ALIGN TECHNOLOGY INC 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk. In the normal course of business, we are exposed to interest rate, foreign currency exchange and inflation risks that could impact our financial position and results of operations. In addition, we are subject to the broad market risk that is created by the global market disruptions and uncertainties resulting from macroeconomic challenges, geopolitical events, trade and other international disputes, including various military conflicts and consumer confidence. Further discussion on these risks may be found in Part II, Item 1A “Risk Factors.” Interest Rate Risk Changes in interest rates could impact our anticipated interest income earned on our cash and cash equivalents balance. As of June 30, 2025, we are not exposed to interest rate risk on our unsecured revolving line of credit. An immediate 10% change in interest rates would not have a material adverse impact on our future operating results and cash flows. As of June 30, 2025, we had no short term or long-term marketable securities. We have not historically used derivative financial instruments to manage our exposure to changes in interest rates. Foreign Currency Exchange Rate Risk As a result of our international operations, our financial performance has been affected by fluctuations in foreign currency exchange rates and economic conditions in global markets. There is no assurance that exchange rate fluctuations will not adversely impact our results of operations or financial position in the future; however, generally we conduct sales in the local currencies of the countries in which we operate, which provides a degree of natural hedging as most subsidiaries’ also incur their operating expenses in those same currencies. To further reduce the short-term impact of foreign exchange rate fluctuations on certain assets and liabilities, we enter into foreign currency forward contracts in markets where we have meaningful exposure, primarily involving the Euro, British Pound, Chinese Yuan, Polish Zloty and Canadian Dollar. These contracts, which are not designated as hedging instruments, typically have original maturities of one month and are marked to market through earnings each reporting period. The gains and losses from these forward contracts are intended to offset the gains and losses in the underlying foreign currency denominated monetary assets and liabilities. We do not enter into foreign currency forward contracts for trading or speculative purposes. As our international footprint expands, we continuously reassess our strategy for managing foreign exchange risk. Although we continue to monitor our exposure to currency fluctuations, and, where appropriate, mitigate our exposure through the use of forward contracts, a hypothetical 10% aggregate change in foreign currency exchange rates relative to the U.S. dollar could have a material impact on our results of operations and financial position. 37 Table of Contents Inflation Risk The economy has been impacted by certain macroeconomic challenges which have contributed to a rising inflationary trend that have impacted both our revenues and costs globally. If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. There is no assurance that our results of operations and financial condition will not be adversely impacted by inflation in the future. Investment Risk We hold equity securities in privately held companies, which are subject to equity price risks and exposures from the evolving macroeconomic environment, including uncertainty and volatility in financial markets and other changes in economic conditions, such as an increase in trade tensions and related tariffs, that could have a material impact on the carrying value of our investments. Our investments in privately held companies primarily consist of equity securities without readily determinable fair values. We elected to account for our investments in privately held companies using the measurement alternative, which is cost, less any impairment, adjusted for changes in fair value resulting from observable transactions for identical or similar investments of the same issuer. We perform a qualitative assessment at each reporting date to determine whether there are triggering events for impairment. The qualitative assessment considers factors such as but not limited to, the investee’s financial performance and business prospects; industry performance; economic environment; and other relevant events and factors affecting the investee. Valuations of our equity investments are complex due to the lack of readily available market data and observable transactions. The carrying value of our investments in privately held companies was $198.2 million at June 30, 2025 and $188.2 million at December 31, 2024.