What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-05 · 106 added, 169 removed, 175 unchanged (61% of the section changed)

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Forward-Looking Statements

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “ Securities Act ” ), and Section 21E of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ” ).

These statements include, among other things, our expectations and intentions regarding our strategic objectives and the means to achieve them, our beliefs and expectations regarding macroeconomic conditions, including inflation, fluctuations in currency exchange rates, higher interest rates, market volatility, weakness in general economic conditions and recessions and the impact of efforts by central banks and federal, state and local governments to combat inflation and recession, our expectations and beliefs regarding customer and consumer purchasing behavior and changes in consumer spending habits, our expectations regarding product mix and product adoption, our expectations regarding competition and our ability to compete in our target markets, our expectations regarding the sales growth of our intraoral scanners, clear aligners and other products, our expectations regarding the impact of the military conflicts in the Middle East and Ukraine and our operations and assets in Israel and Russia, our marketing and efforts to build our brand awareness, our estimates regarding the size and opportunities of the markets we are targeting along with our expectations for growth in those markets, our beliefs regarding the impact of technological innovation in general, and in our solutions and products in particular, on target markets and patient care, our beliefs regarding digital dentistry and its potential to impact our business, our intentions regarding expanding our business, including its impact on our operational flexibility and responsiveness to customer demand, our expectations regarding our tax positions and the judgements we make related to our tax obligations, our beliefs regarding the importance of our manufacturing operations on our success, our beliefs regarding the need for and benefits of our technological development on Invisalign treatment, the areas of development in which we focus our efforts, and the advantages of our intellectual property portfolio, our beliefs regarding our business strategy and growth drivers, our expectations regarding the utilization rates for our products, including the impact of marketing on those rates and causes for periodic fluctuations of the rates, our expectations regarding the existence and impact of seasonality, our expectations regarding the productivity impact sales representatives will have on our sales and the impact of specialization of those representatives in sales channels, our expectations regarding the continued expansion of our international markets and their growth, our expectations regarding staying in compliance with laws and regulations currently applicable to, or which may become applicable to, our business both in the United States and internationally, our beliefs regarding our culture and commitment and its impact on our financial and operational performance and its importance to our future success, our expectations for future investments in and benefits from sales and marketing activities, our preparedness and our customers’ preparedness to react to changing circumstances and demand, our expectations for our expenses and capital obligations and expenditures in particular, our intentions to control spending and for investments, our intentions regarding the investment of our international earnings from operations, our belief regarding the sufficiency of our cash and investment balances and borrowing capacity, our judgments regarding the estimates used in our revenue recognition and assessment of goodwill and intangible assets, our predicted level of operating expenses and gross margins and other factors beyond our control, as well as other statements regarding our future operations, financial condition and prospects and business strategies.

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

These statements include, among other things, our expectations and intentions regarding our strategic objectives and the means to achieve them, our beliefs and expectations regarding macroeconomic conditions, including fluctuations in currency exchange rates, inflation, higher interest rates, market volatility, threats or actual imposition of tariffs, customs duties and fees by nations and retaliatory actions, threats of or actual economic slowdowns or recessions, or escalating trade wars and geopolitical tensions, our expectations and beliefs regarding customer and consumer purchasing behavior and changes in consumer spending habits, our expectations regarding implemented or proposed tariffs and retaliatory actions or other trade restrictions or measures taken by the United States and other countries that have or could impact our products and product sales, our expectations regarding product mix, product launches, product pilots and product adoption, our expectations regarding competition and our ability to compete in our target markets, our expectations regarding the sales growth of our intraoral scanners, clear aligners and other products, our expectations regarding the impact of the military conflicts in the Middle East and Ukraine and increased geopolitical tensions involving Taiwan and the South China Sea and our operations and assets in Israel and Russia, our marketing and efforts to build our brand awareness, our estimates regarding the size and opportunities of the markets we are targeting along with our expectations for growth in those markets and potential collaboration opportunities, our beliefs regarding the impact of technological innovation in general, and in our solutions and products in particular, on target markets and patient care, our beliefs regarding digital dentistry and its potential to impact our business, our intentions regarding expanding our business, including its impact on our operational flexibility and responsiveness to customer demand, our expectations regarding our tax positions and the judgements we make related to our tax obligations, our beliefs regarding the importance of our manufacturing operations on our success, our beliefs regarding the need for and benefits of our technological development on Invisalign treatment, the areas of development in which we focus our efforts, and the advantages of our intellectual property portfolio, our beliefs regarding our business strategy and growth drivers, our expectations regarding the utilization rates for our products, including the impact of marketing on those rates and causes for periodic fluctuations of the rates, our expectations regarding the existence and impact of seasonality, our expectations regarding the productivity impact sales representatives will have on our sales and the impact of specialization of those representatives in sales channels, our expectations regarding the continued expansion of our international markets and their growth, our expectations regarding impacts or staying in compliance with laws and regulations currently applicable to, or which may become applicable to, our business both in the United States and internationally, our beliefs regarding our culture and commitment and its impact on our financial and operational performance and its importance to our future success, our expectations for future investments in and benefits from sales and marketing activities, our preparedness and our customers’ preparedness to react to changing circumstances and demand, our expectations for our expenses and capital obligations and expenditures in particular, our intentions to control spending and for investments, our intentions regarding the investment of and ability to repatriate foreign earnings, our belief regarding the sufficiency of our cash and investment balances and borrowing capacity, our judgments regarding the estimates used in our revenue recognition and assessment of goodwill and intangible assets, our predicted level of operating expenses and gross margins and other factors beyond our control, as well as other statements regarding our future operations, financial condition and prospects and business strategies.

These statements may contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” or other words indicating future results.

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Trends and Uncertainties

Our business strategic priorities focus on four principal pillars for growth:

Our strategic priorities focus on four principal pillars for growth:

(i) international expansion;

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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.

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.

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 caused by macroeconomic conditions, inflation, changes to currency exchange rates, higher interest rates, actual and threatened wars and military actions, threats of or actual recessions, supply chain challenges, market volatility, 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 have been impacted by macroeconomic conditions that adversely impacted disposable income and consumer demand and we believe this trend will continue for the remainder of 2024.

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.

The impact of declining demand may vary by time and region, making operational results uncertain and difficult to predict.

Additionally, many of our international operations are denominated in currencies other than the U.S.

In the third quarter of 2024, on a sequential basis, there was no significant impact from foreign exchange on our financial condition.

However, the U.S.

dollar remained strong against major currencies on a year-over-year basis, which negatively impacted our financial condition and results of operations for the quarter.

Macroeconomic Challenges, Trade Impediments and Geopolitical Tensions

Our revenues are susceptible to fluctuations resulting from events and circumstances, including macroeconomic conditions, fluctuations in foreign currency exchange rates, inflation, 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, higher interest rates, employment levels, health insurance coverage, 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 the availability of certain raw materials, parts and components used in our products as well as our costs and those of our suppliers through higher raw material prices, transportation costs, labor costs, supply and distribution operations.

In the first quarter of 2025, we believe sales of our products were adversely impacted by macroeconomic conditions that negatively affected disposable income and consumer demand.

We believe this will continue for the remainder of 2025, particularly if tariffs or the threat of tariffs and retaliatory actions impair discretionary spending.

We also expect the geopolitical conflicts involving Ukraine, the Middle East, China and other regions to continue to create market uncertainties and dampen consumer sentiment and demand.

Specifically, government actions in key strategic countries or regions relating to implemented or proposed tariffs and retaliatory actions, particularly in the United States, China, Europe, Israel and Mexico are expected to adversely impact our revenue and cost of goods sold.

Additionally, the escalating trade war and geopolitical tensions between the United States and China may result in the limitation or prohibition of the availability of certain raw materials, components and parts necessary for our products or the products of our suppliers.

The degree of our exposure is dependent on, among other things, the type of goods subject to any tariffs or trade restrictions enacted, the tariff rates or limits imposed, the timing of the tariffs or restrictions and any other retaliatory measures enacted.

The impact may vary by time and region, making operational results uncertain and difficult to predict.

These events may also cause a shift in public opinion about companies based in the United States and this may have an adverse impact on our reputation and business.

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.

In the first quarter of 2025, the U.S.

dollar strengthened against major currencies, which negatively impacted our financial condition and results of operations for the quarter.

Foreign exchange volatility and the subsequent strengthening or weakening of the U.S dollar against other currencies remains uncertain and unpredictable.

The ongoing conflict in the Middle East may further exacerbate general and regional macroeconomic instability, particularly if fighting continues to spread to other locations, create shipping and logistical challenges or cost increases, lead to sanctions or boycotts, or otherwise may materially impact our operations.

For instance, our iTero business is headquartered in Israel.

To date in 2024, the timing and cost of shipping our products has not been materially impacted and we have put measures in place to help reduce the risk of experiencing significant delays in the future.

Additionally, although our operations have not thus far been materially impacted by employee absences, we have employees and consultants in Israel that have been called for military service and may be unavailable for an unknown period of time.

Furthermore, while there have been export and import restrictions imposed against Israel, we have not been materially impacted by any trade sanctions yet.

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 Ukraine and the Middle East as well as increased geopolitical tensions involving Taiwan and the South China Sea may further exacerbate general and regional macroeconomic instability, particularly if fighting erupts, intensifies, spreads to other locations, creates shipping and logistical challenges or cost increases, leads to sanctions or boycotts, or otherwise materially impacts our operations or consumer spending.

Our iTero business is headquartered in Israel and, although the sales, delivery times and cost of shipping our 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 anticipate customer and patient expectations and demands will continue to evolve.

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, military conflicts and the evolution of our target markets, by focusing on improving our operations, building flexibility and efficiencies in our processes, adjusting our business models to changing circumstances and offering products that meet market demand.

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 has continued in 2024.

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 allows us to recognize more revenue up front but is offered 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.

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 II, Item 1A “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 three months ended September 30, 2024, our business operations reflect the following:

• Revenues of $977.9 million, an increase of 1.8% year-over-year;

We measure our performance against the foregoing strategic priorities by the achievement of key financial and operating metrics.

For the three months ended March 31, 2025, our business operations reflect the following:

• Revenues of $979 million, a decrease of 1.8% year-over-year;

• Clear Aligner revenues of $797 million, a decrease of 2.5% year-over-year;

◦ Americas Clear Aligner revenues of $349.2 million, a decrease of 4.7% year-over-year;

◦ International Clear Aligner revenues of $361.5 million, an increase of 1.8% year-over-year;

◦ Clear Aligner case volume increased 2.5% year-over-year and Clear Aligner case volume for teenage patients increased 6.7% year-over-year;

• Clear Aligner case volume increased 6.2% year-over-year and Clear Aligner case volume for teens and growing patients increased from 199.2 thousand shipments to 225.8 thousand or 13.3% year-over-year;

• Imaging Systems and computer-aided design and computer-aided manufacturing (“CAD/CAM”) Services revenues of $182 million, an increase of 1.2% year-over-year;

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• Net income of $93 million with diluted net income per share of $1.27;

• Cash and cash equivalents of $1,041.9 million as of September 30, 2024;

• Cash and cash equivalents of $873 million as of March 31, 2025;

• Cash provided by operating activities of $53 million;

• Capital expenditures of $25 million, primarily related to investments in our manufacturing capacity and facilities;

• Number of employees was 21,690 as of September 30, 2024, a decrease of 4.4% year-over-year.

• Number of employees was 21,200 as of March 31, 2025, a decrease of 2.2% year-over-year.

Other Statistical Data and Trends

• As of September 30, 2024, approximately 18.9 million people worldwide have been treated with our Invisalign system.

• As of March 31, 2025, approximately 20 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.

• For the third quarter of 2024, total Invisalign cases submitted with a digital scanner in the Americas increased to 96.1%, up from 94.6% in the third quarter of 2023 and international scans increased to 89.3%, up from 87.6% in the third quarter of 2023.

For the third quarter of 2024, 98.2% of Invisalign cases submitted by North American orthodontists were submitted digitally.

• The total utilization rate in the third quarter of 2024 remained flat at 7.1 cases per doctor compared to the third quarter of 2023.

Utilization rates in North America and our International locations were as follows:

▪ North America:

The utilization rate among our North American orthodontist customers decreased to 28.3 cases per doctor in the third quarter of 2024 compared to 28.8 cases per doctor in the third quarter of 2023 and the utilization rate among our North American GP customers increased to 5.0 cases per doctor in the third quarter of 2024 compared to 4.9 cases per doctor in the third quarter of 2023.

▪ International:

International doctor utilization rate was 6.2 cases per doctor in the third quarter of 2024 compared to 6.1 cases per doctor in the third quarter of 2023.

* 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 quarter;

however is included in the Total utilization.

• For the first quarter of 2025, the total number of Invisalign trained doctors cases were shipped to (doctor submitters) was 85.3 thousand compared to 83.5 thousand in first quarter of 2024, a 2.1% increase.

• The total utilization rate in the first quarter of 2025 increased to 7.5 cases per doctor compared to 7.2 in the first quarter of 2024.

This increase was primarily driven by improved utilization in our international markets.

• The clear aligner revenue per case shipment (clear aligner revenues divided by case shipments) decreased from $1,350 in the first quarter of 2024 to $1,240 in the first quarter of 2025, an 8.1% decrease.

Results of Operations

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• 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 and Invisalign First.

▪ 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.

▪ In the U.S., Canada, and EMEA, we also offer a Doctor Subscription Program which is our monthly subscription-based clear aligner program.

▪ 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 products 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 three and nine months ended September 30, 2024 and 2023 are as follows (in millions):

▪ 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, scanner wand upgrades, and non-system revenues from 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 for the three months ended March 31, 2025 and 2024 are as follows (in millions) 1 :

Three Months Ended

September 30, Nine Months Ended

September 30,

Net Revenues 2024 2023 Change 2024 2023 Change

Net Revenues 2025 2024 Change

Clear Aligner net revenues

Americas $ 349.2 $ 366.6 $ (17.4) (4.7) % $ 1,093.3 $ 1,114.3 $ (20.9) (1.9) %

International 361.5 355.3 6.2 1.8 % 1,115.2 1,087.9 27.3 2.5 %

Non-case 76.1 73.0 3.1 4.2 % 227.3 215.3 12.0 5.6 %

Total Clear Aligner net revenues $ 786.8 $ 794.9 $ (8.1) (1.0) % $ 2,435.8 $ 2,417.4 $ 18.4 0.8 %

$ 796.8 $ 817.3 $ (20.4) (2.5) %

Systems and Services net revenues 182.4 180.2 2.2 1.2 %

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Certain tables may not sum or recalculate due to rounding.

Case volume data which represents Clear Aligner case shipments for the three and nine months ended September 30, 2024 and 2023 is as follows (in thousands):

1 Beginning with this quarterly report on Form 10-Q for the quarter ended March 31, 2025, we are no longer disclosing Clear Aligner net revenues for Americas, International and Non-case.

Rather our disclosure will align with our Clear Aligner reportable segment in total.

Clear Aligner Case Volume

Case volume data which represents Clear Aligner case shipments for the three months ended March 31, 2025 and 2024 is as follows (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 Change 2024 2023 Change

2025 2024 Change

Total case volume 642.3 605.1 37.2 6.2 %

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Certain tables may not sum or recalculate due to rounding.

For the three months ended September 30, 2024, total net revenues increased by $18 million as compared to the same period in 2023, primarily due to an increase in Systems and Services net revenue from higher scanner average selling price ("ASP"), increase in non-system sales, and Clear Aligner net revenues from an increase in volume partially offset lower Clear Aligner ASP.

For the nine months ended September 30, 2024, total net revenues increased by $98 million as compared to the same period in 2023, primarily due to an increase in Systems and Services net revenues from higher scanner ASP, increase in non-system sales and services revenue and Clear Aligner net revenues from an increase in volume, partially offset by lower Clear Aligner ASP.

Clear Aligner - Americas

For the three months ended September 30, 2024, Americas net revenues decreased by $17 million as compared to the same period in 2023, primarily due to a 3.9% decrease in ASP, resulting in a decrease of net revenues of $14 million.

The decrease in ASP was driven by unfavorable foreign exchange rates that decreased net revenues by $6 million , a mix shift to lower priced products and countries which reduced net revenues by $23 million and higher promotional discounts which decreased net revenues by $14 million.

These decreases were partially offset by lower net deferrals which increased net revenues by $23 million and price changes which increased net revenues by $6 million.

For the nine months ended September 30, 2024, Americas net revenues decreased by $21 million as compared to the same period in 2023, primarily due to a 1.6% decrease in ASP, resulting in a decrease of net revenues of $18 million.

The decrease in ASP was primarily driven by a mix shift to lower priced products and countries which reduced net revenues by $71 million and higher promotional discounts which decreased net revenues by $49 million.

These decreases were partially offset by lower net deferrals which increased net revenues by $86 million and price changes which increased net revenues by $16 million.

Clear Aligner - International

For the three months ended September 30, 2024, International net revenues increased by $6 million as compared to the same period in 2023, primarily due to a 6.3% increase in case volumes, resulting in increased net revenues by $22 million.

This increase was partially offset by a decrease of 4.3% in ASP which decreased net revenues by $16 million.

Lower ASP was due to unfavorable foreign exchange rates that decreased net revenues by $5 million and a price reduction we took in the United Kingdom (“UK”) to offset VAT on our sales into the UK, which decreased net revenues by $8 million.

ASP was also negatively impacted by a mix shift to lower priced products and countries, which reduced net revenues by $15 million and

higher promotional discounts which reduced net revenues by $31 million.

The decreases in ASP were partially offset by lower net deferrals and price changes which increased net revenues by $26 million and $15 million, respectively.

For the nine months ended September 30, 2024, International net revenues increased by $27 million as compared to the same period in 2023, primarily due to a 6.1% increase in case volumes, resulting in increased net revenues by $67 million.

This increase was partially offset by a decrease of 3.4% in ASP which decreased net revenues by $39 million.

Lower ASP was due to unfavorable foreign exchange rates that decreased net revenues by $25 million, a price reduction we took in the UK to offset VAT on our sales into the UK, which decreased net revenues by $23 million, a mix shift to lower priced products and countries which reduced net revenues by $47 million and higher promotional discounts which reduced net revenues by $83 million.

The decreases in ASP were partially offset by lower net deferrals and price changes which increased net revenues by $80 million and $55 million, respectively.

Clear Aligner - Non-Case

For the three and nine months ended September 30, 2024, non-case net revenues increased by $3 million and $12 million, respectively as compared to the same period in 2023 primarily due to increased volume of Vivera retainers which includes retention aligners ordered through our Doctor Subscription Program.

For the three months ended March 31, 2025, total net revenues decreased by $18 million as compared to the same period in 2024, primarily due to a decrease in Clear Aligner net revenues from lower average selling prices (“ASP”).

The decrease in Clear Aligner net revenues was partially offset by an increase in Systems and Services net revenue primarily due to an increase in sales of scanner wands.

Clear Aligner

For the three months ended March 31, 2025, Clear Aligner net revenues decreased by $20 million as compared to the same period in 2024, primarily due to a decrease in ASP, driven by higher discounts and a product mix shift to lower priced products, resulting in a decrease of net revenues of $40 million and a net revenue decrease of $26 million from unfavorable

foreign exchange rates.

These decreases were partially offset by an increase in volume which increased net revenue by $46 million.

Systems and Services

For the three months ended September 30, 2024, Systems and Services net revenues increased by $26 million as compared to the same period in 2023 primarily due to higher scanner ASP which increased net revenues by $20 million, an increase in sales of upgrade scanner systems which increased net revenues by $7 million, and higher services revenues which increased net revenues by $7 million.

These increases were partially offset by lower volume and unfavorable foreign exchange rates which decreased net revenues by $10 million and $3 million, respectively.

For the nine months ended September 30, 2024, Systems and Services net revenues increased by $80 million as compared to the same period in 2023 primarily due to higher scanner ASP which increased net revenues by $38 million, an increase in sales of upgrade scanner systems which increased net revenues by $30 million, and higher services revenue which increased net revenues by $18 million.

Additionally, CAD/CAM software revenues increased net revenues by $6 million.

These increases were partially offset by lower volume and unfavorable foreign exchange rates which decreased net revenues by $3 million and $7 million, respectively.

For the three months ended March 31, 2025, Systems and Services net revenues increased by $2 million as compared to the same period in 2024, primarily due to an increase of $12 million in sales of scanner wands, driven by strong volume partially offset by lower ASP, and a $4 million increase from non-system sales.

These increases were partially offset by lower scanner system sales of $9 million, driven by lower volume and ASP, and $5 million lower net revenues from unfavorable foreign exchange rates.

Cost of net revenues and gross profit (in millions):

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 Change 2024 2023 Change

2025 2024 Change

Clear Aligner

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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 related costs, depreciation on capital equipment and facilities used in the production process, amortization of acquired intangible assets and training costs.

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

For the three and nine months ended September 30, 2024, our gross margin percentage decreased as compared to the same periods in 2023 primarily due to lower ASPs.

For the three months ended March 31, 2025, our gross margin percentage decreased as compared to the same period in 2024 primarily due to lower ASPs partially offset by lower manufacturing spend.

Systems and Services

For the three months ended September 30, 2024, our gross margin percentage increased as compared to the same period in 2023 primarily due to higher ASPs, partially offset by higher service and freight costs.

For the nine months ended September 30, 2024, our gross margin percentage increased as compared to the same period in 2023 primarily due to higher ASPs, partially offset by lower service revenue mix.

For the three months ended March 31, 2025, our gross margin percentage decreased as compared to the same period in 2024 primarily due to a decrease in scanner wand and scanner system ASPs, partially offset by lower manufacturing spend and services efficiency.

Selling, general and administrative (in millions):

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 Change 2024 2023 Change

2025 2024 Change

Selling, general and administrative $ 447.6 $ 451.8 $ (4.2)

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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, clinical education, marketing materials, 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”).

For the three months ended September 30, 2024, selling, general and administrative expense increased compared to the same period in 2023 primarily due to higher employee costs, including higher salary, fringe benefits, stock-based compensation and bonus.

For the nine months ended September 30, 2024, selling, general and administrative expense increased compared to the same period in 2023 primarily due to higher employee costs, including higher salary, fringe benefits, stock-based compensation and bonus partially offset by lower marketing expense.

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 IT.

For the three months ended March 31, 2025, selling, general and administrative expense decreased compared to the same period in 2024 primarily due to lower employee costs, including salaries, fringe benefits, stock-based compensation and bonus and lower outside services, partially offset by higher marketing expense.

Research and development (in millions):

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 Change 2024 2023 Change

2025 2024 Change

Research and development $ 97.2 $ 91.9 $ 5.3

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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, net of capitalized labor costs related to internal use software, 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.

For the three months ended September 30, 2024, research and development expense decreased compared to the same period in 2023 primarily due to capitalization of labor costs related to internal use software, partially offset by higher employee costs.

For the nine months ended September 30, 2024, research and development expense increased compared to the same period in 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.

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.

For the three months ended March 31, 2025, research and development expense increased compared to the same period in 2024 primarily due to higher employee costs, including salaries, fringe benefits, bonus, stock-based compensation, net of capitalized labor costs related to internal use software.

Legal settlement loss (in millions):

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 Change 2024 2023 Change

2025 2024 Change

Legal settlement loss

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Certain tables may not sum or recalculate due to rounding.

For the three and nine months ended September 30, 2024, we recorded losses of $0.1 million and $31 million, respectively, due to legal settlements.

For the three months ended March 31, 2025, we recorded losses of $4.2 million due to legal settlements.

Refer to Note 7 “ Legal Proceedings ” of the Notes to Condensed Consolidated Financial Statements for more information.

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Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 Change 2024 2023 Change

2025 2024 Change

Clear Aligner

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1 Refer to Note 14 “Segments and Geographical Information” of the Notes to Condensed Consolidated Financial Statements for details on unallocated corporate expenses and the reconciliation to Condensed Consolidated Income from Operations.

For the three months ended September 30, 2024, our operating margin percentage decreased compared to the same periods in 2023 primarily due to increased employee costs .

For the nine months ended September 30, 2024, our operating margin percentage decreased compared to the same periods in 2023 primarily due to increased employee costs and legal settlement losses.

For the three months ended March 31, 2025, our operating margin percentage decreased compared to the same period in 2024 primarily due to lower gross margin from our clear aligner reportable segment and an increase in legal settlement losses.

Refer to Note 7 “ Legal Proceedings ” of the Notes to Condensed Consolidated Financial Statements for more information.

Clear Aligner

For the three and nine months ended September 30, 2024, our operating margin percentage decreased compared to the same periods in 2023 primarily due to a decrease in gross margin and increased employee costs.

For the three months ended March 31, 2025, our operating margin percentage decreased compared to the same period in 2024 primarily due to a decrease in gross margin and a decrease in operating leverage primarily due to higher marketing spend.

Systems and Services

For the three and nine months ended September 30, 2024, our operating margin percentage increased compared to the same periods in 2023 primarily due to higher gross margin, partially offset by increased employee costs.

For the three months ended March 31, 2025, our operating margin percentage increased compared to the same period in 2024 primarily due to operating leverage partially offset by lower gross margin.

Interest income (in millions):

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 Change 2024 2023 Change

2025 2024 Change

Interest income $ 5.3 $ 4.4 $ 0.9

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Interest income generally includes interest earned on cash, cash equivalents and investment balances.

For the three months ended September 30, 2024, interest income decreased compared to the same period in 2023 primarily due to lower cash and cash equivalents and lower interest rates.

For the nine months ended September 30, 2024, interest income decreased compared to the same period in 2023 primarily due to lower cash and cash equivalents.

For the three months ended March 31, 2025, interest income increased compared to the same period in 2024 primarily due to higher cash and cash equivalents.

Other income (expense), net (in millions):

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 Change 2024 2023 Change

2025 2024 Change

Other income (expense), net $ 4.0 $ (0.1) $ 4.2

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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.

For the three months ended September 30, 2024, other income (expense), net increased compared to the same period in 2023 primarily due to the favorable impact of foreign exchange rates and losses on equity investments.

For the nine months ended September 30, 2024, other income (expense), net increased compared to the same period in 2023 primarily due to a gain recorded on our equity investments and the favorable impact of foreign exchange rates.

For the three months ended March 31, 2025, other income (expense), net increased compared to the same period in 2024 primarily due to the favorable impact of foreign exchange rates partially offset by a gain recorded on our equity investments in the first quarter of 2024.

Provision for income taxes (in millions):

Three Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 Change 2024 2023 Change

2025 2024 Change

Provision for income taxes $ 47.2 $ 53.4 $ (6.1)

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Certain tables may not sum or recalculate due to rounding.

Our effective tax rate differs from the statutory federal income tax rate of 21% for both the three and nine month periods ended September 30, 2024 and 2023 primarily due to the recognition of additional tax expense resulting from U.S.

Our effective tax rate differs from the statutory federal income tax rate of 21% for both the three month periods ended March 31, 2025 and 2024 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 expense in the U.S.

The increases in our effective tax rate for the three and nine months ended September 30, 2024 compared to the same periods in 2023 are primarily attributable to the change in our jurisdictional mix of income, recognizing a one-time tax benefit related to the application of tax guidance issued during the three months ended September 30, 2023 , partially offset by a decrease in U.S.

taxes on foreign earnings and remeasurement of Switzerland deferred tax asset due to Swiss tax rate change.

The decrease in our effective tax rate for the three months ended March 31, 2025 compared to the same period in 2024 is primarily attributable to the change in our jurisdictional mix of income, a decrease in U.S.

taxes on foreign earnings, partially offset by remeasurement of Switzerland deferred tax asset due to Swiss tax rate change in 2024 and lower excess tax benefits from stock-based compensation.

Liquidity and Capital Resources

Liquidity and Trends

As of September 30, 2024 and December 31, 2023, we had the following cash and cash equivalents and short-term and long-term marketable securities (in thousands):

September 30, 2024 December 31, 2023

Cash and cash equivalents $ 1,041,935 $ 937,438

Marketable securities, short-term — 35,304

Marketable securities, long-term — 8,022

Total $ 1,041,935 $ 980,764

As of September 30, 2024 and December 31, 2023, approximately $756.5 million and $784.7 million, respectively, of cash, cash equivalents were held by our foreign subsidiaries.

As of March 31, 2025 and December 31, 2024, we had cash and cash equivalents of $873 million and $1,044 million, respectively, of which approximately $740 million and $855 million, respectively, 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 external funding under our $300.0 million revolving line of credit.

We generate sufficient operating cash flow from our domestic operations 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 are as follows:

Our material cash requirements as of March 31, 2025 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.

There have been no material changes to our purchase commitments for goods and services during the nine months ended September 30, 2024 as compared to the year ended December 31, 2023 .

• There have been no material changes to our future operating lease payments during the nine months ended September 30, 2024 as compared to the year ended December 31, 2023.

• For 2024, we expect our investments in capital expenditures to be above $100.0 million.

Capital expenditures primarily relate to building construction and improvements as well as manufacturing capacity in support of our continued expansion.

Despite the challenging market conditions, we intend to expand our investments in research and development, manufacturing, treatment planning, sales and marketing operations to meet actual and anticipated local and regional demands.

• In January 2023, our Board of Directors authorized a plan to repurchase up to $1.0 billion of our common stock, $500.0 million of which had been utilized as of September 30, 2024.

There have been no material changes to our purchase commitments for goods and services during the three months ended March 31, 2025 as compared to the year ended December 31, 2024.

• There have been no material changes to our future operating lease payments during the three months ended March 31, 2025 as compared to the year ended December 31, 2024.

• We expect our investments in capital expenditures for fiscal year 2025 to be between $100 million and $150 million.

Capital expenditures primarily relate to technology upgrades as well as additional manufacturing capacity in support of our continued expansion.

Despite the challenging market conditions, we intend to continue to invest in research and development, manufacturing and treatment planning to meet actual and anticipated demand.

• In April 2025, our Board of Directors authorized a plan to repurchase up to $1.0 billion of our common stock, none of which has been utilized.

We continually evaluate opportunities to repurchase shares of our common stock depending on various factors including our share price and current liquidity requirements.

Refer to Note 10 “Common Stock Repurchase Program” of the Notes to Condensed Consolidated Financial Statements for details on our stock repurchase programs.

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.

Refer to Note 16 “Subsequent Event” of the Notes to Condensed Consolidated Financial Statements for details on this common stock repurchase.

• As of September 30, 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.

• As of September 30, 2024, we agreed, in principle, to settle certain legal matters for a total of $31.2 million.

We expect to seek final court or administrative approvals, as applicable, in the second half of fiscal year 2024.

• As of March 31, 2025, 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.

• As of March 31, 2025, we agreed, in principle, to settle a legal matter for a total of $31.75 million.

We expect to seek court or administrative approvals, as applicable, in the second quarter of 2025.

Settlement payments will be made in accordance with the terms and conditions as set forth in the settlement agreements and/or court approvals.

Refer to Note 7 “ Legal Proceedings ” of the Notes to Condensed Consolidated Financial Statements for more information.

• On October 23, 2024, we announced a restructuring plan to reduce costs by adjusting headcount for the existing business environment.

We expect to incur between approximately $25.0 million and $30.0 million of restructuring charges, primarily related to severance and other one-time post-employment benefits.

Sources and Uses of Cash

The following table summarizes our condensed consolidated cash flows for the nine months ended September 30, 2024 and 2023 (in thousands):

Nine Months Ended

September 30,

The following table summarizes our Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024 (in thousands):

Three Months Ended

Net cash flow provided by (used in):

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Effect of exchange rate changes on cash, cash equivalents and restricted cash 8,480 (9,004)

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 104,462 $ 296,995

Net decrease in cash, cash equivalents and restricted cash

$ (170,889) $ (71,640)

Operating Activities

For the nine months ended September 30, 2024, cash flows from operations of $452.2 million resulted primarily from our net income of approximately $317.6 million as well as the following:

For the three months ended March 31, 2025, cash flows from operations of $53 million resulted primarily from our net income of approximately $93 million as well as the following:

Significant adjustments to net income

• Deferred taxes of $17.5 million related to a decrease in long term deferred tax position;

• Deferred taxes of $34 million related to a decrease in our long term deferred tax position;

• Depreciation and amortization of $39 million related to our investments in property, plant and equipment and intangible assets;

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• Non-cash operating lease costs of $9 million related to operating lease cost;

• Other non-cash operating activities of $6.9 million primarily related to an increase in our bad debt allowance and accounts receivable factoring.

• Other non-cash operating activities of $3 million primarily related to an increase in our bad debt allowance.

Significant changes in working capital

• Net outflow of $135.2 million in accounts receivable due to timing of collections and increased revenues;

• Net inflow of $47.6 million in accrued and other long-term liabilities primarily due to timing of payments.

• Net outflow of $65 million in accounts receivable due to timing of collections;

• Net outflow of $68 million in accrued and other long-term liabilities primarily due to the payment of fiscal year 2024 bonuses;

• Net outflow of $35 million in deferred revenue.

Investing Activities

Net cash used in investing activities was $201.0 million for the nine months ended September 30, 2024 and primarily consisted of a $77.1 million outflow for the Cubicure Acquisition, an outflow of $75.0 million for our investment in Heartland and purchases of property, plant and equipment in the amount of $92.6 million.

Partially offsetting the cash outflows, is $43.9 million in proceeds from marketable securities.

Net cash used in investing activities was $25 million for the three months ended March 31, 2025 which was solely related to purchases of property, plant and equipment.

Financing Activities

Net cash used in financing activities was $152.7 million for the nine months ended September 30, 2024 and primarily consisted of an outflow of $150.0 million for share repurchases and payroll taxes paid for equity awards through share withholdings of $28.0 million which were partially offset by $25.3 million of proceeds from the issuance of common stock under our employee stock purchase plan.

Net cash used in financing activities was $207 million for the three months ended March 31, 2025 and primarily consisted of an outflow of $201 million for share repurchases and payroll taxes paid for equity awards through share withholdings of $20 million which were partially offset by $14 million of proceeds from the issuance of common stock under our employee stock purchase plan.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based upon our Condensed Consolidated Financial Statements which have been prepared in accordance with accounting principles generally accepted in the U.S.

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.

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 ongoing basis, including those related to revenue recognition, goodwill and finite-lived acquired intangible assets, income taxes and legal proceedings and litigation.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis