Document
23780006756000P0Y24M1.91.9false--12-31FY20192019-12-310001097149Large Accelerated FilerNASDAQ0.00010.00012000000002000000007977800078433000797780007843300000P1Y00.00010.000150000005000000P10YP20YP3YP5YP3YP1Y 0001097149 2019-01-01 2019-12-31 0001097149 2020-02-21 0001097149 2019-06-28 0001097149 2017-01-01 2017-12-31 0001097149 2018-01-01 2018-12-31 0001097149 2019-12-31 0001097149 2018-12-31 0001097149 us-gaap:RetainedEarningsMember 2019-01-01 2019-12-31 0001097149 us-gaap:CommonStockMember 2019-12-31 0001097149 us-gaap:RetainedEarningsMember 2018-01-01 2018-12-31 0001097149 us-gaap:CommonStockMember 2018-12-31 0001097149 us-gaap:CommonStockMember 2019-01-01 2019-12-31 0001097149 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-12-31 0001097149 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-12-31 0001097149 2017-12-31 0001097149 us-gaap:CommonStockMember 2016-12-31 0001097149 us-gaap:AdditionalPaidInCapitalMember 2017-01-01 2017-12-31 0001097149 us-gaap:CommonStockMember 2018-01-01 2018-12-31 0001097149 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001097149 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-12-31 0001097149 us-gaap:RetainedEarningsMember 2016-12-31 0001097149 us-gaap:CommonStockMember 2017-12-31 0001097149 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0001097149 2017-01-01 0001097149 us-gaap:RetainedEarningsMember 2017-01-01 2017-12-31 0001097149 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2016-12-31 0001097149 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-01-01 2017-12-31 0001097149 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001097149 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0001097149 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0001097149 2016-12-31 0001097149 us-gaap:RetainedEarningsMember 2018-12-31 0001097149 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-12-31 0001097149 us-gaap:CommonStockMember 2017-01-01 2017-12-31 0001097149 us-gaap:AdditionalPaidInCapitalMember 2016-12-31 0001097149 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001097149 us-gaap:RetainedEarningsMember 2017-12-31 0001097149 us-gaap:RetainedEarningsMember 2019-12-31 0001097149 2023-01-01 2019-12-31 0001097149 srt:MaximumMember 2019-01-01 2019-12-31 0001097149 srt:MinimumMember 2019-01-01 2019-12-31 0001097149 2019-01-01 2019-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember algn:U.S.GovernmentTreasuryBondsMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateBondSecuritiesMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember algn:U.S.GovernmentTreasuryBondsMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:UnsecuredDebtMember us-gaap:OtherAssetsMember 2019-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember us-gaap:CashEquivalentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateBondSecuritiesMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialPaperMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:UnsecuredDebtMember us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CertificatesOfDepositMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CertificatesOfDepositMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember us-gaap:CertificatesOfDepositMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember algn:U.S.GovernmentTreasuryBondsMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember us-gaap:UnsecuredDebtMember us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember algn:AgencyBondsMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:UnsecuredDebtMember us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember algn:IsraeliSeveranceFundsMember us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember algn:AgencyBondsMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialPaperMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateBondSecuritiesMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember algn:IsraeliSeveranceFundsMember us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember us-gaap:UnsecuredDebtMember us-gaap:OtherAssetsMember 2019-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember us-gaap:CashEquivalentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialPaperMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember algn:IsraeliSeveranceFundsMember us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:UnsecuredDebtMember us-gaap:OtherAssetsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember us-gaap:CashEquivalentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:UnsecuredDebtMember us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember 2019-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember algn:AgencyBondsMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember algn:IsraeliSeveranceFundsMember us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember algn:U.S.GovernmentTreasuryBondsMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CertificatesOfDepositMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateBondSecuritiesMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialPaperMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:UnsecuredDebtMember us-gaap:OtherAssetsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember algn:AgencyBondsMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember us-gaap:CashEquivalentsMember 2019-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialPaperMember us-gaap:CashEquivalentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember algn:AgencyBondsMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember algn:AgencyBondsMember us-gaap:CashEquivalentsMember 2018-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember algn:AgencyBondsMember algn:LongTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember us-gaap:EquitySecuritiesMember us-gaap:OtherAssetsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialPaperMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateBondSecuritiesMember us-gaap:CashEquivalentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:EquitySecuritiesMember us-gaap:OtherAssetsMember 2018-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateBondSecuritiesMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember us-gaap:CashEquivalentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember algn:AgencyBondsMember us-gaap:CashEquivalentsMember 2018-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember us-gaap:CertificatesOfDepositMember algn:LongTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialPaperMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CertificatesOfDepositMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateBondSecuritiesMember us-gaap:CashEquivalentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialPaperMember us-gaap:CashEquivalentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember algn:U.S.GovernmentTreasuryBondsMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember algn:AgencyBondsMember us-gaap:CashEquivalentsMember 2018-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember algn:U.S.GovernmentTreasuryBondsMember algn:LongTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember us-gaap:CertificatesOfDepositMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialPaperMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CertificatesOfDepositMember algn:LongTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember algn:AgencyBondsMember algn:LongTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:EquitySecuritiesMember us-gaap:OtherAssetsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateBondSecuritiesMember algn:LongTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CertificatesOfDepositMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateBondSecuritiesMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateBondSecuritiesMember us-gaap:CashEquivalentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember algn:AgencyBondsMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember algn:IsraeliSeveranceFundsMember us-gaap:OtherAssetsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember algn:U.S.GovernmentTreasuryBondsMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember algn:U.S.GovernmentTreasuryBondsMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember us-gaap:CashEquivalentsMember 2018-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateBondSecuritiesMember algn:LongTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember us-gaap:CashEquivalentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember algn:IsraeliSeveranceFundsMember us-gaap:OtherAssetsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember algn:AgencyBondsMember algn:LongTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateBondSecuritiesMember algn:LongTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateBondSecuritiesMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember algn:IsraeliSeveranceFundsMember us-gaap:OtherAssetsMember 2018-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialPaperMember us-gaap:CashEquivalentsMember 2018-12-31 0001097149 us-gaap:FairValueMeasurementsRecurringMember algn:AgencyBondsMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:CertificatesOfDepositMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:CommercialPaperMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 algn:AgencyBondsMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 algn:U.S.GovernmentTreasuryBondsMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 us-gaap:CorporateBondSecuritiesMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0001097149 currency:CNY us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0001097149 currency:MXN us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0001097149 currency:AUD us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0001097149 currency:JPY us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0001097149 currency:EUR us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0001097149 currency:ILS us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0001097149 currency:CAD us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0001097149 currency:GBP us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0001097149 us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0001097149 currency:BRL us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0001097149 us-gaap:CommercialPaperMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 algn:U.S.GovernmentTreasuryBondsMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 algn:AgencyBondsMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:CertificatesOfDepositMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:CorporateBondSecuritiesMember us-gaap:ShortTermInvestmentsMember 2018-12-31 0001097149 us-gaap:ForeignExchangeForwardMember 2019-01-01 2019-12-31 0001097149 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-01-01 2019-12-31 0001097149 us-gaap:ForeignExchangeForwardMember 2018-01-01 2018-12-31 0001097149 algn:U.S.GovernmentTreasuryBondsMember algn:LongTermInvestmentsMember 2018-12-31 0001097149 us-gaap:CertificatesOfDepositMember algn:LongTermInvestmentsMember 2018-12-31 0001097149 us-gaap:CorporateBondSecuritiesMember algn:LongTermInvestmentsMember 2018-12-31 0001097149 algn:AgencyBondsMember algn:LongTermInvestmentsMember 2018-12-31 0001097149 algn:LongTermInvestmentsMember 2018-12-31 0001097149 us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2018-12-31 0001097149 currency:BRL us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2018-12-31 0001097149 currency:GBP us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2018-12-31 0001097149 currency:EUR us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2018-12-31 0001097149 currency:JPY us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2018-12-31 0001097149 currency:CNY us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2018-12-31 0001097149 currency:CAD us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2018-12-31 0001097149 currency:AUD us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:FairValueInputsLevel2Member 2018-12-31 0001097149 2019-09-26 2019-09-26 0001097149 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2018-12-31 0001097149 us-gaap:ComputerEquipmentMember 2019-12-31 0001097149 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2019-12-31 0001097149 us-gaap:FurnitureAndFixturesMember 2018-12-31 0001097149 us-gaap:ComputerEquipmentMember 2018-12-31 0001097149 us-gaap:EquipmentMember 2019-12-31 0001097149 us-gaap:FurnitureAndFixturesMember 2019-12-31 0001097149 us-gaap:LeaseholdImprovementsMember 2019-12-31 0001097149 us-gaap:BuildingMember 2018-12-31 0001097149 us-gaap:LandMember 2018-12-31 0001097149 us-gaap:ConstructionInProgressMember 2018-12-31 0001097149 us-gaap:LandMember 2019-12-31 0001097149 us-gaap:LeaseholdImprovementsMember 2018-12-31 0001097149 us-gaap:ConstructionInProgressMember 2019-12-31 0001097149 us-gaap:EquipmentMember 2018-12-31 0001097149 us-gaap:BuildingMember 2019-12-31 0001097149 us-gaap:ComputerEquipmentMember 2019-01-01 2019-12-31 0001097149 us-gaap:BuildingMember 2019-01-01 2019-12-31 0001097149 srt:MaximumMember us-gaap:EquipmentMember 2019-01-01 2019-12-31 0001097149 us-gaap:FurnitureAndFixturesMember 2019-01-01 2019-12-31 0001097149 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2019-01-01 2019-12-31 0001097149 srt:MinimumMember 2019-12-31 0001097149 srt:MaximumMember 2019-12-31 0001097149 algn:SDCMember 2017-07-24 0001097149 algn:SDCMember 2019-04-30 0001097149 algn:SDCMember us-gaap:NotesReceivableMember 2019-04-30 0001097149 2019-04-01 2019-06-30 0001097149 2016-07-25 2016-07-25 0001097149 2016-07-25 0001097149 algn:SDCMember 2017-07-24 2017-07-24 0001097149 us-gaap:DistributionRightsMember 2019-01-01 2019-12-31 0001097149 us-gaap:CustomerRelationshipsMember 2019-01-01 2019-12-31 0001097149 us-gaap:CustomerRelationshipsMember 2019-12-31 0001097149 us-gaap:PatentsMember 2019-12-31 0001097149 us-gaap:TrademarksMember 2019-12-31 0001097149 us-gaap:DistributionRightsMember 2019-12-31 0001097149 us-gaap:OtherIntangibleAssetsMember 2019-12-31 0001097149 us-gaap:PatentsMember 2019-01-01 2019-12-31 0001097149 us-gaap:OtherIntangibleAssetsMember 2019-01-01 2019-12-31 0001097149 algn:ExistingTechnologyMember 2019-01-01 2019-12-31 0001097149 algn:ExistingTechnologyMember 2019-12-31 0001097149 us-gaap:TrademarksMember 2019-01-01 2019-12-31 0001097149 algn:EmployeeStockPurchasePlan2010Member 2019-01-01 2019-12-31 0001097149 algn:MarketPerformanceBasedRestrictedStockUnitsMember 2019-01-01 2019-12-31 0001097149 us-gaap:RestrictedStockUnitsRSUMember 2019-01-01 2019-12-31 0001097149 us-gaap:StockOptionMember 2019-01-01 2019-12-31 0001097149 us-gaap:OtherIntangibleAssetsMember 2018-12-31 0001097149 us-gaap:CustomerRelationshipsMember 2018-12-31 0001097149 us-gaap:DistributionRightsMember 2018-01-01 2018-12-31 0001097149 algn:ExistingTechnologyMember 2018-12-31 0001097149 us-gaap:TrademarksMember 2018-01-01 2018-12-31 0001097149 us-gaap:PatentsMember 2018-12-31 0001097149 us-gaap:OtherIntangibleAssetsMember 2018-01-01 2018-12-31 0001097149 us-gaap:CustomerRelationshipsMember 2018-01-01 2018-12-31 0001097149 us-gaap:DistributionRightsMember 2018-12-31 0001097149 us-gaap:TrademarksMember 2018-12-31 0001097149 algn:ExistingTechnologyMember 2018-01-01 2018-12-31 0001097149 us-gaap:PatentsMember 2018-01-01 2018-12-31 0001097149 2018-02-27 0001097149 srt:MinimumMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-02-16 2018-02-16 0001097149 srt:MaximumMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-02-16 2018-02-16 0001097149 srt:MinimumMember us-gaap:BaseRateMember 2018-02-16 2018-02-16 0001097149 us-gaap:LondonInterbankOfferedRateLIBORMember 2018-02-16 2018-02-16 0001097149 us-gaap:BaseRateMember 2018-02-16 2018-02-16 0001097149 srt:MaximumMember us-gaap:BaseRateMember 2018-02-16 2018-02-16 0001097149 2019-01-01 2019-03-31 0001097149 2019-07-01 2019-09-30 0001097149 algn:PatentInfringementby3ShapeMember 2017-11-14 2017-11-14 0001097149 algn:ViolationofTradeLaws3ShapeMember 2017-11-14 2017-11-14 0001097149 algn:StraumannGroupMember 2019-03-29 2019-03-29 0001097149 algn:PatentInfringementby3ShapeMember 2018-12-11 2018-12-11 0001097149 algn:StraumannGroupMember 2019-07-01 2019-07-31 0001097149 algn:Lawsuitagainst3ShapeASMember 2018-12-10 2018-12-10 0001097149 algn:Lawsuitagainst3ShapeASMember 2017-11-14 2017-11-14 0001097149 algn:StraumannGroupMember 2019-01-01 2019-09-30 0001097149 algn:StraumannGroupMember algn:ITeroElementScannersMember 2019-01-01 2019-09-30 0001097149 2019-04-03 2019-04-03 0001097149 algn:StraumannGroupMember 2019-09-30 0001097149 2018-05-29 2018-05-29 0001097149 2019-01-15 2019-01-15 0001097149 2019-10-01 2019-12-31 0001097149 2019-01-29 2019-01-29 0001097149 us-gaap:SubsequentEventMember 2020-04-01 0001097149 algn:BuildingFloorMember 2019-01-01 2019-12-31 0001097149 2017-11-27 2017-11-27 0001097149 2019-05-29 2019-05-29 0001097149 us-gaap:CostOfSalesMember 2017-01-01 2017-12-31 0001097149 us-gaap:ResearchAndDevelopmentExpenseMember 2017-01-01 2017-12-31 0001097149 us-gaap:ResearchAndDevelopmentExpenseMember 2018-01-01 2018-12-31 0001097149 us-gaap:CostOfSalesMember 2018-01-01 2018-12-31 0001097149 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2017-01-01 2017-12-31 0001097149 us-gaap:CostOfSalesMember 2019-01-01 2019-12-31 0001097149 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2019-01-01 2019-12-31 0001097149 us-gaap:ResearchAndDevelopmentExpenseMember 2019-01-01 2019-12-31 0001097149 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2018-01-01 2018-12-31 0001097149 us-gaap:RestrictedStockUnitsRSUMember 2019-12-31 0001097149 us-gaap:RestrictedStockUnitsRSUMember 2018-12-31 0001097149 algn:MarketPerformanceBasedRestrictedStockUnitsMember 2018-01-01 2018-12-31 0001097149 algn:EmployeeStockPurchasePlanMember 2018-01-01 2018-12-31 0001097149 algn:MarketPerformanceBasedRestrictedStockUnitsMember 2017-01-01 2017-12-31 0001097149 algn:EmployeeStockPurchasePlanMember 2019-01-01 2019-12-31 0001097149 us-gaap:RestrictedStockUnitsRSUMember 2018-01-01 2018-12-31 0001097149 us-gaap:RestrictedStockUnitsRSUMember 2017-01-01 2017-12-31 0001097149 srt:MaximumMember algn:MarketPerformanceBasedRestrictedStockUnitsMember 2019-01-01 2019-12-31 0001097149 algn:StockIncentivePlan2005Member 2019-12-31 0001097149 algn:EmployeeStockPurchasePlanMember 2019-12-31 0001097149 srt:MinimumMember algn:MarketPerformanceBasedRestrictedStockUnitsMember 2019-01-01 2019-12-31 0001097149 srt:MaximumMember algn:EmployeeStockPurchasePlan2010Member 2019-01-01 2019-12-31 0001097149 algn:EmployeeStockIncentivePlan2005Member 2013-05-16 0001097149 algn:StockPlan2001Member 2019-01-01 2019-12-31 0001097149 algn:MarketPerformanceBasedRestrictedStockUnitsMember 2019-12-31 0001097149 algn:EmployeeStockPurchasePlanMember 2017-01-01 2017-12-31 0001097149 algn:EmployeeStockPurchasePlan2010Member 2019-12-31 0001097149 algn:MarketPerformanceBasedRestrictedStockUnitsMember 2018-12-31 0001097149 algn:MarketPerformanceBasedRestrictedStockUnitsMember 2017-12-31 0001097149 algn:EmployeeStockIncentivePlan2005Member 2019-12-31 0001097149 algn:ASR2017Member 2017-08-01 2017-08-31 0001097149 algn:May2018RepurchaseMember 2019-02-01 2019-02-22 0001097149 algn:May2018RepurchaseMember 2018-12-31 0001097149 algn:ASR2017Member 2018-01-01 2018-12-31 0001097149 algn:ASR2017Member 2018-02-01 2018-02-28 0001097149 algn:May2018RepurchaseMember 2018-12-01 2018-12-31 0001097149 algn:May2018RepurchaseMember 2018-01-01 2018-12-31 0001097149 algn:April2014StockRepurchaseProgramMember 2014-01-01 2016-12-31 0001097149 algn:AcceleratedStockRepurchaseAgreement2019ASRMember 2019-01-01 2019-09-30 0001097149 algn:April2014StockRepurchaseProgramMember 2016-05-04 2016-05-04 0001097149 algn:May2018RepurchaseMember 2019-12-31 0001097149 algn:May2018RepurchaseMember 2018-05-31 0001097149 algn:April2016StockRepurchaseProgramMember 2016-04-28 0001097149 algn:April2014StockRepurchaseProgramMember 2018-01-01 2018-12-31 0001097149 algn:April2014StockRepurchaseProgramMember 2014-04-23 0001097149 us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2019-01-01 2019-12-31 0001097149 us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2018-01-01 2018-12-31 0001097149 us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2017-01-01 2017-12-31 0001097149 2017-10-01 2017-12-31 0001097149 us-gaap:ForeignCountryMember 2019-12-31 0001097149 srt:MaximumMember country:CH us-gaap:ScenarioForecastMember us-gaap:SubsequentEventMember 2020-03-31 0001097149 algn:ClearAlignerMember 2017-01-01 2017-12-31 0001097149 algn:ClearAlignerMember 2018-01-01 2018-12-31 0001097149 us-gaap:CorporateNonSegmentMember 2019-01-01 2019-12-31 0001097149 algn:ScannersAndServicesMember 2018-01-01 2018-12-31 0001097149 algn:ScannersAndServicesMember 2019-01-01 2019-12-31 0001097149 algn:InvisalignFullMember 2019-01-01 2019-12-31 0001097149 algn:ClearAlignerMember 2019-01-01 2019-12-31 0001097149 us-gaap:CorporateNonSegmentMember 2017-01-01 2017-12-31 0001097149 algn:InvisalignExpressliteMember 2018-01-01 2018-12-31 0001097149 algn:InvisalignExpressliteMember 2017-01-01 2017-12-31 0001097149 algn:InvisalignFullMember 2018-01-01 2018-12-31 0001097149 algn:ScannersAndServicesMember 2017-01-01 2017-12-31 0001097149 algn:InvisalignFullMember 2017-01-01 2017-12-31 0001097149 algn:InvisalignExpressliteMember 2019-01-01 2019-12-31 0001097149 us-gaap:CorporateNonSegmentMember 2018-01-01 2018-12-31 0001097149 algn:OtherInternationalMember 2019-12-31 0001097149 country:CN 2019-12-31 0001097149 country:CR 2019-12-31 0001097149 country:US 2019-12-31 0001097149 country:NL 2018-12-31 0001097149 algn:OtherInternationalMember 2018-12-31 0001097149 country:NL 2019-12-31 0001097149 country:CN 2018-12-31 0001097149 country:CR 2018-12-31 0001097149 country:US 2018-12-31 0001097149 country:NL 2018-01-01 2018-12-31 0001097149 country:CN 2017-01-01 2017-12-31 0001097149 algn:OtherInternationalMember 2017-01-01 2017-12-31 0001097149 country:CN 2018-01-01 2018-12-31 0001097149 algn:OtherInternationalMember 2018-01-01 2018-12-31 0001097149 country:CN 2019-01-01 2019-12-31 0001097149 country:NL 2019-01-01 2019-12-31 0001097149 country:US 2019-01-01 2019-12-31 0001097149 algn:OtherInternationalMember 2019-01-01 2019-12-31 0001097149 country:US 2018-01-01 2018-12-31 0001097149 country:US 2017-01-01 2017-12-31 0001097149 country:NL 2017-01-01 2017-12-31 0001097149 us-gaap:OperatingSegmentsMember 2017-01-01 2017-12-31 0001097149 us-gaap:OperatingSegmentsMember 2018-01-01 2018-12-31 0001097149 us-gaap:OperatingSegmentsMember 2019-01-01 2019-12-31 0001097149 algn:SECSchedule1209ValuationAllowancesSalesReturnsMember 2018-01-01 2018-12-31 0001097149 algn:SECSchedule1209ValuationAllowancesSalesReturnsMember 2019-12-31 0001097149 algn:SECSchedule1209ValuationAllowancesSalesReturnsMember 2017-01-01 2017-12-31 0001097149 algn:SECSchedule1209ValuationAllowancesSalesReturnsMember 2018-12-31 0001097149 algn:SECSchedule1209ValuationAllowancesSalesReturnsMember 2019-01-01 2019-12-31 0001097149 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2018-12-31 0001097149 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2018-01-01 2018-12-31 0001097149 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2017-01-01 2017-12-31 0001097149 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2017-12-31 0001097149 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2019-01-01 2019-12-31 0001097149 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2016-12-31 0001097149 us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember 2019-12-31 0001097149 algn:SECSchedule1209ValuationAllowancesSalesReturnsMember 2017-12-31 0001097149 algn:SECSchedule1209ValuationAllowancesSalesReturnsMember 2016-12-31 iso4217:EUR xbrli:pure algn:segment iso4217:CNY iso4217:USD xbrli:shares iso4217:USD iso4217:JPY iso4217:AUD iso4217:GBP iso4217:CAD iso4217:MXN iso4217:BRL xbrli:shares algn:Lawsuit algn:purchase_period algn:patent algn:Unit algn:floor algn:Segment


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________
FORM 10-K
 ________________________________________________________________________
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
Commission file number: 000-32259
_______________________________________________________
ALIGN TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________________________________ 
Delaware
94-3267295
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
2820 Orchard Parkway
San Jose, California 95134
(Address of principal executive offices)
(408470-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
______________________________________________________ 
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, $0.0001 par value
ALGN
The NASDAQ Stock Market LLC
(NASDAQ Global Market)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes      No  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  
Accelerated filer  
Non-accelerated filer  
Smaller reporting company  
Emerging growth company
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $15.9 billion as of June 28, 2019 based on the closing sale price of the registrant’s common stock on the NASDAQ Global Market on such date. Shares held by persons who may be deemed affiliates have been excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
On February 21, 2020, 78,753,161 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement relating to its 2020 Annual Stockholders’ Meeting to be filed pursuant to Regulation 14A within 120 days after the registrant’s fiscal year end of December 31, 2019 are incorporated by reference into Part III of this Annual Report on Form 10-K.

1



ALIGN TECHNOLOGY, INC.
FORM 10-K
For the Year Ended December 31, 2019
TABLE OF CONTENTS
 
 
 
 
 
 
Page
Item 1.
Business
 
Executive Officers of the Registrant
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Consolidated Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Consolidated Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions and Director Independence
Item 14.
Principal Accounting Fees and Services
Item 15.
Exhibits, Financial Statement Schedules
Item 16.

Form 10-K Summary
Signatures

Invisalign, Align, the Invisalign logo, ClinCheck, Made to Move, Invisalign Assist, Invisalign Teen, Invisalign Go, Vivera, SmartForce, SmartTrack, SmartStage, SmileView, iTero, iTero Element, Orthocad, iCast and iRecord, among others, are trademarks and/or service marks of Align Technology, Inc. or one of its subsidiaries or affiliated companies and may be registered in the United States and/or other countries.





2



In addition to historical information, this annual report on Form 10-K 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. These statements include, among other things, our estimates concerning the number of people who can benefit from our products, expectations regarding the anticipated impact of our new products and product enhancements will have on the future of dentistry, doctor utilization and our market share, our beliefs regarding our technology development and the advantages of our intellectual property portfolio, our beliefs concerning our compliance with domestic and foreign laws and regulations, including data protection and security, our expectations regarding geographic and product mix and product adoption, our expectations for domestic and international growth, our expectations regarding the existence and impact of seasonality, our expectations regarding the sales growth of our iTero scanners, their utilization and the potential growth opportunities iTero scanners represent to our overall business, our beliefs concerning the manufacturing capabilities and expectations regarding the financial and strategic benefits of establishing regional order acquisition, treatment planning and manufacturing facilities, our expectations for competition, our expectations concerning the impact of the Novel Coronavirus on our sales and operating results, our intention to hire more sales representatives and their expected impact on our sales, our expectations regarding the continued expansion of our domestic and international markets including related infrastructure and staffing, our expectations related to our corporate structure reorganization, the level of our operating expenses, capital expenditures and gross margins, our intentions regarding earnings from international operations, our beliefs concerning our investment portfolio and the funding of our operations 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 II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in particular, the risks discussed below in Part I, 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.
PART I
 
ITEM 1.BUSINESS

Our Company

Align Technology, Inc. (“We”, “Our”, “Align”) is a global medical device company engaged in the design, manufacture and marketing of Invisalign® clear aligners and iTero® intraoral scanners and services for orthodontics, and restorative and aesthetic dentistry. Align’s products are intended primarily for the treatment of malocclusion or the misalignment of teeth and are designed to help dental professionals achieve the clinical outcomes that they expect. Align Technology was founded in March 1997 and incorporated in Delaware in April 1997. Our corporate headquarters is located at 2820 Orchard Parkway, San Jose, California, U.S.A., 95134, and our telephone number is 408-470-1000. Our internet address is www.aligntech.com. Our Americas regional headquarters is located in Raleigh, North Carolina, U.S.A.; our European, Middle East and Africa (“EMEA”) regional headquarters is located in Rotkreuz, Switzerland, which moved from Amsterdam, the Netherlands in January 2020; and our Asia Pacific ("APAC") regional headquarters is located in Singapore.

We have two operating segments: (1) Clear Aligner and (2) Scanners and Services ("Scanner"). For the year ended December 31, 2019, Clear Aligner net revenues represented approximately 84% of worldwide net revenues, while Scanner net revenues represented the remaining 16% of worldwide net revenues. We sell the majority of our products directly to our customers: orthodontists and general practitioner dentists ("GPs"), as well as to restorative and aesthetic dentists, including prosthodontists, periodontists, and oral surgeons. We also sell through sales agents and distributors in certain countries. In addition, we sell directly to Dental Support Organizations ("DSOs") who contract with dental practices to provide critical business management and support including non-clinical operations, and we sell directly to dental laboratories who manufacture or customize a variety of products used by licensed dentists to provide oral health care.

We received 510(k) clearance from the United States Food and Drug Administration (“FDA”) to market the Invisalign System in 1998. The Invisalign System is regulated by the FDA as a Class II medical device. In order to provide Invisalign treatment to their patients, orthodontists and GPs must initially complete an Invisalign training course. The Invisalign System is sold primarily through a direct sales force in North America, APAC, Europe, EMEA and Latin America ("LATAM"). To date, over 8 million people worldwide have been treated with our Invisalign System.

Our iTero scanner is used by dental professionals and/or labs and service providers for restorative and orthodontic digital procedures as well as Invisalign case submission. We received 510(k) clearance from the FDA to market iTero software for expanded indications in 2013. Scanners and computer-aided design/computer-aided manufacturing ("CAD/CAM") services are primarily

3



sold through our direct sales force and through sales agents and distributors in certain countries. In addition, we sell iTero scanners and CAD/CAM services directly to DSOs.

Clear Aligner Segment

Malocclusion and Traditional Orthodontic Treatment

Malocclusion, or the misalignment of teeth, is one of the most prevalent clinical dental conditions, affecting billions of people, or approximately 60% to 75% of the global population. Annually, approximately 12 million people in major developed countries elect treatment by orthodontists worldwide. Most orthodontic patients are treated with the use of traditional methods such as metal arch wires and brackets, referred to as braces, and may be augmented with elastics, metal expanders, headgear or functional appliances, and other ancillary devices as needed. Upon completion of the treatment, the dental professional may, at his or her discretion, have the patient use a retainer appliance. Of the 12 million annual orthodontic cases started, we estimate that approximately 75% or 8.4 million could be treated using our Invisalign clear aligners. In addition, approximately 300 million people with malocclusion could benefit from straightening their teeth. This represents an incremental opportunity for us as we expand the market for orthodontics by educating more consumers about the benefits of straighter teeth using Invisalign clear aligners and connecting them with an Invisalign doctor of their choice.

The Invisalign System

The Invisalign System is a proprietary method for treating malocclusion based on a proprietary computer-simulated virtual treatment plan and a series of doctor-prescribed, custom manufactured, clear plastic removable aligners. The Invisalign System offers a range of treatment options, specialized services, and access to proprietary software for treatment visualization and is comprised of the following phases:

Orthodontic diagnosis and transmission of treatment data to us. The Invisalign-trained dental professional prepares an online prescription form on our Invisalign Doctor Site and submits the patient's records, which include a digital intraoral scan or a polyvinyl-siloxane ("PVS") impression of the relevant dental arches, photographs of the patient and, at the dental professional’s election, x-rays of the patient’s dentition. Intraoral digital scans may be submitted through either Align's iTero scanner or certain third-party scanners capable of accurately interfacing with our systems and processes. See "Third Party Scanners and Digital scans for Invisalign treatment submission." More than 73% of Invisalign case submissions are now submitted via digital scan, increasing the accuracy of treatments, reducing the time from prescription submission to patient receipt, and decreasing the carbon footprint resulting from the shipment of the materials used to form the physical PVS impressions and shipping those PVS impressions to us.

Preparation of computer-simulated treatment plan. Using the information and digital data provided, we generate a proposed custom, three-dimensional treatment plan, called a ClinCheck treatment plan using our proprietary software, which is not for sale or license. A patient’s ClinCheck treatment plan simulates expected tooth movement in stages and details the timing and placement of any features or attachments to be used during treatment. Attachments are tooth-colored “buttons” that are sometimes used to increase the biomechanical force on a specific tooth or teeth in order to effect the desired movement(s).

Review and approval of the treatment plan by an Invisalign-trained doctor. The patient’s ClinCheck treatment plan is then made available to the prescribing dental professional via the Invisalign Doctor Site which enables the dental professional to project tooth movement from initial position to final position and compare multiple treatment plan options. By reviewing, modifying as needed and approving the treatment plan, the dental professional retains control of the patient's treatment.

Manufacture of custom aligners. Upon the dental professional’s approval of the ClinCheck treatment plan, we use the data underlying the simulation, in conjunction with stereolithography technology (a form of 3D printing technology), to construct a series of molds depicting the future position of the patient’s teeth. Each mold is a replica of the patient’s teeth at each stage of the simulated course of treatment. From these molds, aligners are fabricated by pressure-forming polymeric sheets over each mold. Aligners are thin, clear plastic, removable dental appliances that are custom manufactured in a series to correspond to each stage of the patient's ClinCheck treatment plan.

Shipment to the dental professional and patient aligner wear. In most countries, all the aligners for a patient's treatment plan are shipped directly to the dental professional, who then dispenses them to the patient at regular check-up intervals throughout the treatment. Aligners are generally worn for a period of time typically one to two weeks, corresponding to the stages of the patient’s approved ClinCheck treatment plan. The patient replaces the aligners with the next pair in the series when prescribed, advancing tooth movement through each stage. At various points in each patient’s treatment, their doctor may place attachments or use other auxiliaries to achieve desired tooth movements, per the doctor’s original prescription and the approved ClinCheck treatment plan.

4



At the treating doctor’s discretion, weekly aligner changes are recommended for all Invisalign treatments except for Invisalign Lite and Express packages and may provide up to 50% shorter treatment time compared with two-week aligner wear.

Feature Enhancements

We continue to introduce enhanced features across the Invisalign System to improve treatment outcomes or address broader clinical indications. For example, in 2018, we extended the Invisalign product family with Invisalign First clear aligners, designed with features specifically for younger patients with early mixed dentition (with a mixture of primary/baby and permanent teeth). Invisalign First clear aligners are designed specifically to address a broad range of younger patients' malocclusions, including shorter clinical crowns, management of erupting dentition, and predictable dental arch expansion.
    
In 2018, we also introduced enhancements designed to improve dental professional and patient experiences and clinical outcomes including: wing overlap and engagement in deep bite cases with anterior intrusion, new options for mandibular advancement and symmetrical advancement of the left and right side, a new default protocol for incremental advancement, and improvements to support leveling the curve of Spee in deep bite cases.
Clear Aligner Products

Malocclusion
Very Mild
https://cdn.kscope.io/1df0a354164e54edcbce580e234dcd2d-leftarrowa01.jpg
Moderate
https://cdn.kscope.io/1df0a354164e54edcbce580e234dcd2d-right.jpg
Severe
Product
Invisalign Express Package
Invisalign Lite Package
Invisalign Go Limited Movement (GP)
Invisalign Moderate Package
Invisalign Comprehensive Package
Stages
7
14
20
20-26
As many as required
Clinical Scope
Relapse and minor movement, anterior esthetic alignment
Class I, mild crowding/spacing, non-extraction, pre-restorative
Class I, no anterior / posterior correction, mild to moderate crowding, spacing, non-extraction, pre-restorative Tooth movement from 2nd premolar to 2nd premolar (5x5)
Class I, mild Class II, mild to moderate crowding/spacing, mild anterior / posterior and vertical discrepancies, pre-restorative
Class I, II, III, moderate to severe crowding/spacing, anterior / posterior and vertical discrepancies, extractions, complex pre-restorative

Most of our Invisalign Treatment Plans described above provide dental professionals with the option to order additional aligners if the patient's treatment is not tracking against the original treatment plan. The number of additional aligner orders and timing are subject to certain requirements noted in our terms and conditions.

Comprehensive Products - Invisalign Treatment Options:

Invisalign Comprehensive. The Invisalign Comprehensive Package is used to treat adults and teens for a full spectrum of mild to severe malocclusion and contains a wide variety of Invisalign features to address the doctor's treatment goals. It also addresses the orthodontic needs of teenage patients, such as Mandibular Advancement, compliance indicators and compensation for tooth eruption.  

Invisalign First Phase 1 and Invisalign First Comprehensive Phase 2 Package. Invisalign First Phase 1 is designed specifically for younger patients generally between the ages of seven and ten years, which is a mixture of primary/baby and permanent teeth. Invisalign First Phase 1 treatment provides early interceptive orthodontic treatment, traditionally done through arch expanders, or partial metal braces, before all permanent teeth have erupted. Invisalign First clear aligners are designed specifically to address a broad range of younger patients' malocclusions, including shorter clinical crowns, management of erupting dentition and predictable dental arch expansion. Our Invisalign First Comprehensive Phase 2 Package is a continuation of the First Phase 1 and is generally consistent with our Invisalign Comprehensive Package. After a patient completes Invisalign First Phase I, doctors have the option to purchase a discounted Comprehensive Phase 2 Package for that same patient.

Non-Comprehensive Products - Invisalign Treatment Options:

Invisalign Non-comprehensive Products. We offer a variety of lower priced treatment packages for less complex orthodontic cases, non-comprehensive relapse cases, or straightening prior to restorative or cosmetic treatments, such as veneers. These packages may be offered in select countries and/or may differ from region to region.


5



Invisalign Go. We also offer Invisalign Go, a streamlined Non-Comprehensive package designed for GPs to more easily identify and treat patients with mild malocclusion. The Invisalign Go package includes case assessment support, a simplified ClinCheck treatment plan and a progress assessment feature for case monitoring.

Non-Case Products:

Clear Aligner non-case products include retention products, Invisalign training fees and sales of ancillary products, such as cleaning material and adjusting tools used by dental professionals during the course of treatment.

Retention. We offer up to four sets of custom clear aligners called Vivera Retainers made with proprietary material strong enough to maintain tooth position and correct minor relapse, if necessary. Vivera Retainers are available to both Invisalign and non-Invisalign patients. In select markets, we also offer single arch retainers.

SmartTrack Aligner Material

SmartTrack is a patented, custom-engineered Invisalign clear aligner material that delivers gentle, more constant force considered ideal for orthodontic tooth movements. Conventional aligner materials relax and lose a substantial percent of energy in the initial days of aligner wear, but SmartTrack maintains more constant force over the period of time the patient wears the aligners. The flexible SmartTrack material also more precisely conforms to tooth morphology, attachments and interproximal spaces to improve control of tooth movement throughout treatment.

Scanner Segment

Intraoral scanning continues to be an evolving technology that we believe will have a substantial impact on the future of dentistry. By enabling the dental practitioner to create a 3D image of a patient's teeth (digital scan) using a handheld intraoral scanner, digital scanning is faster, more efficient, precise and comfortable for patients, compared to the discomfort and subjective nature of taking physical impressions. The accuracy of digitally scanned models substantially reduces the rate of restoration "remakes;" meaning patients are recalled less often and the appointment time for the restoration is shorter because of fewer adjustments, increasing overall patient satisfaction. Digital models also reduce the carbon footprint associated with the shipping of the materials used to create PVS impressions, the shipping of those impressions, and their disposal. Moreover, the digital model file can be used for various procedures and services including fabrication of physical dental models for use by labs to create restorative units such as veneers, inlays, onlays, crowns, bridges and implant abutments; digital records storage; orthodontic diagnosis; orthodontic retainers and appliances; and Invisalign digital impression submission.

iTero Scanner. The iTero Element scanner is available as a single hardware platform with software options for restorative or orthodontic procedures. The expanded portfolio includes the iTero Element 2 and the iTero Element Flex scanners which are each available in select regions and countries. These products build on the existing high precision, full-color imaging and fast scan times of the iTero Element portfolio while streamlining orthodontic and restorative workflows. We also continue to offer the existing iTero Element scanner in existing markets. The iTero scanner is interoperable with our Invisalign treatment such that a full arch digital scan can be submitted as part of the Invisalign case submission process.

In February 2019, we launched the iTero Element 5D Imaging system which provides a new comprehensive approach to clinical applications, workflows and user experience that expands the suite of existing high-precision, full-color imagining and fast scan times of the iTero Element portfolio. In addition to offering all of the features and functionality that doctors have come to expect and rely on with the iTero Element 2 scanner, the iTero Element 5D scanner is the first integrated dental imaging system that simultaneously records 3D, intra-oral color and near-infrared ("NIRI") imaging and enables comparison over time using iTero TimeLapse. NIRI technology of the iTero Element 5D Imaging System aids in detection and monitoring of interproximal caries lesions above the gingiva without using harmful radiation. The iTero Element 5D Imaging System is available in the majority of EMEA and select APAC countries; however, it is pending regulatory approval in the U.S. and LATAM countries.

In June 2019, we announced the launch of iTero Element Foundation intraoral scanner with restorative software. The iTero Element Foundation extends our portfolio of intraoral scanners with powerful 3D visualization to better meet the needs of doctors, labs and patients. The iTero Element Foundation is available in North America and Japan and will be available in other select APAC and EMEA countries in 2020.

Restorative software for iTero. Our Restorative software is designed for GPs, prosthodontists, periodontists, and oral surgeons which includes restorative workflows providing them with the ability to send digital impressions to the lab of choice and communicate seamlessly with external treatment planning, custom implant abutment, chairside milling, and laboratory CAD/CAM systems.


6



Orthodontic software for iTero. Software designed for orthodontists for digital records storage, orthodontic diagnosis, and for the fabrication of printed models and retainers. 

CAD/CAM Services and Ancillary Products

Ancillary Products. We sell disposable sleeves for the wand and other ancillary products for the iTero scanner.

iTero Models and Dies. An accurate physical model and dies are manufactured based on the digital scan and sent to the laboratory of the dentist’s choice for completion of the needed restoration. The laboratory also has the option to export the digital file for immediate production of coping and full-contour restorations on their laboratory CAD/CAM systems. The laboratory conducts then completes the ceramic buildup or staining and glazing and delivers the end result - a precisely fitting restoration. iTero prosthetics have a near-zero remake rate.

Third Party Scanners and Digital scans for Invisalign treatment submission. We accept case submissions for our clear aligner products in two ways: (1) physical impressions of the patient’s teeth or (2) intraoral scan of the patient’s teeth. With respect to intraoral scans, we accept scans from iTero scanners and certain third-party scanners that have interoperability relationship with our systems and processes.

iTero Applications and Tools

Invisalign Outcome Simulator. The Invisalign Outcome Simulator is an exclusive chair-side and cloud-based application for the iTero scanner that allows doctors to help patients visualize how their teeth may look at the end of Invisalign treatment. This is achieved through a dual view layout that shows a prospective patient an image of his/her own current dentition next to his/her simulated final position after Invisalign treatment.

Invisalign 3D Assessment tool. The Invisalign Progress Assessment tool provides the ability to compare a patient’s new scan with a specific stage of their ClinCheck treatment plan. This allows doctors to visually assess and communicate Invisalign treatment progress with an easy to read, color-coded tooth movement report.

TimeLapse. TimeLapse technology allows doctors or practitioners to compare a patient’s historic 3D scans to the present-day scan, enabling clinicians to identify and measure orthodontic movement, tooth wear, and gingival recession. This highlights areas of diagnostic interest to dental professionals and helps foster a proactive conversation with the patient regarding potential restorative or orthodontic solutions.

Our iTero Element, iTero Element 2, iTero Element Flex and iTero Element 5D scanners include the Invisalign Outcome Simulator, Invisalign 3D Assessment tool and Timelapse as well as the orthodontic software and/or restorative software. The orthodontic or restorative software may also be purchased subsequently for an upgrade fee. Additional applications such as the Invisalign Outcome Simulator are not available for sale separately.

Other proprietary software mentioned in this Annual Report on Form 10-K such as ClinCheck and ClinCheck Pro software, the Invisalign Doctor Site, and feature enhancements are included as part of the Invisalign System and are not sold separately nor do they contribute as individual items to revenues.

Business Strategy

Our goal is to establish the Invisalign System as the standard method for treating malocclusion and our intraoral scanning platform as the preferred scanning protocol for digital scans. Our technology and innovations are designed to meet the demands of today’s patients with treatment options that are convenient, comfortable, affordable, while helping to improve overall oral health. We strive to help our doctors move their practices forward by connecting them with new patients, providing digital solutions to help increase practice efficiency and helping them deliver the best possible treatment outcomes and experiences to millions of people around the world. We achieve this by continued focus and execution of our strategic growth drivers as follows:

1.
International Expansion. In order to provide the millions of consumers access to a better smile, we continue increasing our presence globally by making our products available in more countries. We expect to continue expanding our business by investing in resources, infrastructure, and initiatives that will drive Invisalign treatment growth in our current and new international markets. As our core international countries continue to grow in both number of new Invisalign trained doctors and customer utilization, we strive to make sure we can support that growth through investments such as headcount, clinical support, product improvements, education and advertising. We have transitioned most of our smaller country markets from an indirect to a direct sales model, and, while we do not expect a material impact from these countries for

7



some time, in the near term we will leverage our existing infrastructure in adjacent country markets as we build local sales and support organizations to drive long-term market penetration. In addition, we are scaling and expanding our operations and facilities to better support our customers across the globe. In 2019, we opened a new order acquisition and treatment facility in Wroclaw, Poland and a new treatment planning facility in Yokohama, Japan to support customers within these regions.

2.
GP Adoption. We want to enable GPs, who have access to a large patient base, to more easily identify Invisalign cases they can treat, monitor patient progress or, if needed, help refer cases to an orthodontist while providing high-quality restorative, orthodontic, and dental hygiene care. In 2019, we continued to commercialize Invisalign Go, a simplified and streamlined solution designed for GPs and trained over 3,700 new Invisalign Go doctors primarily in EMEA. In the EMEA region, we segmented sales and marketing for certain country markets into two separate organizations to serve each customer segment, orthodontists and GP dentists separately, thereby increasing our focus and effectiveness on GP dentists. The iTero scanner is an important component to that customer experience and is central to a digital approach as well as overall customer utilization of Invisalign treatment. The iTero scanner is optimized for Invisalign treatment with the Invisalign Outcome Simulator, Invisalign Progress Assessment tool, and TimeLapse technology. This highlights areas of diagnostic interest to dental professionals and helps foster a proactive conversation with the patient regarding potential restorative or orthodontic solutions. In March 2019, we began a collaboration with Digital Smile Design to deliver dedicated education programs, enable simplified, streamlined integration of digital end-to-end workflows into GPs' practices and offer doctors more opportunities to learn about digital tools and treatment planning support. In September 2019, we formed a collaboration with Zimmer Biomet Dental to leverage their extensive direct global salesforce and network of dental clinicians and laboratories to help drive further penetration of iTero scanners and services in the growing digital restorative market. The collaboration also offers Zimmer Biomet Dental customers access to Invisalign clear aligners through the iTero platform to facilitate a comprehensive interdisciplinary treatment approach.

3.
Patient Demand & Conversion. Our goal is to make Invisalign a highly recognized name brand worldwide by creating awareness for Invisalign treatment among consumers and motivating potential patients to seek Invisalign treatment. We accomplish this objective through an integrated consumer marketing strategy that includes television, media, social networking and event marketing and strategic alliances with professional sports teams as well as educating patients on treatment options and directing them to high volume Invisalign doctors. In January 2019, we expanded our Smile Concierge program which educates consumers on the benefits of Invisalign treatment, answers their questions and helps them schedule an appointment with an Invisalign doctor. The program simultaneously helps doctors better engage with prospective customers through more detailed customer insights. Additionally, in August 2019, we significantly increased our investment in consumer marketing in the U.S. The U.S. campaign was launched across all key media channels to over 140 million consumers, combining a robust paid media strategy across prime broadcast, cable and connected TV channels with paid search and social media.

4.
Orthodontist Utilization. We continue to innovate and increase product applicability and predictability to address a wide range of cases, from simple to complex, thereby enabling doctors to confidently treat teenagers and adults with the Invisalign System. Over the last several years, we launched Invisalign Comprehensive with Mandibular Advancement and Invisalign First. We also continue to make improvements to our Invisalign treatment software, ClinCheck Pro, designed to deliver an exceptional user experience and increase treatment control to help our doctors achieve their treatment goals.

Manufacturing and Suppliers

We have manufacturing facilities located in Juarez, Mexico, where we conduct our aligner fabrication, distribution, repair of our iTero scanners and perform our CAD/CAM services. In the fourth quarter of 2018, we also began fabricating our aligners in Ziyang, China, our first aligner fabrication facility outside of Juarez, Mexico. In addition, we produce our handheld intraoral scanner wand, perform final scanner assembly and repair our scanners at our facilities in Or Yehuda, Israel and Ziyang, China. Our Invisalign digital treatment planning and interpretation for iTero restorative cases are conducted at our facilities located in San Jose, Costa Rica, Chengdu, China, Cologne, Germany, Madrid, Spain, Wroclaw, Poland and Yokohama, Japan. Information regarding risks associated with our manufacturing process and foreign operations may be found in Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors.”

Our quality system is required to be in compliance with the Quality System regulations enforced by the FDA, and similar regulations enforced by other worldwide regulatory authorities. We are certified to EN ISO 13485:2003, an internationally recognized standard for medical device manufacturing. We have a formal, documented quality system by which quality objectives are defined, understood and achieved. Systems, processes and procedures are implemented to ensure high levels of product and service quality. We monitor the effectiveness of the quality system based on internal data and direct customer feedback and strive to continually improve our systems and processes, taking corrective action, as needed.


8



Since the manufacturing process of our products requires substantial and varied technical expertise, we believe that our manufacturing capabilities are important to our success. In order to produce our highly customized, highly precise, medical quality products in volume, we have developed a number of proprietary processes and technologies. These technologies include complex software algorithms and solutions, CT scanning, stereolithography and automated aligner fabrication. To increase the efficiency of our manufacturing processes, we continue to focus our efforts on software development and the improvement of rate-limiting processes or bottlenecks. We continuously upgrade our proprietary, three-dimensional treatment planning software to enhance computer analysis of treatment data and to reduce time spent on manual and judgmental tasks for each case, thereby increasing the efficiency of our technicians. In addition, to improve efficiency and increase the scale of our operations, we continue to invest in the development of automated systems for the fabrication and packaging of aligners.

We are highly dependent on manufacturers of specialized scanning equipment, rapid prototyping machines, resin and other advanced materials for our aligners, as well as the optics, electronic and other mechanical components of our intraoral scanners. We maintain single supply relationships for many of these machines and materials technologies. In particular, our CT scanning and stereolithography equipment used in our aligner manufacturing and many of the critical components for the optics of our intraoral scanners are provided by single suppliers. We are also committed to purchasing all of our resin and polymer, the primary raw materials used in our manufacturing process for clear aligners, from a single source. The need to replace one of our single source suppliers could cause a disruption in our ability to timely deliver certain of our products or increase costs. For a discussion of the risks of our supply and manufacturing operations, see Item 1A Risk Factors.

Sales and Marketing

Our sales efforts are focused on increasing adoption and utilization of the Invisalign System by orthodontists and GPs worldwide and integrating the iTero scanner into the doctors practice. The scanner is an important component to the customer experience and is central to a digital approach as well as overall customer utilization of Invisalign treatments. In each region, we have direct sales and support organizations, which include quota carrying sales representatives, sales management and sales administration. We also have distribution partners in certain markets. In the EMEA region, we segmented sales and marketing for certain country markets into two separate organizations to serve each customer segment, orthodontists and GP dentists separately, thereby increasing our focus and effectiveness on GP dentists. We continue to expand in existing markets through targeted investments in sales resources, professional marketing and education programs, along with consumer marketing in select countries.

We provide training, marketing and clinical support to orthodontists and GPs. As of December 31, 2019, we had approximately 96,000 active Invisalign trained doctors, which we define as having submitted at least one case in the prior 12 month period.

Research and Development

We are committed to investing in world-class technology development, which we believe is critical to achieving our goal of establishing the Invisalign System as the standard method for treating malocclusion and our intraoral scanning platform as the preferred scanning protocol for digital scans.

Our research and development activities are directed toward developing the technology innovations that we believe will deliver our next generation of products and platforms. These activities range from accelerating product and clinical innovation to developing manufacturing process improvements to researching future technologies and products.

In an effort to demonstrate the broad treatment capabilities of the Invisalign System, various clinical case studies and articles have been published that highlight the clinical applicability of Invisalign to malocclusion cases, including those of severe complexity. We undertake pre-commercialization trials and testing of our technological improvements to the product and manufacturing process.

Intellectual Property

We believe our intellectual property portfolio represents a substantial business advantage. As of December 31, 2019, we had 489 active U.S. patents, 462 active foreign patents, and 559 pending global patent applications. Our active U.S. patents expire between 2020 and 2039. When patents expire, we lose the protection and competitive advantages they provided to us, which could negatively impact our operating results; however, we continue to pursue further intellectual property protection through U.S. and foreign patent applications and non-disclosure agreements. We also seek to protect our software, documentation and other written materials under trade secret and copyright laws. We cannot be certain that patents will be issued as a result of any patent application or that patents that have been issued to us or that may be issued in the future will remain valid and enforceable or sufficient to protect our technology or products. Our intellectual property rights may not be successfully asserted in the future or may be invalidated, circumvented or challenged. In addition, the laws of various foreign countries do not protect our intellectual property rights to the same extent as U.S. laws. Our inability to protect our proprietary information could harm our business. Information

9



regarding risks associated with our proprietary technology and our intellectual property rights may be found in Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors.”

Seasonal Fluctuations

General economic conditions impact our business and financial results, and we experience seasonal trends within our two operating segments, customer channels and the geographic locations that we serve. Sales of Invisalign treatments are often weaker in Europe during the summer months due to our customers and their patients being on holiday and seasonally higher in China during the third quarter, particularly related to increased teen cases. Similarly, other international holidays like Chinese New Year can also negatively impact our sales in APAC. In North America, summer is typically the busiest season for orthodontists with practices that have a high percentage of adolescent and teenage patients as many parents want to get their teenagers started in treatment before the start of the school year; however, many GPs are on vacation during this time and therefore tend to start fewer cases. For our Scanner segment, capital equipment sales are often stronger in the fourth calendar quarter. Consequently, these seasonal trends have caused and may continue to cause fluctuations in our quarterly results, including fluctuations in sequential revenue growth rates.

Backlog

All Invisalign treatments are individually unique and prescribed by a doctor so, no two cases are alike. The period from which a treatment data package (or a "case”) is received until the acceptance of the digital ClinCheck treatment plan is dependent on the dental professional’s discretion to modify, accept or cancel the treatment plan. Therefore, we consider the case a firm order to manufacture aligners once the dental professional has approved the ClinCheck treatment plan. Our Invisalign backlog consists of ClinCheck treatment plans that have been accepted but not yet shipped. Because aligners are shipped shortly after the ClinCheck treatment plan has been accepted, we believe that backlog is not a good indicator of future clear aligner revenues. Our quarterly clear aligner revenues can be impacted by the timing of the ClinCheck treatment plan acceptances and our ability to ship those cases in the same quarter. We define our iTero scanner backlog as orders where credit and financing are generally approved and payment is reasonably assured but the scanner has not yet shipped. Our Invisalign and iTero scanner backlogs as of December 31, 2019 were immaterial.

Competition

Currently, our products compete directly against traditional metal brackets and wires and increasingly against products manufactured and distributed by various companies, both within and outside the U.S. Although the number of competitors varies by segment, geography and customer, we encounter a wide variety of competitors, including new and well-established regional competitors in certain foreign markets, as well as larger companies or divisions of larger companies with substantial sales, marketing, research and financial capabilities. Due in part to the expiration of certain of our key patents beginning in 2017, we are facing increased competition in the clear aligner market. In addition, corresponding foreign patents began expiring in 2018 which has increased competition in markets outside the U.S. These competitors include existing larger companies in certain markets who have the ability to leverage their existing channels in the dental market to compete directly with us, direct-to-consumer (“DTC”) companies that provide clear aligners using a remote teledentistry model requiring little or no in-office care from trained and licensed physicians, and doctors themselves who can manufacture custom aligners in their offices using modern 3D printing technology. Unlike our DTC competitors, we are committed to a doctor as the core of everything we do, and Invisalign Treatment requires a doctor's prescription and an in-person physical examination of the patient’s dentition before treatment can begin. Information regarding risks associated with increased competition may be found in Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors.”

Key competitive factors include:
Our SmartTrack aligner materials;
effectiveness of treatment;
price;
software features;
aesthetic appeal of the treatment method;
customer support;
customer online interface;
brand awareness;
innovation;
distribution network;
comfort associated with the treatment method;
oral hygiene;
ease of use; and

10



dental professionals’ chair time.

We believe that our products compare favorably with our competitors’ products with respect to each of these factors.

Government Regulation

Many countries throughout the world have established regulatory framework for commercialization of medical devices. As a designer, manufacturer, and marketer of medical devices, we are obligated to comply with the respective framework of these countries to obtain and maintain access to these global markets. The framework often defines requirements for premarket authorizations which vary from country to country. Failure to obtain appropriate premarket authorization and to meet all local requirements including specific safety standards in any country in which we currently market our products could cause commercial disruption and/or subject us to sanctions and fines. Delays in receipt of, or a failure to receive, such premarket authorizations, or the loss of any previously received premarket authorizations, could have a material adverse effect on our business, financial condition, and results of operations.

With regards to premarket authorization in the U.S., our products are classified as medical devices under the U.S. Food, Drug, and Cosmetic Act ("FD&C Act"). The FD&C Act requires these products, when sold in the U.S., to be safe and effective for their intended use and to comply with medical device regulations defined by the FDA. This regulatory framework is comparable to the framework established in the European Union ("EU"). Within the EU, our products are subject to the requirements defined by the Medical Device Directive which is generally consistent with FDA regulations.

We believe we are in compliance with all state, federal, and international regulatory requirements that are applicable to our products.

We are also subject to various laws inside and outside the U.S. concerning our relationships with healthcare professionals and government officials, price reporting and regulation, the promotion, sales and marketing of our products and services, the importation and exportation of our products, the operation of our facilities and distribution of our products. As a global company, we are subject to varying degrees of government regulation in the various countries in which we do business, and the general trend is toward increasingly stringent oversight and enforcement. Initiatives sponsored by government agencies, legislative bodies, and the private sector to limit the growth of healthcare expenses generally are ongoing in markets where we do business. It is not possible to predict at this time the long-term impact of such cost containment measures on our future business.

Our customers are healthcare providers that may be reimbursed by federal funded programs such as Medicaid or a foreign national healthcare program, each of which may offer some degree of oversight. Many government agencies, both domestic and foreign, have increased their enforcement activities with respect to healthcare providers and companies in recent years. Enforcement actions and associated defense can be expensive, and any resulting findings carry the risk of significant civil and criminal penalties.

In addition, we must comply with numerous data protection requirements that span from individual state and national laws in the U.S. to multinational requirements in the EU. In the U.S., final regulations implementing amendments to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) became effective in the latter part of 2013 with the HIPAA Omnibus Rule. We are also required to be in compliance with the California Consumer Privacy Act (“CCPA”), which went into effect in January 2020. In the EU, we must comply with the General Data Protection Regulation (“GDPR”), which serves as a harmonization of European data-privacy laws. Further expansion into LATAM markets will require us to prepare for Brazil's Lei Geral de Proteção de Dados ("LGPD") scheduled to take effect in August 2020. Meanwhile, the APAC and EMEA regions have also seen rapid development of privacy laws including India, Russia, China, South Korea, Singapore, Hong Kong, and Australia.

We believe we have designed our product and service offerings to be compliant with the requirements of applicable data protection laws and regulations. Maintaining systems that are compliant with these laws and regulations is costly and could require complex changes in the way we do business or provide services to our customers and their patients. Additionally, our success may be dependent on the success of healthcare providers in managing data protection requirements. Information regarding risks associated with data security and privacy may be found in Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors.”

Employees

As of December 31, 2019, we had approximately 14,530 employees, including 9,470 in manufacturing and operations, 2,880 in sales and marketing which includes customer care, 800 in research and development and 1,380 in general and administrative functions.


11



Available Information

Our website is www.aligntech.com, and our investor relations website is http://investor.aligntech.com. The information on or accessible through our websites is not part of this Annual Report on Form 10-K. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, our proxy statement on Schedule 14A for our annual stockholders’ meeting and amendments to such reports are available, free of charge, on our investor relations website as soon as reasonably practicable after we electronically file or furnish such material with the SEC. Further, the SEC maintains an internet site that contains reports, proxy and information statements and other information regarding our filings at http://www.sec.gov.
Information about our Executive Officers
The following table sets forth certain information regarding our executive officers as of February 28, 2020:
 
Name
Age
Position
Joseph M. Hogan
62
President and Chief Executive Officer
John F. Morici
53
Chief Financial Officer and Senior Vice President, Global Finance
Simon Beard
53
Senior Vice President and Managing Director, Americas
Julie Coletti
52
Senior Vice President, Chief Legal and Regulatory Officer
Stuart Hockridge
48
Senior Vice President, Global Human Resources
Sreelakshmi Kolli
45
Senior Vice President, Global Information Technology
Jennifer Olson
42
Senior Vice President and Managing Director, Customer Success
Raj Pudipeddi
47
Senior Vice President and Chief Marketing Officer
Zelko Relic
55
Chief Technology Officer and Senior Vice President, Global Research & Development
Markus Sebastian
54
Senior Vice President and Managing Director, EMEA
Yuval Shaked
46
Senior Vice President and Managing Director, iTero Scanner and Services Business
Julie Tay
53
Senior Vice President and Managing Director, APAC
Emory M. Wright
50
Senior Vice President, Global Operations

Joseph M. Hogan has served as our President and Chief Executive Officer and as a member of our Board of Directors since June 2015. Prior to joining us, Mr. Hogan was Chief Executive Officer of ABB Ltd., a global power and automation technologies company based in Zurich, Switzerland from 2008 to 2013. Prior to working in ABB, Mr. Hogan worked at General Electric Company (GE) in a variety of executive and management roles from 1985 to 2008, including eight years as Chief Executive Officer of GE Healthcare from 2000 to 2008.

John F. Morici has served as our Chief Financial Officer since November 2016, whose title was changed to Chief Financial Officer and Senior Vice President, Global Finance in February 2018. Prior to joining us, Mr. Morici was at NBC Universal from 2007 to 2016 where he held several senior management positions in their Universal Pictures Home Entertainment U.S. and Canadian business, including Chief Financial Officer, Chief Operating Officer, and most recently, Executive Vice President and Managing Director from 2014 to 2016. Prior to NBC Universal, Mr. Morici was in various senior financial management positions at GE Healthcare from 1999 to 2007, including Chief Financial Officer for its Diagnostic Imaging and Global Products units from 2002 to 2003.

Simon Beard has served as our Senior Vice President and Managing Director, Americas since June 2019. Mr. Beard also served as our Vice President and Managing Director, EMEA from October 2015 to February 2018, when his title was changed to Senior Vice President and Managing Director, EMEA, a title he held until June 2019. Prior to joining us, from 2012 to 2014, Mr. Beard was Regional Director for the South East Asia business of Smith & Nephew, a multinational medical equipment manufacturing company. From 2006 to 2012, Mr. Beard was Director & General Manager for UK and Ireland for Smith & Nephew's Advanced Woundcare business. Prior to Smith & Nephew, Mr. Beard held multiple commercial, strategic, and general management positions in companies such as DePuy International (Johnson & Johnson), Sankyo Pharmaceutical and Sanofi Aventis.

Julie Coletti has served as our Senior Vice President, Chief Legal and Regulatory Officer since May 2019. Ms. Coletti joined Align in May 2018 serving as Vice President and Associate General Counsel, Strategic Commercial Affairs until her promotion in 2019. Prior to Align, Ms. Coletti was Vice President, Global General Counsel and Chief Compliance Officer for Danaher Corporation, a healthcare, environmental and industrial equipment manufacturer, in its dental platform business.


12



Stuart Hockridge has served as our Vice President, Global Human Resources since May 2016, whose title was changed to Senior Vice President, Global Human Resources in February 2018. Prior to joining us, Mr. Hockridge was Senior Vice President of Talent at Visa Inc. from 2013 to 2016. Prior to Visa, Mr. Hockridge held a number of human resource management positions at GE Healthcare from 2002 to 2012 leading HR processes both globally and for various divisions.

Sreelakshmi Kolli has served as our Vice President, Information Technology since December 2012, whose title was changed to Senior Vice President, Global Information Technology in February 2018. Ms. Kolli joined us in June 2003 and has held positions leading business operations and engineering for customer-facing applications. Before joining us, she held technical lead positions with Sword CT Space and Accenture.

Jennifer Olson has served as our Senior Vice President and Managing Director, Customer Success since May 2019. Ms. Olson also served as our Vice President and Managing Director, Doctor-Directed Consumer Channel from August 2016 to February 2018, when her title was changed to Senior Vice President and Managing Director, Doctor-Directed Consumer Channel, a title she held until May 2019. Ms. Olson joined us in 2002 and has held multiple roles in sales, marketing, and business development. Most recently, she was Area Sales Director for the North America region where she led all sales activities in Western Canada and the Western region of the U.S. Prior to joining Align, Ms. Olson was with technology companies including Extreme Networks and PWI Technologies.

Raj Pudipeddi joined Align in February 2019 as our Senior Vice President and Chief Marketing Officer. Prior to joining us, Mr. Pudipeddi was the Director, Consumer Business and Chief Marketing Officer at Bharti Airtel, an Indian telecom leader from February 2017 to May 2018. Prior to Bharti Airtel, Mr. Pudipeddi spent 14 years at Procter & Gamble serving in a number of leadership roles across businesses in North America, Asia and Latin America, most recently as Vice President, North America, Oral Care.

Zelko Relic joined Align in 2013 as Vice President, Research & Development. In December 2017, he became Chief Technology Officer, Vice President, Research & Development, whose title was changed to Chief Technology Officer, Senior Vice President, Global Research & Development in February 2018. Prior to joining us, Mr. Relic was Vice President, Engineering for Datalogic Automation, a global leader in automatic data capture and industrial automation markets, from 2012. Mr. Relic was previously Vice President, Engineering at Danaher Corporation, Accu-Sort Systems business from 2010 to 2012 before it was acquired by Datalogic Automation. From 2005 to 2010, he was at Siemens Medical Solutions USA, most recently as Vice President, and from 2002 to 2004, he held senior management positions in engineering at Kulicke & Soffa Industries, designers and manufactures of semiconductor products. He also held management positions at KLA-Tencor from 1994 to 2000.

Markus Sebastian has served as our Senior Vice President and Managing Director, EMEA since June 2019. Mr. Sebastian also served as our Vice President Orthodontic Channel Core EU and as interim GM of the DACH and France country markets from September 2018 to June 2019. Prior to Align, Mr. Sebastian spent more than 25 years in the healthcare and medical device industries, including as Chief Commercial Officer for Lohmann & Rauscher, and in multiple commercial, strategic and general management positions for Smith & Nephew, and Coloplast.

Yuval Shaked joined Align in June 2017 as our Vice President, iTero Scanner and Services Business. In August 2018, Mr. Shaked was promoted to Senior Vice President, iTero Scanner and Services. Prior to joining Align, Mr. Shaked spent more than 15 years at GE Healthcare in the U.S. and Israel in a variety of roles at multiple business units. Most recently, he served as General Manager, Diagnostic Cardiology, leading on- and off-shore R&D and marketing teams in the U.S., Germany, India and China. Prior to that, he was General Manager for GE’s VersaMed business unit, with responsibility for R&D, innovation, manufacturing, quality and commercial activity. Mr. Shaked was the former CEO of SHL Telemedicine Ltd., an Israel-based advanced personal telemedicine company.

Julie Tay has served as our Vice President and Managing Director, Asia Pacific since March 2013, whose title changed to Senior Vice President and Managing Director, Asia Pacific in February 2018. Prior to joining us, Ms. Tay was regional head of Bayer Healthcare (Diabetes Care) overseeing operations across Asia from 2010 to 2013. From 2006 to 2010, Ms. Tay served as director of marketing and corporate accounts at Sealed Air Corporation (formerly Johnson Diversey), a global provider of food safety and security, facility hygiene and product protection. Prior to that, Ms. Tay spent 15 years with Johnson & Johnson Medical.

Emory M. Wright has served as our Vice President, Operations since December 2007, whose title changed to Senior Vice President, Global Operations in February 2018. He has been with us since March 2000 predominantly in manufacturing and operations roles including Vice President, Manufacturing and was General Manager of New Product Development. Prior to joining Align, from 1999 to 2000, Mr. Wright was Senior Manufacturing Manager at Metrika, Inc. a medical device manufacturer. Mr. Wright served as Manager of Manufacturing and Process Development for Metra Biosystems Inc.


13



ITEM 1A.
RISK FACTORS

The following discussion is divided into two sections. The first, entitled “Risks Relating to our Business,” discusses some of the risks that may affect our business, results of operations and financial condition. The second, captioned "Risks Related to our Common Stock," discusses some of the risks relating to owning our common stock. You should carefully review both sections, as well as our consolidated financial statements and notes thereto and other information appearing in this Annual Report on Form 10-K, for important information regarding these and other risks that may affect us. The fact we have chosen to list one section before the other or that we have identified risks in either section earlier than others should not be interpreted to mean we deem any risks to be more or less important or more likely to occur than others or, if any do occur, that their impact may be any less significant than others. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this report because they could cause our actual results and conditions to differ materially from those statements. Before you invest in Align, you should know that investing involves risks, including those described below. The risks below are not the only ones we face. If any of the risks actually occur, our business, financial condition and results of operations could be negatively affected, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Relating to our Business

Our net revenues are dependent primarily on our Invisalign System and iTero Scanners and any decline in sales or average selling price of these products for any reason, would adversely affect net revenues, gross margin and net income.

Our net revenues are largely dependent on the sales of our Invisalign System of clear aligners and iTero intraoral scanners. Of the two, we expect net revenues from the sale of the Invisalign System, primarily our comprehensive products, will continue to account for the vast majority of our net revenues for the foreseeable future. Continued and widespread acceptance of the Invisalign System by orthodontists, GPs and consumers is critical to our future success. Our iTero scanners are used by dental professionals for restorative and orthodontic procedures as well as Invisalign System case submissions. Sales of our iTero scanners are continuing to grow, becoming a larger percentage of our overall revenues and as a means to further adoption of digital dentistry and the Invisalign System. If orthodontists and GPs experience a reduction in consumer demand for orthodontic services, if consumers prove unwilling to adopt Invisalign System treatment as rapidly or in the volumes we anticipate and at the prices offered, if orthodontists or GPs choose to use wires and brackets or competitive products rather than Invisalign, if sales of our iTero scanners decline or fail to grow sufficiently or as expected, or if the average selling price of our products decline for any reason, particularly in the case of our Invisalign System as a result of a shift in product mix towards lower priced products or as a result of promotions, or competition, our operating results would be harmed.

Competition in the markets for our products is increasing and we expect aggressive competition from existing competitors and other companies that may introduce new technologies in the future.

The dental industry is in a period of immense and rapid transformation involving products, technologies, distribution channels and business models, much of which is based on digital transformation involving information technology, data, artificial intelligence, scanning, 3D printing, software and algorithms. While our clear aligner and iTero scanners facilitate this transition, there remains significant uncertainty concerning the technologies that will achieve market acceptance and, if adopted, whether and when they may become obsolete as new offerings become available.

Currently, our clear aligner products compete directly against traditional metal brackets and wires and increasingly against clear aligner products manufactured and distributed by new market entrants as well as traditional manufacturers of wires and brackets, both within and outside the U.S., and from traditional medical device companies, laboratories, startups and, in some cases, from doctors themselves. Although the number and type of competitors varies by segment, geography and customer, we encounter a wide variety of competitors, including new and well-established regional competitors in certain foreign markets, as well as larger companies or divisions of larger companies with substantial sales, marketing, research and financial capabilities. Due in part to the expiration of certain of our key patents beginning in 2017, we have faced increased competition in the clear aligner market. These competitors include existing larger companies in certain markets who have the ability to leverage their existing channels in the dental market to compete directly with us, direct-to-consumer (“DTC”) companies that provide clear aligners using a remote teledentistry model that requires little or no in-office care from trained and licensed physicians, and doctors themselves who can manufacture custom aligners in their offices using modern 3D printing technology. In addition, corresponding foreign patents began expiring in 2018 which has resulted in increased competition in markets outside the U.S. Large consumer product companies may also enter the orthodontic supply market.

The manipulation and movement of teeth and bone is a delicate process with potentially painful and debilitating results if not appropriately performed and monitored. Accordingly, we remain committed to delivering our solutions primarily through trained and skilled doctors. Invisalign Treatment requires a doctor's prescription and an in person physical examination of the patient’s dentition before beginning treatment. However, with the advent of DTC providers accompanied by significant advertising

14



campaigns, there has been some shifting away from traditional practices that may impact our primary selling channels. We also believe doctors are sampling alternative products and/or taking advantage of wires and brackets bundles that essentially give clear aligners away for free or at reduced prices. In addition, we may also face competition in the future from new companies that may introduce new technologies. We may be unable to compete with these competitors or one or more of these competitors may render our technology obsolete or economically unattractive. If we are unable to compete effectively with existing products or respond effectively to any new technologies, our business could be harmed. Increased competition has resulted in the past and may in the future result in volume discounting and price reductions, reduced gross margins and profitability, loss of market share, and result in the reduction of dental professionals’ efforts and commitment to use our products, any of which could materially adversely affect our net revenues, volume growth, net income and stock price. We cannot assure that we will be able to compete successfully against our current or future competitors or that competitive pressures will not have a material adverse effect on our business, results of operations and financial condition.

We are dependent on our international operations, which exposes us to foreign operational, political and other risks that may harm our business.

Our key production steps are performed in operations located outside of the U.S. Technicians use a sophisticated, internally developed computer-modeling program to prepare digital clinical treatment plans (“ClinCheck”), which are then transmitted electronically to our aligner fabrication facilities. These digital files form the basis of the ClinCheck treatment plan and are used to manufacture aligner molds and aligners. Our digital treatment planning and aligner fabrication are performed in multiple international locations and we are continuing to establish these functions closer to our international customers to improve doctor and patient experiences and our operational efficiency. Also, in addition to research and development efforts conducted in the U.S., Russia and Israel, we have operations in Israel and China where we assemble wands, and our intraoral scanner is manufactured. Our reliance on international operations exposes us to risks and uncertainties that may affect our business or results of operation, including:

difficulties in hiring and retaining employees generally, as well as difficulties in hiring and retaining employees with the necessary skills to perform the more technical aspects of our operations;
difficulties in managing international operations, including any travel restrictions on us or our customers such as those recently imposed in China in response to the Novel Coronavirus epidemic;
fluctuations in currency exchange rates;
import and export controls, license requirements and restrictions;
controlling production volume and quality of the manufacturing process;
political, social and economic instability, including increased levels of violence in Juarez, Mexico, Hong Kong or the Middle East. We cannot predict the effect on us of any future armed conflict, political instability or violence in these regions. In addition, some of our employees in Israel are obligated to perform annual reserve duty in the Israeli military and may be called for additional active duty under emergency circumstances. We cannot predict the full impact of these conditions on us, particularly if emergency circumstances or an escalation in political situations occur. If many of our employees are called for active duty, our operations in Israel and our business may not be able to function at full capacity;
acts of terrorism and acts of war;
general geopolitical instability and the responses to it, such as the possibility of sanctions, trade restrictions and changes in tariffs, including recent sanctions against China and Russia and tariffs imposed by the U.S. and China and the possibility of additional tariffs or other trade restrictions between the U.S. and Mexico;
interruptions and limitations in telecommunication services;
product or material transportation delays or disruption, including as a result of customs clearance, violence, protests, police and military actions, or as a result of natural disasters, such as earthquakes or volcanic eruptions;
burdens of complying with a wide variety of regional and local laws, including competition and anti-bribery laws;
the impact of government-led initiatives to encourage the purchase or support of domestic vendors, which can affect the willingness of customers to purchase products from, or collaborate to promote interoperability of products with, companies whose headquarters or primarily operations are not domestic;
unexpected issues and expenses related to our corporate structure reorganization;
reduced intellectual property rights protections as compared to the U.S;
longer payment cycles and greater difficulty in accounts receivable collection; and
potential adverse tax consequences.

The United Kingdom’s (“U.K.”) withdrawal from the EU on January 31, 2020, commonly known as “Brexit,” has exacerbated and may further exacerbate many of the risks and uncertainties described above. The withdrawal of the U.K. from the EU could, among other potential outcomes, adversely affect the tax, tax treaty, currency, operational, legal and regulatory regimes to which our businesses in the region are subject. The withdrawal could also, among other potential outcomes, disrupt the free movement of goods, services and people between the U.K. and the EU and significantly disrupt trade between the U.K. and the EU and other parties. Further, uncertainty around these and related issues could lead to adverse effects on the economy of the U.K., EU and the

15



other economies in which we operate. As the withdrawal continues to unfold, the actual implications of Brexit in their entirety are unlikely to be known for years.

If any of the risks outlined above materialize in the future, we could experience production delays and lost or delayed revenues.

We earn an increasingly larger portion of our total revenues from international sales and face risks attendant to those operations.

We earn an increasingly larger portion of our total revenues from international sales generated through our foreign direct and indirect operations. Since our growth strategy depends in part on our ability to penetrate international markets and increase the localization of our products and services, we expect to continue to increase our sales and presence outside the U.S., particularly in markets we believe to have high-growth potential. Our international operations are subject to risks that are customarily encountered in non-U.S. operations, including:

local political and economic instability;
the engagement of activities by our employees, contractors, partners and agents, especially in countries with developing economies, that are prohibited by international and local trade and labor laws and other laws prohibiting corrupt payments to government officials, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act of 2010 and export control laws, in spite of our policies and procedures designed to ensure compliance with these laws;
fluctuations in currency exchange rates;
increased expense of developing, testing and making localized versions of our products; and
health pandemics such as the new coronavirus in China and natural disasters including weather and fires such as those common in California and recently in Australia.

Any of these factors, either individually or in combination, could materially impact our international operations and adversely affect our business as a whole.

Demand for our products may not increase as rapidly as we anticipate due to a variety of factors including a weakness in general economic conditions and resistance to non-traditional treatment methods.

Consumer spending habits are affected by, among other things, prevailing economic conditions, levels of employment, salaries and wage rates, consumer confidence and consumer perception of economic conditions. A general slowdown in the U.S. economy and certain international economies or an uncertain economic outlook would adversely affect consumer spending habits which may, among other things, result in a decrease in the number of overall orthodontic case starts, reduced patient traffic in dentists’ offices, reduction in consumer spending on elective, non-urgent, or higher value procedures or a reduction in the demand for dental services generally, each of which would have a material adverse effect on our sales and operating results. Weakness in the global economy results in a challenging environment for selling dental technologies and dentists may postpone investments in capital equipment, such as intraoral scanners. In addition, Invisalign treatment, which currently accounts for the vast majority of our net revenues, represents a significant change from traditional orthodontic treatment involving metal brackets and wires, and customers and consumers may be reluctant to accept it, or may not find it cost-effective or preferable to traditional treatment. We have generally received positive feedback from orthodontists, GPs and consumers regarding Invisalign treatment as both an alternative to braces and as a clinical method for the treatment of malocclusion, but a number of dental professionals believe that the Invisalign treatment is appropriate for only a limited percentage of their patients. Increased market acceptance of all of our products will depend in part upon the recommendations of dental professionals, as well as other factors including effectiveness, safety, ease of use, reliability, aesthetics, and price compared to competing products and treatment methods.

Our success may depend on our ability to develop, successfully introduce and achieve market acceptance of new products or product offerings.

Our success depends on our ability to profitably develop, manufacture, market and obtain regulatory approval or clearance of new products and improvements to existing products. There is no assurance we can successfully develop, sell and achieve market acceptance of new or improved products and services. The extent of, and rate at which, market acceptance and penetration are achieved by new or future products or offerings is a function of many variables, which include, among other things, our ability to:

correctly predict, timely develop and cost effectively manufacture or bring to market solutions that meet future customer needs and preferences with the features and functionality they desire or expect;
allocate our research and development funding to products with higher growth prospects;
ensure compatibility of our computer operating systems and hardware configurations with those of our customers;
anticipate and rapidly respond to new competitive products, product offerings and technological innovations;

16



differentiate our products and product offerings from our competitors as well as other products in our own portfolio and successfully articulate the benefits of those differences to our customers;
innovate and develop new technologies and applications;
the availability of third-party reimbursement of procedures using our products;
obtain and protect adequate intellectual property rights; and
encourage customers to adopt new technologies.

If we fail to accurately predict customer needs and preferences or fail to produce viable technologies, we may invest heavily in research and development of products that do not lead to significant revenues. Even if we successfully innovate and develop new products and product enhancements, we may incur substantial costs in doing so and our profitability may suffer. In addition, even if our new products are successfully introduced, it may be difficult to gain market share and acceptance, particularly if doctors require education to understand the benefits of the new products or measure their success only after extended periods of time required to treat patients. For instance, it can take up to 24 months or longer to treat patients using our Invisalign System. Similarly, we recently introduced our mandibular advancement treatment and expect it will require significant time and effort on our part to educate doctors to the benefits of this treatment method. Consequently, doctors may be unwilling to rapidly adopt our new products until they successfully complete at least one case or until more historical clinical results are available.

Our ability to market and sell new products may also be subject to government regulation, including approval or clearance by the FDA and foreign government agencies. Any failure in our ability to successfully develop and introduce or achieve market acceptance of our new products or enhanced versions of existing products could have a material adverse effect on our operating results and could cause our net revenues to decline.

We may experience declines in average selling prices of our products which may decrease our net revenues.

We provide volume-based discount programs to our customers. In addition, we sell a number of products at different list prices which also differ based on regions and or country. If we change volume-based discount programs affecting our average selling prices; if we introduce any price reductions or consumer rebate programs; if we expand our discount programs or participation in these programs increases; if our critical accounting estimates materially differ from actual behavior or results; or if our geographic, channel, or product mix shifts to lower priced products or to products that have a higher percentage of deferred revenue, our average selling prices would be adversely affected. Moreover, we may find that some programs are unsuccessful or, even if successful may drive demand in unexpected ways. Were any of the foregoing to occur, our net revenues, gross profit, gross margin and net income may be reduced.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.

Although the U.S. dollar is our reporting currency, a growing portion of our net revenues and net income are generated in foreign currencies. Net revenues and net income generated by subsidiaries operating outside of the U.S. are translated into U.S. dollars using constantly fluctuating, often substantially, exchange rates during the respective period. As a result, negative movements in exchange rates against the U.S. dollar have and may increasingly adversely affect our net revenues and net income in our consolidated financial statements. We enter into currency forward contract transactions in an effort to cover some of our exposure to currency fluctuations but there is no assurance these transactions will fully or effectively hedge our exposure to currency fluctuations, and, under certain circumstances, these transactions could have an adverse effect on our financial condition.

As we continue to grow, we are subject to growth related risks, including risks related to excess or constrained capacity and operational inefficiencies at our manufacturing and treat facilities.

We are subject to growth related risks, including excess or constrained capacity and pressure on our internal systems and personnel. In order to manage current operations and future growth effectively, we will need to continue to implement and improve our operational, financial and management information systems and to hire, train, motivate, manage and retain employees. We may be unable to manage such growth effectively. Any such failure could have a material adverse impact on our business, operations and prospects. We continue to establish additional order acquisition, treatment planning and manufacturing facilities closer to our international customers in order to provide doctors with a better experience, improve their confidence in using Invisalign to treat more patients, more often and provide redundancy should other facilities be temporarily or permanently unavailable. Our ability to plan, construct and equip additional order acquisition, treatment planning and manufacturing facilities is subject to significant risk and uncertainty, including risks inherent in the establishment of a facility, such as hiring and retaining employees and delays and cost overruns as a result of a number of factors, any of which may be out of our control and may negatively impact our gross margin. In addition, these facilities may be located in higher cost regions compared to Mexico and Costa Rica, which may negatively impact our gross margin. If the transition into additional facilities is significantly delayed or demand for our products exceeds our current expectations, we may be unable to fulfill orders timely, which may negatively impact our financial results, reputation and

17



overall business. In addition, because we cannot immediately adapt our production capacity and related cost structures to changing market conditions, our facility capacity may at times exceed or fall short of our production requirements. If product demand decreases or we fail to forecast demand accurately, we could be required to write off inventory or record excess capacity charges, which would lower our gross margin. Production of our intraoral scanners may also be limited by capacity constraints due to a variety of factors, including our dependency on third party vendors for key components in addition to limited production yields. Any or all of these problems could result in the loss of customers, provide an opportunity for competing products to gain market acceptance and otherwise harm our business and financial results.

If we fail to sustain or increase profitability or revenue growth in future periods, our profitability may decline.

If we are to sustain or increase profitability in future periods, we need to continue increasing our net revenues, while controlling expenses. Because our business is evolving, it is difficult to predict our future operating results or levels of growth, and we have not in the past and may be unable in the future to sustain our historical growth rates which may cause our profitability to decline.

Our operating results have fluctuated in the past and may fluctuate in the future, making it difficult to predict the timing and amount of revenues, costs and expenditures.

Our operating results have fluctuated in the past and we expect our future quarterly and annual operating results to fluctuate for a variety of reasons, particularly as we focus on increasing doctor and consumer demand for our products.  Some of the factors that could cause our operating results to fluctuate include:

limited visibility into and difficulty predicting from quarter to quarter, the level of activity in our customers’ practices;
changes in geographic, channel, or product mix;
weakness in consumer spending as a result of a slowdown in the global, U.S. or other economies;
higher manufacturing costs;
competition in general and competitive developments in the market;
changes in relationships with our dental support organizations and distributors, including timing of orders;
changes in the timing of when revenues are recognized, including as a result of the timing of receipt of product orders and shipments, the introduction of new products and software releases, product offerings or promotions, modifications to our terms and conditions or as a result of new accounting pronouncements or changes to critical accounting estimates including, without limitation, those estimates based on such matters as our predicted usage of additional aligners;
fluctuations in currency exchange rates against the U.S. dollar;
our inability to scale, suspend or reduce production based on variations in product demand;
increased participation in our customer rebate or discount programs could adversely affect our average selling prices;
seasonal fluctuations, including those related to patient demographics such as teen buying habits in China and Europe as well as the number of doctors in their offices and their availability to take appointments;
success of or changes to our marketing programs from quarter to quarter;
our reliance on our contract manufacturers for the production of sub-assemblies for our intraoral scanners;
increased advertising or marketing efforts or aggressive price competition from competitors;
changes to our effective tax rate;
unanticipated delays and disruptions in the manufacturing process caused by insufficient capacity or availability of raw materials, turnover in the labor force or the introduction of new production processes, power outages or natural or other disasters beyond our control;
underutilization of manufacturing and treat facilities;
major changes in available technology or the preferences of customers may cause our current product offerings to become less competitive or obsolete;
costs and expenditures in connection with litigation;
costs and expenditures in connection with the establishment of treatment planning and fabrication facilities in international locations;
costs and expenditures in connection with hiring and deployment of direct sales force personnel;
unanticipated delays in our receipt of patient records made through intraoral scanners for any reason;
disruptions to our business due to political, economic or other social instability or any governmental regulatory or similar actions, including the impact of an epidemic such as recent developments beginning in China in connection with the Novel Coronavirus, any of which results in changes in consumer spending habits, consumers unable or unwilling to visit the orthodontist or general practitioners office, as well as any impact on workforce absenteeism;
inaccurate forecasting of net revenues, production and other operating costs;
investments in research and development to develop new products and enhancements;
material impairments in the value of our privately held companies; and
timing of industry tradeshows.


18



To respond to these and other factors, we may make business decisions that adversely affect our operating results such as modifications to our pricing policy, promotions, development efforts, product releases, business structure or operations. Most of our expenses, such as employee compensation and lease payment obligations, are relatively fixed in the short term. Moreover, our expense levels are based, in part, on our expectations regarding future revenue levels. As a result, if our net revenues for a particular period fall below expectations, we may be unable to adjust spending quickly enough to offset any shortfall in net revenues. Due to these and other factors, we believe that quarter-to-quarter comparisons of our operating results may not be meaningful. You should not rely on our results for any one quarter as an indication of our future performance.

A disruption in the operations of our primary freight carrier or higher shipping costs could cause a decline in our net revenues or a reduction in our earnings.

We are dependent on commercial freight carriers, primarily UPS, to deliver our products. If the operations of these carriers are disrupted for any reason, we may be unable to timely deliver our products to our customers. If we cannot deliver our products on time and cost effectively, our customers may choose competitive offerings or create their own aligners causing our net revenues and gross margins to decline, possibly materially. In a rising fuel cost environment, our freight costs will increase. In addition, we earn an increasingly larger portion of our total revenues from international sales. International sales carry higher shipping costs which could negatively impact our gross margin and results of operations. If freight costs materially increase and we are unable to pass that increase along to our customers for any reason or otherwise offset such increases in our cost of net revenues, our gross margin and financial results could be adversely affected.

 If we are unable to accurately predict our volume growth and fail to hire a sufficient number of technicians in advance of such demand, or hire technicians faster than our actual growth projections, the delivery time of our products could be delayed or our costs may exceed our revenues, each of which could adversely affect our results of operations.

Treatment planning is a key step leading to our manufacturing process which relies on sophisticated computer software. This requires new technicians to undergo a relatively long training process, often up to 120 days or longer. As a result, if we are unable to accurately predict our volume growth, we may have an insufficient number of trained technicians to deliver our products within the time frame our customers expect. Such a delay could cause us to lose existing customers or fail to attract new customers. This could cause a decline in our net revenues and net income and could adversely affect our results of operations. Conversely, if we hire and train technicians in anticipation of volume growth that does not materialize or materializes at a rate we do not anticipate, our costs and expenditures may outpace our revenue growth, harming our gross margins, operating expenses and financial results.

Our information technology systems are critical to our business. System integration and implementation issues and system security risks could disrupt our operations, which could have a material adverse impact on our business and operating results.

We rely on the efficient and uninterrupted operation of complex information technology systems. All information technology systems are vulnerable to damage or interruption from a variety of sources. As our business has grown in size and complexity, the growth has placed, and will continue to place significant demands on such systems. To effectively manage this growth, our information systems and applications require an ongoing commitment of significant resources to maintain, protect and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving industry and regulatory standards and changing customer preferences. We are continuing to transform certain business processes, extend established processes to new subsidiaries and/or implement additional functionality in our enterprise resource planning (“ERP”) software system which entails certain risks, including difficulties with changes in business processes that could disrupt our operations, such as our ability to track orders and timely ship products, manage our supply chain and aggregate financial and operational data.

System upgrades and enhancements require significant expenditures and allocation of valuable employee resources. Delays in integration or disruptions to our business from implementation of these new or upgraded systems could have a material adverse impact on our financial condition and operating results.

Additionally, we continuously upgrade our customer facing software applications, specifically the ClinCheck software, MyAligntech and the Invisalign Doctor Site. Software applications frequently contain errors or defects, especially when they are first introduced or when new versions are released. The discovery of a defect or error in our software applications or information systems, or incompatibility with customers’ computer operating systems and hardware configurations with a new release or upgraded version or the failure of our primary information systems may result in the following consequences, among others: delay or loss of revenues or delay in market acceptance, damage to our reputation, loss of market share to competition or increased service costs, any of which could have a material adverse effect on our business, financial condition or results of operations.

 If the information we rely on to run our businesses were to be found to be inaccurate or unreliable, if we fail to properly maintain our information systems and data integrity, or if we fail to develop new capabilities to meet our business needs in a timely

19



manner, we could suffer operational disruptions, have customer disputes, fail to produce timely and accurate reports, have regulatory or other legal problems, experience increases in operating and administrative expenses, lose existing customers, have difficulty in attracting new customers or in implementing our growth strategies, or suffer other adverse consequences. In addition, experienced computer programmers and hackers may be able to penetrate our network security or our cloud-based software servers hosted by third parties and misappropriate our confidential information or that of third parties, create system disruptions or cause shutdowns. Furthermore, sophisticated hardware and operating system software and applications that we either internally develop or procure from third parties may contain defects in design and manufacture, including “bugs” and other problems that can unexpectedly interfere with the operation of the system. The costs to eliminate or alleviate security problems, viruses and bugs could be significant, and the efforts to address these problems could result in interruptions that may have a material adverse impact on our operations, net revenues and operating results.

Furthermore, our business requires the secure transmission of confidential patient health information over public networks. Because we store and transmit sensitive information including protected patient health information, security breaches could expose us to a risk of regulatory action, litigation, possible liability and loss. We have experienced breaches in the past and our security measures may be inadequate to prevent future security breaches, and our business operations and profitability would be adversely affected by, among other things, loss of customers and potential criminal and civil sanctions if they are not prevented.

There can be no assurance that our process of improving existing systems, developing new systems to support our expanding operations, integrating new systems, protecting confidential patient health information, and improving service levels will not be delayed or that additional systems issues will not arise in the future. Failure to adequately protect and maintain the integrity of our information systems and data may result in a material adverse effect on our financial position, results of operations and cash flows.

If the security of our customer and patient information is compromised or we are unable to comply with data protection laws, patient care could suffer, and we could be liable for related damages, and our reputation could be impaired.

We retain confidential customer financial as well as patient health information in our processing centers. Therefore, it is critical that our facilities and infrastructure remain secure and are also perceived by the marketplace and our customers to be secure. Despite the implementation of security measures, we have experienced breaches in the past and our infrastructure may be vulnerable to physical break-ins, computer viruses, programming errors or other technical malfunctions, hacking or phishing attacks by third parties, employee error or malfeasance or similar disruptive problems. If we fail to meet our customer and patients’ expectations regarding the security of customer and patient information, we could be liable for damages and our reputation and competitive position could be impaired. Affected parties could initiate legal or regulatory action against us, which could cause us to incur significant expense and liability or result in orders forcing us to modify our business practices. Concerns over our privacy practices could adversely affect others’ perception of us and deter customers, advertisers and partners from using our products. In addition, patient care could suffer, and we could be liable if our systems fail to deliver correct information in a timely manner. We have cybersecurity insurance related to a breach event covering expenses for notification, credit monitoring, investigation, crisis management, public relations and legal advice. The policy also provides coverage for regulatory action defense including fines and penalties, potential payment card industry fines and penalties and costs related to cyber extortion; however, damage and claims arising from such incidents may not be covered or may exceed the amount of any coverage.

We are also subject to federal, state and foreign laws and regulations, including ones relating to privacy, data protection, content regulation, and consumer protection. We may be or become subject to data localization or data residency laws which generally require that certain types of data collected within a country be stored and processed only within that country or approved countries. Some countries, including Russia and China, have enacted, and others are considering enacting, data localization or data residency laws. If countries in which we have customers adopt data localization or data residency laws, we could be required to implement new or expand existing data storage protocols, build new storage facilities, and/or devote additional resources to comply with the requirements of such laws, any of which could have significant cost implications. We may also be subject to data export restrictions, or international transfer laws which prohibit or impose conditions upon the transfer of such data from one country to another. These laws and regulations are constantly evolving and may be interpreted, applied, created or amended in a manner that could adversely affect our business.

In addition, we must comply with numerous data protection requirements that span from individual state and national laws in the U.S. to multinational requirements in the EU. In the EU, we must comply with the General Data Protection Regulation (“GDPR”) which serves as a harmonization of European data-privacy laws. We believe we have designed our product and service offerings to be compliant with the requirements of applicable data protection laws and regulations. Maintaining systems that are compliant with these laws and regulations is costly and could require complex changes in the way we do business or provide services to our customers and their patients. Additionally, our success may be dependent on the success of healthcare providers in managing data protection requirements.


20



In order to deepen our market penetration and raise awareness of our brand and products, we have increased the amount we spend on marketing activities, which may not ultimately prove successful or an effective use of our resources.

To increase awareness of our products and services domestically and internationally, we have increased the amount we spend, and anticipate spending in the future on marketing activities. Our marketing efforts and costs are significant and include national and regional campaigns involving television, print media, social media and, more recently, alliances with professional sports teams and other strategic partners. We attempt to structure our advertising campaigns in ways we believe most likely to increase brand awareness and adoption; however, there is no assurance our campaigns will achieve the returns on advertising spend desired or successfully increase brand or product awareness sufficiently to sustain or increase our growth goals, which could have an adverse effect on our gross margin and business overall.

Our success depends in part on our proprietary technology, and if we are unable to successfully enforce our intellectual property rights, our competitive position may be harmed. Litigating claims of this type is costly and could distract our management and cause a decline in our results of operations and stock price.

Our success depends in part on our ability to maintain existing intellectual property rights and to obtain and maintain further intellectual property protection for our products, both in the U.S. and in other countries. Our inability to do so could harm our competitive position. For further details concerning our patents and other intellectual property, please see “Intellectual Property” in Part I, Item 1. Business” of this annual report on Form 10-K.

We intend to rely on our portfolio of issued and pending patent applications in the U.S. and in other countries to protect a large part of our intellectual property and our competitive position; however, our currently pending or future patent filings may not result in the issuance of patents. Additionally, any patents issued to us may be challenged, invalidated, held unenforceable, circumvented, or may not be sufficiently broad to prevent third parties from producing competing products similar in design to our products. In addition, any protection afforded by foreign patents may be more limited than that provided under U.S. patents and intellectual property laws. Certain of our key patents began to expire in 2017, which have resulted in increased competition and less expensive competitive products. We also rely on protection of our copyrights, trade secrets, know-how and proprietary information. We generally enter into confidentiality agreements with our employees, consultants and our collaborative partners upon commencement of a relationship with us; however, these agreements may not provide meaningful protection against the unauthorized use or disclosure of our trade secrets or other confidential information, and adequate remedies may not exist if unauthorized use or disclosure were to occur. Our inability to maintain the proprietary nature of our technology through patents, copyrights or trade secrets would impair our competitive advantages and could have a material adverse effect on our operating results, financial condition and future growth prospects. In particular, a failure to protect our proprietary rights might allow competitors to copy our technology, which could adversely affect our pricing and market share. In addition, in an effort to protect our intellectual property we are currently, have in the past been, and may in the future be involved in litigation. The potential effects on our business operations resulting from litigation that we may participate in the future, whether or not ultimately determined in our favor or settled by us, are costly and divert the efforts and attention of our management and technical personnel from normal business operations.

Litigation, interferences, oppositions, re-exams, inter partes reviews, post grant reviews or other proceedings are, have been and may in the future be necessary in some instances to determine the validity and scope of certain of our proprietary rights, and in other instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products. Litigation, interference, oppositions, re-exams, inter partes reviews, post grant reviews, administrative challenges or other similar types of proceedings are unpredictable and may be protracted, expensive and distracting to management. The outcome of such proceedings could adversely affect the validity and scope of our patent or other proprietary rights, hinder our ability to manufacture and market our products, require us to seek a license for the infringed product or technology or result in the assessment of significant monetary damages. An unfavorable ruling could include monetary damages or, in cases where injunctive relief is sought, an injunction prohibiting us from selling our products. Any of these results from our litigation could adversely affect our results of operations and stock price.

Obtaining approvals and complying with regulations enforced by the FDA and foreign regulatory authorities is an expensive and time-consuming process, and any failure to obtain or maintain approvals for our products or services or failure to comply with regulations could materially harm our sales, result in substantial penalties and cause harm to our reputation.

Our products are considered medical devices and are subject to extensive and widely varying regulations in the U.S. and internationally. Before we can sell a new medical device in the U.S., or market a new use of or claim for an existing product, we must obtain FDA clearance or approval unless an exemption applies. Internationally, similar requirements apply on a country by country basis. In the U.S., FDA regulations are wide ranging and govern, among other things:

product design, development, manufacturing and testing;

21



product labeling;
product storage;
pre-market clearance or approval;
complaint handling and corrective actions;
advertising and promotion; and
product sales and distribution.

It takes significant time, effort and expense to obtain and maintain FDA approvals of our products and services. In other countries, the requirements to obtain and maintain similar approvals may differ materially from those of the FDA. Moreover, there is no guarantee we will successfully obtain or maintain approvals in all or any of the countries in which we do business now or in the future. Even if we are successful, the time and effort may take significantly longer, and costs may be significantly greater.  If approvals to market our products or services are delayed, whether in the U.S. or other countries, we may be unable to market our products or services in markets we deem important to our business. Were any of these risks to occur, our domestic or international operations may be materially harmed, and our business as a whole adversely impacted.

In addition, our failure to comply with applicable regulatory requirements could result in enforcement actions in the U.S. and other countries. For example, enforcement actions by the FDA may include any of the following sanctions:

warning letters, fines, injunctions, consent decrees and civil penalties;
repair, replacement, refunds, recall or seizure of our products;
operating restrictions or partial suspension or total shutdown of production;
refusing our requests for 510(k) clearance or pre-market approval of new products, new intended uses, or modifications to existing products;
withdrawing clearance or pre-market approvals that have already been granted; and
criminal prosecution.

We must also comply with facility registration and product listing requirements of the FDA and adhere to applicable Quality System regulations. The FDA enforces its Quality System regulations through periodic unannounced inspections. Our failure to take satisfactory corrective action in response to an adverse inspection or the failure to comply with applicable manufacturing regulations could result in enforcement action, and we may be required to find alternative manufacturers, which could be a long and costly process. Any enforcement action by the FDA or foreign governments could have a material adverse effect on us.

The sourcing and availability of metals used in the manufacture of a limited number of parts (if any) contained in our products may be affected by laws and regulations in the U.S. or internationally regarding the use of minerals obtained from certain regions of the world like the Democratic Republic of Congo and adjoining countries. These laws and regulations may decrease the number of suppliers capable of supplying our needs for certain metals, thereby negatively affecting our ability to obtain products in sufficient quantities or at competitive prices. We may furthermore suffer financial and reputational harm if customers require, and we are unable to deliver, certification that our products are conflict free. Regardless, we will incur additional costs associated with compliance with these laws and regulations, including time-consuming and costly efforts to determine the source of any conflict minerals used in our products.

We are required to annually assess our internal control over financial reporting and any future adverse results from such assessment could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

We have implemented and routinely assess, update and refine our internal control over financial reporting for its effectiveness. Pursuant to the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated by the SEC, we are required to furnish in our Form 10-K a report by our management regarding the effectiveness of our internal control over financial reporting. The report includes, among other things, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. Our internal controls may become inadequate because of changes in conditions including changes in personnel, updates and upgrades to existing software including our ERP software system, changes in accounting standards or interpretations of existing standards, and, as a result, the degree of compliance of our internal control over financial reporting with the existing policies or procedures may become ineffective. Establishing, testing and maintaining an effective system of internal control over financial reporting requires significant resources and time commitments on the part of our management and our finance staff, may require additional staffing and infrastructure investments and increases our costs of doing business. If we are unable to assert that our internal control over financial reporting is effective in any future period (or if our auditors are unable to express an opinion on the effectiveness of our internal controls or conclude that our internal controls are ineffective), the timely filing of our financial reports could be delayed or we could be required to restate past reports, and cause us to lose investor confidence in the accuracy and completeness

22



of our financial reports in the future, which could have an adverse effect on our stock price.
If we lose our key personnel or are unable to attract and retain key personnel, we may be unable to pursue business opportunities or develop our products.

We are highly dependent on the key employees in our clinical engineering, technology development, sales, training and marketing personnel and management teams. The loss of the services provided by those individuals may significantly delay or prevent the achievement of our product development and other business objectives and could harm our business. Our future success will also depend on our ability to identify, recruit, train and retain additional qualified personnel, including orthodontists and production technicians in our treatment planning facilities. Few orthodontists are accustomed to working in a manufacturing environment since they are generally trained to work in private practices, universities and other research institutions. Thus, we may be unable to attract and retain personnel with the advanced qualifications necessary for the further development of our business. Furthermore, we may not be successful in retaining our key personnel or their services. If we are unable to attract and retain key personnel, our business could be materially harmed.

 If we infringe the patents or proprietary rights of other parties or are subject to a patent infringement claim, our ability to grow our business may be severely limited.

Extensive litigation over patents and other intellectual property rights is common in the medical device industry. We have been sued for infringement of third party’s patents in the past and we may be the subject of patent or other litigation in the future. We periodically receive and may in the future receive letters from third parties drawing our attention to their patent rights. While we do not believe we infringe upon any valid and enforceable rights that have been brought to our attention, there may be other more pertinent rights of which we are presently unaware. The defense and prosecution of intellectual property suits, interference proceedings and related legal and administrative proceedings could result in substantial expense to us and significant diversion of effort by our technical and management personnel. An adverse determination of any litigation or interference proceeding to which we may become a party could subject us to significant liabilities. An adverse determination of this nature could also put our patents at risk of being invalidated or interpreted narrowly or require us to seek licenses from third parties. Licenses may not be available on commercially reasonable terms or at all, in which event, our business would be materially adversely affected.

We maintain single supply relationships for certain key machines and materials, and our business and operating results could be harmed if supply is restricted or ends or the price of raw materials used in our manufacturing process increases.

We are highly dependent on manufacturers of specialized scanning equipment, rapid prototyping machines, resin and other advanced materials, as well as the optics, electronic and other mechanical components of our intraoral scanners. We maintain single supply relationships for many of these machines and materials technologies. In particular, our CT scanning and stereolithography equipment used in our aligner manufacturing and many of the critical components for the optics of our scanners are provided by single suppliers. We are also committed to purchasing the vast majority of our resin and polymer, the primary raw materials used in our manufacturing process for clear aligners, from a single source. If these or other suppliers encounter financial, operating or other difficulties or if our relationship with them changes, we may be unable to quickly establish or qualify replacement sources of supply and could face production interruptions, delays and inefficiencies. In addition, technology changes by our vendors could disrupt access to required manufacturing capacity or require expensive, time consuming development efforts to adapt and integrate new equipment or processes. Our growth may exceed the capacity of one or more of these manufacturers to produce the needed equipment and materials in sufficient quantities to support our growth. Conversely, in order to secure supplies for production of products, we sometimes enter into non-cancelable minimum purchase commitments with vendors, which could impact our ability to adjust our inventory to reflect declining market demands. If demand for our products is less than we expect, we may experience additional excess and obsolete inventories and be forced to incur additional charges and our profitability may suffer. In the event of technology changes, delivery delays, or shortages of or increases in price for these items, our business and growth prospects may be harmed.

We depend on a single contract manufacturer and supplier of parts used in our iTero scanner and any disruption in this relationship may cause us to fail to meet the demands of our customers and damage our customer relationships.

We rely on a third-party manufacturer to supply key sub-assemblies for our iTero Element scanner. As a result, if this manufacturer fails to deliver its components, if we lose its services or if we fail to negotiate or maintain acceptable terms, we may be unable to deliver our products in a timely manner and our business may be harmed. Furthermore, any difficulties encountered by this manufacturer with respect to hiring personnel and maintaining acceptable manufacturing standards, controls, procedures and policies could disrupt our ability to timely deliver our products. Finding a substitute manufacturer may be expensive, time-consuming or impossible and could result in a significant interruption in the supply of our intraoral scanning products. Any failure by our contract manufacturer that results in delays in our fulfillment of customer orders may cause us to lose revenues and suffer damage to our customer relationships.

23




We primarily rely on our direct sales force to sell our products, and any failure to train and maintain our direct sales force could harm our business.

Our ability to sell our products and generate revenues primarily depends upon our direct sales force within our Americas and International markets. We do not have any long-term employment contracts with our direct sales force and the loss of the services provided by these key personnel may harm our business. In order to provide more comprehensive sales and service coverage, we continue to increase the size of our sales force to pursue growth opportunities within and outside of our existing geographic markets. Moreover, as we focus on market penetration, we have begun to segregate sales personnel to focus on specific markets such as orthodontists and GPs. To adequately train new representatives to successfully market and sell our products and for them to establish strong customer relationships can take up to twelve months or more. As a result, if we are unable to retain our direct sales personnel or quickly replace them with individuals of equivalent technical expertise and qualifications, if we are unable to successfully instill technical expertise in new and existing sales representatives, if we fail to establish and maintain strong relationships with our customers, or if our efforts at specializing our selling techniques do not prove successful and cost-effective, our net revenues and our ability to maintain market share could be materially harmed. In addition, due to our large and fragmented customer base, we may not be able to provide all of our customers with product support immediately upon the launch of a new product. As a result, adoption of new products by our customers may be slower than anticipated and our ability to grow market share and increase our net revenues may be harmed.

As compliance with healthcare regulations becomes more costly and difficult for us or our customers, we may be unable to grow our business.

Participants in the healthcare industry are subject to extensive and frequently changing regulations under numerous laws administered by governmental entities at the federal, state and local levels, some of which are, and others of which may be, applicable to our business.

Furthermore, our healthcare provider customers are also subject to a wide variety of laws and regulations that could affect the nature and scope of their relationships with us. The healthcare market itself is highly regulated and subject to changing political, economic and regulatory influences. Regulations implemented pursuant to the Health Insurance Portability and Accountability Act (“HIPAA”), including regulations affecting the security and privacy of patient healthcare information held by healthcare providers and their business associates may require us to make significant and unplanned enhancements of software applications or services, result in delays or cancellations of orders, or result in the revocation of endorsement of our products and services by healthcare participants. The effect of HIPAA and newly enforced regulations on our business is difficult to predict, and there can be no assurance that we will adequately address the business risks created by HIPAA and its implementation or that we will be able to take advantage of any resulting business opportunities.

Extensive and changing government regulation of the healthcare industry may be expensive to comply with and exposes us to the risk of substantial government penalties.

In addition to medical device laws and regulations, numerous state and federal healthcare-related laws regulate our business, covering areas such as:

storage, transmission and disclosure of medical information and healthcare records;
prohibitions against the offer, payment or receipt of remuneration to induce referrals to entities providing healthcare services or goods or to induce the order, purchase or recommendation of our products; and
the marketing and advertising of our products.

Complying with these laws and regulations could be expensive and time-consuming and could increase our operating costs or reduce or eliminate certain of our sales and marketing activities or our revenues.

Our business exposes us to potential product liability claims, and we may incur substantial expenses if we are subject to product liability claims or litigation.

Medical devices involve an inherent risk of product liability claims and associated adverse publicity. We may be held liable if any product we develop or any product that uses or incorporates any of our technologies causes injury or is otherwise found unhealthy or unsuitable. Although we intend to continue to maintain product liability insurance, adequate insurance may not be available on acceptable terms, if at all, and may not provide adequate coverage against potential liabilities. A product liability claim, regardless of its merit or eventual outcome, could result in significant legal defense costs and damage our reputation. These costs would have the effect of increasing our expenses and diverting management’s attention away from the operation of our business and could harm our business.

24




Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

Our global operations may be disrupted by natural or human induced disasters including, earthquakes, tsunamis, floods, drought, hurricanes, typhoons, wildfires, extreme weather conditions, power shortages, telecommunications failures, materials scarcity and price volatility, and medical epidemics or health pandemics. Climate change may increase both the frequency and severity of natural disasters and, consequently, risks to our operations and growth. The occurrence of business disruptions could harm our growth and expansion, result in significant losses, seriously harm our revenue, profitability and financial condition, adversely affect our competitive position, increase our costs and expenses, and require substantial expenditures and recovery time in order to fully resume operations. Our digital dental modeling is primarily processed in our facility located in San Jose, Costa Rica. The operations team in Costa Rica creates ClinCheck treatment plans using sophisticated computer software. In addition, our customer facing operations are located in Costa Rica. Our aligner molds and finished aligners are fabricated in Juarez, Mexico and, we have and are building additional facilities in China. Both locations in Costa Rica and Mexico are in earthquake zones and may be subject to other natural disasters. If there is a major earthquake or any other natural disaster in a region where one of these facilities is located, our ability to create ClinCheck treatment plans, respond to customer inquiries or manufacture and ship our aligners could be compromised which could result in our customers experiencing significant delays receiving their aligners and a decrease in service levels for a period of time. Additionally, our sales and operations in China have been impacted and are likely to continue to be disrupted as a result of the Novel Coronavirus outbreak. Moreover, our corporate headquarters and a portion of our research and development activities are located in California, which suffers from earthquakes, periodic droughts, and wildfires affecting the health and safety of our employees. Any such business interruptions could materially and adversely affect our business, financial condition and results of operations.

Changes in, or interpretations of, accounting rules and regulations, could result in unfavorable accounting charges.

We prepare our consolidated financial statements in conformity with Generally Accepted Accounting Principles in the U.S. ("GAAP"). These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting policies. A change in these policies or in the way these policies are interpreted by us or regulators can have a significant effect on our reported results and may even retroactively affect previously reported transactions.

If we fail to manage our exposure to global financial and securities market risk successfully, our operating results and financial statements could be materially impacted.

The primary objective of our investment activities is to preserve principal. To achieve this objective, a majority of our marketable investments are investment grade, liquid, fixed-income securities and money market instruments denominated in U.S. dollars. If the carrying value of our investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we will be required to write down the value of our investments, which could materially harm our results of operations and financial condition. Moreover, the performance of certain securities in our investment portfolio correlates with the credit condition of the U.S. financial sector. In an unstable credit environment, we might incur significant realized, unrealized or impairment losses associated with these investments.

If our goodwill or long-lived assets become impaired, we may be required to record a significant charge to earnings.

Under GAAP, we review our goodwill and long-lived asset group for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Additionally, goodwill is required to be tested for impairment at least annually. The qualitative and quantitative analysis used to test goodwill are dependent upon various assumptions and reflect management’s best estimates. Changes in certain assumptions including revenue growth rates, discount rates, earnings multiples and future cash flows may cause a change in circumstances indicating that the carrying value of goodwill or the asset group may be impaired. We may be required to record a significant charge to earnings in the financial statements during the period in which any impairment of goodwill or asset group are determined.

We may experience unexpected issues and expenses associated with our corporate structure reorganization, including the relocation of our EMEA regional headquarters to Switzerland.

We reorganized our corporate structure and intercompany relationships in January 2020 in an effort to more closely align our international business activities and to achieve financial and operational efficiencies. The implementation of this reorganization plan included the move of our EMEA regional headquarters from the Netherlands to Switzerland, has been time-consuming and costly, may be disruptive to our business, and, following completion of the reorganization plan, may not be more efficient or effective. This relocation is accompanied by a number of risks and uncertainties that may affect our results of operations and statement of cash flows, including:


25



failure to retain key employees who possess specific knowledge or expertise and upon whom we are depending upon for the timely and successful transition; 
difficulties in hiring employees in Switzerland with the necessary skills and expertise; and
increased costs as we transition the operations to Switzerland along with higher costs of doing business in Switzerland.

If any of these risks materialize in the future, our operating results, statement of operations and cash flows may be adversely affected.

Our effective tax rate may vary significantly from period to period.

Various internal and external factors may have favorable or unfavorable effects on our future effective tax rate. These factors include, but are not limited to, changes in legal entity structure and/or activities performed within our entities, changes in tax laws, regulations and/or rates, new or changes to accounting pronouncements, changing interpretations of existing tax laws or regulations, changes in the relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates, changes in overall levels of pretax earnings, the future levels of tax benefits of stock-based compensation, settlement of income tax audits and non-deductible goodwill impairments. For example, our effective tax rate will vary significantly in our first quarter of fiscal 2020 due to the relocation of our EMEA regional headquarters from the Netherlands to Switzerland effective January 1, 2020. Also, we may continue to experience significant variation in our effective tax rate related to excess tax benefits on stock-based compensation, particularly in the first quarter of each year when the majority of our equity awards vest.

Changes in tax laws or tax rulings could negatively impact our income tax provision and net income.

As a U.S. multinational corporation, we are subject to changing tax laws both within and outside of the U.S. Changes in tax laws or tax rulings, or changes in interpretations of existing tax laws, could affect our income tax provision and net income or require us to change the manner in which we operate our business. In addition, governmental tax authorities are increasingly scrutinizing the tax positions of companies. Many countries in Europe, as well as a number of other countries and organizations, have recently proposed or recommended changes to existing tax laws or have enacted new laws. For example, the Organization for Economic Cooperation and Development (“OECD”) has been working on a “Base Erosion and Profit Shifting Project,” which is focused on a number of issues, including the shifting of profits between affiliated entities in different tax jurisdictions. The OECD has issued and is expected to continue to issue, guidelines and proposals that may change various aspects of the existing framework under which our tax obligations are determined in many of the countries in which we do business.

We are subject to risks associated with our strategic investments. Impairments in the value of our investments and unsecured promissory note could negatively impact our financial results.

We have invested in privately held companies for strategic reasons and to support key business initiatives, and we may not realize a return on our strategic investments. Many of such companies generate net losses and the market for their products, services or technologies may be slow to develop. Further, valuations of privately held companies are inherently complex due to the lack of readily available market data. If we determine that our investments have experienced a decline in value or are determined to be uncollectible, we may be required to record impairments which could be material and could have an adverse impact on our financial results.

Risks Related to our Common Stock

Historically, the market price for our common stock has been volatile.

The market price of our common stock could be subject to wide price fluctuations in response to various factors, many of which are beyond our control. The factors include:

quarterly variations in our results of operations and liquidity or changes in our forecasts and guidance;
changes in recommendations by the investment community or in their estimates of our net revenues or operating results;
speculation in the press or investment community concerning our business and results of operations;
announcements by competitors or new market entrants;
strategic actions by us or our competitors, such as management changes, material transactions or acquisitions;
announcements regarding stock repurchases, sales of our common stock, credit agreements and debt issuances;
announcements of technological innovations or new products or product offerings by us, our customers or competitors;
key decisions in pending litigation
sales of stock by us, our officers or directors; and
general economic market conditions.

26




In addition, the stock market, in general, and the market for technology and medical device companies, in particular, have experienced extreme price and volume fluctuations that have often been unrelated to or disproportionate to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. Historically, class action litigation is often brought against an issuing company following periods of volatility in the market price of a company’s securities and we have not been excepted from such litigation.

We cannot guarantee we will continue to repurchase our common stock, and any repurchases may not achieve our objectives.

We have a history of recurring stock repurchase programs intended to return capital to our investors. Any authorization or continuance of our share repurchase programs is contingent on a variety of factors, including our financial condition, results of operations, business requirements, and our board of directors' continuing determination that share repurchases are in the best interests of our stockholders and in compliance with all applicable laws and agreements. There is no assurance that we will continue to repurchase stock consistent with historical levels or at all, or that our stock repurchase programs will have a beneficial impact on our stock price.

Future sales of significant amounts of our common stock may depress our stock price.

A large percentage of our outstanding common stock is currently owned by a small number of significant stockholders. These stockholders have sold in the past, and may sell in the future, large amounts of common stock over relatively short periods of time. Sales of substantial amounts of our common stock in the public market by our existing stockholders may adversely affect the market price of our common stock. Such sales could create public perception of difficulties or problems with our business and may depress our stock price.

ITEM 1B.UNRESOLVED STAFF COMMENTS

None.

ITEM 2.PROPERTIES

We occupy several leased and owned facilities. At December 31, 2019, the significant facilities occupied were as follows:
Location
Lease/Own
Primary Use
Expiration of Lease
San Jose, California, U.S.A.
Own
Office for corporate headquarters, research & development and administrative personnel
N/A
Raleigh, North Carolina, U.S.A
Own
Office for Americas regional headquarters
N/A
San Jose, Costa Rica
Lease and Own
Office for administrative personnel, treatment personnel, and customer care
July 2023

Moscow, Russia
Lease
Office for research & development
March 2024
Or Yehuda, Israel

Lease and Own
Manufacturing and office for research & development and administrative personnel
February 2022
Rotkreuz, Switzerland
Lease
Office for EMEA regional headquarters, sales and marketing and administrative personnel
July 2024
Juarez, Mexico
Own
Manufacturing and office for administrative personnel
N/A
Ziyang, China
Lease and Own
Manufacturing and office for administrative personnel
May 2021

ITEM 3.LEGAL PROCEEDINGS

For a discussion of legal proceedings, refer to Note 9 "Legal Proceedings" of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

27



PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

As of February 21, 2020, there were approximately 70 holders of record of our common stock. Because the majority of our shares of outstanding common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

Performance Graph

Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following information relating to the price performance of our common stock shall not be deemed “filed” with the SEC or “Soliciting Material” under the Securities Exchange Act of 1934, as amended, or subject to Regulation 14A or 14C, or to liabilities of Section 18 of the Exchange Act except to the extent we specifically request that such information be treated as soliciting material or to the extent we specifically incorporate this information by reference.

The graph below matches our cumulative 5-year total stockholder return on common stock with the cumulative total returns of the NASDAQ Composite index, the S&P 500 and the S&P 1500 Composite Health Care Equipment & Supplies index. The graph tracks the performance of a $100 investment in our common stock, in the peer group, and the index (with the reinvestment of all dividends) from December 31, 2014 to December 31, 2019.


https://cdn.kscope.io/1df0a354164e54edcbce580e234dcd2d-performancegrapha07.jpg

28



UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Following is a summary of stock repurchases for the three months ended December 31, 2019:
Period
 
Total Number of Shares Repurchased
 
Average Price Paid per Share
 
Total Number of Shares Repurchased as Part of Publicly Announced Program
 
Approximate Dollar Value of Shares that May Yet Be Repurchased Under the Program 1
October 1, 2019 through October 31, 2019
 

 
$

 

 
$
200,500,000

November 1, 2019 through November 30, 2019
 
388,510

 
$
258.67

 
388,510

 
$
100,000,000

December 1, 2019 through December 31, 2019
 

 
$

 

 
$
100,000,000


1  
In November 2019, we repurchased $100.5 million of our common stock on the open market. As of December 31, 2019, we have $100.0 million available for repurchase under the $600.0 million repurchase program authorized by our Board of Directors in May 2018 (Refer to Note 12 “Common Stock Repurchase Programs” of the Notes to Consolidated Financial Statements).


ITEM 6.SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations.   
 
Fiscal Year
  
2019
 
2018
 
2017 2
 
2016 2
 
2015
 
(in thousands, except per share data)
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Net revenues 
$
2,406,796

 
$
1,966,492

 
$
1,473,413

 
$
1,079,874

 
$
845,486

Gross profit
1,743,897

 
1,447,867

 
1,116,947

 
815,294

 
640,110

Income from operations 
542,493

 
466,564

 
353,611

 
248,921

 
188,634

Interest income
12,482

 
8,576

 
6,948

 
4,213

 
2,938

Other income (expense), net
7,676

 
(8,489
)
 
4,240

 
(10,568
)
 
(5,471
)
Net income before provision for income taxes and equity in losses of investee 
562,651

 
466,651

 
364,799

 
242,566

 
186,101

Provision for income taxes
112,347

 
57,723

 
130,162

 
51,200

 
42,081

Equity in losses of investee, net of tax
7,528

 
8,693

 
3,219

 
1,684

 

Net income
$
442,776

 
$
400,235

 
$
231,418

 
$
189,682

 
$
144,020

Net income per share:
 
 
 
 
 
 
 
 
 
Basic
$
5.57

 
$
5.00

 
$
2.89

 
$
2.38

 
$
1.80

Diluted
$
5.53

 
$
4.92

 
$
2.83

 
$
2.33

 
$
1.77

Shares used in computing net income per share:
 
 
 
 
 
 
 
 
 
Basic
79,424

 
80,064

 
80,085

 
79,856

 
79,998

Diluted
80,100

 
81,357

 
81,832

 
81,484

 
81,521

Financial Position Data:
 
 
 
 
 
 
 
 
 
Working capital 1
$
662,449

 
$
610,406

 
$
658,316

 
$
597,772

 
$
460,338

Total assets
2,500,702

 
2,052,458

 
1,784,009

 
1,402,305

 
1,158,633

Total long-term liabilities
183,563

 
107,494

 
129,670

 
46,427

 
39,035

Stockholders’ equity
$
1,346,169

 
$
1,252,891

 
$
1,154,288

 
$
999,307

 
$
847,926


1  
Working capital is calculated as the difference between total current assets and total current liabilities.

2
Balances have been recast to reflect the adoption of ASC 606. We recognized a $3.9 million cumulative effect upon adoption as an adjustment to our opening balance of retained earnings as of January 1, 2016 in our Consolidated Statements of Stockholders’ Equity. Refer to Note 1 "Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements for details).
    

29



ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with “Selected Consolidated Financial Data” and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

A discussion regarding our financial condition and results of operations for fiscal 2019 compared to fiscal 2018 is presented under Results of Operations of this Form 10-K. Discussions regarding our financial condition and results of operations for fiscal 2018 compared to 2017 have been omitted from this Annual Report on Form 10-K, but can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on February 28, 2019, which is available without charge on the SEC's website at www.sec.gov and on our investor relations website at investor.aligntech.com.

Overview

Our goals are to establish Invisalign clear aligners as the standard method for treating malocclusion which, to date, over 8 million people worldwide have been treated with our Invisalign System, and to establish the iTero intraoral scanner as the preferred scanning device for 3D digital scans, ultimately driving increased clear aligner and other product adoption by dental professionals. We intend to achieve these goals by continued focus and execution of our strategic growth drivers set forth in the Business Strategy section of this Annual Report on Form 10-K.

The successful execution of our business strategy in 2020 and beyond may be affected by a number of factors including:

New Invisalign Products and Feature Enhancements. We believe product innovation drives greater treatment predictability, clinical applicability and ease of use for the dental professionals we serve customers which supports adoption of Invisalign treatment in their practices. Our focus is to develop solutions and features to treat a wide range of cases from simple to complex.

We rolled out Invisalign treatment with Mandibular Advancement, the first clear aligner solution for Class II correction in growing tween and teen patients in multiple regions and countries throughout 2018. This offering combines the benefits of our clear aligner system with features for moving the lower jaw forward while simultaneously aligning the teeth without the need for elastics typically used to treat teen Class II patients.

In April 2018, we announced Invisalign Go product with more user-friendly iTero digital chairside experience and greater flexibility to treat a wider range of mild to moderate cases. Invisalign Go also incorporates new data-driven clinical protocols for predictable tooth movement and automated case assessments that leverages our Invisalign patients treated to date. These improvements make it easier for general practitioner (“GP”) dentists to tailor their treatment plans to the individual needs of each patient.

In July 2018, we announced Invisalign First clear aligners which are a treatment option designed with features specifically for younger patients with early mixed dentition with a mixture of primary/baby and permanent teeth. Phase 1 treatment is an early interceptive orthodontic treatment for young patients, traditionally done through arch expanders, or partial metal braces, before all permanent teeth have erupted, typically at ages seven through ten years. Invisalign First clear aligners are designed specifically to address a broad range of younger patients’ malocclusions, including shorter clinical crowns, management of erupting dentition and predictable dental arch expansion.

In October 2019, we launched the Invisalign Moderate Package for the treatment of mild to moderate malocclusion. The Invisalign Moderate treatment includes all the features of Invisalign treatment, plus additional features that address the orthodontic needs of teenage patients such as compliance indicators and compensation for tooth eruption. 

New iTero Products and Technology Innovation. The iTero scanner is an important component to our customer experience and is central to a digital approach as well as overall customer utilization of Invisalign.

In April 2018, we expanded the iTero Element portfolio with the launch of the iTero Element 2 and the iTero Element Flex scanners, building on the existing high precision, full-color imaging and fast scan times of the iTero Element portfolio while streamlining orthodontic and restorative workflows. The next-generation iTero Element 2 is designed for greater performance with 2X faster start-up and 25% faster scan processing time compared to the iTero Element. The new iTero Element Flex wand-only configuration is a portable scanner for easy transport from office to office.

30



As we continue to expand our global presence, we expect to seek regulatory approvals to offer our iTero portfolio products in more countries, thereby tapping potential growth opportunities in underserved markets

In February 2019, we announced the launch of iTero Element 5D Imaging System for comprehensive, preventative and restorative oral care. The iTero Element 5D Imaging System provides a new comprehensive approach to clinical applications, workflows and user experience that expands the suite of existing high-precision, full color imaging and fast scan times of the iTero Element portfolio. The iTero Element 5D Imaging System is available in the majority of EMEA and select APAC countries. The iTero Element 5D Imaging System is pending regulatory approval and is not yet available in the U.S. or LATAM countries.

In June 2019, we announced the launch of iTero Element Foundation intraoral scanner with restorative software. The iTero Element Foundation extends Align’s portfolio of intraoral scanners with powerful 3D visualization to better meet the needs of doctors, labs and patients. The iTero Element Foundation is available in North America and will also be available in other select countries in 2020.

We believe that over the longterm, clinical solutions and treatment tools will increase adoption of Invisalign and increase sales of our intraoral scanners; however, it is difficult to predict the rate of adoption which may vary by region and channel.

The use of iTero and other digital scanners for Invisalign case submission in place of PVS impressions continues to grow and remains a positive catalyst for Invisalign utilization. For the fourth quarter of 2019, total Invisalign cases submitted with a digital scanner in the Americas increased to 79.5%, up slightly from 78.8% in the third quarter of 2019. International scans increased to 64.7%, up from 62.6% in the third quarter of 2019. We believe that over the longterm, technology innovation and added features and functionality of our iTero scanners will increase adoption of Invisalign and increase sales of our intraoral scanners; however, it is difficult to predict the rate of adoption which may vary by region and channel.

Invisalign Adoption. Our goal is to establish Invisalign as the treatment of choice for treating malocclusion ultimately driving increased product adoption and frequency of use by dental professionals, also known as “utilization rates.” Our annual utilization rates for the last three fiscal years are as follows:

https://cdn.kscope.io/1df0a354164e54edcbce580e234dcd2d-chart-eee23ab254ac510fb3d.jpg
* Invisalign utilization rates are calculated by the # of cases shipped divided by the # of doctors to whom cases were shipped. Our International region includes EMEA and APAC. LATAM is excluded from the above chart as it is immaterial.

Total utilization in 2019 increased to 15.9 cases per doctor compared to 15.7 cases in 2018.
North America: Utilization for both our North American orthodontist and GP customers increased in 2019 to 65.0 and 9.5 cases per doctor compared to 56.7 cases and 9.1 cases per doctor in 2018, respectively. The increase in utilization in 2019 reflects improvements in product and technology which continues to strengthen

31



our doctors’ clinical confidence such that they now utilize Invisalign more often and on more complex cases, including their teenage patients.
International: International doctor utilization remained relatively flat at 13.8 cases per doctor in 2019 compared to 13.9 cases in 2018.
We expect our utilization rates to gradually improve as a result of advancements in product and technology, which continue to strengthen our doctors’ clinical confidence in the use of Invisalign clear aligners. In addition, since the teenage and younger market makes up 75% of the approximately 12 million total orthodontic case starts each year, and as we continue to drive adoption of teenage and younger patients through sales and marketing programs, we expect our utilization rates to improve. Our utilization rates, however, may fluctuate from period to period due to a variety of factors, including seasonal trends in our business along with adoption rates of new products and features.

Number of New Invisalign Doctors Trained. We continue to expand our Invisalign customer base through the training of new doctors. In 2019, we trained 22,270 new Invisalign doctors of which 9,765 were trained in the Americas region and 12,505 in the International region.

International Invisalign Growth. We continue to focus our efforts towards increasing Invisalign clear aligner adoption by dental professionals in the EMEA and APAC markets. On a year-over-year basis, our International Invisalign volume increased 34.0% driven primarily by increased adoption as well as expansion of our customer base in both the EMEA and APAC regions. However, beginning in the second quarter of 2019, we experienced slower growth rates than prior periods in China primarily due to the US-China trade war and resulting economic uncertainty which caused headwind for consumer demand especially for consumption of luxury goods and considered purchases. We also believe there has been increased competitive activity from wires and bracket manufacturers and clear aligner suppliers. In addition, in the first quarter of 2020, the outbreak of the Novel Coronavirus (2019 NCov) in China has caused increased uncertainty and disruption to our employees, doctors’ practices, their patients and consumers. We expect the impact of the Novel Coronavirus and related efforts by the Chinese government to contain its spread, including travel restrictions, extension of the Lunar New Year and discouraging non-essential medical and dental procedures to adversely impact sales and operations in China for a currently indeterminate period of time. Notwithstanding these current issues in China, we continue to see growth from our international orthodontists and GP customers and are seeing more positive traction in the GP channel as we continue to segment our sales and marketing resources and programs specifically around each customer channel. In 2019, we continued to expand in our existing markets through targeted investments in sales coverage and professional marketing and education programs, along with consumer marketing in select country markets. We expect International revenues to continue to grow at a faster rate than the Americas for the foreseeable future due to our continued investment in international market expansion, the size of the market opportunities and our relatively low market penetration of these regions. Our future growth is dependent upon the continued growth of Invisalign adoption and international market penetration.

Increasing Competition. Starting in the second quarter of 2019, we began experiencing slower adult case growth from North American orthodontists, reflecting a more competitive environment especially for the young adult demographic. Given increased awareness for direct to consumer clear aligners and heavy advertising spend from direct to consumer companies, case starts may be shifting away from traditional practices. We also believe that doctors are sampling alternative products and/or taking advantage of wires and brackets bundles that essentially give clear aligners away for free or at low prices. In the third quarter of 2019, we increased investment in consumer demand with a new advertising campaign for North America and expanding marketing programs such as our Concierge Service, which connects potential patients with Invisalign doctors increasing conversion and loyalty. In addition, we launched new sales tools and professional marketing materials and we also expect to see increased productivity from the approximate 100 sales representatives we added in the first quarter of 2019. If, however, we are unable to compete effectively with existing products or respond effectively to any products developed by new or existing competitors, our business could be harmed.

Establish Regional Order Acquisition, Treatment Planning and Manufacturing Operations. We expect to continue establishing and expanding additional order acquisition, treatment planning and manufacturing operations closer to our international customers in order to improve our operational efficiency and increase doctors' confidence in Invisalign clear aligners. In the fourth quarter of 2018, we began fabricating our aligners in our manufacturing facility in Ziyang, China, our first aligner fabrication facility outside of Juarez, Mexico. In the third quarter of 2019, we opened our new order acquisition and treatment facility in Wroclaw, Poland and new treatment facility in Yokohama, Japan.

Corporate Structure Reorganization. In January 2020, we reorganized our corporate structure and intercompany relationships to more closely align with the international nature of our business activities with the goal of achieving financial and operational efficiencies. As part of this corporate structure reorganization, our EMEA regional headquarters

32



was moved from Amsterdam, the Netherlands to Rotkreuz, Switzerland. As a result, we will continue to incur expenses in the near term and expect to realize the related benefits in subsequent years. The implementation of this reorganization plan has been disruptive to our business, and may not ultimately be more efficient or effective. Moreover, our reorganization activities, including any related expenses and the impact from affected employees, could have a material adverse effect on our business, operating results, financial condition and effective tax rates.

Expenses. We expect expenses to increase in 2020 due in part to:

Investments in manufacturing capacity and facilities to enhance our regional capabilities;
Investments in international expansion;
Investments in expansion of number of direct sales force personnel;
Increase in sales, marketing and customer support resources including our new advertising campaign; and
Product and technology innovation to enhance product efficiency and operational productivity.

We believe that these investments will position us to increase our revenues and continue to grow our market share, but will negatively impact results of operations, particularly in the near term.

Stock Repurchases. During the year ended December 31, 2019, we repurchased $200.0 million of our common stock on the open market at an average price of $264.93 per share. We also entered into an accelerated stock repurchase agreement to repurchase $200.0 million of our common stock and received a total of 1.1 million shares for an average share price of $176.61. As of December 31, 2019, we have $100.0 million available for repurchase under the $600.0 million repurchase program authorized by our Board of Directors in May 2018 (Refer to Note 12 “Common Stock Repurchase Programs” of the Notes to Consolidated Financial Statements for details on our stock repurchase programs).

Results of Operations

Net Revenues by Reportable Segment

We group our operations into two reportable segments: Clear Aligner segment and Scanner segment.

Our Clear Aligner segment consists of Comprehensive Products, Non-Comprehensive Products and Non-Case revenues as defined below:

Comprehensive Products include Invisalign Comprehensive and Invisalign First.

Non-Comprehensive Products include, but are not limited to, Invisalign Moderate, Lite and Express packages and Invisalign Go, in addition to revenues from the sale of aligners to SmileDirectClub (“SDC”) under our supply agreement that expired on December 31, 2019.

Non-Case includes, but is not limited to, Vivera retainers along with our training and ancillary products for treating malocclusion.  

Our Scanner segment consists of intraoral scanning systems, which includes a single hardware platform and restorative or orthodontic software options, additional services and ancillary products. This segment includes our iTero scanner and OrthoCAD services.


33



Net revenues for our Clear Aligner and Scanner segments by region for the year ended December 31, 2019, 2018 and 2017 are as follows (in millions):
 
 
Year Ended December 31,
 
 
 
 
 
Year Ended December 31,
 
 
 
 
Net Revenues
 
2019
 
2018
 
Change
 
2018
 
2017
 
Change
Clear Aligner revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Americas
 
$
1,022.1

 
$
903.3

 
$
118.8

 
13.2
%
 
$
903.3

 
$
754.1

 
$
149.2

 
19.8
%
    International
 
881.4

 
684.2

 
197.2

 
28.8
%
 
684.2

 
473.5

 
210.7

 
44.5
%
    Non-Case
 
122.3

 
104.0

 
18.3

 
17.6
%
 
104.0

 
81.7

 
22.3

 
27.3
%
Total Clear Aligner net revenues 
 
$
2,025.8

 
$
1,691.5

 
$
334.3

 
19.8
%
 
$
1,691.5

 
$
1,309.3

 
$
382.2

 
29.2
%
Scanner net revenues
 
381.0

 
275.0

 
106.0

 
38.5
%
 
275.0

 
164.1

 
110.9

 
67.6
%
Total net revenues
 
$
2,406.8

 
$
1,966.5

 
$
440.3

 
22.4
%
 
$
1,966.5

 
$
1,473.4

 
$
493.1

 
33.5
%
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Clear Aligner Case Volume by Region

Case volume data which represents Clear Aligner case shipments by region for the year ended December 31, 2019, 2018 and 2017 is as follows (in thousands):
 
 
Year Ended December 31,
 
 
 
 
 
Year Ended December 31,
 
 
 
 
Region
 
2019
 
2018
 
Change
 
2018
 
2017
 
Change
    Americas
 
867.3

 
780.7

 
86.6

 
11.1
%
 
780.7

 
631.6

 
149.1

 
23.6
%
    International
 
669.8

 
499.9

 
169.9

 
34.0
%
 
499.9

 
344.8

 
155.1

 
45.0
%
Total case volume
 
1,537.1

 
1,280.6

 
256.5

 
20.0
%
 
1,280.6

 
976.4

 
304.2

 
31.2
%
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.

Total net revenues increased by $440.3 million in 2019 as compared to 2018 primarily as a result of Invisalign case and scanner volume growth across all regions.

Clear Aligner - Americas

Americas net revenues increased by $118.8 million in 2019 as compared to 2018 due to Invisalign case volume growth across all channels and products which contributed to the net revenue growth by $100.2 million and higher average selling prices ("ASP") which increased net revenues by $18.7 million. Higher ASP was mainly the result of price increases across most products which increased net revenues by $35.1 million and $23.4 million increase in net revenues driven by a product mix shift towards Comprehensive products and less SDC revenues, which carry a lower ASP. We no longer manufacture aligners for SDC as our supply agreement with SDC expired by its terms on December 31, 2019. These ASP increases were partially offset by a reduction in net revenues of $23.1 million from higher promotional discounts and $17.6 million reduction in net revenues as a result of higher net revenue deferrals and unfavorable foreign exchange rates.

Clear Aligner - International

International net revenues increased by $197.2 million in 2019 as compared to 2018 primarily driven by case volume growth across all channels and products which increased net revenues by $232.5 million. This increase was partially offset by lower ASP that reduced net revenues by $35.3 million. The ASP decline was mainly the result of higher promotional discounts which reduced net revenues by $45.0 million, unfavorable foreign exchange rates lowered net revenues by $37.2 million, and a product mix shift towards Non-comprehensive products reduced net revenues by $19.0 million. These ASP decreases were partially offset by a $47.8 million improvement in net revenues related to price increases across most products along with a benefit from going direct in several additional countries, and lower net revenue deferrals and sales credits that increased net revenues by $18.1 million.

Clear Aligner - Non-Case

Non-case net revenues, consisting of Vivera Retainers, training fees and other product revenues, increased by $18.3 million in 2019 compared to 2018 due to increased Vivera volume across all regions.


34



Scanner

Scanner and services net revenues increased by $106.0 million in 2019 as compared to 2018. This increase is primarily a result of scanner volume growth which increased net revenues by $58.4 million, and higher CAD/CAM services that increased net revenues by $37.7 million primarily due to a larger install base and increased scanner subscription services. Additionally, net revenues increased by $10.0 million due to an improvement in the scanner ASP mainly attributable to price increases in several regions.

Cost of net revenues and gross profit (in millions):
 
 
 
Year Ended December 31,
 
 
 
Year Ended December 31,
 
 
 
 
2019
 
2018
 
Change
 
2018
 
2017
 
Change
Clear Aligner
 
 
 
 
 
 
 
 
 
 
 
 
Cost of net revenues
 
$
526.0

 
$
411.0

 
$
115.0

 
$
411.0

 
$
289.7

 
$
121.3

% of net segment revenues
 
26.0
%
 
24.3
%
 
 
 
24.3
%
 
22.1
%
 
 
Gross profit
 
$
1,499.7

 
$
1,280.5

 
$
219.2

 
$
1,280.5

 
$
1,019.6

 
$
260.9

Gross margin %
 
74.0
%
 
75.7
%
 
 
 
75.7
%
 
77.9
%
 
 
Scanner
 
 
 
 
 
 
 
 
 
 
 
 
Cost of net revenues
 
$
136.9

 
$
107.7

 
$
29.2

 
$
107.7

 
$
66.8

 
$
40.9

% of net segment revenues
 
35.9
%
 
39.1
%
 
 
 
39.1
%
 
40.7
%
 
 
Gross profit
 
$
244.2

 
$
167.4

 
$
76.8

 
$
167.4

 
$
97.4

 
$
70.0

Gross margin %
 
64.1
%
 
60.9
%
 
 
 
60.9
%
 
59.3
%
 
 
Total cost of net revenues
 
$
662.9

 
$
518.6

 
$
144.3

 
$
518.6

 
$
356.5

 
$
162.1

% of net revenues
 
27.5
%
 
26.4
%
 
 
 
26.4
%
 
24.2
%
 
 
Gross profit
 
$
1,743.9

 
$
1,447.9

 
$
296.0

 
$
1,447.9

 
$
1,116.9

 
$
331.0

Gross margin %
 
72.5
%
 
73.6
%
 
 
 
73.6
%
 
75.8
%
 
 
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.

Cost of net revenues for our Clear Aligner and Scanner segments includes personnel-related costs including payroll and stock-based compensation for staff involved in the production process, the cost of materials, packaging, shipping costs, depreciation on capital equipment and facilities used in the production process, amortization of acquired intangible assets and training costs.

Clear Aligner

The gross margin percentage decreased in 2019 compared to 2018 primarily due to an increase in aligners per case driven by additional aligners.

Scanner

The gross margin percentage increased in 2019 compared to 2018 primarily driven by higher ASP and manufacturing efficiencies.
Selling, general and administrative (in millions):
 
 
Year Ended December 31,
 
 
 
Year Ended December 31,
 
 
 
 
2019
 
2018
 
Change
 
2018
 
2017
 
Change
Selling, general and administrative
 
$
1,072.1

 
$
852.4

 
$
219.7

 
$
852.4

 
$
665.8

 
$
186.6

% of net revenues
 
44.5
%
 
43.3
%
 
 
 
43.3
%
 
45.2
%
 
 
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.

Selling, general and administrative expense includes personnel-related costs including payroll, commissions and stock-based compensation for our sales force, marketing and administration in addition to media and advertising expenses, clinical education, trade shows and industry events, product marketing, equipment and maintenance costs, legal and outside service costs, depreciation and amortization expense and allocations of corporate overhead expenses including facilities and Information Technology (“IT”).

35




Selling, general and administrative expense increased in 2019 compared to 2018 primarily due to higher compensation related costs of $121.2 million mainly from increased headcount resulting in higher salaries expense, incentive bonuses, fringe benefits, and stock-based compensation partially due to investments in sales coverage and international expansion. We also incurred higher expenses from advertising and marketing costs of $40.1 million, legal and outside service costs of $31.7 million, equipment, software and maintenance costs of $18.1 million and depreciation and amortization costs of $12.4 million.

Research and development (in millions):
 
 
Year Ended December 31,
 
 
 
Year Ended December 31,
 
 
 
 
2019
 
2018
 
Change
 
2018
 
2017
 
Change
Research and development
 
$
157.4

 
$
128.9

 
$
28.5

 
$
128.9

 
$
97.6

 
$
31.3

% of net revenues
 
6.5
%
 
6.6
%
 
 
 
6.6
%
 
6.6
%
 
 
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Research and development expense includes the personnel-related costs including payroll and stock-based compensation and outside consulting expenses associated with the research and development of new products and enhancements to existing products and allocations of corporate overhead expenses including facilities and information technology.

Research and development expense increased in 2019 compared to 2018 primarily due to higher compensation costs mainly from increased headcount resulting in higher salaries expense, stock-based compensation, incentive bonuses and fringe benefits.

Impairments and other (gains) charges (in millions):
 
 
Year Ended December 31,
 
 
 
Year Ended December 31,
 
 
 
 
2019
 
2018
 
Change
 
2018
 
2017
 
Change
Impairments and other (gains) charges
 
$
23.0

 
$

 
$
23.0

 
%
 
$

 
$

% of net revenues
 
1.0
%
 
%
 
 
 
%
 
%
 
 
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.

In 2019, we recorded impairments and other (gains) charges of $23.0 million which are comprised of operating lease right-of-use assets impairments of $14.2 million, store leasehold improvement and other fixed asset impairments of $14.3 million, and employee severance and other expenses of $1.3 million, partially offset by Invisalign store lease termination gains of $6.8 million (Refer to Note 8“Impairments and Other (Gains) Charges” and Note 9 “Legal Proceedings” of the Notes to Consolidated Financial Statements for more information).

Litigation settlement gain (in millions):
 
 
Year Ended December 31,
 
 
 
Year Ended December 31,
 
 
 
 
2019
 
2018
 
Change
 
2018
 
2017
 
Change
Litigation settlement gain
 
$
(51.0
)
 
$

 
$
(51.0
)
 
$

 
$

 
$

% of net revenues
 
(2.1
)%
 
%
 
 
 
%
 
%
 
 
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.

In 2019, we recorded a gain of $51.0 million due to the litigation settlement with Straumann (Refer to Note 9 “Legal Proceedings” of the Notes to Consolidated Financial Statements for more information).


36



Income from operations (in millions):
 
 
Year Ended December 31,
 
 
 
Year Ended December 31,
 
 
 
 
2019
 
2018
 
Change
 
2018
 
2017
Change
Clear Aligner
 
 
 
 
 
 
 
 
 
 
 
Income from operations
 
$
836.0

 
$
712.4

 
$
123.6

 
$
712.4

 
$
564.6

$
147.8

Operating margin %
 
41.3
%
 
42.1
%
 
 
 
42.1
%
 
43.2
%
 
Scanner
 
 
 
 
 
 
 
 
 
 
 
Income from operations
 
$
137.7

 
$
99.0

 
$
38.7

 
$
99.0

 
$
49.6

$
49.4

Operating margin %
 
36.1
%
 
36.0
%
 
 
 
$

 
$

 
Total income from operations 1
 
$
542.5

 
$
466.6

 
$
75.9

 
$
466.6

 
$
353.6

$
113.0

Operating margin %
 
22.5
%
 
23.7
%
 
 
 
$

 
$

 
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.

1 Refer to Note 17 “Segments and Geographical Information” of the Notes to Consolidated Financial Statements for details on unallocated corporate expenses and the reconciliation to Consolidated Income from Operations.

Clear Aligner

Operating margin percentage decreased in 2019 compared to 2018 primarily due to lower Clear Aligner gross margin percentage as a result of an increase in aligners per case combined with impairment charges on operating lease right-of-use assets, store leasehold improvement and other fixed assets. These decreases were partially offset by a gain recognized from the litigation settlement with Straumann.

Scanner

Operating margin percentage remained flat in 2019 compared to 2018 primarily due to manufacturing efficiencies and higher ASP partially offset by higher operating expenses.

Interest income (in millions):
 
 
Year Ended December 31,
 
 
 
Year Ended December 31,