ALIGN TECHNOLOGY INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 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 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, higher interest rates, market volatility, threats or actual imposition of tariffs, customs duties and fees by nations and retaliatory actions, inflation, threats of or actual economic slowdowns or recessions, or trade wars and geopolitical tensions, our expectations and beliefs regarding customer and consumer confidence, purchasing behavior and demand for dental services 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 ability to implement and realize the anticipated benefits currently expected from actions to streamline operations and reallocate resources to better align our long-term growth with our profitability objectives, 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 judgments 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. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in particular, the risks discussed below in Part II, Item 1A “Risk Factors.” We undertake no obligation to revise or update these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read together with our Condensed Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2025. Executive Overview of Results Trends and Uncertainties 27 Table of Contents 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, 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, Trade Impediments and Geopolitical Tensions Our revenues are susceptible to fluctuations resulting from events and circumstances, including macroeconomic conditions, threats or actual imposition of tariffs, inflation, higher interest rates, customs duties and fees by nations and retaliatory actions, threats of or actual slowdowns or recessions, wages, debt obligations, discretionary income, fluctuations in foreign currency exchange rates, supply chain challenges, market volatility, employment levels, health insurance coverage, and other factors, each of which impacts customer confidence, consumer sentiment and ultimately demand for dental services. Many of these 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 second quarter of 2025, we believe sales of our products were adversely impacted by certain macroeconomic conditions, including global tariff volatility, inflation, and higher interest rates, that negatively affected dental patient demand. Patient traffic growth remained uneven for many doctors, with orthodontic starts down for four consecutive years. We believe uncertainty not only impacts consumer purchasing decisions but also the decisions that doctors make, especially those doctors who offer both clear aligners and wires and brackets and who have existing inventories of wire and brackets and the time to treat patients when orthodontic starts are slowing or diminishing. In the second quarter of 2025, we believe this resulted in an increase in orthodontic starts using brackets and wires in lieu of clear aligners. We believe these trends may continue as long as consumer economic uncertainty persists, 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 will continue to add to market uncertainties and dampen consumer sentiment and demand. More directly, we believe government actions relating to implemented or proposed tariffs and retaliatory actions in key strategic countries or regions, particularly in the United States, China, Europe, Brazil, Canada, Israel and Mexico may adversely impact our revenue and cost of goods sold. Additionally, the 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. dollar. In the second quarter of 2025, the U.S. dollar weakened against major currencies, which positively 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. 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, including military actions in Iran and Israel, as well as increased geopolitical tensions involving Taiwan and the South China Sea may further exacerbate general and regional macroeconomic instability. This is particularly true 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 have not been materially impacted to date, the situation remains fluid. We have implemented contingency measures to help reduce future risks, but it is uncertain whether further escalation could disrupt our operations. 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. We expect to take a series of actions in the second half of fiscal 2025 to streamline operations and reallocate resources to better align with our long-term growth and profitability objectives. Further discussion of these potential actions may be found in Part II, Item 5 “Other Information.” 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. We expect to meet customer 28 Table of Contents 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. For instance, we continue to experience a shift from certain of our higher average selling priced comprehensive products to lower average selling priced products such as our Invisalign Comprehensive 3in3 product. 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. 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 the foregoing strategic priorities by the achievement of key financial and operating metrics. For the three months ended June 30, 2025, our business operations reflect the following: • Revenues of $1,012 million, a decrease of 1.6% year-over-year; • Clear Aligner revenues of $805 million, a decrease of 3.3% year-over-year; • Clear Aligner case volume increased 0.3% year-over-year and Clear Aligner case volume for teens and growing patients increased from 216.7 thousand shipments to 223.2 thousand or 3.0% year-over-year; • Imaging Systems and CAD/CAM services revenues of $208 million, an increase of 5.6% year-over-year; • Income from operations of $163 million and operating margin of 16.1%; • Effective tax rate of 28.2%; • Net income of $125 million with diluted net income per share of $1.72; • Cash and cash equivalents of $901 million as of June 30, 2025; • Cash provided by operating activities of $129 million; • Capital expenditures of $21 million, primarily related to investments in our manufacturing capacity and facilities; and • Number of employees was 21,485 as of June 30, 2025, a decrease of 1.5% year-over-year. Other Statistical Data and Trends • As of June 30, 2025, approximately 21 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 second quarter of 2025, the total number of Invisalign trained doctors cases were shipped to (doctor submitters) was 86.3 thousand compared to 86.1 thousand in the second quarter of 2024, a 0.1% increase. • The total utilization rate in the second quarter of 2025 remained flat at 7.5 cases per doctor compared to the second quarter of 2024. • The clear aligner revenue per case shipment (clear aligner revenues divided by case shipments) decreased from $1,295 in the second quarter of 2024 to $1,250 in the second quarter of 2025, a 3.5% decrease. 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: 29 Table of Contents ▪ 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 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, 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 and six months ended June 30, 2025 and 2024 are as follows (in millions) 1 : Three Months Ended June 30, Six Months Ended June 30, Net Revenues 2025 2024 Change 2025 2024 Change Clear Aligner net revenues $ 804.6 $ 831.7 $ (27.1) (3.3) % $ 1,601.5 $ 1,649.0 $ (47.5) (2.9) % Systems and Services net revenues 207.8 196.8 11.1 5.6 % 390.3 376.9 13.3 3.5 % Total net revenues $ 1,012.4 $ 1,028.5 $ (16.0) (1.6) % $ 1,991.7 $ 2,025.9 $ (34.2) (1.7) % Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding. 1 Beginning with the 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 and six months ended June 30, 2025 and 2024 is as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2025 2024 Change 2025 2024 Change Total case volume 644.4 642.7 1.6 0.3 % 1,286.7 1,247.8 38.9 3.1 % Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding. For the three and six months ended June 30, 2025, total net revenues decreased by $16 million and $34 million, respectively, as compared to the same periods in 2024, primarily due to a decrease in Clear Aligner net revenues driven by a decrease in average selling price (“ASP”). The decrease in Clear Aligner net revenues was partially offset by an increase in Systems and Services net revenues primarily due to an increase in sales of scanner wands. Clear Aligner For the three months ended June 30, 2025, Clear Aligner net revenues decreased by $27 million as compared to the same period in 2024, primarily due to a decrease in ASP, driven by a product mix shift to lower priced products and higher discounts, 30 Table of Contents resulting in a decrease of net revenues of $34 million. The decrease from ASP was partially offset by favorable foreign exchange rates and an increase in volume, which increased net revenues by $5 million and $2 million, respectively. For the six months ended June 30, 2025, Clear Aligner net revenues decreased by $48 million as compared to the same period in 2024, primarily due to a decrease in ASP, driven by a product mix shift to lower priced products and higher discounts, resulting in a decrease of net revenues of $73 million. Clear Aligner net revenues were further negatively impacted by $21 million due to unfavorable foreign exchange rates. These decreases were partially offset by an increase in volume which increased net revenues by $47 million. Systems and Services For the three months ended June 30, 2025, Systems and Services net revenues increased by $11 million as compared to the same period in 2024, primarily due to an increase of $11 million in sales of scanner wands, driven by strong volume partially offset by lower scanner wand ASP, a $5 million increase from non-system sales and a $1 million favorable impact from foreign exchange rates. These increases were partially offset by lower scanner system sales of $6 million, primarily driven by lower scanner system ASP. For the six months ended June 30, 2025, Systems and Services net revenues increased by $13 million as compared to the same period in 2024, primarily due to an increase of $23 million in sales of scanner wands, driven by strong volume partially offset by lower scanner wand ASP, and a $10 million increase from non-system sales. These increases were partially offset by lower scanner system sales of $15 million, driven by lower volume and ASP, and a $4 million negative impact from unfavorable foreign exchange rates. Cost of net revenues and gross profit (in millions): Three Months Ended June 30, Six Months Ended June 30, 2025 2024 Change 2025 2024 Change Clear Aligner Cost of net revenues $ 240.8 $ 243.2 $ (2.4) $ 475.6 $ 481.3 $ (5.7) % of net segment revenues 29.9 % 29.2 % 29.7 % 29.2 % Gross profit $ 563.8 $ 588.5 $ (24.7) $ 1,125.9 $ 1,167.7 $ (41.8) Gross margin % 70.1 % 70.8 % 70.3 % 70.8 % Systems and Services Cost of net revenues $ 63.5 $ 62.7 $ 0.9 $ 127.9 $ 124.2 $ 3.8 % of net segment revenues 30.6 % 31.8 % 32.8 % 32.9 % Gross profit $ 144.3 $ 134.1 $ 10.2 $ 262.3 $ 252.8 $ 9.6 Gross margin % 69.4 % 68.2 % 67.2 % 67.1 % Total cost of net revenues $ 304.3 $ 305.9 $ (1.5) $ 603.5 $ 605.5 $ (2.0) % of net revenues 30.1 % 29.7 % 30.3 % 29.9 % Gross profit $ 708.1 $ 722.6 $ (14.5) $ 1,388.2 $ 1,420.4 $ (32.2) Gross margin % 69.9 % 70.3 % 69.7 % 70.1 % 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. For the three and six months ended June 30, 2025, our gross margin percentage decreased as compared to the same periods in 2024 primarily due to lower clear aligner ASP partially offset by operational efficiencies. Clear Aligner For the three months ended June 30, 2025, our gross margin percentage decreased as compared to the same period in 2024 primarily due to lower ASPs partially offset by lower freight costs. 31 Table of Contents For the six months ended June 30, 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 and freight costs. Systems and Services For the three and six months ended June 30, 2025, our gross margin percentage increased as compared to the same periods in 2024 primarily due to an increase in operational efficiencies partially offset by lower scanner wand and scanner system ASPs and tariffs. Selling, general and administrative (in millions): Three Months Ended June 30, Six Months Ended June 30, 2025 2024 Change 2025 2024 Change Selling, general and administrative $ 448.7 $ 452.3 $ (3.6) $ 896.3 $ 904.1 $ (7.8) % of net revenues 44.3 % 44.0 % 45.0 % 44.6 % 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 IT. For the three months ended June 30, 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, partially offset by higher marketing expense and outside services. For the six months ended June 30, 2025, selling, general and administrative expense decreased compared to the same period in 2024 primarily due to lower employee costs, including salaries, fringe benefits, and bonus and lower outside services, partially offset by higher marketing expense. Research and development (in millions): Three Months Ended June 30, Six Months Ended June 30, 2025 2024 Change 2025 2024 Change Research and development $ 96.4 $ 92.2 $ 4.2 $ 193.6 $ 184.1 $ 9.5 % of net revenues 9.5 % 9.0 % 9.7 % 9.1 % 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. For the three and six months ended June 30, 2025, research and development expense increased compared to the same periods in 2024 primarily due to higher employee costs, including salaries, fringe benefits and stock-based compensation, partially offset by lower bonus cost. 32 Table of Contents Legal settlement loss (in millions): Three Months Ended June 30, Six Months Ended June 30, 2025 2024 Change 2025 2024 Change Legal settlement loss $ — $ 31.1 $ (31.1) $ 4.2 $ 31.1 $ (26.9) % of net revenues — % 3.0 % 0.2 % 1.5 % Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding. For the six months ended June 30, 2025, we recorded losses of $4 million due to legal settlements. Refer to Note 7 “ Legal Proceedings ” of the Notes to Condensed Consolidated Financial Statements for more information. Income from operations (in millions): Three Months Ended June 30, Six Months Ended June 30, 2025 2024 Change 2025 2024 Change Clear Aligner Income from operations $ 267.0 $ 299.6 $ (32.6) $ 527.2 $ 585.9 $ (58.6) Operating margin % 33.2 % 36.0 % 32.9 % 35.5 % Systems and Services Income from operations $ 85.7 $ 70.8 $ 14.9 $ 144.2 $ 120.5 $ 23.7 Operating margin % 41.3 % 36.0 % 37.0 % 32.0 % Total income from operations 1 $ 163.0 $ 147.0 $ 16.0 $ 294.1 $ 301.2 $ (7.0) Operating margin % 16.1 % 14.3 % 14.8 % 14.9 % Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding. 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 June 30, 2025, our operating margin percentage increased compared to the same period in 2024 primarily due to legal settlement losses incurred in 2024 partially offset by lower gross margin from our clear aligner reportable segment. For the six months ended June 30, 2025, our operating margin percentage decreased slightly compared to the same period in 2024 primarily due to lower gross margin from our clear aligner reportable segment partially offset by a decrease in legal settlement losses. Clear Aligner For the three and six months ended June 30, 2025, our operating margin percentage decreased compared to the same periods 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 six months ended June 30, 2025, our operating margin percentage increased compared to the same periods in 2024 primarily due to higher gross margin and improved operating leverage primarily from lower employee spend. 33 Table of Contents Interest income (in millions): Three Months Ended June 30, Six Months Ended June 30, 2025 2024 Change 2025 2024 Change Interest income $ 2.9 $ 3.3 $ (0.4) $ 8.2 $ 7.7 $ 0.5 % of net revenues 0.3 % 0.3 % 0.4 % 0.4 % 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. For the three months ended June 30, 2025, interest income decreased compared to the same period in 2024 primarily due to lower interest rates partially offset by higher cash and cash equivalents. For the six months ended June 30, 2025, interest income increased compared to the same period in 2024 primarily due to higher cash and cash equivalents partially offset by lower interest rates. Other income (expense), net (in millions): Three Months Ended June 30, Six Months Ended June 30, 2025 2024 Change 2025 2024 Change Other income (expense), net $ 7.6 $ (6.5) $ 14.1 $ 11.7 $ (6.6) $ 18.3 % of net revenues 0.8 % (0.6) % 0.6 % (0.3) % 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. For the three months ended June 30, 2025, other income (expense), net increased compared to the same period in 2024 primarily due to favorable foreign exchange rates. For the six months ended June 30, 2025, other income (expense), net increased compared to the same period in 2024 primarily due to favorable 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 June 30, Six Months Ended June 30, 2025 2024 Change 2025 2024 Change Provision for income taxes $ 48.9 $ 47.3 $ 1.6 $ 96.1 $ 100.7 $ (4.5) Effective tax rates 28.2 % 32.9 % 30.6 % 33.3 % Changes and percentages are based on actual values. 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 six month periods ended June 30, 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 decrease in our effective tax rate for the three months ended June 30, 2025 compared to the same period in 2024 is primarily attributable to a decrease in U.S. taxes on foreign earnings, partially offset by the change in our jurisdictional mix of income. The decrease in our effective tax rate for the six months ended June 30, 2025 compared to the same period in 2024 is primarily attributable to a decrease in U.S. taxes on foreign earnings, partially offset by the change in our jurisdictional mix of income, remeasurement of Switzerland deferred tax assets due to a tax rate change in 2024 and lower tax deductions from stock-based compensation. 34 Table of Contents Liquidity and Capital Resources Liquidity and Trends As of June 30, 2025 and December 31, 2024, we had cash and cash equivalents of $901 million and $1,044 million, respectively, of which approximately $708 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 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 as of June 30, 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 six months ended June 30, 2025 as compared to the year ended December 31, 2024. • There have been no material changes to our future operating lease payments during the six months ended June 30, 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 $125 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. The April 2025 Repurchase Program is expected to be completed over a period of up to three years. 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. • As of June 30, 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. • On July 7, 2025, we issued a payment for $31.75 million to an escrow agency to settle an antitrust matter. Refer to Note 7 “ Legal Proceedings ” of the Notes to Condensed Consolidated Financial Statements for more information. Sources and Uses of Cash The following table summarizes our Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2025 and 2024 (in thousands): Six Months Ended June 30, 2025 2024 Net cash flow provided by (used in): Operating activities $ 181,326 $ 188,491 Investing activities (56,768) (192,077) Financing activities (303,055) (163,275) Effect of exchange rate changes on cash, cash equivalents and restricted cash 35,876 (9,196) Net decrease in cash, cash equivalents and restricted cash $ (142,621) $ (176,057) 35 Table of Contents Operating Activities For the six months ended June 30, 2025, cash flows from operations of $181 million resulted primarily from our net income of approximately $218 million as well as the following: Significant adjustments to net income • Depreciation and amortization of $80 million related to our investments in property, plant and equipment and intangible assets; • Stock-based compensation of $93 million related to equity awards granted to employees and directors; • Non-cash operating lease costs of $19 million; and • Other non-cash operating activities of $8 million primarily related to an increase in our bad debt allowance. Significant changes in working capital • Net outflow of $121 million in accounts receivable due to timing of collections; • Net outflow of $36 million in accrued and other long-term liabilities primarily due to the payment of fiscal year 2024 bonuses in the first quarter of 2025; and • Net outflow of $65 million in deferred revenue. Investing Activities Net cash used in investing activities was $57 million for the six months ended June 30, 2025 which was primarily related to an outflow of $47 million for purchases of property, plant and equipment and $10 million for our additional investment in SD Holding Company. Financing Activities Net cash used in financing activities was $303 million for the six months ended June 30, 2025 and primarily consisted of an outflow of $297 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. 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. We use authoritative pronouncements, historical experience and other assumptions as the basis for making estimates. Actual results could differ from those estimates. 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 where certain performance obligations of the sales contract are not delivered in one reporting period. We measure and allocate revenues according to ASC 606-10, “Revenues from Contracts with Customers.” 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 36 Table of Contents 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. Recent Accounting Pronouncements See Note 1 “ Summary of Significant Accounting Policies ” of the Notes to Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements.