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Item 1. Financial Statements

2023-11-03 compared with 2023-08-04 · 140 added, 98 removed, 606 unchanged (28% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

25 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

9 unchanged sentences

(in thousands, except per share data)

September 30,

2023 December 31,

40 unchanged sentences

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

Three Months Ended June 30, 2023 Shares Amount

Balance as of March 31, 2023

Three Months Ended September 30, 2023 Shares Amount

Balance as of June 30, 2023

76,532 $ 8 $ 1,141,623 $ 11,343 $ 2,485,327 $ 3,638,301

5 unchanged sentences

Stock-based compensation — — 39,602 — 39,602

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

Balance as of September 30, 2023 76,588 $ 8 $ 1,193,057 $ 2,047 $ 2,606,754 $ 3,801,866

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

Six Months Ended June 30, 2023 Shares Amount

Nine Months Ended September 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 — — 115,197 — — 115,197

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

Balance as of September 30, 2023 76,588 $ 8 $ 1,193,057 $ 2,047 $ 2,606,754 $ 3,801,866

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

3 unchanged sentences

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

Three Months Ended June 30, 2022 Shares Amount

Balance as of March 31, 2022

Three Months Ended September 30, 2022 Shares Amount

Balance as of June 30, 2022

78,059 $ 8 $ 1,016,882 $ ( 19,770 ) $ 2,601,961 $ 3,599,081

4 unchanged sentences

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

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

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

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

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

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

Six Months Ended June 30, 2022 Shares Amount

Nine Months Ended September 30, 2022 Shares Amount

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

6 unchanged sentences

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

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

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

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

2 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

5 unchanged sentences

Non-cash operating lease cost 24,034 22,756

Impairment of equity investment 3,329 —

Other non-cash operating activities 28,435 26,216

10 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisitions, net of cash acquired — ( 12,304 )

Purchase of property, plant and equipment ( 144,302 ) ( 238,696 )

24 unchanged sentences

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.

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

4 unchanged sentences

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.

During the third quarter of 2023, we completed an assessment of the useful lives of certain manufacturing equipment used in cutting, forming, assembling and scanning.

We adjusted the estimated useful life from ten ( 10 ) years to thirteen ( 13 ) years.

This change in accounting estimate was effective and applied to assets in service beginning in the third quarter of 2023.

The updated useful life will be applied prospectively on the assets scheduled to be placed in service in the future.

The effect of this change in estimate was a reduction in depreciation expense of approximately $ 4.0 million and an increase in net income of $ 3.0 million, or $ 0.04 per share basic and diluted, for both the three and nine months ended September 30, 2023.

Certain Risks and Uncertainties

4 unchanged sentences

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

Military Conflict in Middle East

The recent conflict in the Middle East may further exacerbate general and regional macroeconomic instability, particularly if fighting is prolonged or spreads to other locations.

Our iTero business is headquartered in Petach Tikva, Israel.

to monitor the potential for violence and military actions that may directly or indirectly impact our personnel, manufacturing, supply chain, and sales in unpredictable ways.

Recent Accounting Pronouncements

3 unchanged sentences

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):

June 30, 2023 Amortized

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

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

June 30, 2023 December 31, 2022

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

September 30, 2023 December 31, 2022

Due in 1 year or less $ 42,847 $ 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 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

Our unrealized losses as of September 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 September 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 September 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

September 30, 2023 Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss

Corporate bonds $ 2,509 $ ( 11 ) $ 40,608 $ ( 1,149 ) $ 43,117 $ ( 1,160 )

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 $ 8.2 million during the three months and $ 16.2 million for the six months ended June 30, 2023.

Total accounts receivable sold under the factoring arrangements was $ 24.2 million during the three months and $ 40.4 million for the nine months ended September 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.

7 unchanged sentences

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.

Our custody bank and asset managers independently use

professional pricing services to gather pricing data which may include quoted market prices for identical or comparable financial instruments, or inputs other than quoted prices that are observable either directly or indirectly, and we are ultimately responsible for these underlying estimates.

Level 3 — Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.

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

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

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

Description Balance as of

June 30, 2023 Level 1

September 30, 2023 Level 1

Cash equivalents:

35 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, 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.

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

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

4 unchanged sentences

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.

On September 6, 2023, we entered into a definitive agreement to acquire privately held Cubicure GmbH.

The purchase price for the transaction will be approximately € 79 million subject to customary closing adjustments and adjustments for Align’s existing ownership of capital stock of Cubicure.

The acquisition is expected to close in the fourth quarter of 2023 or early 2024.

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, 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

As a result of the settlement of foreign currency forward contracts, during the three months ended September 30, 2023 and 2022, we recognized net gains of $ 19.8 million and of $ 34.6 million, respectively, and during the nine months ended September 30, 2023 and 2022, we recognized net gains of $ 14.4 million and of $ 43.8 million, respectively.

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

September 30, 2023

Local Currency Amount Notional Contract Amount (USD)

2 unchanged sentences

Polish Zloty PLN 293,200 67,110

Chinese Yuan ¥ 408,000 56,266

British Pound £ 46,398 56,620

Japanese Yen ¥ 5,340,000 37,136

Chinese Yuan ¥ 399,000 54,764

Swiss Franc CHF 27,900 30,615

Japanese Yen ¥ 4,400,000 29,612

Brazilian Real R$ 90,000 17,861

3 unchanged sentences

Czech Koruna Kč 86,800 3,762

New Taiwan Dollar NT$ 82,000 2,629

Australian Dollar A$ 3,970 2,567

New Taiwan Dollar NT$ 77,600 2,405

Korean Won ₩ 1,400,000 1,036

17 unchanged sentences

Inventories consist of the following (in thousands):

September 30,

2023 December 31,

4 unchanged sentences

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

September 30,

2023 December 31,

4 unchanged sentences

Accrued liabilities consist of the following (in thousands):

September 30,

2023 December 31,

8 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

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

3 unchanged sentences

Deferred revenues consist of the following (in thousands):

September 30,

2023 December 31,

3 unchanged sentences

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

During the three months ended June 30, 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.

During the three months ended September 30, 2023 and 2022, we recognized $ 960.2 million and $ 890.3 million of net revenues, respectively, of which $ 178.8 million and $ 156.5 million was included in the deferred revenues balance at December 31, 2022 and 2021, respectively.

During the nine months ended September 30, 2023 and 2022, we recognized $ 2,905.5 million and $ 2,833.1 million of net revenues, respectively, of which $ 583.5 million and $ 519.8 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 September 30, 2023 were $ 1,560.7 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 six months ended June 30, 2023, categorized by reportable segments, is as follows (in thousands):

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

Clear Aligner Systems and Services Total

2 unchanged sentences

( 479 ) ( 2,777 ) ( 3,256 )

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

Balance as of September 30, 2023 $ 109,001 $ 295,294 $ 404,295

Intangible Long-Lived Assets

2 unchanged sentences

(in years) Gross Carrying Amount as of

June 30, 2023

September 30, 2023

Impairment Loss

June 30, 2023

September 30, 2023

Existing technology 10 $ 112,051 $ ( 42,383 ) $ ( 4,328 ) $ 65,340

19 unchanged sentences

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):

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

Fiscal Year Ending December 31, Amortization

2 unchanged sentences

Total $ 85,200

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.

Amortization expense for the three months ended September 30, 2023 and 2022 was $ 4.2 million and $ 3.9 million, respectively, and amortization expense for the nine months ended September 30, 2023 and 2022 was $ 12.4 million and $ 12.1 million, respectively.

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 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.

As of September 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

16 unchanged sentences

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.

A jury trial is scheduled to begin in this matter on May 13, 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.

2 of the Sherman Act.

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

4 unchanged sentences

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 May 13, 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.

6 unchanged sentences

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.

We deny SDC's allegations in the counterclaims.

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.

Based on these findings, the arbitrator awarded us an interim award of $ 63 million in damages.

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

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.

On August 21, 2023, the Superior Court issued an order confirming the Interim and Final Awards.

On September 8, 2023, the Superior Court entered judgment in Align ’s favor for $ 63 million in damages .

On September 29, 2023, SDC and certain affiliates filed bankruptcy petitions under chapter 11 of title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of Texas.

The extent to which Align will be able to collect any or all of its $ 63 million judgment through SDC ’s bankruptcy proceedings is unknown.

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.

3 unchanged sentences

Commitments and Contingencies

During the three months ended September 30, 2023, the Company received a notice and initial assessment, in the amount of approximately $ 27 million, from His Majesty’s Revenue and Customs (“HMRC”) for unpaid value added tax (“VAT”) related to certain clear aligner sales made during the period of June 2022 through May 2023.

We are required to pay this initial assessment prior to contesting or litigating the assessment in administrative and judicial proceedings.

The Company has historically asserted and continues to assert that doctor prescribed clear aligners sold by dentists for the orthodontic treatment of patient malocclusions are exempt from VAT, that the Company has reasonably relied upon statements and guidance by HMRC and that the Company’s interpretation of United Kingdom legislation is appropriate.

However, it is not possible at this stage to accurately evaluate the likelihood of an unfavorable outcome of any legal challenges brought by the Company against HMRC disputing this initial assessment and any assessments for other past periods, if any.

Accordingly, the Company has determined

that a potential loss related to unpaid VAT is not probable.

As such, we have not recorded a contingent loss for the initial assessment in our Condensed Consolidated Statements of Operations for the three or nine months ended September 30, 2023.

The Company acknowledges that this matter poses risks of litigation and the ultimate resolution of this matter could result in an unfavorable ruling, which consequently could lead to a significant loss to the Company.

As of September 30, 2023, if an unfavorable ruling is issued, we estimate a potential exposure up to approximately $ 100 million, excluding interest and penalties.

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.

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

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

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.

As of September 30, 2023, the 2005 Incentive Plan, as amended, has a total reserve of 32,168,895 shares of which 4,754,771 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):

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

6 unchanged sentences

RSUs granted generally vest over a period of four years .

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

A summary for the nine months ended September 30, 2023 is as follows:

Number of Shares

8 unchanged sentences

Forfeited ( 37 ) 388.56

Unvested as of June 30, 2023

Unvested as of September 30, 2023

764 $ 367.93 1.6 $ 233,165

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.

As of September 30, 2023, we expect to recognize $ 202.1 million of total unamortized compensation costs, net of estimated forfeitures, related to RSUs over a weighted average period of 2.8 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 six months ended June 30, 2023:

The following table summarizes the MSU performance activity for the nine months ended September 30, 2023:

Number of Shares

6 unchanged sentences

Unvested as of December 31, 2022

Granted 82 629.53

Vested and released 1

( 25 ) 392.67

Forfeited ( 43 ) 423.87

Unvested as of June 30, 2023

Unvested as of September 30, 2023

158 $ 811.06 1.7 $ 48,135

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.

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

As of September 30, 2023, we expect to recognize $ 56.8 million of total unamortized compensation costs, net of estimated forfeitures, related to MSUs over a weighted average period of 1.7 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.

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

As of September 30, 2023, we expect to recognize $ 0.5 million of total unamortized compensation costs, net of estimated forfeitures, related to PSUs over a weighted average term of 1.3 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”).

As of September 30, 2023, we have 1,995,520 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

Nine Months Ended

September 30,

Expected term (in years) 1.2 1.5

3 unchanged sentences

Weighted average fair value at grant date $ 133.53 $ 159.44

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.

As of September 30, 2023, we expect to recognize $ 11.6 million of total unamortized compensation costs related to future employee stock purchases over a weighted average period of 0.7 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”), 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.

We did not enter into any ASRs during the three months ended September 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.

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

Subsequent to the third quarter, on October 26, 2023, we entered into an ASR to repurchase $ 250.0 million of our common stock.

We made an initial payment of $ 250.0 million and received an initial delivery of approximately one million shares.

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

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.

Our provision for income taxes was $ 40.7 million and $ 49.9 million for the three months ended September 30, 2023 and 2022, respectively, representing effective tax rates of 25.1 % and 40.7 %, respectively.

Our provision for income taxes was $ 147.3 million and $ 163.9 million for the nine months ended September 30, 2023 and 2022, respectively, representing effective tax rates of 31.4 % and 33.9 %, respectively.

Our effective tax rate differs from the statutory federal income tax rate of 21% for both the three and nine months ended September 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, application of newly issued tax guidance, 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 .

Our total gross unrecognized tax benefits, excluding interest and penalties, were $ 150.0 million and $ 141.6 million as of September 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 nine months ended September 30, 2023 .

Net Income per Share

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

7 unchanged sentences

245 345 263 317

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 Represents RSU and MSU shares excluded from the calculation of diluted net income per share as the effect would have been anti-dilutive.

Supplemental Cash Flow Information

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

Six Months Ended

Nine Months Ended

September 30,

Non-cash investing and financing activities:

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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.

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.

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

25 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

6 unchanged sentences

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):

September 30,

2023 December 31, 2022

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

During the three months ended September 30, 2023 there was no additional restructuring activity.

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