ALIGN TECHNOLOGY INC 10-Q

Item 1. Financial Statements. ALIGN TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net revenues $ 977,872 $ 960,214 $ 3,003,793 $ 2,905,534 Cost of net revenues 296,098 297,138 901,575 868,195 Gross profit 681,774 663,076 2,102,218 2,037,339 Operating expenses: Selling, general and administrative 434,138 407,992 1,338,222 1,300,876 Research and development 85,272 88,738 269,324 264,670 Legal settlement loss 66 — 31,193 — Total operating expenses 519,476 496,730 1,638,739 1,565,546 Income from operations 162,298 166,346 463,479 471,793 Interest income and other income (expense), net: Interest income 4,003 5,522 11,696 12,280 Other income (expense), net ( 371 ) ( 9,757 ) ( 6,993 ) ( 15,749 ) Total interest income and other income (expense), net 3,632 ( 4,235 ) 4,703 ( 3,469 ) Net income before provision for income taxes 165,930 162,111 468,182 468,324 Provision for income taxes 49,967 40,684 150,627 147,285 Net income $ 115,963 $ 121,427 $ 317,555 $ 321,039 Net income per share: Basic $ 1.55 $ 1.59 $ 4.23 $ 4.19 Diluted $ 1.55 $ 1.58 $ 4.23 $ 4.18 Shares used in computing net income per share: Basic 74,736 76,569 75,031 76,670 Diluted 74,757 76,826 75,149 76,849 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents ALIGN TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net income $ 115,963 $ 121,427 $ 317,555 $ 321,039 Other comprehensive income (loss): Change in foreign currency translation adjustment, net of tax 10,713 ( 9,822 ) 14,140 9,810 Change in unrealized gains (losses) on investments, net of tax 159 526 605 2,521 Other comprehensive income (loss) 10,872 ( 9,296 ) 14,745 12,331 Comprehensive income $ 126,835 $ 112,131 $ 332,300 $ 333,370 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents ALIGN TECHNOLOGY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited) September 30, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 1,041,935 $ 937,438 Marketable securities, short-term — 35,304 Accounts receivable, net of allowance for doubtful accounts of $ 19,141 and $ 14,893 , respectively 1,010,601 903,424 Inventories 254,119 296,902 Prepaid expenses and other current assets 290,732 273,550 Total current assets 2,597,387 2,446,618 Marketable securities, long-term — 8,022 Property, plant and equipment, net 1,290,427 1,290,863 Operating lease right-of-use assets, net 121,079 117,999 Goodwill 471,512 419,530 Intangible assets, net 115,905 82,118 Deferred tax assets 1,569,950 1,590,045 Other assets 199,714 128,682 Total assets $ 6,365,974 $ 6,083,877 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 109,035 $ 113,125 Accrued liabilities 574,556 525,780 Deferred revenues 1,380,022 1,427,706 Total current liabilities 2,063,613 2,066,611 Income tax payable 111,558 116,744 Operating lease liabilities 96,435 96,968 Other long-term liabilities 150,014 173,065 Total liabilities 2,421,620 2,453,388 Commitments and contingencies (Note 7 and Note 8) Stockholders’ equity: Preferred stock, $ 0.0001 par value ( 5,000 shares authorized; none issued) — — Common stock, $ 0.0001 par value ( 200,000 shares authorized; 74,757 and 75,075 issued and outstanding, respectively) 7 7 Additional paid-in capital 1,335,909 1,162,140 Accumulated other comprehensive income (loss), net 35,913 21,168 Retained earnings 2,572,525 2,447,174 Total stockholders’ equity 3,944,354 3,630,489 Total liabilities and stockholders’ equity $ 6,365,974 $ 6,083,877 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents ALIGN TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) (unaudited) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss), Net Retained Earnings Total Three Months Ended September 30, 2024 Shares Amount Balance as of June 30, 2024 74,696 $ 7 $ 1,276,298 $ 25,041 $ 2,456,562 $ 3,757,908 Net income — — — — 115,963 115,963 Net change in unrealized gains (losses) from investments — — — 159 — 159 Net change in foreign currency translation adjustment — — — 10,713 — 10,713 Issuance of common stock relating to employee equity compensation plans 63 — 10,942 — — 10,942 Tax withholdings related to net share settlements of equity awards ( 2 ) — ( 370 ) — — ( 370 ) Common stock repurchased and retired — — — — — — Equity forward contract related to accelerated stock repurchase — — — — — — Stock-based compensation — — 49,039 — — 49,039 Balance as of September 30, 2024 74,757 $ 7 $ 1,335,909 $ 35,913 $ 2,572,525 $ 3,944,354 Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss), Net Retained Earnings Total Nine Months Ended September 30, 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 — — — — 317,555 317,555 Net change in unrealized gains (losses) from investments — — — 605 — 605 Net change in foreign currency translation adjustment — — — 14,140 — 14,140 Issuance of common stock relating to employee equity compensation plans 408 — 25,281 — — 25,281 Tax withholdings related to net share settlements of equity awards ( 92 ) — ( 27,972 ) — — ( 27,972 ) Common stock repurchased and retired ( 634 ) — ( 7,922 ) — ( 142,677 ) ( 150,599 ) Equity forward contract related to accelerated stock repurchase — — 49,527 — ( 49,527 ) — Stock-based compensation — — 134,855 — — 134,855 Balance as of September 30, 2024 74,757 $ 7 $ 1,335,909 $ 35,913 $ 2,572,525 $ 3,944,354 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents 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 1 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 1 Includes tax withholding shares related to net share settlements of equity awards. Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss), Net Retained Earnings Total Nine Months Ended September 30, 2023 Shares Amount Balance as of December 31, 2022 77,267 $ 8 $ 1,044,946 $ ( 10,284 ) $ 2,566,688 $ 3,601,358 Net income — — — — 321,039 321,039 Net change in unrealized gains (losses) from investments — — — 2,521 — 2,521 Net change in foreign currency translation adjustment — — — 9,810 — 9,810 Issuance of common stock relating to employee equity compensation plans 1 263 — 26,595 — — 26,595 Tax withholdings related to net share settlements of equity awards — — ( 22,294 ) — — ( 22,294 ) 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 — — 115,197 — — 115,197 Balance as of September 30, 2023 76,588 $ 8 $ 1,193,057 $ 2,047 $ 2,606,754 $ 3,801,866 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. 7 Table of Contents ALIGN TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited ) Nine Months Ended September 30, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 317,555 $ 321,039 Adjustments to reconcile net income to net cash provided by operating activities: Deferred taxes 17,465 ( 22,749 ) Depreciation and amortization 106,905 108,669 Stock-based compensation 134,855 115,197 Non-cash operating lease cost 28,603 24,034 Impairment of equity investment 115 3,329 Other non-cash operating activities 6,931 28,435 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable ( 135,239 ) ( 80,297 ) Inventories 32,304 31,639 Prepaid expenses and other assets ( 26,283 ) 1,773 Accounts payable ( 13,283 ) ( 23,130 ) Accrued and other long-term liabilities 47,618 156,024 Long-term income tax payable ( 5,186 ) ( 7,979 ) Deferred revenues ( 60,207 ) 82,894 Net cash provided by operating activities 452,153 738,878 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions, net of cash acquired ( 77,075 ) — Purchase of property, plant and equipment ( 92,619 ) ( 144,302 ) Purchase of marketable securities — ( 2,373 ) Proceeds from maturities of marketable securities 25,660 35,754 Proceeds from sales of marketable securities 18,193 5,173 Purchase of equity investments ( 75,390 ) ( 76,999 ) Other investing activities 235 128 Net cash used in investing activities ( 200,996 ) ( 182,619 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 25,281 26,595 Common stock repurchases ( 150,012 ) ( 292,360 ) Activity for equity forward contracts related to accelerated stock repurchase agreements, net — 40,000 Payroll taxes paid upon the vesting of equity awards ( 27,972 ) ( 22,294 ) Net cash used in financing activities ( 152,703 ) ( 248,059 ) Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash 6,008 ( 11,205 ) Net increase in cash, cash equivalents, and restricted cash 104,462 296,995 Cash, cash equivalents, and restricted cash at beginning of the period 938,519 942,355 Cash, cash equivalents, and restricted cash at end of the period $ 1,042,981 $ 1,239,350 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 8 Table of Contents ALIGN TECHNOLOGY, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Note 1. Summary of Significant Accounting Policies Basis of Presentation and Preparation The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by Align Technology, Inc. (“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. GAAP”). 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 as filed with the SEC. The results of operations for the three and nine months ended September 30, 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 U.S. GAAP 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. On an ongoing basis, we evaluate our estimates and assumptions, including those that impact revenue recognition, long-lived and intangible assets, goodwill, income taxes, contingent liabilities, the fair values of financial instruments, stock-based compensation and the valuation of investments in privately held companies, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities, as well as the reported amounts of revenues and expenses. Certain Risks and Uncertainties 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. Historically, we have invested excess cash primarily in money market funds, corporate bonds, asset-backed securities, municipal and U.S. government agency bonds and treasury bonds. We periodically evaluate our investments 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 Recent Accounting Pronouncements Not Yet Effective On November 27, 2023, the Financial Accounting Standards Board (“FASB ” ) issued Accounting Standards Update (“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 9 Table of Contents guidance retrospectively to all prior periods presented in the financial statements. The Company expects this pronouncement may result in changes to the nature of our reportable segment disclosures. 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. Note 2. Financial Instruments Cash, Cash Equivalents and Marketable Securities The following tables summarize our cash and cash equivalents, and marketable securities on our Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 (in thousands): Reported as: September 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents Marketable securities, short-term Marketable securities, long-term Cash $ 860,461 $ — $ — $ 860,461 $ 860,461 $ — $ — Money market funds 181,474 — — 181,474 181,474 — — Total $ 1,041,935 $ — $ — $ 1,041,935 $ 1,041,935 $ — $ — We have no short-term or long-term marketable securities as of September 30, 2024. Reported as: December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents Marketable securities, short-term Marketable securities, long-term Cash $ 887,682 $ — $ — $ 887,682 $ 887,682 $ — $ — Money market funds 49,756 — — 49,756 49,756 — — Corporate bonds 31,943 5 ( 676 ) 31,272 — 28,704 2,568 U.S. government treasury bonds 4,855 — ( 99 ) 4,756 — — 4,756 Asset-backed securities 1,416 2 ( 1 ) 1,417 — 719 698 Municipal bonds 702 — ( 2 ) 700 — 700 — U.S. government agency bonds 5,215 — ( 34 ) 5,181 — 5,181 — 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 December 31, 2023 (in thousands): December 31, 2023 Due in 1 year or less $ 34,617 Due in 1 year through 5 years 8,709 Total $ 43,326 The securities that we invest in are generally deemed to be low risk based on their credit ratings from the major rating agencies. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As interest rates increase, those securities purchased at a lower yield show a mark-to-market unrealized loss. Our unrealized losses as of December 31, 2023 are primarily due to changes in interest rates and credit spreads. 10 Table of Contents The following table summarizes the fair value and gross unrealized losses as of 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 December 31, 2023 Less than 12 months 12 Months of Greater Total December 31, 2023 Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Corporate bonds $ — $ — $ 27,939 $ ( 676 ) $ 27,939 $ ( 676 ) U.S. government treasury bonds 2,044 ( 11 ) 2,712 ( 88 ) 4,756 ( 99 ) Asset-backed securities 1,018 ( 1 ) 83 — 1,101 ( 1 ) Municipal bonds — — 700 ( 2 ) 700 ( 2 ) U.S. government agency bonds 4,003 ( 11 ) 1,178 ( 23 ) 5,181 ( 34 ) Total $ 7,065 $ ( 23 ) $ 32,612 $ ( 789 ) $ 39,677 $ ( 812 ) Fair Value Measurements Fair value is an exit price, representing the amount that would be received from selling an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. We use the U.S. GAAP fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value: Level 1 — Inputs to the valuation techniques that are quoted prices in active markets for identical assets or liabilities. Level 2 — Inputs to the valuation techniques that are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly. Level 3 — Inputs to the valuation techniques that are unobservable for the assets or liabilities. The following tables summarize our financial assets measured at fair value as of September 30, 2024 and December 31, 2023 (in thousands): Description Balance as of September 30, 2024 Level 1 Level 2 Cash equivalents: Money market funds $ 181,474 $ 181,474 $ — $ 181,474 $ 181,474 $ — Description Balance as of December 31, 2023 Level 1 Level 2 Cash equivalents: Money market funds $ 49,756 $ 49,756 $ — Short-term investments: Corporate bonds 28,704 — 28,704 Municipal bonds 700 — 700 U.S. government agency bonds 5,181 — 5,181 Asset-backed securities 719 — 719 Long-term investments: U.S. government treasury bonds 4,756 — 4,756 Corporate bonds 2,568 — 2,568 Asset-backed securities 698 — 698 $ 93,082 $ 49,756 $ 43,326 11 Table of Contents Accounts Receivable Factoring We enter into factoring transactions on a non-recourse basis with financial institutions to sell certain of our non-U.S. accounts receivable. We account for these transactions as sales of financial assets 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 factoring arrangements was $ 8.2 million and $ 24.2 million during the three months ended September 30, 2024 and 2023, respectively, and $ 34.2 million and $ 40.4 million during the nine months ended September 30, 2024 and 2023, respectively. 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. 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 as investments 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 and April 22, 2024, we entered into Subscription Agreements (the “Subscription Agreements”) with Heartland Dental Holding Corporation (“Heartland”). Pursuant to the Subscription Agreements we acquired less than a 5 % equity interest through the purchase of Class A Common Stock for $ 150 million in total. We are accounting for our investment in Heartland as an investment in equity securities. Based on a review of the relevant facts and circumstances, primarily observable transactions for Heartland's Class A Common Stock, we determined that no adjustment to the carrying value of our investment was necessary for the three or nine months ended September 30, 2024. 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 investments in equity securities and equity method investments are reported on our Condensed Consolidated Balance Sheets as Other assets and any fair value adjustments or impairment, if any, are recorded in Other income (expense), net on our Condensed Consolidated Statement of Operations. 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 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, we recognized a net loss of $ 24.5 million and a net gain of $ 19.8 million, respectively, during the three months ended September 30, 2024 and 2023, and a net gain of $ 2.7 million and $ 14.4 million, respectively, during the nine months ended September 30, 2024 and 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 September 30, 2024 and December 31, 2023, the fair value of foreign exchange forward contracts outstanding were no t material. 12 Table of Contents The following tables present the gross notional value of all our foreign exchange forward contracts outstanding as of September 30, 2024 and December 31, 2023 (in thousands): September 30, 2024 Local Currency Amount Notional Contract Amount (USD) Euro € 176,900 $ 197,946 British Pound £ 105,720 141,511 Canadian Dollar $ 96,300 71,439 Polish Zloty PLN 272,000 71,001 Chinese Yuan ¥ 473,500 67,816 Japanese Yen ¥ 5,000,000 35,176 Israeli Shekel ILS 79,600 21,458 Brazilian Real R$ 109,800 20,044 Swiss Franc CHF 5,700 6,783 New Zealand Dollar NZ$ 7,700 4,898 Australian Dollar A$ 4,800 3,330 New Taiwan Dollar NT$ 98,000 3,110 Czech Koruna Kč 64,400 2,860 Korean Won ₩ 2,500,000 1,914 $ 649,286 December 31, 2023 Local Currency Amount Notional Contract Amount (USD) Euro € 337,780 $ 373,705 Canadian Dollar $ 108,900 82,166 Polish Zloty PLN 276,900 70,393 British Pound £ 45,590 58,005 Chinese Yuan ¥ 244,500 34,361 Swiss Franc CHF 28,600 34,132 Japanese Yen ¥ 3,577,000 25,347 Israeli Shekel ILS 78,700 21,800 Brazilian Real R$ 80,500 16,563 Mexican Peso M$ 230,000 13,593 New Zealand Dollar NZ$ 6,600 4,161 Australian Dollar A$ 4,300 2,921 New Taiwan Dollar NT$ 89,000 2,919 Czech Koruna Kč 60,200 2,687 Korean Won ₩ 2,200,000 1,709 $ 744,462 13 Table of Contents Note 3. Balance Sheet Components Inventories consist of the following (in thousands): September 30, 2024 December 31, 2023 Raw materials $ 126,959 $ 145,492 Work in process 77,174 91,259 Finished goods 49,986 60,151 Total inventories $ 254,119 $ 296,902 Prepaid expenses and other current assets consist of the following (in thousands): September 30, 2024 December 31, 2023 Value added tax receivables $ 148,903 $ 143,728 Prepaid expenses 72,985 52,487 Other current assets 68,844 77,335 Total prepaid expenses and other current assets $ 290,732 $ 273,550 Accrued liabilities consist of the following (in thousands): September 30, 2024 December 31, 2023 Accrued payroll and benefits $ 241,638 $ 220,862 Accrued expenses 74,158 71,109 Accrued sales and marketing expenses 38,152 34,035 Accrued income taxes 36,860 38,103 Current operating lease liabilities 31,168 29,651 Accrued property, plant and equipment 11,132 23,618 Other accrued liabilities 141,448 108,402 Total accrued liabilities $ 574,556 $ 525,780 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, 2024 2023 Balance at beginning of period $ 22,426 $ 17,873 Charged to cost of net revenues 14,658 14,329 Actual warranty expenditures ( 9,889 ) ( 10,327 ) Balance at end of period $ 27,195 $ 21,875 Deferred revenues consist of the following (in thousands): September 30, 2024 December 31, 2023 Deferred revenues - current $ 1,380,022 $ 1,427,706 Deferred revenues - long-term 1 $ 108,676 $ 138,000 1 Included in Other long-term liabilities within our Condensed Consolidated Balance Sheets. During the three months ended September 30, 2024 and 2023, we recognized $ 977.9 million and $ 960.2 million of net revenues, respectively, of which $ 199.0 million and $ 178.8 million was included in the deferred revenues balance at December 31, 2023 and 2022, respectively. 14 Table of Contents During the nine months ended September 30, 2024 and 2023, we recognized $ 3,003.8 million and $ 2,905.5 million of net revenues, respectively, of which $ 658.2 million and $ 583.5 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 September 30, 2024 were $ 1,495.6 million. These performance obligations are expected to be fulfilled over the next six months to five years . Note 4 . Business Combination On January 2, 2024 (the “Cubicure Acquisition Date”), we completed the acquisition of privately-held Cubicure GmbH (“Cubicure”) (the “Cubicure 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 Cubicure Acquisition is intended to support and scale our strategic innovation roadmap and strengthen the Align Digital Platform. In fiscal year 2021, we acquired a 9.04 % equity interest in Cubicure. Subsequently, on the Cubicure 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 Cubicure 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 Cubicure Acquisition, we remeasured our pre-existing equity interest in Cubicure at fair value prior to the Cubicure 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 Cubicure 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 Cubicure Acquisition. The allocation of the purchase price to the assets acquired and liabilities assumed is as follows (in thousands): Working capital $ 1,039 Property & equipment 975 Developed technology 47,000 Other non-current asset 1,483 Other liabilities ( 12,279 ) Goodwill 47,576 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 with 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. As part of the Cubicure Acquisition we acquired a developed technology intangible asset. The acquired developed technology had an estimated fair value of $ 47.0 million as of the Cubicure Acquisition Date and will be amortized over a useful life of thirteen years . 15 Table of Contents 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, projected future cash flows associated with the technology, the 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 Cubicure 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. Note 5 . Goodwill and Intangible Assets Goodwill The change in the carrying value of goodwill for the nine months ended September 30, 2024, categorized by reportable segment, 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 47,576 — 47,576 Foreign currency translation adjustments 963 3,443 4,406 Balance as of September 30, 2024 $ 159,625 $ 311,887 $ 471,512 Finite-Lived Intangible Assets Acquired finite-lived intangible assets, excluding intangibles that were fully amortized, are as follows (in thousands): Weighted Average Amortization Period (in years) Gross Carrying Amount as of September 30, 2024 Accumulated Amortization Accumulated Impairment Loss Net Carrying Value as of September 30, 2024 Existing technology 11 $ 146,651 $ ( 48,581 ) $ — $ 98,070 Customer relationships 10 21,500 ( 9,675 ) — 11,825 Trademarks and tradenames 10 16,600 ( 8,759 ) ( 4,122 ) 3,719 Patents 12 480 ( 270 ) — 210 $ 185,231 $ ( 67,285 ) $ ( 4,122 ) 113,824 Foreign currency translation adjustments 2,081 Total intangible assets, net $ 115,905 16 Table of Contents Weighted Average Amortization Period (in years) Gross Carrying Amount as of December 31, 2023 Accumulated Amortization Accumulated Impairment Loss Net Carrying Value as of December 31, 2023 Existing technology 10 $ 112,051 $ ( 45,331 ) $ ( 4,328 ) $ 62,392 Customer relationships 10 21,500 ( 8,063 ) — 13,437 Trademarks and tradenames 10 16,600 ( 7,605 ) ( 4,122 ) 4,873 Patents 8 6,511 ( 6,082 ) — 429 $ 156,662 $ ( 67,081 ) $ ( 8,450 ) 81,131 Foreign currency translation adjustments 987 Total intangible assets, net $ 82,118 Of the $ 146.7 million recorded as Existing technology intangible assets as of September 30, 2024, $ 47.0 million was acquired during the first quarter of 2024 as part of the Cubicure Acquisition. 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 September 30, 2024. Refer to Note 4. “ Business Combination ”. The total estimated annual future amortization expense for these acquired intangible assets as of September 30, 2024, is as follows (in thousands): Fiscal Year Ending December 31, Amortization Remainder of 2024 $ 4,643 2025 18,574 2026 17,969 2027 15,607 2028 14,505 2029 14,505 Thereafter 28,021 Total $ 113,824 Amortization expense for the three months ended September 30, 2024 and 2023 was $ 4.6 million and $ 4.2 million, respectively, and amortization expense for the nine months ended September 30, 2024 and 2023 was $ 14.2 million and $ 12.4 million, respectively. Note 6 . Credit Facility We have a credit facility that provides for a $ 300.0 million unsecured revolving line of credit, along with a $ 50.0 million letter of credit. On December 23, 2022, we amended certain provisions in our credit facility which included extending the maturity date on the facility to December 23, 2027 and replacing the interest rate from the existing LIBOR with SOFR (“2022 Credit Facility”). The 2022 Credit Facility requires us to comply with specific financial conditions and performance requirements. Loans under the 2022 Credit Facility bear interest, at our option, at either a rate based on the SOFR for the applicable interest period or a base rate, in each case plus a margin. As of September 30, 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. Note 7. Legal Proceedings 2019 Shareholder Derivative Lawsuit In January 2019, three derivative lawsuits were filed in the U.S. District Court for the Northern District of California which were later consolidated, purportedly on our behalf, naming as defendants the then current members of our Board of 17 Table of Contents Directors along with certain of our executive officers. The complaints assert various state law causes of action, including for breaches of fiduciary duty, insider trading, and unjust enrichment. The complaints seek unspecified monetary damages on our behalf, which is named solely as a nominal defendant against whom no recovery is sought, as well as disgorgement and the costs and expenses associated with the litigation, including attorneys’ fees. The consolidated action is currently stayed. Defendants have not yet responded to the complaints. On April 12, 2019, a derivative lawsuit was also filed in California Superior Court for Santa Clara County, purportedly on our behalf, naming as defendants the members of our Board of Directors along with certain of our executive officers. The allegations in the complaint are similar to those in the derivative suits described above. The matter is currently stayed. Defendants have not yet responded to the complaint. 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 August 2, 2024, the U.S. District Court for the Northern District of California granted preliminary approval of the settlement. 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 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. 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 appealed the district court’s summary judgment ruling to the United States Court of Appeals for the Ninth Circuit. Plaintiff-Appellants' opening brief was filed July 15, 2024. Align’s response brief was submitted October 21, 2024 and Plaintiff-Appellants' reply brief is due January 6, 2025. 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 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 appealed the district court’s summary judgment ruling to the United States Court of Appeals for the Ninth Circuit. Plaintiff-Appellants' opening brief was filed July 15, 2024. Align’s response brief was submitted October 21, 2024 and Plaintiff-Appellants' reply brief is due January 6, 2025. We are currently unable to predict the outcome of these lawsuits and therefore we cannot determine the likelihood of loss, if any, nor estimate a range of possible loss. In June 2024, Align and the Section 1 plaintiffs reached a settlement in principle that would resolve all remaining claims in the Section 1 lawsuit. The settlement terms included a $ 27.5 million cash payment and an offer of a $ 300 coupon for class members who elected to purchase Invisalign treatment. We agreed to settle the lawsuit to avoid the distraction and uncertainty of litigation. On September 18, 2024, the U.S. District Court for the Northern District of California denied plaintiffs’ motion for preliminary approval of the settlement without prejudice, allowing plaintiffs to file a renewed motion within 35 days. Plaintiffs and Align filed a renewed motion for preliminary approval of the settlement on October 28, 2024. We are unable to predict the timeline or outcome of the motion to approve the settlement. We continue to believe that plaintiffs’ Section 1 claims are without merit and remain ready to vigorously defend ourselves against those claims. During the nine months ended September 30, 2024 we accrued a loss of $ 31.1 million for legal settlements for multiple legal matters , but primarily related to the settlement of the Section 1 claims described above. 18 Table of Contents 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. On June 20, 2024, Defendants filed motions to dismiss the Complaint, which are pending. On July 9, 2024, ClearCorrect Operating, LLC, ClearCorrect Holdings, Inc. and Straumann USA LLC filed counterclaims against Align for alleged antitrust violations, false advertising, unfair competition, and breach of contract. Among other things, the counterclaims seek relief enjoining Align’s accused business practices, invalidating Align’s asserted patents, and money damages. On September 13, 2024, we filed a motion to dismiss defendants’ counterclaims. Align believes these claims are without merit and intends to vigorously defend itself. Align is currently unable to predict the outcome of this lawsuit and cannot determine the likelihood of loss nor estimate a range of possible loss. In addition to the above, in the ordinary course of our operations, we are involved in a variety of claims, suits, investigations, and proceedings, including actions with respect to intellectual property claims, patent infringement claims, government investigations, labor and employment claims, breach of contract claims, tax, and other matters. Regardless of the outcome, these proceedings can have an adverse impact on us because of defense costs, diversion of management resources, and other factors. Although the results of complex legal proceedings are difficult to predict and our view of these matters may change in the future as litigation and events related thereto unfold; we currently do not believe that these matters, individually or in the aggregate, will materially affect our financial position, results of operations or cash flows. Note 8 . Commitments and Contingencies Tax Matter Beginning in the third quarter of 2023 and continuing through the first quarter of 2024, the Company has received cumulative assessments of approximately $ 100 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. In October 2024, the Company and HMRC reached a settlement agreement regarding the unpaid VAT related to certain aligner sales made during the period of October 2019 through mid-October 2023. As part of the settlement, HMRC agreed to vacate the judicial review (before the Administrative Court) originally scheduled for October 9th and October 10th, 2024, refund to the Company all assessments paid, approximately $ 100 million, for the period of October 2019 through May 2023 and withdraw any potential assessments for the period from June 2023 through mid-October 2023. Between October 21, 2024 and October 29, 2024, HMRC refunded to the Company all assessed amounts in full, approximately $ 100 million. The Company has remaining exposure in the amount of approximately $ 7.5 million for periods up to December 2023. A statutory appeal (before the First-tier Tribunal - “Tax Tribunal”) is listed for January 27th through January 30th, 2025, at which time we anticipate the Tax Tribunal will determine whether clear aligners are exempt from VAT as a matter of law and whether the Company has any liability as a matter of principle. It is not possible at this stage to accurately evaluate the likelihood of an unfavorable outcome from the Tax Tribunal statutory appeal. Accordingly, the Company has determined that a potential loss related to VAT accounted for in the periods up to December 2023 is not probable. Indemnification Provisions In the normal course of business to facilitate transactions in our services and products, we indemnify certain parties: customers, vendors, lessors, and other parties with respect to certain matters, including, but not limited to, services to be provided by us and intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and our executive officers that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. Several of these agreements limit the time within which an indemnification claim can be made and the amount of the claim. 19 Table of Contents 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, 2024, we did not have any material indemnification claims that were probable or reasonably possible. Note 9. Stockholders’ Equity As of September 30, 2024, the Align Technology, Inc. 2005 Incentive Plan, as amended, has a total reserve of 32,168,895 shares, of which 3,398,202 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, 2024 and 2023 is as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Cost of net revenues $ 3,070 $ 1,974 $ 7,716 $ 5,682 Selling, general and administrative 34,937 29,739 97,705 87,432 Research and development 11,032 7,889 29,434 22,083 Total stock-based compensation $ 49,039 $ 39,602 $ 134,855 $ 115,197 Restricted Stock Units (“RSUs”) The fair value of RSUs is based on our closing stock price on the date of grant. RSUs granted generally vest over a period of four years . A summary for the nine months ended September 30, 2024 is as follows: Number of Shares Underlying RSUs (in thousands) Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Unvested as of December 31, 2023 736 $ 367.63 Granted 638 309.22 Vested and released ( 254 ) 370.69 Forfeited ( 56 ) 345.74 Unvested as of September 30, 2024 1,064 $ 333.03 1.6 $ 270,565 As of September 30, 2024, we expect to recognize $ 254.4 million of total unamortized compensation costs, net of estimated forfeitures, related to RSUs over a weighted average period of 2.7 years. Market-Performance Based Restricted Stock Units (“MSUs”) We grant MSUs to members of senior management. Each MSU represents the right to one share of our common stock. The actual number of MSUs which will be eligible to vest will be based on the performance of Align’s stock price relative to the performance of a stock market index over the vesting period. MSUs vest over a period of three years and the maximum number of shares eligible to vest in the future is 250 % of the MSUs initially granted. 20 Table of Contents The following table summarizes the MSU performance activity for the nine months ended September 30, 2024: Number of Shares Underlying MSUs (in thousands) Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Unvested as of December 31, 2023 158 $ 811.06 Granted 83 617.79 Vested and released 1 ( 32 ) 1,102.09 Forfeited ( 5 ) 1,102.09 Unvested as of September 30, 2024 204 $ 679.52 1.6 $ 51,876 1 Includes MSUs vested during the period below 100% of the original grant as actual shares released is based on Align ’ s stock performance relative to a market index over the vesting period. As of September 30, 2024, we expect to recognize $ 67.2 million of total unamortized compensation costs, net of estimated forfeitures, related to MSUs over a weighted average period of 1.6 years. Restricted Stock Units with Performance Conditions (“PSUs”) Our PSUs typically include a service and performance condition. We recognize share-based compensation expense for PSUs if it is probable that the performance condition will be achieved. The following table summarizes the PSU performance activity for the nine months ended September 30, 2024: Number of Shares Underlying PSUs (in thousands) Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Unvested as of December 31, 2023 $ 5 $ 201.63 Granted 6 206.36 Vested and released — — Forfeited — — Unvested as of September 30, 2024 $ 11 $ 204.33 1.4 $ 2,805 As of September 30, 2024, we expect to recognize $ 1.2 million of total unamortized compensation costs, net of estimated forfeitures, related to PSUs over a weighted average period of 1.4 years. Employee Stock Purchase Plan As of September 30, 2024, we have 1,875,920 shares available for future issuance under the Align Technology, Inc. 2010 Employee Stock Purchase Plan (as amended and restated, 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, 2024 2023 Expected term (in years) 1.3 1.2 Expected volatility 49.2 % 56.2 % Risk-free interest rate 4.6 % 4.9 % Expected dividends — — Weighted average fair value at grant date $ 94.70 $ 133.53 As of September 30, 2024, we expect to recognize $ 17.1 million of total unamortized compensation costs related to future employee stock purchases over a weighted average period of 0.9 years. 21 Table of Contents Note 10. 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”). The January 2023 Repurchase Program does not have an expiration date. Accelerated Share Repurchase Agreements (“ASRs”) The following table summarizes the total repurchases of our common stock pursuant to an ASR entered into or completed during the three and nine months ended September 30, 2024 and 2023: Agreement Date Repurchase Program Amount Paid (in millions) Completion Date Total Shares Received Average Price per Share Q4 2022 May 2021 $ 200.0 Q1 2023 984,714 $ 203.10 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 On June 3, 2024, we initiated a plan to repurchase $ 150.0 million of our common stock through open market repurchases under the January 2023 Repurchase Program. This plan was completed on June 26, 2024. In total, we repurchased approximately 0.6 million shares of our common stock at an average price of $ 250.73 per share, including commissions and fees. During the twelve months ended December 31, 2023, we repurchased $ 100.0 million of our common stock through open market repurchases under the January 2023 Repurchase Program, none of which occurred during the nine months ended September 30, 2023. As of September 30, 2024, $ 500.0 million remains available for repurchases under the January 2023 Repurchase Program. Note 11. Accounting for Income Taxes Our provision for income taxes was $ 50.0 million and $ 40.7 million for the three months ended September 30, 2024 and 2023, respectively, representing effective tax rates of 30.1 % and 25.1 %, respectively. Our provision for incomes taxes was $ 150.6 million and $ 147.3 million for the nine months ended September 30, 2024 and 2023, respectively, representing effective tax rates of 32.2 % and 31.4 %. Our effective tax rate differs from the statutory federal income tax rate of 21% for the three and nine months ended September 30, 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. We may be required to adjust the valuation allowance for deferred tax assets if we determine, based on available evidence at the time of the determination, that it is more likely than not that some portion or all of the deferred tax assets will not be realized. Changes to the valuation allowance could have a material adverse effect on our results of operations. Our total gross unrecognized tax benefits, excluding interest and penalties, were $ 156.2 million and $ 149.2 million as of September 30, 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 and nine months ended September 30, 2024. 22 Table of Contents Note 12 . Net Income per Share The following table sets forth the computation of basic and diluted net income per share attributable to common stock (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Numerator: Net income $ 115,963 $ 121,427 $ 317,555 $ 321,039 Denominator: Weighted average common shares outstanding, basic 74,736 76,569 75,031 76,670 Dilutive effect of potential common stock 21 257 118 179 Total shares, diluted 74,757 76,826 75,149 76,849 Net income per share, basic $ 1.55 $ 1.59 $ 4.23 $ 4.19 Net income per share, diluted $ 1.55 $ 1.58 $ 4.23 $ 4.18 Anti-dilutive potential common shares 1 1,173 245 689 263 1 Represents approximately 1,169.7 thousand RSU and 3.1 thousand ESPP weighted-average outstanding common stock equivalent shares for the three months ended September 30, 2024 and approximately 687.7 thousand RSU and 0.8 thousand ESPP weighted-average outstanding common stock equivalent shares for the nine months ended September 30, 2024 that are excluded from the calculation of diluted net income per share as the effect would have been anti-dilutive. For the three and nine months ended September 30, 2023 all anti-dilutive shares were RSUs. Note 13 . Supplemental Cash Flow Information The supplemental cash flow information consists of the following (in thousands): Nine Months Ended September 30, 2024 2023 Non-cash investing and financing activities: Acquisition of property, plant and equipment in accounts payable and accrued liabilities $ 17,631 $ 25,979 Final settlement of prior year stock repurchase forward contract 50,000 — Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 29,854 $ 25,559 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 25,422 $ 25,048 Note 14 . Segments and Geographical Information Segment Information We report segment information based on the management approach. The management approach designates the internal reporting used by our Chief Operating Decision Maker ("CODM"), our Chief Executive Officer, 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 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. 23 Table of Contents Summarized financial information by segment is as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net revenues Clear Aligner $ 786,844 $ 794,939 $ 2,435,833 $ 2,417,417 Systems and Services 191,028 165,275 567,960 488,117 Total net revenues $ 977,872 $ 960,214 $ 3,003,793 $ 2,905,534 Gross profit Clear Aligner $ 552,841 $ 562,331 $ 1,720,524 $ 1,731,721 Systems and Services 128,933 100,745 381,694 305,618 Total gross profit $ 681,774 $ 663,076 $ 2,102,218 $ 2,037,339 Income from operations Clear Aligner $ 276,319 $ 296,319 $ 862,183 $ 879,933 Systems and Services 68,744 44,975 189,227 132,600 Unallocated corporate expenses ( 182,765 ) ( 174,948 ) ( 587,931 ) ( 540,740 ) Total income from operations $ 162,298 $ 166,346 $ 463,479 $ 471,793 Stock-based compensation Clear Aligner $ 7,648 $ 5,772 $ 20,031 $ 14,917 Systems and Services 427 366 1,207 950 Unallocated corporate expenses 40,964 33,464 113,617 99,330 Total stock-based compensation $ 49,039 $ 39,602 $ 134,855 $ 115,197 Depreciation and amortization Clear Aligner $ 17,971 $ 17,737 $ 49,027 $ 50,725 Systems and Services 8,099 7,827 23,007 23,716 Unallocated corporate expenses 11,723 11,466 34,871 34,228 Total depreciation and amortization $ 37,793 $ 37,030 $ 106,905 $ 108,669 The following table reconciles total segment income from operations in the table above to net income before provision for income taxes (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Total segment income from operations $ 345,063 $ 341,294 $ 1,051,410 $ 1,012,533 Unallocated corporate expenses ( 182,765 ) ( 174,948 ) ( 587,931 ) ( 540,740 ) Total income from operations 162,298 166,346 463,479 471,793 Interest income 4,003 5,522 11,696 12,280 Other income (expense), net ( 371 ) ( 9,757 ) ( 6,993 ) ( 15,749 ) Net income before provision for income taxes $ 165,930 $ 162,111 $ 468,182 $ 468,324 Our CODM does not regularly review total assets at the reportable segment level; however, we have provided geographical information related to our long-lived assets below. 24 Table of Contents Geographical Information Net revenues are presented below by geographic area (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net revenues 1 : U.S. $ 421,204 $ 421,272 $ 1,291,838 $ 1,262,008 Switzerland 216,638 259,587 739,342 913,724 Other International 340,030 279,355 972,613 729,802 Total net revenues $ 977,872 $ 960,214 $ 3,003,793 $ 2,905,534 1 Net revenues are attributed to countries based on the location of where revenues are recognized by our legal entities. Tangible long-lived assets, which includes Property, plant and equipment, net, and Operating lease right-of-use assets, net, are presented below by geographic area (in thousands): September 30, 2024 December 31, 2023 Long-lived assets 1 : Switzerland $ 580,428 $ 575,432 U.S. 203,772 210,275 Other International 627,306 623,155 Total long-lived assets $ 1,411,506 $ 1,408,862 1 Long-lived assets are attributed to countries based on the location of our entity that owns or leases the assets. Note 15. Restructuring and Other Charges 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. As of September 30, 2024 , substantially all restructuring activities initiated in the fourth quarter of 2023 were complete. Note 16. Subsequent Event Subsequent to our quarter end, on October 23, 2024, we announced a restructuring plan to reduce costs by adjusting headcount for the existing business environment. The plan includes a reduction of our total headcount by approximately 700 employees. The costs associated with this action primarily include severance and other one-time post-employment benefits and are currently estimated to be between approximately $ 25.0 million and $ 30.0 million. We expect these activities to be substantially completed by the end of fiscal year 2024. Additionally, on October 25, 2024, we announced a plan to repurchase $ 275.0 million of our common stock through open market repurchases beginning in the fourth quarter of 2024 and continuing through the first quarter of 2025. The number of shares to be repurchased and the average price per share are not determinable as of the filing of this Quarterly Report on Form 10-Q. Upon completion of these open market repurchases the Company will have $ 225.0 million remaining available for repurchases under the January 2023 Repurchase Program. 25 Table of Contents