million of fully amortized intangible assets related to customer relationships.
Weighted Average Amortization Period
(in years) Gross Carrying
Amount as of December 31, 2022
Accumulated
Amortization
Accumulated Impairment Loss Net Carrying
Value as of
December 31, 2022
Existing technology 10 $ 112,051 $ ( 33,537 ) $ ( 4,328 ) $ 74,186
Customer relationships 10 21,500 ( 5,913 ) — 15,587
Trademarks and tradenames 10 17,200 ( 6,442 ) ( 4,122 ) 6,636
Patents 8 6,511 ( 5,288 ) — 1,223
$ 157,262 $ ( 51,180 ) $ ( 8,450 ) 97,632
Foreign currency translation adjustments ( 1,912 )
Total intangible assets, net 1
$ 95,720
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):
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Fiscal Year Ending December 31, Amortization
Remainder of 2023
$ 8,213
2024 15,335
2025 14,959
2026 14,353
2027 11,992
Thereafter 24,492
Total $ 89,344
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.
Note 5. Credit Facility
We have a credit facility that provides for a $ 300.0 million unsecured revolving line of credit, along with a $ 50.0 million letter of credit. On December 23, 2022, we amended certain provisions in our credit facility which included extending the maturity date on the facility to December 23, 2027 and replacing the interest rate from the existing LIBOR with SOFR (“2022 Credit Facility”). The 2022 Credit Facility requires us to comply with specific financial conditions and performance requirements. 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 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.
Note 6. Legal Proceedings
2019 Shareholder Derivative Lawsuit
In January 2019, three derivative lawsuits were filed in the U.S. District Court for the Northern District of California which were later consolidated, purportedly on our behalf, naming as defendants the then current members of our Board of Directors along with certain of our executive officers. The complaints assert various state law causes of action, including for breaches of fiduciary duty, insider trading, and unjust enrichment. The complaints seek unspecified monetary damages on our behalf, which is named solely as a nominal defendant against whom no recovery is sought, as well as disgorgement and the costs and expenses associated with the litigation, including attorneys’ fees. The consolidated action is currently stayed. Defendants have not yet responded to the complaints.
On April 12, 2019, a derivative lawsuit was also filed in California Superior Court for Santa Clara County, purportedly on our behalf, naming as defendants the members of our Board of Directors along with certain of our executive officers. The allegations in the complaint are similar to those in the derivative suits described above. The matter is currently stayed. Defendants have not yet responded to the complaint.
We believe these claims are without merit. We are currently unable to predict the outcome of these lawsuits and therefore cannot determine the likelihood of loss nor estimate a range of possible loss .
Antitrust Class Actions
On June 5, 2020, a dental practice named Simon and Simon, PC doing business as City Smiles brought an antitrust action in the U.S. District Court for the Northern District of California on behalf of itself and a putative class of similarly situated practices seeking monetary damages and injunctive relief relating to our alleged market activities in alleged clear aligner and intraoral scanner markets. Plaintiff filed an amended complaint and added VIP Dental Spas as a plaintiff on August 14, 2020. A jury trial is scheduled to begin in this matter on June 29, 2024. We believe the plaintiffs’ claims are without merit and we intend to vigorously defend ourselves.
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 based on Section 2 of the Sherman Act. Plaintiff filed an amended complaint on July 30, 2021 adding new plaintiffs and various state law claims.
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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 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 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.
We are currently unable to predict the outcome of these lawsuits and therefore we cannot determine the likelihood of loss, if any, nor estimate a range of possible loss.
SDC Dispute
On August 27, 2020, we initiated a confidential arbitration proceeding against SmileDirectClub LLC (“SDC”) before the American Arbitration Association in San Jose, California. This arbitration relates to the Strategic Supply Agreement (“Supply Agreement”) entered into between the parties in 2016. The complaint alleges that SDC breached the Supply Agreement ’ s terms, causing damages to us in an amount to be determined. On January 19, 2021, SDC filed a counterclaim alleging that we breached the Supply Agreement. On May 3, 2022, SDC filed an additional counterclaim alleging that we breached the Supply Agreement. We deny SDC's allegations in the counterclaims and we intend to vigorously defend ourselves against them. The arbitration hearing on our claims and SDC’s first counterclaim was held on July 18-27, 2022 in Chicago, Illinois.
On October 27, 2022, the arbitrator issued an interim award on our claims and SDC’s first counterclaim finding that SDC breached the Supply Agreement, we did not breach the Supply Agreement, and SDC caused harm to us. Based on these findings, the arbitrator awarded us an interim award.
On December 2, 2022, SDC filed a motion to re-open the arbitrator’s interim award in Align’s favor. 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 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. 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. Regardless of the outcome, these proceedings can have an adverse impact on us because of defense costs, diversion of management resources, and other factors. Although the results of complex legal proceedings are difficult to predict and our view of these matters may change in the future as litigation and events related thereto unfold; we currently do not believe that these matters, individually or in the aggregate, will materially affect our financial position, results of operations or cash flows.
Note 7. Commitments and Contingencies
Off-Balance Sheet Arrangements
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.
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Indemnification Provisions
In the normal course of business to facilitate transactions in our services and products, we indemnify certain parties: customers, vendors, lessors, and other parties with respect to certain matters, including, but not limited to, services to be provided by us and intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and our executive officers that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. Several of these agreements limit the time within which an indemnification claim can be made and the amount of the claim.
It is not possible to make a reasonable estimate of the maximum potential amount under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Additionally, we have a limited history of prior indemnification claims and the payments we have made under such agreements have not had a material adverse effect on our results of operations, cash flows or financial position. However, to the extent that valid indemnification claims arise in the future, future payments by us could be significant and could have a material adverse effect on our results of operations or cash flows in a particular period. As of June 30, 2023, we did not have any material indemnification claims that were probable or reasonably possible.
Note 8. Stockholders’ Equity
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 and six months ended June 30, 2023 and 2022 is as follows (in thousands):
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Cost of net revenues $ 1,901 $ 1,614 $ 3,708 $ 3,128
Selling, general and administrative 29,002 26,491 57,693 51,216
Research and development 6,957 6,035 14,194 11,417
Total stock-based compensation $ 37,860 $ 34,140 $ 75,595 $ 65,761
Restricted Stock Units (“RSUs”)
The fair value of RSUs is based on our closing stock price on the date of grant. RSUs granted generally vest over a period of four years . A summary for the six months ended June 30, 2023 is as follows:
Number of Shares
Underlying RSUs
(in thousands)
Weighted Average Grant Date Fair Value Weighted Average Remaining
Contractual Term (in years) Aggregate
Intrinsic Value
(in thousands)
Unvested as of December 31, 2022
489 $ 427.23
Granted
502 316.03
Vested and released ( 191 ) 380.55
Forfeited ( 27 ) 394.18
Unvested as of June 30, 2023
773 $ 367.66 1.8 $ 273,404
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”)
We grant MSUs to members of senior management. 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
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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 six months ended June 30, 2023:
Number of Shares
Underlying MSUs
(in thousands)
Weighted Average Grant Date Fair Value Weighted Average
Remaining
Contractual Term (in years)
Aggregate
Intrinsic Value
(in thousands)
Unvested as of December 31, 2022
144 $ 725.73
Granted 1
82 629.53
Vested and released ( 25 ) 392.67
Forfeited ( 41 ) 392.67
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 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”)
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 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:
Six Months Ended
June 30,
2023 2022
Expected term (in years) 1.0 1.5
Expected volatility 56.7 % 48.6 %
Risk-free interest rate 4.6 % 1.0 %
Expected dividends — —
Weighted average fair value at grant date $ 105.75 $ 196.97
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.
Note 9. 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”), 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.
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Accelerated Share Repurchase Agreements (“ASRs”)
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:
Agreement
Date Repurchase
Program Amount Paid
(in millions) Completion
Date Total Shares
Received Average Price per Share
Q4 2022 May 2021 N/A 1
Q1 2023 136,448 $ 293.15
Q1 2023 May 2021 $ 250.0 Q1 2023 805,905 $ 310.21
1 During the fourth quarter of 2022, we entered into a $ 200.0 million ASR which was not completed as of December 31, 2022 . 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.
Note 10. Accounting for Income Taxes
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 $ 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 .
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Note 11. Net Income per Share
The following table sets forth the computation of basic and diluted net income per share attributable to common stock (in thousands, except per share amounts):
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Numerator:
Net income $ 111,814 $ 112,800 $ 199,612 $ 247,098
Denominator:
Weighted average common shares outstanding, basic 76,524 78,395 76,722 78,568
Dilutive effect of potential common stock 165 150 175 272
Total shares, diluted 76,689 78,545 76,897 78,840
Net income per share, basic $ 1.46 $ 1.44 $ 2.60 $ 3.15
Net income per share, diluted $ 1.46 $ 1.44 $ 2.60 $ 3.13
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.
Note 12. Supplemental Cash Flow Information
The supplemental cash flow information consists of the following (in thousands):
Six Months Ended
June 30,
2023 2022
Non-cash investing and financing activities:
Acquisition of property, plant and equipment in accounts payable and accrued liabilities $ 20,648 $ 60,115
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 16,152 $ 15,048
Right-of-use assets obtained in exchange for lease obligations:
Operating leases $ 21,346 $ 16,351
Note 13. Segments and Geographical Information
Segment Information
We report segment information based on the management approach. The management approach designates the internal reporting used by our Chief Operating Decision Maker for decision making and performance assessment as the basis for determining our reportable segments. The performance measures of our reportable segments include net revenues, gross profit and income from operations. Income from operations for each segment includes all geographic revenues, related cost of net revenues and operating expenses directly attributable to the segment. Certain operating expenses are attributable to operating segments and each allocation is measured differently based on the specific facts and circumstances of the costs being allocated. Costs not specifically allocated to segment income from operations include various corporate expenses such as stock-based compensation and costs related to IT, facilities, human resources, accounting and finance, legal and regulatory, and other separately managed general and administrative costs outside the operating segments and restructuring costs. We group our operations into two reportable segments (i) Clear Aligner segment and (ii) Imaging Systems and CAD/CAM services (“Systems and Services”) segment.
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Summarized financial information by segment is as follows (in thousands):
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Net revenues
Clear Aligner $ 832,674 $ 798,398 $ 1,622,478 $ 1,608,094
Systems and Services 169,499 171,155 322,842 334,678
Total net revenues $ 1,002,173 $ 969,553 $ 1,945,320 $ 1,942,772
Gross profit
Clear Aligner $ 603,251 $ 585,245 $ 1,169,390 $ 1,190,941
Systems and Services 110,358 102,314 204,873 205,964
Total gross profit $ 713,609 $ 687,559 $ 1,374,263 $ 1,396,905
Income from operations
Clear Aligner $ 306,093 $ 307,209 $ 583,614 $ 619,928
Systems and Services 52,049 45,599 87,625 96,398
Unallocated corporate expenses ( 186,211 ) ( 164,612 ) ( 365,792 ) ( 330,048 )
Total income from operations $ 171,931 $ 188,196 $ 305,447 $ 386,278
Stock-based compensation
Clear Aligner $ 4,491 $ 3,001 $ 9,145 $ 5,855
Systems and Services 263 236 584 450
Unallocated corporate expenses 33,106 30,903 65,866 59,456
Total stock-based compensation $ 37,860 $ 34,140 $ 75,595 $ 65,761
Depreciation and amortization
Clear Aligner
$ 16,590 $ 14,029 $ 32,988 $ 27,796
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
The following table reconciles total segment income from operations in the table above to net income before provision for income taxes (in thousands):
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Total segment income from operations $ 358,142 $ 352,808 $ 671,239 $ 716,326
Unallocated corporate expenses ( 186,211 ) ( 164,612 ) ( 365,792 ) ( 330,048 )
Total income from operations 171,931 188,196 305,447 386,278
Interest income 4,421 245 6,758 922
Other income (expense), net ( 4,763 ) ( 14,832 ) ( 5,992 ) ( 26,105 )
Net income before provision for income taxes $ 171,589 $ 173,609 $ 306,213 $ 361,095
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Geographical Information
Net revenues are presented below by geographic area (in thousands):
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Net revenues 1 :
U.S. $ 429,598 $ 430,053 $ 840,736 $ 850,973
Switzerland 341,006 330,351 654,137 662,090
Other International 231,569 209,149 450,447 429,709
Total net revenues $ 1,002,173 $ 969,553 $ 1,945,320 $ 1,942,772
1 Net revenues are attributed to countries based on the location of where revenues are recognized by our legal entities.
Tangible long-lived assets, which includes Property, plant and equipment, net, and Operating lease right-of-use assets, net, are presented below by geographic area (in thousands):
June 30,
2023 December 31, 2022
Long-lived assets 1 :
Switzerland $ 566,755 $ 532,921
U.S. 208,822 214,804
Other International 2
629,346 603,010
Total long-lived assets $ 1,404,923 $ 1,350,735
1 Long-lived assets are attributed to countries based on the location of our entity that owns or leases the assets.
2 Certain prior period immaterial amounts have been reclassified to conform to current presentation.
Note 14. Restructuring and Other Charges
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 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.
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