What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-03 compared with 2023-11-03 · 234 added, 226 removed, 520 unchanged (47% of the section changed)

4 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Net revenues $ 997,431 $ 943,147

24 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Net income $ 105,028 $ 87,798

8 unchanged sentences

(in thousands, except per share data)

September 30,

2024 December 31,

25 unchanged sentences

Total liabilities 2,395,894 2,453,388

Commitments and contingencies (Notes 6 and 7)

Commitments and contingencies (Note 7 and Note 8)

Stockholders’ equity:

12 unchanged sentences

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

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

Net income — — — — 121,427 121,427

Net change in unrealized gains (losses) from investments — — — 526 — 526

Net change in foreign currency translation adjustment — — — ( 9,822 ) — ( 9,822 )

Issuance of common stock relating to employee equity compensation plans 56 — 12,339 — — 12,339

Tax withholdings related to net share settlements of equity awards — — ( 507 ) — — ( 507 )

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

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

Nine Months Ended September 30, 2023 Shares Amount

Three Months Ended March 31, 2024 Shares Amount

Balance as of December 31, 2023

75,075 $ 7 $ 1,162,140 $ 21,168 $ 2,447,174 $ 3,630,489

Net income — — — — 105,028 105,028

6 unchanged sentences

Stock-based compensation — — 38,788 — 38,788

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.

ALIGN TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

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

Three Months Ended September 30, 2022 Shares Amount

Balance as of June 30, 2022

Balance as of March 31, 2024

75,281 $ 7 $ 1,238,739 $ 18,439 $ 2,502,675 $ 3,759,860

Net income — — — — 72,700 72,700

Net change in unrealized gains (losses) from investments — — — ( 729 ) — ( 729 )

Net change in foreign currency translation adjustment — — — ( 20,246 ) — ( 20,246 )

Issuance of common stock relating to employee equity compensation plans 52 — 11,322 — — 11,322

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

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

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

Nine Months Ended September 30, 2022 Shares Amount

Three Months Ended March 31, 2023 Shares Amount

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

3 unchanged sentences

Issuance of common stock relating to employee equity compensation plans 1

191 — 14,256 — — 14,256

Tax withholdings related to net share settlements of equity awards — — ( 20,857 ) — — ( 20,857 )

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 — — 37,735 — — 37,735

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

Balance as of March 31, 2023 76,516 $ 8 $ 1,104,693 $ 1,835 $ 2,373,513 $ 3,480,049

1 Includes tax withholding shares related to net share settlements of equity awards.

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

2 unchanged sentences

(in thousands)

Nine Months Ended

September 30,

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

5 unchanged sentences

Non-cash operating lease cost 9,612 7,755

Impairment of equity investment 3,329 —

Other non-cash operating activities ( 2,359 ) 11,586

15 unchanged sentences

Proceeds from sales of marketable securities 831 2,785

Purchase of equity investments ( 76,999 ) —

Other investing activities ( 6 ) 6

3 unchanged sentences

Common stock repurchases — ( 292,360 )

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

Activity for equity forward contracts related to accelerated stock repurchase agreements, net — 40,000

Payroll taxes paid upon the vesting of equity awards ( 26,055 ) ( 20,857 )

1 unchanged sentence

Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash ( 9,004 ) 2,221

Net increase (decrease) in cash, cash equivalents, and restricted cash 296,995 ( 55,401 )

Net decrease in cash, cash equivalents, and restricted cash ( 71,640 ) ( 109,674 )

Cash, cash equivalents, and restricted cash at beginning of the period 938,519 942,355

4 unchanged sentences

Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation and Preparation

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.”).

(“we”, “our”, the "Company", or “Align”) on a consistent basis with the audited Consolidated Financial Statements for the year ended December 31, 2023, and contain all adjustments, including normal recurring adjustments, necessary to fairly state the information set forth herein.

These 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, 2023.

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.

The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 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.

requires 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.

1 unchanged sentence

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

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.

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.

We are subject to risks including, but not limited to, global and regional economic market conditions, inflation, fluctuations in foreign currency exchange rates, changes in consumer confidence and demand, increased competition, dependence on key personnel, protection and litigation of proprietary technology, shifts in taxable income between tax jurisdictions and compliance with regulations of the U.S.

Food and Drug Administration (“FDA”) and similar international agencies.

Our cash and investments are held primarily by five financial institutions.

Financial instruments which potentially expose us to concentrations of credit risk consist primarily of cash equivalents and marketable securities.

We invest excess cash primarily in money market funds, corporate bonds, asset-backed securities, municipal and U.S.

government agency bonds and treasury bonds and periodically evaluate them for credit losses.

Such credit losses have not been material to our financial statements.

We purchase certain inventory from sole suppliers.

Additionally, we rely on a limited number of hardware manufacturers.

The inability of any supplier or manufacturer to fulfill our supply requirements could materially and adversely impact our future operating results.

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.

Recent Accounting Pronouncements Not Yet Effective

On November 27, 2023, the FASB issued ASU 2023-07, “Improvements to Reportable Segment Disclosures.

” The amendments in this update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

For public business entities, the provisions of ASU 2023-07 are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

Companies must apply the guidance retrospectively to all prior periods presented in the financial statements.

Company expects this pronouncement to result in changes to the nature of our reportable segment disclosures;

however, we do not expect this new guidance to impact our financial results.

On December 14, 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures.

” The amendments in this ASU require a public entity to disclose in tabular format, using both percentages and reporting currency amounts, specific categories in the rate reconciliation and to provide additional information for reconciling items that meet a quantitative threshold.

The amendments in this ASU also require taxes paid (net of refunds received) to be disaggregated by federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold.

For public business entities, the provisions of ASU 2023-09 are effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is evaluating the effect of this pronouncement on its annual consolidated financial statements.

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

September 30, 2023 Amortized

The following tables summarize our cash and cash equivalents, and marketable securities on our Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 (in thousands):

March 31, 2024 Amortized

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

5 unchanged sentences

Asset-backed securities 586 — ( 1 ) 585 — 585 —

Municipal bonds 701 — ( 10 ) 691 — 691 —

government agency bonds 5,264 — ( 20 ) 5,244 — 5,244 —

11 unchanged sentences

Total $ 981,569 $ 7 $ ( 812 ) $ 980,764 $ 937,438 $ 35,304 $ 8,022

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

The following table summarizes the fair value of our available-for-sale marketable securities classified by contractual maturity as of March 31, 2024 and December 31, 2023 (in thousands):

March 31, 2024 December 31, 2023

Due in 1 year or less $ 32,515 $ 34,617

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 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

Our unrealized losses as of March 31, 2024 and December 31, 2023 are primarily due to changes in interest rates and credit spreads.

The following tables summarize the fair value and gross unrealized losses as of March 31, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

As of March 31, 2024

Less than 12 months 12 Months of Greater Total

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

March 31, 2024 Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss

Corporate bonds $ 1,006 $ ( 3 ) $ 22,805 $ ( 414 ) $ 23,811 $ ( 417 )

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 $ 24.2 million during the three months and $ 40.4 million for the nine months ended September 30, 2023.

Total accounts receivable sold under the factoring arrangements was $ 14.6 million during the three months ended March 31, 2024 and $ 8.0 million during the three months ended March 31, 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.

11 unchanged sentences

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

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

The following tables summarize our financial assets measured at fair value as of March 31, 2024 and December 31, 2023 (in thousands):

Description Balance as of

September 30, 2023 Level 1

March 31, 2024 Level 1

Cash equivalents:

4 unchanged sentences

Corporate bonds 24,551 — 24,551

Municipal bonds 691 — 691

Asset-backed securities 585 — 585

2 unchanged sentences

Corporate bonds 1,570 — 1,570

government agency bonds 1,009 — 1,009

Asset-backed securities 888 — 888

$ 86,301 $ 49,581 $ 36,720

3 unchanged sentences

Short-term investments:

government treasury bonds 15,404 15,404 —

Corporate bonds 28,704 — 28,704

Municipal bonds 700 — 700

government agency bonds

5,181 — 5,181

Asset-backed securities 719 — 719

3 unchanged sentences

Corporate bonds 2,568 — 2,568

Municipal bonds

government agency bonds

5,163 — 5,163

Asset-backed securities

$ 93,082 $ 49,756 $ 43,326

$ 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 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.

On April 24, 2023, we entered into a Subscription Agreement (the "Subscription Agreement") with Heartland Dental Holding Corporation (“Heartland”) who is an affiliate of KKR Core Holding Company LLC, which is an investment vehicle managed or advised by, or otherwise affiliated with, Kohlberg Kravis Roberts & Co.

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

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

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

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

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

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

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

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 as an investment in equity securities.

We have elected to account for all investments in equity securities in accordance with the measurement alternative.

Under the measurement alternative, we record the value of our investments in equity securities at cost, minus impairment, if any.

Additionally, we adjust the carrying value of our investments in equity securities to fair value for observable transactions for identical or similar investments of the same issuer.

On April 24, 2023, we entered into a Subscription Agreement (the "April 2023 Subscription Agreement") with Heartland Dental Holding Corporation (“Heartland”).

Pursuant to the Subscription Agreement we acquired less than a 5 % equity interest through the purchase of Class A Common Stock for $ 75 million.

We are not the primary beneficiary of nor are we able to

exercise significant influence over Heartland.

As such, we are accounting for our investment in Heartland as an investment in equity securities.

Similar to our other investments in equity securities, Heartland is accounted for under the measurement alternative.

Based on review of our investment in Heartland, we determined that no adjustments to the carrying value were necessary;

therefore, it is properly reflected on our Condensed Consolidated Balance Sheet in Other assets at $ 75 million.

Investments in equity securities are reported on our Condensed Consolidated Balance Sheet as Other assets.

We record upward and downward adjustments in carrying value or impairment, if any, in our investments in equity securities, in other income (expense), net in our Condensed Consolidated Statement of Operations.

The carrying value of our investments in equity securities, exclusive of Heartland, were not material as of March 31, 2024 and the associated adjustments to the carrying values, if any, of the investments were not material during the three month periods ended March 31, 2024 and 2023.

Our investments in privately held companies in which we can exercise significant influence are accounted for as equity method investments.

We have elected to account for our equity method investments under the fair value option.

The carrying value of our equity method investments are reported on our Condensed Consolidated Balance Sheet as other assets and are not material as of March 31, 2024 and December 31, 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.

We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on certain assets and liabilities.

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 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

As a result of the settlement of foreign currency forward contracts, we recognized a net gain of $ 19.7 million during the three months ended March 31, 2024 and a net loss of $ 6.4 million during the three months ended March 31, 2023.

Recognized gains and losses from the settlement of foreign currency forward contracts are recorded to Other income (expense), net in our Condensed Consolidated Statements of Operations.

As of March 31, 2024 and December 31, 2023, the fair value of foreign exchange forward contracts outstanding were no t material.

The following tables present the gross notional value of all our foreign exchange forward contracts outstanding as of March 31, 2024 and December 31, 2023 (in thousands):

March 31, 2024

Local Currency Amount Notional Contract Amount (USD)

Euro € 262,300 $ 283,818

British Pound £ 121,800 153,937

Canadian Dollar C$ 96,500 71,174

Polish Zloty PLN 276,400 $ 69,117

British Pound £ 46,398 56,620

Chinese Yuan ¥ 322,800 44,536

Swiss Franc CHF 27,900 30,615

Japanese Yen ¥ 4,300,000 28,547

2 unchanged sentences

Israeli Shekel ILS 48,200 13,137

Swiss Franc CHF 7,000 7,776

New Zealand Dollar NZ$ 9,900 5,912

Czech Koruna Kč 86,800 3,762

Australian Dollar A$ 3,970 2,567

New Taiwan Dollar NT$ 98,000 3,064

Australian Dollar A$ 4,700 3,061

Czech Koruna Kč 44,600 1,905

Korean Won ₩ 2,300,000 1,708

2 unchanged sentences

Euro € 337,780 $ 373,705

Polish Zloty PLN 365,988 83,307

Canadian Dollar C$ 108,900 82,166

Chinese Yuan ¥ 471,000 68,223

Polish Zloty PLN 276,900 70,393

British Pound £ 45,590 58,005

Chinese Yuan ¥ 244,500.00 34,361

Swiss Franc CHF 28,600 34,132

Japanese Yen ¥ 3,577,000 25,347

Israeli Shekel ILS 78,700 21,800

Swiss Franc CHF 25,000 27,165

Brazilian Real R$ 80,500 16,563

2 unchanged sentences

Australian Dollar A$ 4,300 2,921

Czech Koruna Kč 56,000 2,469

New Taiwan Dollar NT$ 89,000 2,919

Czech Koruna Kč 60,200 2,687

Korean Won ₩ 2,200,000 1,709

Balance Sheet Components

Inventories consist of the following (in thousands):

September 30,

2024 December 31,

4 unchanged sentences

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

September 30,

2024 December 31,

4 unchanged sentences

Accrued liabilities consist of the following (in thousands):

September 30,

2024 December 31,

Accrued payroll and benefits $ 191,904 $ 220,862

Accrued income taxes 157,175 74,323

Accrued expenses 76,540 71,109

Accrued sales and marketing expenses 42,933 34,035

Accrued income taxes 38,942 38,103

Current operating lease liabilities 31,324 29,651

3 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):

Nine Months Ended

September 30,

Three Months Ended

Balance at beginning of period $ 22,426 $ 17,873

3 unchanged sentences

Deferred revenues consist of the following (in thousands):

September 30,

2024 December 31,

3 unchanged sentences

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

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.

During the three months ended March 31, 2024 and 2023, we recognized $ 997.4 million and $ 943.1 million of net revenues, respectively, of which $ 236.8 million and $ 205.7 million was included in the deferred revenues balance at December 31, 2023 and 2022, respectively.

Our unfulfilled performance obligations, including deferred revenues and backlog, as of March 31, 2024 were $ 1,533.1 million.

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

Business Combination

On January 2, 2024 (the “Acquisition Date”), we completed the acquisition of privately-held Cubicure GmbH (“Cubicure”) (the "Acquisition") .

Cubicure is an Austrian company and specializes in direct 3D printing solutions for polymer additive manufacturing that develops, produces, and distributes innovative materials, equipment, and processes for 3D printing solutions.

The acquisition of Cubicure is intended to support and scale our strategic innovation roadmap and strengthen the Align Digital Platform.

In fiscal year 2021, we acquired an 9.04 % equity interest in Cubicure.

Subsequently, on the Acquisition Date, we acquired the remaining equity of Cubicure.

Prior to the acquisition, we also had technology license and joint development agreements with Cubicure.

The fair value of consideration transferred in the acquisition is shown in the table below (in thousands):

Cash paid to Cubicure stockholders $ 80,142

Fair value of pre-existing equity interest ownership 7,968

Settlement of pre-existing relationship - accounts payable $ ( 2,316 )

Total purchase consideration paid $ 85,794

The Acquisition was accounted for as a business combination under ASC Topic 805, Business Combinations ( “ASC 805”) that was achieved in stages.

As a result of the acquisition, we remeasured our pre-existing equity interest in Cubicure at fair value prior to the acquisition.

Based on the fair value of this equity interest, derived from the purchase price, we estimated the fair value of our 9.04 % pre-existing investment in Cubicure to be approximately $ 8.0 million.

The remeasurement resulted in the recognition of a pre-tax gain of $ 4.1 million, which was reflected as a component of Other income (expense), net within our Condensed Consolidated Statement of Operations.

In 2021, we initiated Joint development (“JDA”) and Technology license agreements (“TLA”) to provide us with access to Cubicure's technology.

The settlement of the JDA and TLA were concluded to be at market terms on the Acquisition Date;

therefore, no gain or loss was recorded related to the settlement of these contracts.

We also had accounts payable from the pre-existing arrangements with Cubicure of $ 2.3 million, which were effectively settled and reduced from the purchase consideration of the Acquisition.

The preliminary allocation of purchase price to assets acquired and liabilities assumed which is subject to change within the measurement period is as follows (in thousands):

Working capital $ 1,039

Property & equipment 975

Developed technology 47,000

Other non-current asset 1,386

Other liabilities ( 12,279 )

Goodwill $ 47,673

Total $ 85,794

Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets, and represents the value associated future technology, future customer relationships, and the knowledge and experience of the workforce in place.

None of this goodwill is deductible for tax purposes.

We allocated all goodwill to our Clear Aligner reporting unit.

The following table presents details of the identified intangible assets acquired (in thousands, except years):

Weighted Average Amortization

Period (in years)

Developed technology 13 $ 47,000

The fair value of developed technology was estimated under the Multi-Period Excess Earnings Method and the fair value estimates for developed technology include significant assumptions in the prospective financial information which include, but are not limited, to the projected future cash flows associated with the technology, asset's life cycle and the present value factor.

Acquisition related costs are recognized separately from the business combination and are expensed as incurred.

Acquisition related costs were not material.

Our consolidated financial statements include the operating results of Cubicure from the Acquisition Date.

Separate post-acquisition operating results and pro forma results of operations for this acquisition have not been presented as the effect is not material to our consolidated financial results.

Goodwill and Intangible Assets

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):

The change in the carrying value of goodwill for the three months ended March 31, 2024, categorized by reportable segments, is as follows (in thousands):

Clear Aligner Systems and Services Total

Balance as of December 31, 2023 $ 111,086 $ 308,444 $ 419,530

Additions from acquisition 47,673 — 47,673

Foreign currency translation adjustments

( 2,180 ) ( 6,788 ) ( 8,968 )

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

Intangible Long-Lived Assets

Acquired intangible long-lived assets were as follows, excluding intangibles that were fully amortized (in thousands):

Balance as of March 31, 2024 $ 156,579 $ 301,656 $ 458,235

Finite-Lived Intangible Assets

Acquired finite-lived intangible assets were as follows, excluding intangibles that were fully amortized, is as follows (in thousands):

Weighted Average Amortization Period

(in years) Gross Carrying Amount as of

September 30, 2023

Impairment Loss

September 30, 2023

March 31, 2024

Amortization Accumulated

Impairment Loss Net Carrying

March 31, 2024

Existing technology 11 $ 159,051 $ ( 49,183 ) $ ( 4,328 ) $ 105,540

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Total intangible assets, net 1

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

1 Includes $ 34.3 million of fully amortized intangible assets related to customer relationships and trademarks.

Weighted Average Amortization Period

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Total intangible assets, net 1

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 September 30, 2023 is as follows (in thousands):

1 Includes $ 34.3 million of fully amortized intangible assets related to customer relationships and trademarks.

Of the $ 159.1 million recorded as existing technology intangible assets as of March 31, 2024, $ 47.0 million was acquired during the first quarter of 2024 as part of our acquisition of Cubicure.

The existing technology acquired in the Cubicure acquisition had an estimated useful life of 13 years, which had the effect of increasing the weighted average amortization period from approximately 10 years as of December 31, 2023 to approximately 11 years as of March 31, 2024.

Refer to Note 4.

Business Combination .

The total estimated annual future amortization expense for these acquired intangible assets as of March 31, 2024, is as follows (in thousands):

Fiscal Year Ending December 31, Amortization

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Total $ 123,158

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.

Amortization expense for the three months ended March 31, 2024 and 2023 was $ 5.0 million and $ 4.1 million, respectively.

Credit Facility

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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 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.

As of March 31, 2024, 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

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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 .

In the first quarter of 2024, the parties to these actions entered into a settlement agreement whereby, subject to court approval, plaintiffs will dismiss the lawsuits and release their claims.

In the settlement agreement, Align and the defendants deny any wrongdoing and are not making any monetary payments, other than a potential award of $ 575,000 in attorney ’ s fees to plaintiffs ’ counsel, covered by insurance.

On March 1, 2024, the plaintiffs filed a motion for preliminary approval of the

settlement with the U.S.

District Court for the Northern District of California.

The hearing on the motion for preliminary approval is currently set for May 21, 2024.

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.

District Court for the Northern District of California on behalf of itself and a putative class of similarly situated practices seeking treble monetary damages, interest, costs, attorneys’ fees, 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 May 13, 2024.

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

On December 18, 2023, the court certified a class of persons or entities that purchased Invisalign directly from Align between January 1, 2019 and March 31, 2022.

The court denied Plaintiffs’ motion to certify a class of purchasers of scanners.

On February 21, 2024, the court granted Align’s motion for summary judgment on all claims brought by the plaintiffs.

The court entered judgment on March 22, 2024.

Plaintiffs have noticed appeal of the district court’s summary judgment ruling.

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.

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 May 13, 2024 for issues related to Section 2 allegations.

District Court for the Northern District of California on behalf of herself and a putative class of similarly situated individuals seeking treble monetary damages, interest, costs, attorneys’ fees, 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.

Plaintiffs have filed several amended complaints adding new plaintiffs, various state law claims, and allegations based on Section 1 of the Sherman Act.

On November 29, 2023, the court certified a class of indirect purchasers of Invisalign between July 1, 2018 and December 31, 2023 and a class of indirect purchasers of Invisalign seeking injunctive relief.

On February 21, 2024, the court granted Align’s motion for summary judgment on the claims related to Section 2 allegations.

The court entered judgment for the Section 2 and related state law claims on March 22, 2024.

Plaintiffs have noticed appeal of the district court’s summary judgment ruling.

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

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On May 3, 2022, SDC filed an additional counterclaim alleging that we breached the Supply Agreement.

We deny SDC's allegations in the counterclaims.

We denied 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.

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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.

On January 26, 2024, SDC’s bankruptcy cases were converted from cases under chapter 11 of the Bankruptcy Code to cases under chapter 7 of the Bankruptcy Code.

In conjunction therewith, Allison D.

Byman was appointed as the chapter 7 trustee in SDC’s bankruptcy cases.

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.

Straumann Litigation

On April 11, 2024, we filed a lawsuit in the U.S.

District Court for the Western District of Texas against ClearCorrect Operating, LLC, ClearCorrect Holdings, Inc., and Institut Straumann AG.

The complaint asserts claims of false advertising, unfair competition, civil conspiracy, and infringement of Align patents related to aligner material, treatment planning, and intraoral scanner technologies.

Among other things, the complaint seeks relief enjoining the defendants’ infringement of multiple Align multilayer material patents through defendants’ manufacture, sale and offer for sale of aligners made with Zendura FLX/ClearQuartz materials.

Defendants have not yet filed a response to the complaint.

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.

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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.

B eginning in the third quarter of 2023 and continuing through the first quarter of 2024, the Company has received cumulative assessments of approximately $ 95 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 October 2019 through May 2023.

We are required to pay these assessments prior to contesting or litigating in statutory appeal.

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.

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 these assessments in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2024.

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 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.

As of March 31, 2024, if an unfavorable ruling is issued, we estimate a potential exposure of approximately $ 115 million, depending on fluctuations of foreign currency exchange rates, excluding interest and penalties.

Indemnification Provisions

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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.

It is not possible to make a reasonable estimate of the maximum potential amount of future payments, if any, 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 September 30, 2023, we did not have any material indemnification claims that were probable or reasonably possible.

As of March 31, 2024, we did not have any material indemnification claims that were probable or reasonably possible.

Stockholders’ Equity

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.

As of March 31, 2024, the 2005 Incentive Plan, as amended, has a total reserve of 32,168,895 shares of which 3,393,482 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 nine months ended September 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 months ended March 31, 2024 and 2023 is as follows (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Cost of net revenues $ 2,064 $ 1,807

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RSUs granted generally vest over a period of four years .

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

A summary for the three months ended March 31, 2024 is as follows:

Number of Shares

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Forfeited ( 20 ) 377.56

Unvested as of September 30, 2023

Unvested as of March 31, 2024

1,095 $ 333.90 2.0 $ 359,130

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.

As of March 31, 2024, we expect to recognize $ 311.9 million of total unamortized compensation costs, net of estimated forfeitures, related to RSUs over a weighted average period of 3.2 years.

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

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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 nine months ended September 30, 2023:

The following table summarizes the MSU performance activity for the three months ended March 31, 2024:

Number of Shares

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Forfeited ( 5 ) 1,102.09

Unvested as of September 30, 2023

Unvested as of March 31, 2024

204 $ 679.52 2.1 $ 66,889

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.

As of March 31, 2024, we expect to recognize $ 82.2 million of total unamortized compensation costs, net of estimated forfeitures, related to MSUs over a weighted average period of 2.1 years.

Restricted Stock Units with Performance Conditions (“PSUs”)

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.

During the three months ended March 31, 2024, we did not grant any PSUs to any employees.

In the fourth quarter of 2022, we granted PSUs to certain employees which are eligible to vest based on the achievement of project-based milestones over a term of 2.2 years.

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

Compensation costs related to PSUs is not material to our operating results.

Employee Stock 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”).

As of March 31, 2024, we have 1,931,910 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:

Nine Months Ended

September 30,

Three Months Ended

Expected term (in years) 0.9 1.8

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Weighted average fair value at grant date $ 100.10 $ 138.13

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.

As of March 31, 2024, we expect to recognize $ 14.1 million of total unamortized compensation costs related to future employee stock purchases over a weighted average period of 0.8 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 September 30, 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”).

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

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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 September 30, 2023.

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

We did not enter into any new ASRs during the three months ended March 31, 2024;

however, we did settle and obtain final delivery of shares for the ASR contract entered in the fourth quarter of 2023.

The following table summarizes the information regarding repurchases of our common stock under the ASRs for the three months ended March 31, 2024 and 2023:

Date Repurchase

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Received Average Price per Share

Q4 2022 May 2021 N/A 1

Q1 2023 136,448 $ 293.15

Q4 2022 May 2021 $ 200.0 Q1 2023 984,714 $ 203.10

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 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.

Q1 2023 May 2021 $ 250.0 Q1 2023 805,908 $ 310.21

Q4 2023 January 2023 $ 250.0 Q1 2024 1,086,334 $ 230.13

Open Market Common Stock Repurchases

During the three months ended March 31, 2024 and 2023 we did not repurchase any shares in the open market.

During the three months ended December 31, 2023, we repurchased $ 100.0 million of our common stock through open market repurchases under the January 2023 Repurchase Program.

As of March 31, 2024, $ 650.0 million remains available for repurchases under the January 2023 Repurchase Program.

Subsequent to the first quarter, on April 26, 2024, we announced a plan to repurchase $ 150.0 million of our common stock through open market repurchases under the January 2023 Repurchase Program.

Accounting for Income Taxes

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.

Our provision for income taxes was $ 53.4 million and $ 46.8 million for the three months ended March 31, 2024 and 2023, respectively, representing effective tax rates of 33.7 % and 34.8 %, respectively.

Our effective tax rate differs from the statutory federal income tax rate of 21% for the three months ended March 31, 2024 and 2023 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 $ 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 .

Our total gross unrecognized tax benefits, excluding interest and penalties, were $ 150.8 million and $ 149.2 million as of March 31, 2024 and December 31, 2023, respectively, a material amount of which would impact our effective tax rate if recognized.

The increase in our unrecognized tax benefits relates primarily to positions taken on income tax return calculations finalized during the three months ended March 31, 2024 .

Net Income per Share

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Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Net income $ 105,028 $ 87,798

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Anti-dilutive potential common shares 1

245 345 263 317

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

1 Represents approximately 569 thousand RSU and 2 thousand ESPP weighted-average outstanding common stock equivalent shares that are 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):

Nine Months Ended

September 30,

Three Months Ended

Non-cash investing and financing activities:

Acquisition of property, plant and equipment in accounts payable and accrued liabilities $ 21,284 $ 30,907

Final settlement of prior year stock repurchase forward contract 50,000 —

Cash paid for amounts included in the measurement of lease liabilities:

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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.

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.

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 reportable segment.

Certain operating expenses are not directly attributable to a reportable segment and must be allocated.

Each allocation is measured differently based on the nature of the cost being allocated.

Certain other operating expense are not specifically allocated to segment income from operations and generally include various corporate expenses such as stock-based compensation and costs related to IT, facilities, human resources, accounting and finance, legal and regulatory, other separately managed general and administrative costs outside the reportable segments and restructuring costs.

We group our operations into two reportable segments:

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

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Clear Aligner $ 817,251 $ 789,804

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Systems and Services

7,827 7,181 23,716 20,879

Unallocated corporate expenses

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Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Total segment income from operations $ 335,931 $ 313,097

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Net income before provision for income taxes $ 158,386 $ 134,624

Our Chief Operating Decision Maker does not regularly review total assets at the reportable segment level;

however, we have provided geographical information related to our long-lived assets below.

Geographical Information

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Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Net revenues 1 :

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

September 30,

2024 December 31, 2023

3 unchanged sentences

Other International 617,422 623,155

613,776 603,010

Total long-lived assets $ 1,400,705 $ 1,408,862

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.

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.

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

During the fourth quarter of 2023, we initiated a restructuring plan to increase efficiencies across the organization and incurred approximately $ 14.0 million in restructuring expenses, of which $ 5.3 million remained unpaid and were included in Accrued liabilities as of December 31, 2023.

During the first quarter of 2024 , we reduced our December 31, 2023 restructuring liability by approximately $ 3.9 million, primarily due to cash payments.

As of March 31, 2024, we had a remaining balance of $ 1.4 million recorded in Accrued liabilities.

Subsequent Event

Subsequent to our quarter end, on April 22, 2024, we entered into a new Subscription Agreement (the "April 2024 Subscription Agreement") with Heartland.

The April 2024 Subscription Agreement provided for us, among other items, to acquire an additional equity interest in Heartland through the purchase of Class A Common Stock for $ 75 million.

In total, we have invested $ 150.0 million and acquired less than a 5 % equity interest in Heartland.

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