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Item 1A. Risk Factors

2024-08-02 compared with 2024-05-03 · 122 added, 119 removed, 357 unchanged (40% of the section changed)

Risk Factors.

The following discusses some of the risks that may affect our business, results of operations, financial condition and the price of our stock.

The following discusses some of the risks and uncertainties that may affect our business, results of operations, financial condition and the price of our common stock.

You should carefully review this section, as well as our condensed consolidated financial statements and notes thereto and other information appearing in this Quarterly Report on Form 10-Q, for important information regarding these and other risks that may affect us.

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Our operations and financial performance depend on global and regional economic conditions.

Inflation, fluctuations in currency exchange rates, changes in consumer confidence and demand, and general economic weakness and threats, or actual recessions, have and could in the future materially affect our business, results of operations, and financial condition.

Inflation, fluctuations in currency exchange rates, changes in consumer confidence and demand, general economic weakness, and actual or potential recessions have and could in the future materially affect our business, results of operations, and financial condition.

Macroeconomic conditions impact consumer confidence and discretionary spending, which can adversely affect demand for our products.

Consumer spending habits are affected by, among other things, inflation, fluctuations in currency exchange rates, general economic weakness, threats or actual recessions, pandemics, wars and military actions, employment levels, wages, debt obligations, discretionary income, interest rates, volatility in capital, and consumer confidence and perceptions of current and future economic conditions.

Consumer spending habits are affected by, among other things, inflation, fluctuations in currency exchange rates, general economic weakness, actual or potential recessions, pandemics, wars and military actions, employment levels, wages, debt obligations, discretionary income, interest rates, volatility in capital, and consumer confidence and perceptions of current and future economic conditions.

Macroeconomic conditions can, among other things, reduce or shift spending away from elective procedures, drive patients to pursue less costly orthodontic treatments, decrease the number of orthodontic case starts, reduce patient traffic in dentists’ offices, or reduce demand for dental services generally.

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Increases in the cost of fuel and energy, food, and other essential items as well as higher interest rates have and may continue to reduce consumers' disposable income, which could cause a decrease in discretionary spending for products like ours.

Further, we cannot predict the impact of efforts by central banks and federal, state and local governments to combat inflation, which could result in an economic recession or have an adverse impact on consumer spending for a prolonged period of time.

Inflation continues to adversely impact spending and trade activities, causing unpredictable impacts on global and regional economies.

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

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

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

Attempts to offset cost increases with price increases may reduce sales, increase customer dissatisfaction, or otherwise harm our reputation.

Any of these events could materially affect our business and operating results.

We have significant international operations and sales and we are exposed to fluctuations in foreign currencies that have and may continue to adversely impacted our business or results of operations.

Any of these events could materially affect our business, financial condition, or operating results.

We have significant international operations and sales and we are exposed to fluctuations in foreign currencies that have and may continue to adversely impact our business, financial condition, or results of operations.

Although the U.S.

dollar is our reporting currency, a large portion of our expenses, net revenues, and net income are generated in foreign currencies.

While we utilize forward contracts to moderate the impact of exchange rate fluctuations on certain assets and liabilities, our hedging strategies may not be successful, and currency exchange rate fluctuations have and may continue to materially adversely effect our operating results and cash flows.

In addition, our foreign currency exposure on assets, liabilities and cash flows that we do not hedge have and could in the future materially impact our financial results in periods when the U.S.

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Our business could be impacted by geopolitical events, trade and other international disputes, war and terrorism, or major public health crises .

Political events, trade and other international disputes, war and terrorism, or major public health crises have and could in the future harm or disrupt international commerce and the global economy and could materially affect our business as well as our customers, suppliers, contract manufacturers, distributors, and other business partners.

Such risks include supply chain and trade disruptions, tariffs, trade sanctions or restrictions, boycotts, reduced consumer spending, government shut downs, cyberattacks, energy shortages or power outages, energy rationing that adversely impacts our manufacturing facilities, rising fuel or rising costs of producing, procuring and shipping our products, constraints, volatility or disruption in the financial markets, deaths or injuries to our employees, restrictions and shortages of food, water, shelter, and medical supplies, telecommunications failures and protests that may result in the blocking of pathways relied on to deliver our product to customers or destruction of property.

Tariffs, such as those on Chinese goods, and responses to the tariffs may increase the cost of our products and the components and raw materials used to make them.

Geopolitical events, trade and other international disputes, war and terrorism, or major public health crises have and could in the future harm or disrupt international commerce and the global economy and could materially affect our business with our customers, suppliers, contract manufacturers, distributors, and other business partners.

Such risks include supply chain and trade disruptions, tariffs, trade sanctions, customs inquiries, or restrictions, boycotts, reduced consumer spending, government shut downs, cyberattacks, energy shortages or power outages, energy rationing that adversely impacts our manufacturing facilities, rising fuel or rising costs of producing, procuring and shipping our products, constraints, volatility or disruption in the financial markets, deaths or injuries to our employees, restrictions and shortages of food, water, shelter, and medical supplies, telecommunications failures, and protests that may impact delivery of our products to customers or destruction of property.

Tariffs, such as those on Chinese goods, and retaliatory trade measures in response may increase the cost of our products and the components and raw materials used to make them.

Increased costs could adversely impact our gross margin and reduce demand for our products.

Countries may also adopt other measures, such as controls on the import or export of goods, technology or data, including personal data, that could adversely impact our operations and supply chains or limit our ability to offer products and services.

Countries may also adopt or rescind other measures, such as controls on the import or export of goods, technology, or data, including personal data, that could adversely impact our operations and supply chains or limit our ability to offer products and services.

These measures could require us to take various actions, including changing suppliers or restructuring business relationships.

Complying with new or changed trade restrictions is expensive, time-consuming and disruptive to our operations.

Complying with new or revised trade restrictions is expensive, time-consuming, and disruptive to our operations.

Such restrictions can be announced with little or no advance notice and we may be unable to effectively mitigate any adverse impacts.

Political events, trade and other international disputes, war, terrorism, or major public health crises involving key commercial, development, or manufacturing markets such as China, Mexico, Israel, Poland, or other countries or regions have and could again materially impact our international operations.

The impact to us, our employees and customers would be uncertain, particularly if emergency circumstances, armed conflicts or an escalation in political instability or violence, or viral out-breaks disrupt our product development, data or information exchange, payroll or banking operations, product or materials shipping by us or our suppliers.

Our international operations would also be impacted by other unanticipated business disruptions, interruptions and limitations in telecommunication services or critical systems or applications reliant on a stable and uninterrupted communications infrastructure.

Military conflicts and global pandemics have and may continue to materially adversely impact our global economies.

For example, our commercial operations and research and development in Russia were impacted by the conflict in Ukraine and we were affected by the COVID-19 pandemic.

The impact to us, our employees and customers would be uncertain, particularly if emergency circumstances, armed conflicts or an escalation in political instability or violence, or viral outbreaks disrupt our product development, data or information exchange, payroll or banking operations, product or materials distribution.

Additionally, our international operations could be impacted if such an event resulted in disruptions, interruptions, and limitations in telecommunication services or critical systems or applications reliant on a stable and uninterrupted communications infrastructure.

Military conflicts and global pandemics have and may in the future materially adversely impact the economies in which we operate.

For example, our commercial operations and research and development in Russia have been impacted by the conflict in Ukraine and we were affected by the COVID-19 pandemic.

Our iTero operations, headquartered in Israel, are close to areas that have been affected by ongoing violence and military action in the Middle East, which may impact our employees as well as our iTero business and operations.

Some employees and consultants in Israel have been called for military service in the current conflict in the Middle East and they may be absent for an unknown period of time.

Furthermore, our facility may be damaged or supply chains impaired as a result of hostilities which could disrupt ongoing operations and impact our financial results.

The conflict in the Middle East may materially impact the timing and cost of shipping of our products, our ability to operate out of Israel, or lead to sanctions or boycotts which could impact our sales and revenues.

Additionally, the recent election in Taiwan and China’s territorial conflicts with other neighboring countries may impact our operations and sales in China.

We cannot predict the progress or outcome of these events or the reactions by governments, businesses or consumers but they could materially adversely affect our business and operating results.

Our operations may be impacted by natural disasters, which may become more frequent or severe as a result of climate change, and may adversely impact our business and operating results as well as those of our customers and suppliers.

Natural disasters can impact our operations as well as those of our customers and suppliers.

Natural disasters include earthquakes, tsunamis, floods, droughts, hurricanes, wildfires, and extreme weather conditions that cause deaths, injuries, and critical health crises, power outages, property damage, restrictions and shortages of food, water, shelter, and medical supplies, telecommunications failures, materials scarcity, price volatility and other ramifications.

Climate change is likely to increase the frequency and severity of natural disasters and, consequently, the risks to our operations and financial results.

Our digital dental modeling and certain of our customer facing operations are primarily processed in our facilities in Costa Rica, our iTero scanners are primarily manufactured in China and Israel, our aligner molds and finished aligners are fabricated in China, Mexico and Poland and we have other treatment planning operations and customer facing support in Poland, China, Spain, Germany, France, and Japan.

These zones are susceptible to natural disasters and their indirect effects.

If a natural disaster occurs in a region where one of these facilities or those of our customers or suppliers are located, our employees could be impacted, research lost, and ability to create treatment plans, respond to customer inquiries or manufacture and ship our aligners or intraoral scanners could be compromised, causing significant product and services delays.

Furthermore, our facilities may be damaged.

Our supply chains have been and may continue to be impaired as a result of hostilities, trade restrictions, sanctions or boycotts.

These items could disrupt ongoing operations and may materially impact the timing and cost of shipping of our products or our ability to operate out of Israel.

Additionally, China’s territorial conflicts with other neighboring countries may impact our operations and sales in China.

We cannot predict the progress or outcome of these events or the reactions by governments, businesses or consumers and each event could, individually or in the aggregate, materially adversely affect our business, financial condition and operating results.

Our operations may be impacted by natural disasters, which may become more frequent or severe as a result of climate change, and may adversely impact our business, financial condition and operating results as well as those of our customers and suppliers.

Natural disasters can impact our operations and those of our customers and suppliers.

Natural disasters such as earthquakes, tsunamis, floods, droughts, hurricanes, wildfires, and extreme weather conditions can cause deaths, injuries, and critical health crises, power outages, property damage, restrictions and shortages of food, water, shelter, and medical supplies, telecommunications failures, materials scarcity, price volatility, and other adverse consequences.

Climate change is likely to increase the frequency and severity of natural disasters and, consequently, the risks to our business, operating results, and financial condition.

Our digital dental modeling and certain of our customer facing operations are primarily processed in our facilities in Costa Rica;

our iTero scanners are primarily manufactured in China and Israel;

our aligner molds and finished aligners are fabricated in China, Mexico and Poland;

and we have other treatment planning operations and customer facing support in Poland, China, Spain, Germany, France, and Japan.

These regions are susceptible to natural disasters.

If a natural disaster occurs in a region where one of these facilities or those of our customers or suppliers are located, our employees could be impacted, we could lose valuable research, and our ability to create treatment plans, respond to customer inquiries, or manufacture and ship our aligners or intraoral scanners could be compromised, causing significant product and services delays and reputational harm.

The effects of climate change on regional and global economies could change the supply, demand or availability of sources of energy or other resources material to our products and operations and affect the availability or cost of natural resources and goods and services on which we and our suppliers rely.

Business and Industry Risks

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

Demand for our products may not increase or may decrease due to resistance to non-traditional treatment methods, which could have a material impact on our business, financial condition and operating results.

Our products require our customers to change from traditional treatment methods.

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Additionally, our clear aligners and iTero products utilize digital technology and some dental professionals have been and may continue to resist moving to a digital platform.

Increased acceptance of our products depends in part on the recommendations of dental professionals, as well as other factors including efficacy, safety, ease of use, reliability, aesthetics and price compared to competing products and treatment methods.

Increased acceptance of our products depends in part on the recommendations of dental professionals, as well as other factors including efficacy, safety, ease of use, reliability, aesthetics, and price compared to competing products and traditional treatment methods.

If demand for our products fails to increase, or decreases, our business, including our financial and operating results, may be harmed.

Our net revenues depend primarily on our Invisalign system and iTero scanners and declines in sales or average selling price of these products may adversely affect net revenues, gross margin, and net income.

Our net revenues remain largely dependent on sales of our Invisalign system of clear aligners an d iTero intraoral scanners.

Our net revenues are largely dependent on sales of our Invisalign system of clear aligners an d iTero intraoral scanners.

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

The average selling prices of our products, particularly the Invisalign system, are influenced by numerous factors, including the type and timing of products sold (particularly the timing of orders for additional clear aligners for certain Invisalign products) and foreign currency exchange rates.

In addition, we sell a number of products at different list prices which may differ based on country.

In addition, we sell a number of products at different list prices which

may differ based on country.

Our average selling prices for our Invisalign system and iTero scanners have been impacted in the past and may be adversely affected in the future if:

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

These promotional campaigns and lower

priced products have had, and may in the future have, unexpected and unintended consequences, including reduced gross margins, profitability and average selling prices, net revenues, volume growth, and net income.

These promotional campaigns and lower priced products have had, and may in the future have, unexpected and unintended consequences, including reduced gross margins, operating margin, profitability and average selling prices, net revenues, volume growth, and net income.

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

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While solutions such as our Invisalign system, iTero scanners and CAD/CAM software facilitate this transition, we face competition from companies that also seek to introduce new technologies and products and companies that remain dedicated to conventional products.

We may be unable to compete with these competitors or they may render our technology or products obsolete or economically unattractive.

We may be unable to compete with these competitors or they may render our technology or products obsolete or economically unattractive, in particular as competitors incorporate artificial intelligence ("AI") and machine learning into new or existing services and technologies that facilitate changes in doctor-patient interactions, expectations and treatment workflows.

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

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Orthodontists, GPs, and DSOs have and may continue to sample competitive and alternative products and take advantage of competitive promotions and sale opportunities.

Our iTero scanners are also facing increased competition.

iTero scanners compete with polyvinyl siloxane (“PVS”) impressions and numerous new or existing intraoral scanners.

They also compete with traditional bite wing 2D dental x-rays for detecting interproximal caries.

Our iTero scanners are also facing increased competition from new and existing competitors.

Our iTero scanners compete with polyvinyl siloxane impressions and numerous new or existing intraoral scanners, as well as traditional bite wing 2D dental x-rays for detecting interproximal caries.

We have and may continue to experience competition with our iTero scanners by competitors who introduce products at lower prices or with functionality that better meets customer demand.

If we are unable to compete effectively with existing products, existing competitors, new market entrants, or respond effectively to new technologies, our business, results of operations, and financial condition could be materially impacted.

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

Our success depends on our ability to quickly and profitably develop, manufacture, market, obtain and maintain regulatory approval or clearance of new products and services along with improvements to, or refurbishing of, existing products and services.

Our success depends on our ability to quickly and profitably develop, manufacture, market, and obtain and maintain regulatory approval or clearance of new products and services along with improvements to, or refurbishing of, existing products and services.

We cannot assure successful development, sales, or acceptance of our new or improved products and services.

The extent and rate at which new products or services achieve market acceptance and penetration is a function of many variables, including our ability to:

• successfully predict, timely innovate and develop new technologies, applications and products preferred by customers and consumers that have features and functionality to meet the needs of patients;

• successfully predict, timely innovate, develop and launch new technologies, applications, features and products to meet market needs and demands;

• successfully, and in a timely fashion, obtain regulatory approval or clearance of new and improved products or services from government agencies such as the FDA and analogous agencies in other countries ;

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• anticipate and rapidly innovate in response to new competitive products and services offerings and technologies;

• differentiate our products and services from our competitors as well as other products and services in our own portfolio and successfully articulate the benefits to our customers;

• differentiate our products and services from those of our competitors as well as other products and services in our own portfolio and successfully articulate the benefits to potential customers;

• manage the impact of nationalism or initiatives encouraging consumer purchases from domestic vendors;

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If we fail to accurately predict the needs and preferences of customers and their patients, or fail to offer viable products or services, we may invest heavily in research and development that does not lead to significant revenues.

Even if we successfully innovate and develop new products and product improvements, we may incur substantial costs doing so and our profitability

Even if we successfully innovate and develop new products and product improvements, we may incur substantial costs doing so and our profitability may suffer.

Introduction and acceptance of any products and services may take significant time and effort, particularly if they require doctor education and training to understand their benefits or doctors choose to withhold judgment on a product until patients complete their treatments.

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Alternatively, we may be unable to find suitable investment or acquisition opportunities or be unable to complete investments or acquisitions on favorable terms.

If we make investments or complete acquisitions, we may not ultimately strengthen our competitive position or achieve desired synergies, and investments or acquisitions we complete could be viewed negatively by our customers, securities analysts and investors.

If we make investments or complete acquisitions, we may not ultimately strengthen our competitive position or achieve desired synergies and integration, and investments or acquisitions we complete could be viewed negatively by our customers, securities analysts, and investors.

Opposition to acquisitions may lead to negative ratings by analysts or investors, give rise to stockholder objections, or result in stockholder activism, any of which could disrupt our operations or harm our stock price.

Moreover, to the extent we make strategic investments, the companies in which we invest may fail or we may ultimately own less than a majority of the outstanding shares of the company and be unable to control or have significant influence over critical issues that could harm the value of our investment.

As an organization we do not have a history of significant acquisitions or integrating their operations and cultures with our own.

As such, we are subject to various risks when making a strategic investment or acquisition which could materially impact our business or results of operations, including that we may:

We are subject to various risks when making a strategic investment or acquisition and integrating the operations and cultures of acquired businesses within our own, which could materially impact our business or results of operations, including that we may:

• fail to perform proper due diligence and inherit unexpected material issues or assets, including intellectual property (“IP”) or other litigation or ongoing investigations, accounting irregularities, or compliance liabilities;

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• invest in companies that generate net losses or are slow or fail to develop;

• not realize a positive return on investment or determine that our investments have declined in value, necessitating we record potential impairments of intangible assets and/or goodwill;

• have to pay cash, incur debt or issue equity securities to pay for an acquisition, adversely affecting our liquidity, financial condition or the value of our common stock.

The sale of equity or issuance of debt to finance any acquisition could result in dilution to our stockholders.

The occurrence of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that impede our ability to manage our operations;

• not realize a positive return on investment or determine that our investments have declined in value, which could require recording potential impairments;

• need to pay cash, incur debt, or issue equity securities to pay for an acquisition, adversely affecting our liquidity, financial condition, or the value of our common stock;

• find it difficult to implement and harmonize company-wide financial reporting, forecasting and budgeting, accounting, billing, IT, and other systems due to inconsistencies in standards, internal controls, procedures, and policies;

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Operational Risks

Our operating results have and will continue to fluctuate in the future, which makes predicting the timing and amount of customer demand, our revenues, costs and expenditures difficult.

Our operating results have and will continue to fluctuate in the future, which makes predicting the timing and amount of customer demand and our revenues, costs, and expenditures difficult.

Our quarterly and annual operating results have and will continue to fluctuate for a variety of reasons.

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• changes in consumer and doctor demand;

• higher manufacturing, delivery and inventory costs;

• the creditworthiness, liquidity and solvency of our customers and their ability to timely make payments when due and greater difficulty of collection and longer customer payment cycles;

• changes in manufacturing, delivery and inventory costs;

• the creditworthiness, liquidity, and solvency of our customers and their ability to timely make payments when due;

• our ability to collect payments;

• our acceptance of longer customer payment cycles;

• changes in the timing of revenue recognition and our average selling prices;

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• improvements to or changes in our products, capabilities or technologies that replace or shorten the life cycles of legacy products or cause customers to defer or stop purchasing legacy products until new products become available;

• costs and expenditures, including in connection with new treatment planning and fabrication facilities, the hiring and deployment of personnel and litigation;

• the timing of clear aligner treatment order submission, acceptance, processing and fulfillment, which can cause fluctuations in our backlog;

• changes in costs and expenditures, including in connection with new treatment planning and fabrication facilities and the hiring and deployment of personnel;

• the timing of clear aligner treatment order submissions, acceptance, processing, and fulfillment, which can cause fluctuations in our backlog;

• timing and fluctuation of spending around marketing and brand awareness campaigns and industry trade shows.

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Specifically, our manufacturing process relies on sophisticated computer software and requires new technicians to undergo a long training process, often 120 days or longer.

As a result, if we fail to accurately predict demand, we may have an insufficient number of trained technicians to timely manufacture and deliver products to meet customers’ expectations, which could damage our relationships with our existing customers or harm our ability to attract new customers.

Specifically, production levels for our iTero scanners are generally set based on forecasts and historic product demand and we often place orders with suppliers for materials, components and sub-assemblies (“materials and components”) as well as finished products weeks or more in advance of projected customer orders.

Conversely, if we overestimate customer demand, we may have excessive staffing, materials, components and finished products, or capacity.

If we hire and train too many technicians in anticipation of demand that does not materialize or materializes slower than anticipated, our costs and expenditures may outpace our revenues or revenue growth, harming our gross margin and financial results.

Additionally, production levels for our iTero scanners are generally based on forecasts and historic product demand and we often place orders with suppliers for materials, components, sub-assemblies, and finished products weeks or more in advance of projected customer orders.

In addition, we may be required to purchase or lease additional or larger facilities and equipment to manage demand.

As a result, if we fail to accurately predict demand, we may have an insufficient number of trained technicians, or an inadequate amount of materials, components, space or equipment to timely manufacture and deliver products to meet demand, which could damage our relationships with existing customers or harm our ability to attract new customers.

Conversely, if we overestimate customer demand, we may have excessive staffing, materials, components, finished products, or capacity.

If we hire and train too many technicians in anticipation of demand that does not materialize or materializes slower than anticipated, our costs and expenditures may outpace revenues or revenue growth, harming our gross margin and financial results.

Additionally, to secure supplies for production of products, we periodically enter into non-cancelable minimum purchase commitments with vendors, which could impact our ability to adjust inventory for declining demand.

If product demand decreases or increases more than forecast, we may be required to purchase or lease additional or larger facilities and additional equipment, or we may be unable to timely fulfill customer demand.

Responding to unanticipated changes in demand may take time, lower our gross margin, inhibit sales or harm our reputation.

If product demand decreases, we may have excess space for manufacturing or insufficient space to store excess materials, components, or finished products.

Responding to decreased demand may take time, and could lower our gross margin.

We may make business decisions that adversely affect our operating results such as modifications to our pricing policies and payment terms, promotions, development efforts, product releases, business structure, or operations.

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To manage current and anticipated future operations effectively, we must continually implement and improve our operational, financial and management information systems, hire, train, motivate, manage and retain employees, and ensure our suppliers remain diverse and capable of meeting demand for the systems, raw materials, parts and components essential to product manufacturing and delivery.

We may fail to balance near-term efforts to meet existing demand with future demand, including adding personnel, creating scalable, secure and robust systems and operations, and automating processes for long term efficiencies.

Production of our Invisalign system and iTero scanners could also be limited by capacity constraints due to a variety of factors, including labor shortages, shipping delays, our dependency on third-party vendors for key materials, parts, components and equipment, and limited production yields.

term efficiencies.

Any such failure could materially impact our business, operations and prospects.

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All software and IT systems are vulnerable to damage, cybersecurity attacks, or interruption from a variety of sources.

existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving industry and regulatory standards, increasingly sophisticated cybersecurity threats, and changing customer preferences.

To effectively manage and improve our operations, our IT systems and applications require an ongoing commitment of significant expenditures and resources to maintain, protect, upgrade, enhance, and restore existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving industry and regulatory standards, increasingly sophisticated cybersecurity threats, and changing customer preferences.

Usage of online and hosted technology platforms by us, our customers and suppliers, including remote working, teledentistry, and new or expanded use of online service platforms, products, and solutions such as doctor, consumer, and patient apps have increased the demands on and risks to our IT systems and personnel.

Moreover, we continue to transform certain business processes, extend established processes to new subsidiaries, and/or implement additional functionality in our enterprise resource planning, product development, manufacturing, and other software and IT systems which entails certain risks, including disruption of our operations, such as our ability to develop and update products that are safe and secure, track orders and timely ship products, manage our supply chain, and aggregate financial and operational data.

Failure to adequately protect and maintain the integrity of our products and our IT systems and those of our suppliers and customers may materially impact our financial position, results of operations and cash flows.

Failure to adequately protect and maintain the integrity of our products and our IT systems and those of our suppliers and customers may materially impact our business, financial position, and results of operations.

We have a complex, global iTero scanner installed base of older and newer models.

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Additionally, the third-party software integrated into or interoperable with our products and services will routinely reach end of life, and as a consequence, certain applications and models of our iTero scanners may be exposed to additional vulnerabilities, including increased security risks, errors and malfunctions that may be irreparable or difficult to repair.

The discovery of a defect, error or security vulnerability in our products, software applications or IT systems, incompatibility with customers’ computer operating systems and hardware configurations with a new release or upgraded version or the failure of our products or primary IT systems may cause adverse consequences, including delay or loss of revenues, significant remediation costs, delay in market acceptance, loss of data, disclosure of financial, health or other personal information of our customers or their patients, product recalls, damage to our reputation, loss of market share or increased service costs, any of which could have a material effect on our business, financial condition or results of our operations and the operations of our customers or our business partners.

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

The discovery of a defect, error or security vulnerability in our products, software applications or IT systems, incompatibility with customers’ computer operating systems and hardware

configurations with a new release or upgraded version or the failure of our products or primary IT systems may cause adverse consequences, including delay or loss of revenues, significant remediation costs, delay in market acceptance, loss of data, disclosure of financial, health or other personal information of our customers or their patients, product recalls, damage to our reputation, loss of market share or increased service costs, any of which could have a material effect on our business, financial condition or results of our operations and the operations of our customers or our business partners.

We are highly dependent on our supply chain, particularly manufacturers of specialized scanning equipment, rapid prototyping machines, resin, and other advanced materials, as well as the optics, electronic, and other mechanical components of our iTero scanners.

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For instance, we may be unable to quickly establish or qualify replacement suppliers creating production interruptions, delays, and inefficiencies.

Finding substitute manufacturers may be expensive, time-consuming or impossible and could result in significant interruptions in the supply of one or more products, product retesting or additional product registration causing us to lose

revenues and damage customer relationships.

Finding substitute manufacturers may be expensive, time-consuming, or impossible and could result in significant interruptions in the supply of one or more products, product retesting, or additional product registration causing us to lose revenues and damage customer relationships.

Technology changes by our service providers, vendors, and other third parties could disrupt access to required manufacturing capacity or require expensive, time-consuming development efforts to adapt and integrate new equipment or processes.

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A disruption in the operations of a primary freight carrier, higher shipping costs, or shipping delays could disrupt our supply chain and impact our operating and financial results.

We are dependent on commercial freight carriers, primarily UPS, to deliver our products.

We are dependent on commercial freight carriers, primarily United Parcel Service, Inc.

("UPS"), to deliver our products.

If the operations of carriers are disrupted or we fail to mitigate any disruptions, we may be unable to timely deliver products to our customers who may choose alternative products, causing our net revenues and gross margin to decline, possibly materially.

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Our success depends on our personnel.

If we cannot attract, motivate, train or retain personnel, it may be difficult to achieve our strategic priorities, materially effecting our results of operations.

If we cannot attract, motivate, train or retain personnel, it may be difficult to achieve our strategic priorities, materially affecting our results of operations.

We are highly dependent on the talent and efforts of our personnel.

We strive to retain our personnel by providing competitive compensation and benefits, development opportunities and training, flexible work options, and an inclusive corporate culture.

We strive to retain our personnel by providing competitive compensation and benefits, development opportunities and training, flexible work options, and an inclusive

corporate culture.

However, competition for highly-skilled personnel is intense, particularly technical and digital talent, and our competitors have and are likely to continue to recruit our personnel.

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The loss of the services and knowledge of our highly-skilled employees may significantly delay or prevent the achievement of our development and business objectives.

Additionally, seamless leadership transitions for key positions is critical to sustaining our culture and organizational success.

Additionally, seamless leadership transitions for key positions are critical to sustaining our culture and organizational success.

If our succession planning is ineffective, it could adversely impact our business.

We continue to assess key personnel we believe essential to our long-term success.

We continually assess key personnel that we believe are essential to our long-term success.

Moreover, future organizational changes may cause employee attrition rates to increase.

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This hybrid work approach may create challenges with maintaining our corporate culture, employee satisfaction and hiring, promotion, and retention.

We believe a key to our success has been the culture we have created that emphasizes a shared vision and values focusing on agility, customer success and accountability.

We have experienced and may continue to experience in the future, difficulties attracting and retaining employees that meet the qualifications, experience, compliance mindset and values we expect.

We believe a key to our success has been the culture we have created that emphasizes a shared vision and core values of agility, customer success, and accountability.

We have experienced and may continue to experience in the future, difficulties attracting and retaining personnel that meet the qualifications, experience, compliance mindset, and values we expect.

If we cannot attract and retain personnel that meet our selection criteria or relax our standards, our corporate culture, ability to achieve our strategic objectives, and our compliance with obligations under our internal controls and other requirements may be harmed.

This could have a material adverse effect on our results of operations and our ability to maintain market share.

We have employees represented by works councils in certain countries and others that may be or may become eligible to be represented by works councils, trade unions and other employee associations.

We have employees represented by works councils and trade unions in certain countries and others that may be or may become eligible to be represented by works councils, trade unions and other employee associations.

Labor disputes and work stoppages involving our employees may disrupt our operations and could materially impact our results or operations.

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There is no assurance our advertising campaigns will achieve the returns on advertising spend desired, increase brand or product awareness sufficiently, or generate goodwill and positive reputational goals.

Moreover, should any entity or individual endorsing us or our products take actions, make or publish statements in support of, or lend support to events or causes which are perceived by a portion of society negatively, our sponsorships or support of these entities or individuals may be questioned, our products boycotted, and our reputation harmed, any of which could materially effect our financial results and business overall.

In addition, various countries prohibit certain types of marketing activities.

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Operating systems could also include data privacy settings that may limit our ability to interpret, target and measure ads effectively.

We have been incorporating and continue to work to further incorporate artificial intelligence ( “ AI ” ) into our products, services and internal operations.

Implementation of AI and machine learning technologies may result in legal and regulatory risks, reputational harm or have other adverse consequences to our business.

We have and are continuing to incorporate AI, including machine learning and independent algorithms, in certain of our products, services and internal operations, which is intended to enhance their operation and effectiveness internally and for our customers, suppliers and consumers.

AI innovation presents risks and challenges that could impact our business.

Our, or vendors’, AI algorithms may be flawed.

Our datasets or AI training algorithms may be insufficient or contain biased information.

Additionally, many countries and regions, including the EU, have proposed new and evolving regulations related to the use of AI and machine learning technologies.

The regulations may impose onerous obligations and may require us to unexpectedly rework or reevaluate improvements to be compliant.

Use of AI technologies may expose us to an increased risk of regulatory enforcement and litigation.

Moreover, some of the AI features involve the processing of personal data and may be subject to laws, policies, legal obligations, and codes of conduct related to privacy and data protection.

AI development and deployment practices could subject us to competitive harm, regulatory enforcement, increased cybersecurity risks, reputational harm and legal liability.

Legal, Regulatory and Compliance Risks

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Resolving these matters may require us to change our business practices in materially adverse ways.

Governments and regulators are actively developing new competition laws and regulations aimed at the technology sector, AI and digital platforms and coordinating activities globally, including in large markets such as the EU, U.S., and China.

Governments and regulators are actively developing new competition laws and regulations aimed at the technology sector, AI and digital platforms, and global activities and expansion, including in large markets such as the EU, U.S., and China.

Government regulatory actions and court decisions may result in fines or hinder our ability to provide certain benefits to our consumers, reducing the attractiveness of our products and the revenue derived from them.

These actions and decisions may also hinder our ability to pursue certain mergers, acquisitions, business combinations, or other transactions.

Other companies and government agencies have in the past and may in the future allege that our actions violate antitrust or competition laws or otherwise constitute unfair competition.

We are currently subject to one antitrust action with a jury trial scheduled to begin on January 21, 2025.

We believe the plaintiffs’ claims are without merit in this action, but we will likely incur costs in connection with this trial and with our defense, and there is a risk that we will be subject to adverse judgments or negative publicity.

Failure to obtain or maintain approvals or comply with regulations regarding our products or services or those of our suppliers could materially harm our sales, result in substantial penalties and fines, and cause harm to our reputation.

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If requirements to market our products or services are delayed, we may be unable to offer them in markets we deem important.

Additionally, failure to comply with applicable regulatory requirements could result in enforcement actions with sanctions including, among other things, fines, civil penalties and criminal prosecution.

Additionally, failure to comply with applicable regulatory requirements could result in enforcement actions with sanctions including, among other things, fines, civil penalties.

and criminal prosecution.

Delays or failures to obtain or maintain regulatory approvals, clearances or to comply with regulatory requirements may materially harm our domestic or international operations, and adversely impact our business.

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The FDA enforces its Quality System regulations through periodic unannounced inspections.

Failure to satisfactorily correct an adverse inspection finding or to comply with applicable manufacturing regulations can result in enforcement actions, or we may be required to find alternative manufacturers, which could be a long and costly process and may cause reputational harm.

Failure to satisfactorily correct an adverse inspection finding or to comply with applicable manufacturing regulations can result in enforcement actions, or require us to find alternative manufacturers, which could be a long and costly process and may cause reputational harm.

Enforcement actions by regulators could have a material effect on our business.

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In addition, while we have policies requiring compliance with applicable laws and regulations and we provide significant training to foster compliance, our employees, third parties acting on our behalf, and customers may not properly adhere to our policies or applicable laws or regulations, including the use of certain electronic communications and maintaining accurate books and records.

If our personnel or the personnel of our agents or suppliers fail to comply with any laws, regulations, policies or procedures, or we fail to audit and enforce compliance, our reputation may be harmed, we may lose customers, revenues, or face regulatory investigations, actions and fines.

If our personnel or the personnel of our agents or suppliers fail to comply with any laws, regulations, policies, or procedures, or we fail to audit and enforce compliance, our reputation may be harmed, we may lose customers or revenues, or we may face regulatory investigations, actions and fines.

Security breaches, data breaches, cybersecurity attacks, other cybersecurity incidents, or the failure to comply with privacy, security, and data protection laws could materially impact our operations, patient care could suffer, we could be liable for damages, and our business, operations, and reputation could be harmed.

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Due to the large and growing number of these decentralized devices, we may be unable, or not have the capacity, knowledge, or infrastructure, to respond to or remedy a cybersecurity issue in a timely manner, which may cause loss or damage to us, our customers, or strategic business partners or may cause further malfunctions in, or damage to, our servers, databases, systems, or products and services, loss or damage of our data, interruption or temporary cessation of our operations, or an overall negative impact to our business or reputation.

We are also subject to federal, state and foreign laws and regulations respecting the security and privacy of patient healthcare information applicable to healthcare providers and their business associates, such as HIPAA, as well as those relating to privacy, data security, content regulation, and consumer protection.

We are subject to various national and regional

data localization or data residency laws, including U.S.

state law, the EU General Data Protection Regulation and analogous laws in China which generally require certain types of data collected within a country be stored and processed only within that country or approved countries.

We are also subject to federal, state, and foreign laws and regulations respecting the security and privacy of patient healthcare information applicable to healthcare providers and their business associates, such as the Health Insurance Portability and Accountability Act of 1996, as well as those relating to privacy, data security, content regulation, and consumer protection.

We are subject to various national and regional data localization or data residency laws, including U.S.

state law, the EU

General Data Protection Regulation and analogous laws in China which generally require certain types of data collected within a country be stored and processed only within that country or approved countries.

Other countries are considering similar data localization or data residency laws.

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Any claim for product liability, sales, advertising and business practices, regardless of its merit or eventual outcome, could result in material legal defense costs and damage our reputation, increase our expenses and divert management’s attention.

Increased focus on current and anticipated environmental, social and governance (“ESG”) laws and scrutiny of our ESG policies and practices may materially increase our costs, expose us to liability, adversely impact our reputation, employee retention, willingness of customers and suppliers to do business with us and willingness of investors to invest in us.

Increased focus on current and anticipated environmental, social and governance (“ESG”) laws and scrutiny of our ESG policies and practices may materially increase our costs, expose us to liability, and adversely impact our reputation, employee retention, willingness of customers and suppliers to do business with us and willingness of investors to invest in us.

Our operations are subject to a variety of existing local, regional and global ESG laws and regulations, and we are and may be required to comply with new, broader, more complex and more costly ESG laws and regulations.

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Additionally, the sourcing and availability of metals used in the manufacture of, or contained in, our products may be affected by laws and regulations governing the use of minerals obtained from certain regions of the world like the Democratic Republic of Congo and adjoining countries.

Although we do not believe we source minerals from this region, our expanding geographic operations may increase the risk of purchasing “conflict minerals” and our efforts to identify whether any of our products contain minerals impacted by these laws and regulations may not be adequate or complete.

Our expanding geographic operations may increase the risk of purchasing “conflict minerals” and our efforts to identify whether any of our products contain minerals impacted by these laws and regulations may not be adequate or complete.

Other restrictions apply to the substances incorporated into our products, including the chemical compounds in our clear aligners, the electronics in our iTero scanners, and the packaging in which they are shipped.

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Meeting our obligations under existing ESG laws and regulations is costly for us and our suppliers, and we expect these regulations and costs to increase materially.

Additionally, regulators may perform investigations, inspections and periodically audit our compliance with these laws and regulations, and we cannot be sure our efforts or operations will be compliant.

Additionally, regulators may perform investigations, inspections and periodically audit our compliance with these laws and regulations, and our efforts or operations may not be compliant.

If we fail to comply with any requirements, we could be subject to significant penalties or liabilities and we may be required to implement new and materially more costly processes and procedures.

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If we fail to adopt ESG standards or practices as quickly as stakeholders desire, comply with or timely report on our ESG efforts or practices accurately, or satisfy the disclosure and other expectations of stakeholders, our reputation, business, financial performance, growth, and stock price may be adversely impacted.

We have been incorporating and continue to work to further incorporate AI into our products, services and internal operations.

Implementation of AI and machine learning technologies may result in legal and regulatory risks, reputational harm or have other adverse consequences to our business.

AI innovation presents risks and challenges that could impact our business.

Our, or our vendors’, AI algorithms may be flawed.

Our datasets or AI training algorithms may be insufficient or contain biased information.

Additionally, many countries and regions, including the European Union ("EU"), have proposed new and evolving regulations related to the use of AI and machine learning technologies.

The regulations may impose onerous obligations and may require us to unexpectedly rework or reevaluate improvements to be compliant.

Use of AI technologies may expose us to an increased risk of regulatory enforcement and litigation.

Moreover, some AI features involve the processing of personal data and may be subject to laws, policies, legal obligations, and codes of conduct related to privacy and data protection.

AI development and deployment practices could subject us to competitive harm, regulatory enforcement, increased cybersecurity risks, reputational harm and legal liability.

Intellectual Property Risks

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We may not apply for a patent if our personnel fail to disclose or recognize new patentable ideas or innovations.

Remote working can decrease opportunities for our personnel to collaborate, thereby reducing invention disclosures and patent application filings.

We may choose not to file a foreign patent application if the limited protections provided by a foreign patent do not outweigh the costs to obtain it.

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Management is responsible for continually assessing qualitative factors that could negatively impact the fair value of goodwill and intangible and long-lived assets and if required, assesses the fair value of each to determine if they have become impaired.

Consequently, we may be required to record a material charge to earnings our financial statements during the period in which any impairment of goodwill, intangible or long-lived asset group is determined.

Consequently, we may be required to record a material charge to earnings on our financial statements during the period in which any impairment of goodwill, intangible, or long-lived asset group is determined.

Changes in, or interpretations of, accounting rules and regulations, could result in unfavorable accounting charges.

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These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting policies.

A change in these policies or in the way these policies are interpreted by us or regulators could materially effect our reported results and may even retroactively affect previously reported financial statements.

A change in these policies or in the way these policies are interpreted by us or regulators could materially affect our reported results and may even retroactively affect previously reported financial statements.

We are required to annually assess our internal control over financial reporting and any adverse results from such assessment may result in a loss of investor confidence in our financial reports and adversely affect our stock price.

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

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

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

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

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

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

If we are unable to assert that our internal control over financial reporting is effective or if our auditors are unable to express an opinion on the effectiveness of our internal controls or conclude that our internal controls are ineffective, the timely filing of our financial reports could be delayed or we could be required to restate past reports.

This could cause our investors to lose confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.

If we fail to manage our exposure to global financial and securities market risks successfully, our operating results and financial statements could be materially impacted.

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Various internal and external factors may affect our future effective tax rate.

These factors include changes in the global economic environment, our legal entity structure or activities performed within our entities, our business operations, in tax laws, regulations and/or rates, to existing accounting pronouncements, interpretations of existing tax laws or regulations, in relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates, in overall levels of pretax earnings, as well as the settlement of income tax audits and non-deductible goodwill impairments.

These factors include changes in the global economic environment, our legal entity structure or activities performed within our entities, our business operations, in tax laws, regulations and/or rates, to existing accounting pronouncements, interpretations of existing tax laws or regulations, in relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates, and in overall levels of pretax earnings, as well as the settlement of income tax audits and non-deductible goodwill impairments.

Furthermore, we may continue to experience variation in our effective tax rate related to excess tax benefits or tax expense on stock-based compensation, particularly in the first quarter of each year when the majority of our equity awards vest.

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After years of evaluating their respective tax laws, many countries have enacted changes, or are committed to enacting changes, which may increase our tax expense in future years.

For example, the European Union and other countries have enacted or have committed to enact the OECD/G20 Framework’s Pillar Two 15% global minimum tax.

For example, the EU and other countries have enacted or have committed to enact the OECD/G20 Framework’s Pillar Two 15% global minimum tax.

If more countries adopt these changes based on the BEPS guidance, our provision for income taxes or operations may be adversely affected.

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We are also routinely audited regarding our tax reporting and remissions by local and national governments, and may also be subject to audits in jurisdictions for which we have not accrued tax liabilities.

The positions we take regarding taxes as well as the amounts we collect or remit may be challenged and we may be liable for failing to collect or remit all taxes deemed owed or the taxes could exceed our estimates.

The positions we take regarding taxes as well as the amounts we collect or remit have and may continue to be challenged and we may be liable for failing to collect or remit all taxes deemed owed or the taxes could exceed our estimates.

We received a notice and initial assessment from His Majesty’s Revenue and Customs in the United Kingdom for unpaid VAT related to certain clear aligner sales made during various periods between 2019 and 2023.

One or more U.S.

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

B eginning in the third quarter of 2023 and continuing through the first quarter of 2024, the Company received a notice and initial assessment from His Majesty’s Revenue and Customs (“HMRC”) for unpaid VAT related to certain clear aligner sales made during various periods beginning 2019 through 2023.

While we assert that these sales are exempt from VAT, that we have reasonably relied upon statements and guidance by HMRC and that our interpretation of relevant legislation is appropriate, we are unable, at this stage, to predict the probability of an unfavorable outcome.

However, if an unfavorable outcome were to occur, the impact to our income could be material.

The application of existing and new tax laws, and the results of audits could harm our business.

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• changes in recommendations by the investment community or speculation in the press or investment community regarding estimates of our net revenues, operating results, or other performance indicators;

• announcements by us or our competitors or new market entrants, including strategic actions, management changes, and material transactions or acquisitions;

• announcements by us, our competitors, or new market entrants, including strategic actions, management changes, and material transactions or acquisitions;

• technical factors in the public trading markets for our stock that may produce price movements inconsistent with macro, industry, or company-specific fundamentals, including the sentiment of retail investors (as it may be expressed on financial trading and other social media sites), the amount and status of short interest in our securities, access to margin debt, trading in options and other derivatives on our common stock, fractional share trading, and other technical trading factors or strategies;

• announcements regarding stock repurchases, sales or purchases of our common stock by us, our officers or directors, credit agreements, and debt issuances;

• announcements of technological innovations, new, additional or revised programs, business models, products or product offerings by us, our customers or competitors;

• announcements of technological innovations or new, additional or revised programs, business models, products, or product offerings by us, our customers, or competitors;

• key decisions in pending litigation, new litigation, settlements, judgments, or decrees;

• general economic market conditions, including rising interest rates, inflationary pressures, recessions, consumer sentiment and demand, global political conflict and industry factors unrelated to our actual performance.

• short selling or other hedging activity in our stock;

• general economic market conditions, including rising interest rates, inflationary pressures, recessions, consumer sentiment and demand, global geopolitical conflict, and industry factors unrelated to our actual performance.

In addition, the stock market in general, and the market for technology and medical device companies, in particular, often experience extreme price and volume fluctuations unrelated or disproportionate to corporate operating performance.

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These stockholders have sold in the past, and may sell in the future, large amounts of our stock over relatively short periods of time.

Sales of substantial amounts of our stock by existing stockholders may adversely affect the market price of our stock by creating the perception of difficulties or problems with our business that may depress our stock price.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors