Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
A discussion regarding our financial condition and results of operations for fiscal 2024 compared to fiscal 2023 is presented under Results of Operations of this Form 10-K. Discussions regarding our financial condition and results of operations for fiscal 2023 compared to 2022 have been omitted from this Annual Report on Form 10-K, but can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 28, 2024, which is available without charge on the SEC’s website at www.sec.gov and on our investor relations website at investor.aligntech.com .
Executive Overview of Results
Trends and Uncertainties
Our strategic priorities focus on four principal pillars for growth: (i) international expansion; (ii) general dental practitioners (“GP”) treatment; (iii) patient demand; and (iv) orthodontic utilization. Our growth strategy depends on our ability to facilitate the digital transformation of dentistry happening around the world, our continuous focus on innovation, and expansion to meet and exceed evolving customer expectations as the array of products and services available to them increases.
We strive to deliver on each of our strategic growth drivers through a variety of interrelated enterprise-wide efforts including:
• Continuing penetration and adoption of Invisalign clear aligners, intraoral scanners and CAD/CAM solutions in international markets by investing in manufacturing operations, research and development, clinical treatment planning, sales and marketing and building our quality and regulatory capabilities in existing and emerging markets globally. For instance, we have fabrication facilities in three key regions as a part of our strategy to bring operational facilities closer to customers to serve them more quickly and respond to their needs more effectively as well as new treatment planning operations in targeted regional geographies. We have also diversified our research and development activities, which has created a longer term, more stable environment for consistent hiring, retention and innovation in a variety of high technology locations.
• Targeting growth opportunities with international orthodontists and GP customers, particularly with adopters of digital dentistry platforms by tailoring our sales and marketing strategies, manufacturing operations and resources around the unique needs of each customer channel. As we continue growing, we intend to opportunistically expand our research, development, manufacturing, treatment planning, and sales and marketing operations to meet local and regional demand thoughtfully and deliberately. Over the longer-term, we expect international revenues to grow faster than Americas' revenues as a result of growing international demand, our continued investment in international market expansion, the size of the market opportunities and our relatively low market penetration in these regions.
• Building confidence within the GP and orthodontic communities through training and education efforts to increase their adoption and utilization of digital dental practice transformation and clear aligner treatment. We continue to expand our clear aligner customer base by educating new doctors on the benefits of digital dentistry through the Invisalign System. We furthermore demonstrate to GPs and orthodontists how the iTero portfolio of intraoral scanners, products like Invisalign Go™ treatment, and CAD/CAM restorative services and workflows can increase revenues and profitability for their dental practices by enhancing patient experiences and creating operational practice efficiencies. DSOs represent a large and growing opportunity to help drive adoption of digital technology across the dental industry. We have well established relationships with many DSOs globally that recognize the benefits of digital workflows enabled by our portfolio of products and services that make up the Align TM Digital Platform, including increased practice efficiency and profitability, as well as delivering a better patient experience from shorter cycle times and customer proximity. We have and may continue to financially invest in or explore collaborations with key ecosystem partners, including DSOs, whose missions and visions align with our own vision, strategy, business model and goals.
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• Investing in research and development that allows us to innovate, develop and bring to market products and solutions that deliver the ever-increasing clinical precision and predictability that doctors expect with the speed and convenience their patients require.
• Creating demand and enabling patient conversion with targeted investments in advertising and public relations through social media, influencers and other forms of digital communications to encourage treatment by Invisalign trained doctors. We believe that well-designed, targeted sales and marketing promotions that build on our strong brand awareness allow us to differentiate our products and solutions from traditional and emerging competitors. To increase awareness and educate young adults, parents and teens about the benefits of Invisalign treatment, in 2024, we continued to invest in and create campaigns across markets in media platforms such as TikTok, Instagram, YouTube, SnapChat, WeChat, and Douyin. We expect to make further investments to create additional demand for Invisalign System treatment driving more consumers to dental professionals for those treatments.
• Pursuing new product lines that complement our doctor-prescribed principal products currently available in certain e-commerce and retail channels in the United States. Similarly, in 2024, we continued our focus on our doctor subscription plan and grew our underpenetrated share of the retainer business through strategic marketing campaigns focused on driving adoption and increasing market share.
• Increasing global orthodontic utilization rates as doctors’ clinical confidence in the efficacy and predictability of the Invisalign System increases with advancements in products and technology and as patients and doctors demand treatments that emphasize convenience and safety through fewer visits and less invasive and quicker treatments. In addition, the teenage and younger market makes up about 70% of the approximately 22 million total annual global orthodontic case starts. We continue to emphasize the benefits of the Invisalign System for teenage and younger patient treatments through education, training and sales and marketing programs. In 2024, we had record shipments to teenage and younger patients. We expect utilization rates to continue to rise. However, our utilization rates will fluctuate from period to period due to a variety of factors, which may include seasonal trends in our business, consumer demand due to macroeconomic factors, and adoption rates for new products and features.
Below is a discussion of the significant trends and uncertainties that could impact our operations:
Macroeconomic Challenges and Military Conflicts in Ukraine and the Middle East
Our revenues are susceptible to fluctuations resulting from events and circumstances, including macroeconomic conditions, fluctuations in foreign currency exchange rates, inflation, higher interest rates, actual and threatened wars and military actions, threats or actual imposition of tariffs, customs duties and fees by nations and retaliatory actions, threats of or actual slowdowns or recessions, supply chain challenges, market volatility, employment levels, wages, debt obligations, discretionary income and other factors, each of which impacts customer confidence, consumer sentiment and demand. Many of these same factors also impact our costs and those of our suppliers through higher raw material prices, transportation costs, labor costs, supply and distribution operations. During 2024, we believe sales of our products were adversely impacted by macroeconomic conditions that negatively affected disposable income and consumer demand. We believe this trend will continue in 2025. We also expect the military conflict between Russia and Ukraine to continue to create market uncertainties and dampen consumer sentiment and demand, particularly in Europe.
Additionally, government actions in various countries relating to implemented or proposed tariffs, particularly the United States, China, Mexico, and Europe are expected to adversely impact our revenue and cost of goods sold if implemented. The degree of our exposure is dependent on, among other things, the type of goods subject to any tariffs enacted, the tariff rates imposed, the timing of the tariffs and any retaliatory measures enacted. The impact of declining demand may vary by time and region, making operational results uncertain and difficult to predict. We continue to closely monitor the foregoing issues, assess their potential impact on our operations and financial results, and implement plans to mitigate the impact of any adverse events.
Additionally, a material amount of our revenues are derived internationally and many of our international operations are denominated in currencies other than the U.S. dollar. In 2024, the U.S. dollar remained strong against major currencies, which negatively impacted our financial condition and results of operations for the year. Foreign exchange volatility and the subsequent strengthening or weakening of the U.S dollar against other currencies remains uncertain and unpredictable.
We continue to monitor the potential for violence and military actions that may directly or indirectly impact our personnel, manufacturing, supply chain, and sales. For instance, ongoing conflicts in the Middle East may further exacerbate general and regional macroeconomic instability, particularly if fighting intensifies, spreads to other locations, creates shipping and logistical challenges or cost increases, leads to sanctions or boycotts, or otherwise may materially impact our operations. For instance, our iTero business is headquartered in Israel and, although the sales, delivery times and cost of shipping our
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products have not been materially impacted and we have put measures in place to help reduce the future risks, it remains uncertain if there will be impacts on our sales, delivery times or cost of shipping our products. While there have been export and import restrictions imposed against products originating from and businesses operating in Israel, they have not materially impacted our sales or operations to date although we continue to monitor the risk.
Changing Product Preferences
As the markets for clear aligners and digital processes and workflows used to transform the practice of dentistry continue to mature, we continue to anticipate customer and patient expectations and demands will continue to evolve. We expect to meet customer demands with innovative treatment options that include more choices to address a wider scope of treatment goals and budgets based on our existing and new products. This may result in larger and unpredictable variations in geographic and product mix and selling prices with uncertain implications on our financial statements and business operations.
We strive to manage the challenges from the trends and uncertainties, including the macroeconomic conditions, tariffs and retaliatory measures, military conflicts and the evolution of our target markets, by focusing on improving our operations, further increasing flexibility and efficiencies in our processes, adjusting our business models to changing circumstances and offering products that meet market demand. Specifically, we are managing financial impacts through strategic product innovations, introductions and pricing actions, implementing cost saving measures and evaluating hiring needs.
As an example, there was significant adoption of the Invisalign Comprehensive 3in3 product after it was introduced in 2023 that continued in 2024. The 3in3 configuration offers doctors Invisalign Comprehensive treatment with a three-year treatment expiration date and three additional clear aligners included prior to the treatment expiration date. The 3in3 product also allows us to recognize more revenue up front while doing so at a lower price as compared to our traditional Invisalign comprehensive product that has a five-year treatment expiration date with unlimited additional clear aligners prior to the treatment end date.
Further discussion of the impact of these challenges on our business may be found in Part I, Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors.”
Key Financial and Operating Metrics
We measure our performance against these strategic priorities by the achievement of key financial and operating metrics. For the year ended December 31, 2024, our business operations reflect the following:
◦ Revenues of $3,999.0 million, an increase of 3.5% year-over-year;
◦ Clear Aligner revenues of $3,230.1 million, an increase of 1.0% year-over-year;
▪ Americas Clear Aligner case revenues of $1,426.3 million, a decrease of 2.5% year-over-year;
▪ International Clear Aligner case revenues of $1,500.5 million, an increase of 3.5% year-over-year;
▪ Clear Aligner volume increase of 3.5% year-over-year and Clear Aligner volume increase for kids and teens of 7.7% year-over-year;
◦ Imaging Systems and computer-aided design and computer-aided manufacturing (“CAD/CAM”) Services revenues of $768.9 million, an increase of 16.0% year-over-year;
◦ Income from operations of $607.6 million and operating margin of 15.2%;
◦ Effective tax rate of 30.8%;
◦ Net income of $421.4 million with diluted net income per share of $5.62;
◦ Cash and cash equivalents of $1,043.9 million as of December 31, 2024;
◦ Cash provided by operating activities of $738.2 million;
◦ Capital expenditures of $115.6 million, primarily related to investments in our manufacturing capacity and facilities; and
◦ Number of employees of 20,945 as of December 31, 2024, a decrease of 3.1% year-over-year.
Other Statistical Data and Trends
• As of December 31, 2024, over 19 million people worldwide have been treated with our Invisalign System. Management measures these results by comparing to the millions of people who can benefit from straighter teeth and uses this data to target opportunities to expand the market for orthodontics by educating consumers about the benefits of straighter teeth using the Invisalign System.
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• The total number of Invisalign trained doctors cases were shipped to (doctor submitters) in 2024 was 130.4 thousand compared to 125.8 thousand in 2023, a 3.6% increase. GP and orthodontist doctor submitters increased by approximately 3% and 4%, respectively, in 2024 compared to 2023.
• Our total utilization rate in 2024 of 19.1 cases per doctor was flat compared to 2023 and slightly down from 19.3 cases per doctor in 2022. Our utilization rates have been impacted by the macroeconomic conditions and other factors as described in the “Trends and Uncertainties” section above. In general, we expect utilization rates to rise over time although they are likely to fluctuate from period to period.
• North America: The utilization rate among our North American orthodontist customers was 95.0 cases per doctor in 2024 compared to 94.5 cases per doctor in 2023 and 94.9 cases per doctor in 2022 and the utilization rate among our North American GP customers was 14.3 cases per doctor in 2024 compared to 14.0 cases per doctor in 2023 and 13.9 cases per doctor in 2022.
• International: International doctor utilization rate was 16.2 cases per doctor in 2024 compared to 16.3 cases per doctor in 2023 and 16.2 cases per doctor in 2022 .
* Invisalign utilization rates are calculated by the number of cases shipped divided by the number of doctors to whom cases were shipped. Our International region includes Europe, Middle East and Africa ( “ EMEA ” ) and Asia Pacific ( “ APAC ” ). Latin America ( “ LATAM ” ) is excluded from the International region based on its immateriality to the year; however is included in the Total utilization.
Results of Operations
Net Revenues by Reportable Segment
We group our operations into two reportable segments: Clear Aligner segment and Systems and Services segment.
• Our Clear Aligner segment consists of Comprehensive Products, Non-Comprehensive Products and Non-Case revenues as defined below:
• Comprehensive Products include, but are not limited to, Invisalign Comprehensive, Invisalign First and Invisalign Comprehensive 3in3.
• Non-Comprehensive Products include, but are not limited to, Invisalign Moderate, Lite and Express packages, Invisalign Go and Invisalign Go Plus and Invisalign Palatal Expander.
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• In the United States, Canada, and EMEA, we also offer a Doctor Subscription Program which is our monthly subscription-based clear aligner program. The program allows doctors the flexibility to order retainers and low-stage “touch-up” clear aligners within their subscribed tier and is designed for a segment of experienced Invisalign trained doctors who are currently not regularly using our retainers or low-stage aligners. The low-stage aligners, the Touch up product, are included as a Non-Comprehensive Product.
• Non-Case revenues include, but are not limited to, retention products including retention aligners ordered through the Doctor Subscription Program, Invisalign training, adjusting tools used by dental professionals during the course of treatment and Invisalign Accessory Products that are complementary to our doctor-prescribed principal products such as aligner cases (clamshells), teeth whitening products, cleaning solutions (crystals, foam and other material) and other oral health products available in certain commerce channels in select markets.
• Our Systems and Services segment consists of sales related to our iTero intraoral scanning systems, which includes a single hardware platform and restorative or orthodontic software options, upgrades and leases of scanner systems, sales of pre-owned scanner systems, subscription software, disposables, pay per scan services, as well as exocad’s CAD/CAM software solutions that integrate workflows to dental labs and dental practices.
Net revenues for our Clear Aligner and Systems and Services segments by region for the year ended December 31, 2024, 2023 and 2022 are as follows (in millions):
Year Ended December 31, Year Ended December 31,
Net Revenues 2024 2023 Change 2023 2022 Change
Clear Aligner revenues:
Americas $ 1,426.3 $ 1,463.0 $ (36.6) (2.5) % $ 1,463.0 $ 1,471.9 $ (9.0) (0.6) %
International 1,500.5 1,449.5 51.1 3.5 % 1,449.5 1,349.0 100.5 7.4 %
Non-case 303.3 286.9 16.4 5.7 % 286.9 251.7 35.2 14.0 %
Total Clear Aligner net revenues
$ 3,230.1 $ 3,199.3 $ 30.8 1.0 % $ 3,199.3 $ 3,072.6 $ 126.7 4.1 %
Systems and Services net revenues 768.9 662.9 106.0 16.0 % 662.9 662.1 0.9 0.1 %
Total net revenues $ 3,999.0 $ 3,862.3 $ 136.8 3.5 % $ 3,862.3 $ 3,734.6 $ 127.6 3.4 %
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Clear Aligner Case Volume
Case volume data which represents Clear Aligner case shipments for the year ended December 31, 2024, 2023 and 2022 is as follows (in thousands):
Year Ended December 31, Year Ended December 31,
2024 2023 Change 2023 2022 Change
Total case volume 2,493.7 2,408.5 85.2 3.5 % 2,408.5 2,398.4 10.2 0.4 %
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Total net revenues increased by $137 million in 2024 as compared to 2023, primarily due to an increase in Systems and Services net revenues from higher scanner ASP, increase in non-system sales and services revenue. Clear Aligner net revenues increased primarily from an increase in volume, partially offset by lower Clear Aligner ASP.
Clear Aligner - Americas
Americas net revenues decreased by $37 million in 2024 as compared to 2023, primarily due to a 3.0% decrease in ASP, resulting in a decrease of net revenues of $44 million. The decrease in ASP was primarily driven by a mix shift to lower priced products and countries which reduced net revenues by $88 million and higher promotional discounts which decreased net
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revenues by $66 million and unfavorable foreign exchange rates that decreased net revenues by $9 million. These decreases were partially offset by lower net deferrals which increased net revenues by $94 million and price changes which increased net revenues by $19 million. The decrease in ASP was partially offset by an increase in volume which increased net revenues by $7 million.
Clear Aligner - International
International net revenues increased by $51 million in 2024 as compared to 2023 due to a 7.0% increase in volume, resulting in increased net revenues of $101 million. This increase was partially offset by a decrease of 3.3% in ASP which decreased net revenues by $50 million. Lower ASP was due to unfavorable foreign exchange rates that decreased net revenues by $21 million and a price reduction for sales in the United Kingdom (“UK”) to offset VAT we began charging in 2024, which decreased net revenues by $32 million, a mix shift to lower priced products and countries which reduced net revenues by $60 million and higher promotional discounts which reduced net revenues by $114 million. The decreases in ASP were partially offset by lower net deferrals and price changes which increased net revenues by $99 million and $72 million, respectively.
Clear Aligner - Non-Case
Non-case net revenues increased by $16 million in 2024 compared to 2023 mainly due to increased volume of Vivera retainers which includes retention aligners ordered through our Doctor Subscription Program.
Systems and Services
Systems and Services net revenues increased by $106 million in 2024 as compared to 2023 primarily due to higher scanner ASP which increased net revenues by $45 million, an increase in sales of upgrade scanner systems which increased net revenues by $38 million, higher services revenue which increased net revenues by $19 million and higher volume which increased net revenues by $4 million. Additionally, CAD/CAM software revenues increased net revenues by $7 million. These increases were partially offset by unfavorable foreign exchange rates which decreased net revenues by $7 million.
Cost of net revenues and gross profit (in millions):
Year Ended December 31, Year Ended December 31,
2024 2023 Change 2023 2022 Change
Clear Aligner
Cost of net revenues $ 952.1 $ 911.3 $ 40.8 $ 911.3 $ 844.4 $ 66.9
% of net segment revenues 29.5 % 28.5 % 28.5 % 27.5 %
Gross profit $ 2,278.0 $ 2,288.0 $ (10.1) $ 2,288.0 $ 2,228.2 $ 59.9
Gross margin % 70.5 % 71.5 % 71.5 % 72.5 %
Systems and Services
Cost of net revenues $ 247.7 $ 244.1 $ 3.6 $ 244.1 $ 256.4 $ (12.3)
% of net segment revenues 32.2 % 36.8 % 36.8 % 38.7 %
Gross profit $ 521.2 $ 418.8 $ 102.3 $ 418.8 $ 405.6 $ 13.2
Gross margin % 67.8 % 63.2 % 63.2 % 61.3 %
Total cost of net revenues $ 1,199.9 $ 1,155.4 $ 44.5 $ 1,155.4 $ 1,100.9 $ 54.5
% of net revenues 30.0 % 29.9 % 29.9 % 29.5 %
Gross profit $ 2,799.2 $ 2,706.9 $ 92.3 $ 2,706.9 $ 2,633.8 $ 73.1
Gross margin % 70.0 % 70.1 % 70.1 % 70.5 %
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Cost of net revenues includes personnel-related costs including payroll and stock-based compensation for staff involved in the production process, the cost of materials, packaging, freight and shipping, depreciation on capital equipment and facilities used in the production process, amortization of acquired intangible assets and training costs.
Clear Aligner
The gross margin percentage decreased in 2024 as compared to 2023 primarily due to lower ASPs and higher restructuring expense.
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Systems and Services
The gross margin percentage increased in 2024 as compared to 2023 primarily due to higher ASPs and lower cost of net revenues leverage, partially offset by lower service revenue mix.
Selling, general and administrative (in millions):
Year Ended December 31, Year Ended December 31,
2024 2023 Change 2023 2022 Change
Selling, general and administrative $ 1,763.2 $ 1,703.4 $ 59.8 $ 1,703.4 $ 1,674.5 $ 28.9
% of net revenues 44.1 % 44.1 % 44.1 % 44.8 %
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Selling, general and administrative expense generally includes personnel-related costs, including payroll, stock-based compensation and commissions for our sales force, marketing and advertising expenses including media, market research, marketing materials, clinical education, trade shows and industry events, legal and outside service costs, equipment, software and maintenance costs, depreciation and amortization expense and allocations of corporate overhead expenses including facilities and Information Technology (“IT”).
Selling, general and administrative expense increased in 2024 compared to 2023 primarily due to higher employee costs, including salaries, fringe benefits, stock-based compensation and bonus partially offset by lower outside services expense.
Research and development (in millions):
Year Ended December 31, Year Ended December 31,
2024 2023 Change 2023 2022 Change
Research and development $ 364.2 $ 346.8 $ 17.4 $ 346.8 $ 305.3 $ 41.6
% of net revenues 9.1 % 9.0 % 9.0 % 8.2 %
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Research and development expense generally includes personnel-related costs, including payroll and stock-based compensation, outside service costs associated with the research and development of new products and enhancements to existing products, software, equipment, material and maintenance costs, depreciation and amortization expense and allocations of corporate overhead expenses including facilities and IT.
Research and development expense increased in 2024 compared to 2023 primarily due to higher employee costs, including salaries, fringe benefits, stock-based compensation, net of capitalized labor costs related to internal use software, and bonus, partially offset by lower outside services expense.
Restructuring and other charges (in millions):
Year Ended December 31, Year Ended December 31,
2024 2023 Change 2023 2022 Change
Restructuring and other charges $ 33.2 $ 13.3 $ 19.9 $ 13.3 $ 11.5 $ 1.9
% of net revenues 0.8 % 0.3 % 0.3 % 0.3 %
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Restructuring and other charges increased in 2024 compared to 2023 due to higher severance and other one-time post-employment benefits, driven by a more significant restructuring plan initiated in 2024. Refer to Note 17 “ Restructuring and Other Charges” of the Notes to Consolidated Financial Statements for more information.
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Legal settlement loss (in millions):
Year Ended December 31, Year Ended December 31,
2024 2023 Change 2023 2022 Change
Legal settlement loss $ 31.0 $ — $ 31.0 $ — $ — $ —
% of net revenues 0.8 % — % — % — %
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Legal settlement loss incurred during 2024 was due to litigation and other settlements. Refer to Note 8 “Legal Proceedings” of the Notes to Consolidated Financial Statements for more information.
Income from operations (in millions):
Year Ended December 31, Year Ended December 31,
2024 2023 Change 2023 2022 Change
Clear Aligner
Income from operations $ 1,142.2 $ 1,182.3 $ (40.1) $ 1,182.3 $ 1,134.4 $ 47.8
Operating margin % 35.4 % 37.0 % 37.0 % 36.9 %
Systems and Services
Income from operations $ 269.2 $ 191.4 $ 77.9 $ 191.4 $ 179.8 $ 11.6
Operating margin % 35.0 % 28.9 % 28.9 % 27.2 %
Total Income from operations 1
$ 607.6 $ 643.3 $ (35.7) $ 643.3 $ 642.6 $ 0.7
Operating margin % 15.2 % 16.7 % 16.7 % 17.2 %
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
1 Refer to Note 16 “Segments and Geographical Information” of the Notes to Consolidated Financial Statements for details on unallocated corporate expenses and the reconciliation to consolidated Income from operations.
Total operating margin percentage decreased in 2024 compared to 2023 primarily due to increased legal settlement losses, restructuring and other charges and employee costs. Refer to Note 8 “ Legal Proceedings ” of the Notes to Consolidated Financial Statements .
Clear Aligner
Operating margin percentage decreased in 2024 compared to 2023 primarily due to a decrease in gross margin and an increase in employee costs.
Systems and Services
Operating margin percentage increased in 2024 compared to 2023 primarily due to higher gross margin, partially offset by an increase in employee costs .
Interest income (in millions):
Year Ended December 31, Year Ended December 31,
2024 2023 Change 2023 2022 Change
Interest income $ 20.2 $ 17.3 $ 3.0 $ 17.3 $ 5.4 $ 11.9
% of net revenues 0.5 % 0.4 % 0.4 % 0.1 %
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Interest income generally includes interest earned on cash, cash equivalents and investment balances.
Interest income increased in 2024 compared to 2023 primarily due to primarily due to higher cash and cash equivalents.
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Other income (expense), net (in millions):
Year Ended December 31, Year Ended December 31,
2024 2023 Change 2023 2022 Change
Other income (expense), net $ (18.9) $ (19.4) $ 0.5 $ (19.4) $ (48.9) $ 29.5
% of net revenues (0.5) % (0.5) % (0.5) % (1.3) %
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Other income (expense), net, generally includes foreign exchange gains and losses, gains and losses on foreign currency forward contracts, interest expense, gains and losses on equity investments and other miscellaneous charges.
Other income (expense), net increased in 2024 compared to 2023 primarily due to gains recorded on our equity investments, offset by the unfavorable impact of foreign exchange rates.
Provision for income taxes (in millions):
Year Ended December 31, Year Ended December 31,
2024 2023 Change 2023 2022 Change
Provision for (benefit from) income taxes $ 187.6 $ 196.2 $ (8.6) $ 196.2 $ 237.5 $ (41.3)
Effective tax rates 30.8 % 30.6 % 30.6 % 39.6 %
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
The increase in our effective tax rate for the year ended December 31, 2024 compared to the same period in 2023 is primarily attributable to an increase in U.S. taxes on foreign earnings, partially offset by a change in our jurisdictional mix of income and release of unrecognized tax benefits due to a lapse of the statute of limitation.
Liquidity and Capital Resources
Liquidity and Trends
As of December 31, 2024 and 2023, we had the following cash and cash equivalents and short-term and long-term marketable securities (in thousands):
December 31,
2024 2023
Cash and cash equivalents $ 1,043,887 $ 937,438
Marketable securities, short-term — 35,304
Marketable securities, long-term — 8,022
Total $ 1,043,887 $ 980,764
As of December 31, 2024 and 2023, approximately $855 million and $785 million, respectively, of cash, cash equivalents and marketable securities were held by our foreign subsidiaries. We continue to evaluate opportunities to repatriate our foreign earnings if or when needed. We do not expect to incur significant additional costs upon repatriation of these foreign earnings. We generate sufficient domestic operating cash flow and have access to $300 million under our revolving line of credit. We believe that our current cash balances and the borrowing capacity under our credit facility, if necessary, will be sufficient to fund our business for at least the next 12 months.
Our material cash requirements as of December 31, 2024 are as follows:
• Our purchase commitments consist primarily of open purchase orders for goods and services, including manufacturing inventory, supplies and services, sales and marketing, research and development services and technological services, issued in the normal course of business. Our purchase commitments totaled $1,193 million. We anticipate a majority, an estimated $1,003 million, will be payable within the next 12 months. These purchase commitments exclude capital expenditures.
• We expect our investments in capital expenditures to be between $100 million and $150 million for the next 12 months. Capital expenditures primarily relate to building construction and improvements as well as additional manufacturing capacity. Despite the challenging market conditions, we intend to expand our investments in research
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and development, manufacturing, treatment planning, sales and marketing operations to meet actual and anticipated demand.
• We have future operating lease payments of $133 million, which includes $2.6 million for leases that have not yet commenced as of December 31, 2024. Refer to Note 4 “ Leases ” of the Notes to Consolidated Financial Statements for details on the lease payments.
• We have approximately $297 million, inclusive of approximately $72 million repurchased in January 2025, available for repurchases of our common stock under the stock repurchase program authorized by our Board of Directors in January 2023 (“January 2023 Repurchase Program”). Our stock repurchase program is subject to periodic evaluations to determine when and if repurchases are in the best interests of our stockholders, taking into account prevailing market conditions. Refer to Note 11 “ Common Stock Repurchase Programs ” of the Notes to Consolidated Financial Statements for details on our stock repurchase activity.
• In 2024, we agreed, in principle, to settle certain legal matters. As of December 31, 2024, a total of $27.5 million remained unpaid. Settlement payments will be made in accordance with the terms and conditions as set forth in the settlement agreement. Refer to Note 8 “ Legal Proceedings ” of the Notes to Consolidated Financial Statements for more information.
• As of December 31, 2024, we had no material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material impact on our liquidity or capital resources.
Sources and Uses of Cash
The following table summarizes our Consolidated Statements of Cash Flows for the year ended December 31, 2024, 2023 and 2022 (in thousands):
Year Ended December 31,
2024 2023 2022
Net cash provided by (used in):
Operating activities $ 738,231 $ 785,776 $ 568,732
Investing activities (254,912) (195,943) (213,316)
Financing activities (355,722) (598,340) (501,686)
Effects of foreign exchange rate changes on cash, cash equivalents, and restricted cash (21,153) 4,671 (11,514)
Net (decrease) increase in cash, cash equivalents, and restricted cash
$ 106,444 $ (3,836) $ (157,784)
Operating Activities
For the year ended December 31, 2024, cash flows from operations of $738 million resulted primarily from our net income of approximately $421 million as well as the following:
Significant adjustments to net income
• Stock-based compensation of $174 million related to equity awards granted to employees and directors; and
• Depreciation and amortization of $145 million related to our investments in property, plant and equipment and intangible assets.
Significant changes in working capital
• Net inflow of $90 million from accrued and other long-term liabilities primarily due to timing of payments;
• Net inflow of $68 million from prepaid expenses and other assets primarily due to settlement of tax matter. Refer to Note 8 “Legal Proceeding s ” of the Notes to Consolidated Financial Statements .
• Net outflow of $80 million from deferred revenues; and
• Net outflow of $153 million from accounts receivable due to timing of collections and increased revenues.
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For the year ended December 31, 2023, cash flows from operations of $786 million resulted primarily from our net income of approximately $445 million as well as the following:
Significant adjustments to net income
• Stock-based compensation of $154 million related to equity awards granted to employees and directors; and
• Depreciation and amortization of $142 million related to our investments in property, plant and equipment and intangible assets.
Significant changes in working capital
• Net inflow of $46 million from accrued and other long-term liabilities primarily due to higher incentive accruals for 2023, as well as timing of payments of other activities;
• Net inflow of $87 million from deferred revenues due to the deferral of revenue on shipments;
• Net inflow of $30 million from inventories primarily due to lower purchases of materials used in manufacturing; and
• Net outflow of $105 million, net from accounts receivable due to timing of collections and increased revenues.
Investing Activities
Net cash used in investing activities was $255 million for the year ended December 31, 2024 which primarily consisted of $116 million for purchases of property, plant and equipment, $77 million for the Cubicure acquisition and $106 million for investments in privately held companies, partially offset by sales and maturities of marketable securities of $44 million.
Net cash used in investing activities was $196 million for the year ended December 31, 2023 which primarily consisted of purchases of property, plant and equipment of $178 million which included a building acquisition for $25 million, an investment in equity of a privately held company of $77 million and purchases of marketable securities of $3 million, partially offset by sales and maturities of marketable securities of $61 million.
Financing Activities
Net cash used in financing activities was $356 million for the year ended December 31, 2024 which consisted of payments to repurchase shares of our common stock of $353 million and payroll taxes paid for equity awards through share withholdings of $28 million, which were partially offset by proceeds from the issuance of common stock for $25 million.
Net cash used in financing activities was $598 million for the year ended December 31, 2023 which consisted of payments to repurchase shares of our common stock of $602 million and payroll taxes paid for equity awards through share withholdings of $23 million, which were partially offset by proceeds from the issuance of common stock for $27 million of proceeds from the issuance of common stock.
Critical Accounting Estimates
Management’s discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and disclosures at the date of the financial statements. We evaluate our estimates on an on-going basis and use authoritative pronouncements, historical experience and other assumptions as the basis for making the estimates. Actual results could differ from those estimates.
We believe the following critical accounting estimates affect our more significant judgments used in the preparation of our consolidated financial statements. For further information on all of our significant accounting policies, see Note 1 “ Summary of Significant Accounting Policies ” of the Notes to Consolidated Financial Statements .
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Revenue Recognition
Our revenues are derived primarily from the sale of aligners, scanners, and services from our Clear Aligner and Systems and Services segments. We enter into sales contracts that may consist of multiple distinct performance obligations. Sales contracts with multiple performance obligations require management to exercise judgment in allocating the transaction price, based on standalone selling prices, to each performance obligation and determining the timing of revenue recognition which directly impacts our unfulfilled performance obligations at period end.
Determining the standalone selling price (“SSP”) in order to allocate consideration from the contract to the individual performance obligations is the result of various factors, such as historical prices, changing trends and market conditions, costs, and gross margins. While changes in the allocation of the SSP between performance obligations will not affect the amount of total revenues recognized for a particular contract, any material changes could impact the timing of revenue recognition, which would have a material effect on our financial position and result of operations. This is because the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation.
We allocate consideration for each clear aligner treatment plan based on each unit’s SSP. Management considers a variety of factors such as same or similar product historical sales, costs, and gross margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. In addition to historical data, we take into consideration changing trends and market conditions. For treatment plans with multiple options, we also consider usage rates, which is the number of times a customer is expected to order more aligners after the initial shipment. Our process for estimating usage rates requires significant judgment and evaluation of inputs, including historical usage data by region, country and channel.
We estimate the SSP of each element in a scanner system and services sale taking into consideration same or similar product historical prices as well as our discounting strategies. For CAD/CAM services, we estimate the SSP of each element, including the initial software license and maintenance and support, using data such as historical prices.
Unfulfilled Performance Obligations for Clear Aligners and Scanners
Our unfulfilled performance obligations, including deferred revenues and backlog, and the estimated revenues expected to be recognized in the future related to these performance obligations are $1,444.9 million and $1,578.3 million as of December 31, 2024 and 2023, respectively. This includes performance obligations from the Clear Aligner reportable segment, primarily the shipment of additional aligners, which are fulfilled over six months to five years. This also includes performance obligations from our Systems and Services reportable segment, primarily services and support, which are fulfilled over one to five years, and contracted deliveries of additional scanners. The estimate includes both product and service unfulfilled performance obligations and the time range reflects our best estimate of when we will transfer control to the customer and may change based on customer usage patterns, timing of shipments, readiness of customers' facilities for installation, and manufacturing availability.
Impairment of Goodwill and Finite-Lived Intangible Assets
Goodwill
We evaluate goodwill for impairment at least annually on November 30th or more frequently if indicators of impairment are identified between annual testing dates. Goodwill is tested for impairment between annual testing dates when events or circumstances indicate that the fair value of a reporting unit has been reduced below its carrying value. When an indicator of impairment is identified we perform a quantitative impairment assessment in which we determine the fair value of a reporting unit and compare it to the carrying value of the respective reporting unit. We generally determine the fair value of a reporting unit via a discounted cash flow (“DCF”) analysis and allocate our net assets to each reporting unit to determine carrying value. The use of a DCF model requires management to exercise significant judgement related to operating assumptions and estimates including, revenue growth rates, terminal growth rates, operating margins and discount rates, among others. Additionally, management exercises judgement when determining the methodology used to allocate net assets to each reporting unit. We will record an impairment charge when our quantitative impairment analysis indicates that the carrying value of a reporting unit exceeds its fair value.
Finite-Lived Intangible Assets
Finite-lived intangible assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset (asset group) may not be recoverable. When an impairment indicator is identified, we perform a recoverability test, in
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which the estimated, undiscounted future cash flows expected to result from the use and eventual disposition of the asset (asset group) are compared to the carrying value of the asset (asset group). When our recoverability test results in undiscounted cash flows that are greater than carrying value, no impairment is recorded. However, when our recoverability test results in undiscounted cash flows that are less than carrying value, we determine the fair value of the asset (asset group) and reduce the carrying amount of the asset (asset group), through an impairment charge, to its fair value. The process of identifying impairment indicators, preparing an undiscounted cash flow and determining the fair value of the asset (asset group) require management to exercise significant judgement related to various assumptions and estimates.
If we were to have impairments to goodwill or finite-lived intangible assets, it could adversely affect our operating results. During the year ended 2024 and 2023, we did not have any impairment charges related to our goodwill or finite-lived intangible assets.
Accounting for Income Taxes
We are subject to income taxes in the United States and numerous foreign jurisdictions. The evaluation of our uncertain tax positions involves significant judgment in the interpretation and application of U.S. GAAP and complex domestic and international tax laws related to the allocation of international taxation rights between countries. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis in accordance with U.S. GAAP. Realization of our deferred tax assets is dependent on our ability to generate future taxable income which is determined based on assumptions such as estimated growth rates in revenues, gross margins, future cash flows and discount rates in the jurisdictions in which we operate. The accuracy of these estimates could be affected by unforeseen events or actual results, and the sustainability of our future tax benefits is dependent upon the acceptance of these valuation estimates and assumptions by the taxing authorities. We may, in the future, be required to increase the valuation allowance to take into account additional deferred tax assets that we may be unable to realize.
Accounting for Legal Proceedings
Estimates of probable losses resulting from litigation are inherently difficult to make, particularly when the matters are in early procedural stages with incomplete facts and information. The final outcome of legal proceedings is dependent on many variables that are difficult to predict and, therefore, the ultimate cost to resolve such matters may be materially different than our current estimates. Consequently, new information or changes in judgments and estimates could have a material adverse effect on our business, financial condition, and results of operations or cash flows.
Recent Accounting Pronouncements
See Note 1 “ Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on results of operations and financial condition, which is incorporated herein.