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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________ 
FORM 10-Q
____________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
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)
____________________________ 
Delaware94-3267295
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
410 North Scottsdale Road, Suite 1300
Tempe, Arizona 85281
(Address of principal executive offices)
(602) 742-2000
(Registrant’s telephone number, including area code)
 ____________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.0001 par valueALGNThe NASDAQ Stock Market LLC
(NASDAQ Global Market)
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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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 13 (a) of the Exchange 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 number of shares outstanding of the registrant’s Common Stock, $0.0001 par value, as of July 30, 2021 was 79,011,543.

1

Table of Contents

ALIGN TECHNOLOGY, INC.
INDEX
 
PART I
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.

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, iRecord and exocad, 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

Table of Contents
PART I—FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Net revenues$1,010,808 $352,314 $1,905,579 $903,277 
Cost of net revenues252,270 127,986 469,943 284,593 
Gross profit758,538 224,328 1,435,636 618,684 
Operating expenses:
Selling, general and administrative431,921 256,967 829,036 539,873 
Research and development57,715 40,361 112,252 81,893 
Total operating expenses489,636 297,328 941,288 621,766 
Income (loss) from operations268,902 (73,000)494,348 (3,082)
Interest income and other income (expense), net:
Interest income383 473 2,026 2,459 
Other income (expense), net(483)(966)34,049 (19,515)
      Total interest income and other income (expense), net(100)(493)36,075 (17,056)
Net income (loss) before provision for (benefit from) income taxes268,802 (73,493)530,423 (20,138)
Provision for (benefit from) income taxes69,088 (32,891)130,333 (1,497,667)
Net income (loss)$199,714 $(40,602)$400,090 $1,477,529 
Net income (loss) per share:
Basic
$2.53 $(0.52)$5.06 $18.78 
Diluted
$2.51 $(0.52)$5.02 $18.70 
Shares used in computing net income (loss) per share:
Basic
79,008 78,769 79,004 78,681 
Diluted
79,638 78,769 79,737 79,016 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

Table of Contents

ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Net income (loss)$199,714 $(40,602)$400,090 $1,477,529 
Change in foreign currency translation adjustment, net of tax586 9,294 (13,865)9,983 
Change in unrealized gains (losses) on investments, net of tax  (20)(194)
Other comprehensive income (loss)
586 9,294 (13,885)9,789 
Comprehensive income (loss)$200,300 $(31,308)$386,205 $1,487,318 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4

Table of Contents
ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
June 30,
2021
December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents$1,086,357 $960,843 
Accounts receivable, net of allowance for doubtful accounts of $9,427 and $10,239, respectively
808,079 657,704 
Inventories178,751 139,237 
Prepaid expenses and other current assets158,638 91,754 
Total current assets2,231,825 1,849,538 
Property, plant and equipment, net960,852 734,721 
Operating lease right-of-use assets, net93,425 82,553 
Goodwill432,179 444,817 
Intangible assets, net117,721 130,072 
Deferred tax assets1,512,285 1,552,831 
Other assets47,281 35,151 
Total assets$5,395,568 $4,829,683 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$225,079 $142,132 
Accrued liabilities495,572 405,582 
Deferred revenues975,930 777,887 
Total current liabilities1,696,581 1,325,601 
Income tax payable113,306 105,748 
Operating lease liabilities74,184 64,445 
Other long-term liabilities127,087 100,024 
Total liabilities2,011,158 1,595,818 
Commitments and contingencies (Notes 6 and 7)
Stockholders’ equity:
Preferred stock, $0.0001 par value (5,000 shares authorized; none issued)
  
Common stock, $0.0001 par value (200,000 shares authorized; 78,948 and 78,860 issued and outstanding, respectively)
8 8 
Additional paid-in capital895,831 974,556 
Accumulated other comprehensive income (loss), net29,616 43,501 
Retained earnings2,458,955 2,215,800 
Total stockholders’ equity3,384,410 3,233,865 
Total liabilities and stockholders’ equity$5,395,568 $4,829,683 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)

Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss), NetRetained EarningsTotal
Three Months Ended June 30, 2021SharesAmount
Balance as of March 31, 202179,136 $8 $948,362 $29,030 $2,416,176 $3,393,576 
Net income— — — — 199,714 199,714 
Net change in foreign currency translation adjustment— — — 586 — 586 
Issuance of common stock relating to employee equity compensation plans89 — — — — — 
Tax withholdings related to net share settlements of equity awards— — (38,321)— — (38,321)
Common stock repurchased and retired(277)— (3,065)— (156,935)(160,000)
Equity forward contract related to accelerated stock repurchase— — (40,000)— — (40,000)
Stock-based compensation— — 28,855 — — 28,855 
Balance as of June 30, 202178,948 $8 $895,831 $29,616 $2,458,955 $3,384,410 


Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss), NetRetained EarningsTotal
Six Months Ended June 30, 2021SharesAmount
Balance as of December 31, 202078,860 $8 $974,556 $43,501 $2,215,800 $3,233,865 
Net income— — — — 400,090 400,090 
Net change in unrealized gains (losses) from investments— — — (20)— (20)
Net change in foreign currency translation adjustment— — — (13,865)— (13,865)
Issuance of common stock relating to employee equity compensation plans365 — 13,133 — — 13,133 
Tax withholdings related to net share settlements of equity awards— — (104,889)— — (104,889)
Common stock repurchased and retired(277)— (3,065)— (156,935)(160,000)
Equity forward contract related to accelerated stock repurchase— — (40,000)— — (40,000)
Stock-based compensation— — 56,096 — — 56,096 
Balance as of June 30, 202178,948 $8 $895,831 $29,616 $2,458,955 $3,384,410 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.









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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)
(in thousands)
(unaudited)

Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss), NetRetained EarningsTotal
Three Months Ended June 30, 2020SharesAmount
Balance as of March 31, 202078,759 $8 $895,131 $(193)$1,958,043 $2,852,989 
Net loss— — — — (40,602)(40,602)
Net change in foreign currency translation adjustment— — — 9,294 — 9,294 
Issuance of common stock relating to employee equity compensation plans22 — — — — — 
Tax withholdings related to net share settlements of equity awards— — (1,643)— — (1,643)
Stock-based compensation— — 25,007 — — 25,007 
Balance as of June 30, 202078,781 $8 $918,495 $9,101 $1,917,441 $2,845,045 


Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss), Net
Retained EarningsTotal
Six Months Ended June 30, 2020SharesAmount
Balance as of December 31, 201978,433 $8 $906,937 $(688)$439,912 $1,346,169 
Net income— — — — 1,477,529 1,477,529 
Net change in unrealized gains (losses) from investments— — — (194)— (194)
Net change in foreign currency translation adjustment— — — 9,983 — 9,983 
Issuance of common stock relating to employee equity compensation plans348 — 10,662 — — 10,662 
Tax withholdings related to net share settlements of equity awards— — (47,038)— — (47,038)
Stock-based compensation— — 47,934 — — 47,934 
Balance as of June 30, 202078,781 $8 $918,495 $9,101 $1,917,441 $2,845,045 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.








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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Six Months Ended
June 30,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $400,090 $1,477,529 
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes39,961 (1,504,251)
Depreciation and amortization51,527 44,283 
Stock-based compensation56,096 47,934 
Non-cash operating lease cost12,413 11,148 
Allowance for doubtful accounts provisions829 12,578 
Arbitration award gain(43,403) 
Impairments on equity investments 3,787 
Other non-cash operating activities12,345 11,542 
Changes in assets and liabilities, net of effects of acquisition:
Accounts receivable(164,822)64,645 
Inventories(49,070)(21,398)
Prepaid expenses and other assets(70,132)(31,058)
Accounts payable(5,736)11,918 
Accrued and other long-term liabilities65,650 (106,572)
Long-term income tax payable7,535 6,707 
Deferred revenues231,408 40,892 
Net cash provided by operating activities
544,691 69,684 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of cash acquired (420,788)
Purchase of property, plant and equipment(167,668)(80,502)
Purchase of marketable securities (5,341)
Proceeds from maturities of marketable securities 42,641 
Proceeds from sales of marketable securities 278,817 
Repayment on unsecured promissory note4,594 11,087 
Proceeds from arbitration award43,403  
Other investing activities(4,249)1,760 
Net cash used in investing activities(123,920)(172,326)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock13,133 10,662 
Common stock repurchases(160,000) 
Payments for equity forward contracts related to accelerated stock repurchase agreements(40,000) 
Payroll taxes paid upon the vesting of equity awards(104,889)(47,038)
Net cash used in financing activities(291,756)(36,376)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash(3,511)(7,172)
Net increase (decrease) in cash, cash equivalents, and restricted cash125,504 (146,190)
Cash, cash equivalents, and restricted cash at beginning of the period961,474 551,134 
Cash, cash equivalents, and restricted cash at end of the period$1,086,978 $404,944 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by Align Technology, Inc. (“we”, “our”, or “Align”) in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and contains all adjustments, including normal recurring adjustments, necessary to state fairly our results of operations for the three and six months ended June 30, 2021 and 2020, our comprehensive income for the three and six months ended June 30, 2021 and 2020, our financial position as of June 30, 2021, our stockholders’ equity for the three and six months ended June 30, 2021 and 2020, and our cash flows for the six months ended June 30, 2021 and 2020. The Condensed Consolidated Balance Sheet as of December 31, 2020 was derived from the December 31, 2020 audited financial statements. It does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.”).

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other future period, and we make no representations related thereto. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the U.S. requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, useful lives of intangible assets and property and equipment, long-lived assets and goodwill, income taxes and contingent liabilities, the fair values of financial instruments, stock-based compensation, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Certain Risks and Uncertainties

Due to the COVID-19 pandemic, we are subject to a greater degree of uncertainty than normal in making the judgments and estimates needed to apply our significant accounting policies. The full extent to which the pandemic, including as a result of any new strains, business restrictions or lockdowns, and the impact of vaccinations, will directly or indirectly impact our business, results of operations, cash flows, and financial condition will depend on future developments that are highly uncertain and cannot be accurately determined.

Recent Accounting Pronouncements

(i) New Accounting Updates Recently Adopted

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes, to enhance and simplify various aspects of the income tax accounting guidance. The amendment removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The amendments are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. Adoption of this standard in the first quarter of fiscal year 2021 did not have a material impact on our consolidated financial statements or related disclosures.

(ii) Recent Accounting Updates Not Yet Effective

We continue to monitor new accounting pronouncements issued by the FASB and do not believe any of the recently issued accounting pronouncements will have an impact on our consolidated financial statements or related disclosures.

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Note 2. Fair Value Measurements

Fair value is an exit price, representing the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use the GAAP fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value:

Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. We obtain fair values for our Level 2 investments. Our custody bank and asset managers independently use professional pricing services to gather pricing data which may include quoted market prices for identical or comparable financial instruments, or inputs other than quoted prices that are observable either directly or indirectly, and we are ultimately responsible for these underlying estimates.

Level 3 — Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

The following tables summarize our financial assets measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 (in thousands):
DescriptionBalance as of
June 30, 2021
Level 1

Level 2
Cash equivalents:
Money market funds$531,207 $531,207 $ 
Prepaid expenses and other current assets:
Israeli funds3,999  3,999 
$535,206 $531,207 $3,999 
DescriptionBalance as of December 31, 2020Level 1Level 2Level 3
Cash equivalents:
Money market funds$519,228 $519,228 $ $ 
Prepaid expenses and other current assets:
Israeli funds3,500  3,500  
Current unsecured promissory note 1
5,408   5,408 
$528,136 $519,228 $3,500 $5,408 

1 The unsecured promissory note was paid in full by SmileDirectClub, LLC (“SDC”) during the six months ended June 30, 2021. Besides the repayment on the note, on March 12, 2021, the Arbitrator ruled in favor of us on the SDC dispute and issued an award of $43.4 million along with interest. The gain of $43.4 million is recognized as a part of our other income (expense), net in our Condensed Consolidated Statement of Operation during the six months ended June 30, 2021. Refer to Note 6 “Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements included for more information on the arbitration.

Derivatives Not Designated as Hedging Instruments

Recurring foreign currency forward contracts

We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on certain trade and intercompany receivables and payables. These forward contracts are classified within Level 2 of the fair value hierarchy. As a result of the settlement of foreign currency forward contracts, during the three months ended June 30, 2021 and 2020, we recognized net losses of $13.0 million and $3.0 million, respectively, and during the six months ended June 30, 2021 and 2020, we recognized a net loss of $0.6 million and a net gain of $12.7 million, respectively. As of June 30, 2021 and December 31, 2020, the fair value of foreign exchange forward contracts outstanding was not material.
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The following table presents the gross notional value of all our foreign exchange forward contracts outstanding as of June 30, 2021 and December 31, 2020 (in thousands):
June 30, 2021
Local Currency AmountNotional Contract Amount (USD)
Euro202,350$240,334 
Chinese Yuan¥1,170,000180,638 
Canadian DollarC$96,30077,707 
British Pound£45,81063,331 
Japanese Yen¥5,245,75847,408 
Brazilian RealR$224,60044,673 
Polish ZlotyPLN161,00042,280 
Israeli ShekelILS54,60016,759 
Mexican PesoM$307,74015,481 
Australian DollarA$7,7005,775 
$734,386 

December 31, 2020
Local Currency AmountNotional Contract Amount (USD)
Euro126,300$155,125 
Chinese Yuan¥936,000143,393 
Canadian DollarC$65,00050,791 
British Pound£32,30043,879 
Japanese Yen¥4,249,00041,222 
Brazilian RealR$142,00027,264 
Israeli ShekelILS74,00023,094 
Mexican PesoM$140,0007,002 
Australian DollarA$5,8004,447 
Swiss FrancCHF3,7004,191 
$500,408 

Other foreign currency forward contract

Prior to the closing of the exocad Global Holdings GmbH (“exocad”) acquisition on April 1, 2020, we entered into a Euro foreign currency forward contract with a notional contract amount of €376.0 million. During the three and six months ended June 30, 2020, we recognized losses of $1.0 million and $10.2 million, respectively, within other income (expense), net in our Condensed Consolidated Statement of Operations.

Note 3. Balance Sheet Components

Inventories consist of the following (in thousands):
June 30,
2021
December 31,
2020
Raw materials$90,018 $76,404 
Work in process37,505 31,393 
Finished goods51,228 31,440 
Total inventories$178,751 $139,237 

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Accrued liabilities consist of the following (in thousands): 
June 30,
2021
December 31,
2020
Accrued payroll and benefits$212,886 $170,106 
Accrued sales and marketing expenses67,820 34,488 
Accrued expenses52,608 42,536 
Accrued property, plant and equipment33,756 27,692 
Accrued professional fees28,844 20,617 
Current operating lease liabilities22,547 21,735 
Other accrued liabilities77,111 88,408 
Total accrued liabilities$495,572 $405,582 

Accrued warranty, which is included in the "Other accrued liabilities" category of the accrued liabilities table above, consists of the following activity (in thousands):
Six Months Ended
June 30,
 20212020
Balance at beginning of period$12,615 $11,205 
Charged to cost of net revenues8,936 5,820 
Actual warranty expenditures(7,105)(5,396)
Balance at end of period$14,446 $11,629 

Deferred revenues consist of the following (in thousands):
June 30,
2021
December 31,
2020
Deferred revenues - current$975,930 $777,887 
Deferred revenues - long-term 1
$91,379 $62,551 

1 Included in Other long-term liabilities within our Condensed Consolidated Balance Sheet

During the three months ended June 30, 2021 and 2020, we recognized $1.0 billion and $352.3 million of net revenues, respectively, of which $134.4 million and $72.4 million was included in the deferred revenues balance at December 31, 2020 and 2019, respectively.

During the six months ended June 30, 2021 and 2020, we recognized $1.9 billion and $903.3 million of net revenues, respectively, of which $260.2 million and $167.9 million was included in the deferred revenues balance at December 31, 2020 and 2019, respectively.

Our unfulfilled performance obligations, including deferred revenues and backlog, as of June 30, 2021 were $1.1 billion. These performance obligations are expected to be recognized over the next one to five years.

Note 4. Goodwill and Intangible Assets

Goodwill

The change in the carrying value of goodwill for the six months ended June 30, 2021, categorized by reportable segments, is as follows (in thousands):
Clear AlignerSystems and ServicesTotal
Balance as of December 31, 2020$112,691 $332,126 $444,817 
Foreign currency translation adjustments
(1,679)(10,959)(12,638)
Balance as of June 30, 2021$111,012 $321,167 $432,179 

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Intangible Long-Lived Assets

Acquired intangible long-lived assets were as follows, excluding intangibles that were fully amortized (in thousands): 
Weighted Average Amortization Period
(in years)
Gross Carrying Amount as of
June 30, 2021
Accumulated
Amortization
Accumulated
Impairment Loss
Net Carrying
Value as of
June 30, 2021
Existing technology10$99,400 $(17,351)$(4,328)$77,721 
Customer relationships1155,000 (23,885)(10,751)20,364 
Trademarks and tradenames1016,600 (3,702)(4,179)8,719 
Patents and other 86,610 (4,192) 2,418 
$177,610 $(49,130)$(19,258)109,222 
Foreign currency translation8,499 
Total intangible assets$117,721 

Weighted Average Amortization Period
(in years)
Gross Carrying
Amount as of December 31, 2020
Accumulated
Amortization
Accumulated Impairment LossNet Carrying
Value as of
December 31, 2020
Existing technology10$99,400 $(12,719)$(4,328)$82,353 
Customer relationships1155,000 (21,879)(10,751)22,370 
Trademarks and tradenames1016,600 (2,934)(4,179)9,487 
Patents and other86,610 (3,785) 2,825 
177,610 (41,317)(19,258)117,035 
Foreign currency translation13,037 
Total intangible assets$130,072 

The total estimated annual future amortization expense for these acquired intangible assets as of June 30, 2021 is as follows (in thousands):

Fiscal Year Ending December 31,Amortization
Remainder of 2021$7,809 
202214,366 
202313,745 
202412,805 
202512,428 
Thereafter48,069 
Total$109,222 

Amortization expense for the three months ended June 30, 2021 and 2020 was $3.9 million and $4.1 million, respectively, and amortization expense for the six months ended June 30, 2021 and 2020 was $7.8 million and $5.4 million, respectively.

Note 5. Credit Facility

On July 21, 2020 we entered into a credit facility for a $300.0 million unsecured revolving line of credit, with a $50.0 million letter of credit sublimit, and a maturity date of July 21, 2023 (“2020 Credit Facility”), replacing our previous credit facility which provided for a $200.0 million revolving line of credit with a $50.0 million letter of credit. The 2020 Credit Facility requires us to comply with specific financial conditions and performance requirements. Loans under the 2020 Credit Facility bear interest, at our option, at either a rate based on the reserve adjusted LIBOR for the applicable interest period or a base rate, in each case plus a margin. The base rate is the highest of the credit facility's publicly announced prime rate, the federal funds rate plus 0.50% and one-month LIBOR plus 1.0%. The margin ranges from 1.50% to 2.25% for LIBOR loans and 0.50% to 1.25% for base rate loans. The 2020 Credit Facility allows for an alternative rate to be identified if LIBOR is no longer available. Interest on the loans is payable quarterly in arrears with respect to base rate loans and at the end of an interest period (and at three month intervals if the interest period exceeds three months) in the case of LIBOR loans. The outstanding
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principal, together with accrued and unpaid interest, is due on the maturity date. As of June 30, 2021, we had no outstanding borrowings under the 2020 Credit Facility and were in compliance with the conditions and performance requirements.

Note 6. Legal Proceedings

2018 Securities Class Action Lawsuit

On November 5, 2018, a class action lawsuit against Align and three of our executive officers was filed in the U.S. District Court for the Northern District of California on behalf of a purported class of purchasers of our common stock. The complaint generally alleged claims under the federal securities laws and sought monetary damages in an unspecified amount and costs and expenses incurred in the litigation. On December 12, 2018, a similar lawsuit was filed in the same court on behalf of a purported class of purchasers of our common stock. On November 29, 2019, the lead plaintiff filed an amended consolidated complaint against Align and two of our executive officers alleging similar claims as the initial complaints on behalf of a purported class of purchasers of our common stock from May 23, 2018 and October 24, 2018. On September 9, 2020, Defendants’ motion to dismiss the amended consolidated complaint was granted in part and denied in part. On June 30, 2021, counsel for the parties signed a Stipulation and Agreement of Settlement to resolve all claims for $16 million. The settlement amount will be funded by insurance proceeds and consequently, we recorded a short term liability and a receivable for this amount in our condensed consolidated financial statements. Lead Plaintiff filed a motion seeking preliminary approval of the settlement on July 15, 2021. A hearing on that motion is currently scheduled for December 9, 2021. The settlement is subject to notice to class members and approval by the Court.

2019 Shareholder Derivative Lawsuit

In January 2019, three derivative lawsuits were filed in the U.S. District Court for the Northern District of California which were later consolidated, purportedly on behalf of Align, naming as defendants the then current members of our Board of Directors along with certain of our executive officers. The allegations in the complaints are similar to those asserted in the 2018 Securities Class Action Lawsuit, but the complaints assert various state law causes of action, including for breaches of fiduciary duty, insider trading, and unjust enrichment. The complaints seek unspecified monetary damages on behalf of Align, which is named solely as a nominal defendant against whom no recovery is sought, as well as disgorgement and the costs and expenses associated with the litigation, including attorneys’ fees. The consolidated action has been stayed pending final disposition of the 2018 Securities Class Action Lawsuit.

On April 12, 2019, a derivative lawsuit was also filed in California Superior Court for Santa Clara County, purportedly on behalf of Align, naming as defendants the members of our Board of Directors along with certain of our executive officers. The allegations in the complaint are similar to those in the derivative suits described above. The matter has been similarly stayed pending final disposition of the 2018 Securities Class Action Lawsuit.

Align is currently unable to predict the outcome of these lawsuits and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.

2020 Securities Class Action Lawsuit

On March 2, 2020, a class action lawsuit against Align and two of our executive officers was filed in the U.S. District Court for the Southern District of New York (later transferred to the U.S. District Court for the Northern District of California) on behalf of a purported class of purchasers of our common stock. The complaint alleged claims under the federal securities laws and sought monetary damages in an unspecified amount and costs and expenses incurred in the litigation. The lead plaintiff filed an amended complaint on August 4, 2020 against Align and three of our executive officers alleging similar claims as in the initial complaint on behalf of a purported class of purchasers of our common stock from April 25, 2019 to July 24, 2019. On March 29, 2021, defendants’ motion to dismiss the amended complaint was granted with leave for the lead plaintiff to file a further amended complaint. On April 22, 2021, lead plaintiff filed a notice stating it would not file a further amended complaint. On April 23, 2021, the Court dismissed the action with prejudice and judgment was entered. Lead plaintiff filed a notice of appeal on April 28, 2021. Lead plaintiff’s opening brief is currently due September 1, 2021. Align believes these claims are without merit and intends to vigorously defend itself. Align is currently unable to predict the outcome of this lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.

2020 Shareholder Derivative Lawsuit

On May 4, 2020, a derivative lawsuit was filed in the U.S. District Court for the Northern District of California, purportedly on behalf of Align, naming as defendants the members of our Board of Directors along with certain of our executive officers. The allegations in the complaint are similar to those presented in the 2020 Securities Class Action Lawsuit,
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but this complaint asserts state law claims for breach of fiduciary duty and insider trading. The complaint seeks unspecified monetary damages on behalf of Align, which is named solely as a nominal defendant against whom no recovery is sought, as well as disgorgement and the costs and expenses associated with the litigation, including attorneys’ fees. This action is stayed pending resolution of the appeal in the 2020 Securities Class Action Lawsuit. Align is currently unable to predict the outcome of this lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.

3Shape Litigation

On November 14, 2017, Align filed several patent infringement lawsuits asserting patents against 3Shape, a Danish corporation, and a related U.S. corporate entity, asserting that 3Shape’s Trios intraoral scanning system and Dental System software infringe Align patents.

These lawsuits were filed in the U.S. District Court for the District of Delaware alleging patent infringement by 3Shape’s Trios intraoral scanning system and Dental System software. Three of the cases are active and 3Shape filed counterclaims for breach of contract and business torts. Align’s motions to dismiss these 3Shape counterclaims were granted.

In 2018, 3Shape filed two separate complaints in the U.S. District Court for the District of Delaware alleging patent infringement by Align’s iTero Element scanner of 3Shape patents. On August 19, 2019, the Court consolidated the two actions, and on August 30, 2019, 3Shape filed an amended complaint.

On December 11, 2018, Align filed an additional complaint in the U.S. District Court for the District of Delaware alleging patent infringement by 3Shape’s Trios intraoral scanning system, Lab Scanners and Dental and Ortho System Software. 3Shape filed business tort counterclaims. The Court granted Align’s motion to dismiss 3Shape’s business tort counterclaims. The case is currently stayed.

On October 19, 2020, Align filed a complaint in the U.S. District Court for the Western District of Texas alleging patent infringement by 3Shape’s intraoral scanners and associated software products. In response, 3Shape filed a motion to dismiss as well as business tort and patent infringement counterclaims. 3Shape’s motion to dismiss was denied. Align has moved to dismiss the business tort counterclaims.

Each of 3Shape and Align’s District Court patent infringement complaints and all of 3Shape’s business tort counterclaims seek monetary damages and/or injunctive relief. One of Align’s Delaware District Court cases against 3Shape is scheduled for a jury trial beginning on May 31, 2022. The case pending in the Western District of Texas has been given an estimated trial date of October 3, 2022. No trial dates have been set in the remaining cases.

On August 28, 2018, 3Shape filed a complaint against Align in the U.S. District Court for the District of Delaware alleging antitrust violations and seeking monetary damages and injunctive relief relating to Align’s alleged market activities, including Align’s assertion of its patent portfolio, in alleged clear aligner and intraoral scanner markets. After the Court dismissed 3Shape’s complaint, 3Shape filed an amended complaint on October 28, 2019. The Court denied Align’s motion to dismiss the amended complaint on November 25, 2020. No trial date has been set.

Align is currently unable to predict the outcome of these lawsuits and therefore cannot determine the likelihood of loss, if any, nor estimate a range of possible loss.

Antitrust Class Actions

On June 5, 2020, a dental practice named Simon and Simon, PC doing business as City Smiles brought an antitrust action in the U.S. District Court for the Northern District of California on behalf of itself and a putative class of similarly situated practices seeking monetary damages and injunctive relief relating to Align’s alleged market activities in alleged clear aligner and intraoral scanner markets. Plaintiff filed an amended complaint and added VIP Dental Spas as a plaintiff on August 14, 2020. On September 9, 2020, Align moved to dismiss Plaintiffs’ amended complaint. On April 8, 2021, the Judge denied Align’s motion to dismiss. A jury trial is scheduled to begin November 20, 2023. Align believes the plaintiffs’ claims are without merit and intends to vigorously defend itself.

On May 3, 2021, an individual named Misty Snow brought an antitrust action in the U.S. District Court for the Northern District of California on behalf of herself and a putative class of similarly situated individuals seeking monetary damages and injunctive relief relating to Align’s alleged market activities in alleged clear aligner and intraoral scanner markets. Plaintiff filed an amended complaint on July 30, 2021 adding new plaintiffs and various state law claims. Align has not yet responded to the amended complaint. Align believes the plaintiffs’ claims are without merit and intends to vigorously defend itself.

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Align is currently unable to predict the outcome of these lawsuits and therefore cannot determine the likelihood of loss, if any, nor estimate a range of possible loss.

SDC Dispute

In April 2018, SDC Financial LLC, SmileDirectClub LLC, and the Members of SDC Financial LLC other than the Company (collectively, the “SDC Entities”) initiated confidential arbitration proceedings against Align. In an award dated March 4, 2019, (“Award”) an arbitrator found that Align breached a restrictive covenant and that Align misused the SDC Entities’ confidential information and violated fiduciary duties to SDC Financial LLC. As part of the Award, Align was enjoined from opening new Invisalign stores or providing certain services in physical retail establishments in connection with the marketing and sale of clear aligners in the U.S., and enjoined from using the SDC Entities’ confidential information. The arbitrator extended the expiration date of specified aspects of the restrictive covenant to August 18, 2022. The arbitrator also ordered Align to tender its SDC Financial LLC membership interests to the SDC Entities for a purchase price equal to the “capital account” balance as of October 31, 2017, to be determined in accordance with the applicable provisions of the SDC Operating Agreements. No financial damages were awarded to the SDC Entities. The Circuit Court for Cook County, Illinois confirmed the Award on April 29, 2019.

As required by the Award, Align tendered its membership interests for a purchase price that SDC claimed to be Align’s “capital account” balance. Align disputed that the SDC Entities properly determined the value of Align’s “capital account” balance as of October 31, 2017. Consequently, on July 3, 2019, Align filed a confidential demand for arbitration challenging the propriety of the SDC Entities’ determination. On March 12, 2021 the Arbitrator issued a final award in favor of Align and against SDC finding that the SDC entities owed Align an additional $43.4 million plus interest. SDC paid the amount due to Align on March 17, 2021.

On August 27, 2020, Align initiated a confidential arbitration proceeding against the SDC entities before the American Arbitration Association in San Jose, California. This arbitration relates to the Strategic Supply Agreement (“Supply Agreement”) entered into between the parties in 2016. The complaint alleges that the SDC Entities breached the Supply Agreements terms, causing damages to Align in an amount to be determined. On January 19, 2021, SDC filed a counterclaim alleging that Align breached the Supply Agreement. Align denies the SDC Entities’ allegations in the counterclaim and will vigorously defend itself against them.

Align is currently unable to predict the outcome of these disputes and therefore cannot determine the likelihood of loss or success nor estimate a range of possible loss or success, if any.

In addition to the above, in the ordinary course of Align’s operations, Align is involved in a variety of claims, suits, investigations, and proceedings, including actions with respect to intellectual property claims, patent infringement claims, government investigations, labor and employment claims, breach of contract claims, tax, and other matters. Regardless of the outcome, these proceedings can have an adverse impact on us because of defense costs, diversion of management resources, and other factors. Although the results of complex legal proceedings are difficult to predict and Align’s view of these matters may change in the future as litigation and events related thereto unfold; Align currently does not believe that these matters, individually or in the aggregate, will materially affect Align’s financial position, results of operations or cash flows.

Note 7. Commitments and Contingencies

Other Commitments

In 2018, we entered into a purchase agreement, as amended, with an existing single source supplier which requires us to purchase aligner material for a minimum amount of approximately $425.9 million over a five year period through 2022. On June 24, 2021, we amended the agreement which requires an additional minimum aligner material purchase of approximately $348.0 million from 2023 through 2026.

Off-Balance Sheet Arrangements

As of June 30, 2021, we had no material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources other than certain items disclosed in Note 11 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K.
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Indemnification Provisions

In the normal course of business to facilitate transactions in our services and products, we indemnify certain parties: customers, vendors, lessors, and other parties with respect to certain matters, including, but not limited to, services to be provided by us and intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and our executive officers that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. Several of these agreements limit the time within which an indemnification claim can be made and the amount of the claim.

It is not possible to make a reasonable estimate of the maximum potential amount under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Additionally, we have a limited history of prior indemnification claims and the payments we have made under such agreements have not had a material adverse effect on our results of operations, cash flows or financial position. However, to the extent that valid indemnification claims arise in the future, future payments by us could be significant and could have a material adverse effect on our results of operations or cash flows in a particular period. As of June 30, 2021, we did not have any material indemnification claims that were probable or reasonably possible.

Note 8. Stockholders’ Equity

As of June 30, 2021, the 2005 Incentive Plan (as amended) has a total reserve of 27,783,379 shares of which 4,227,993 shares are available for issuance.

Summary of Stock-Based Compensation Expense

Stock-based compensation is based on the estimated fair value of awards, net of estimated forfeitures, and recognized over the requisite service period. Estimated forfeitures are based on historical experience at the time of grant and may be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The stock-based compensation related to our stock-based awards and employee stock purchase plans for the three and six months ended June 30, 2021 and 2020 is as follows (in thousands):
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Cost of net revenues$1,418 $891 $2,724 $2,238 
Selling, general and administrative23,058 20,203 44,902 38,333 
Research and development4,379 3,913 8,470 7,363 
Total stock-based compensation$28,855 $25,007 $56,096 $47,934 

Restricted Stock Units (“RSUs”)

The fair value of RSUs is based on our closing stock price on the date of grant. RSUs granted generally vest over a period of four years.

A summary for the six months ended June 30, 2021 is as follows:
Number of Shares
Underlying RSUs
(in thousands)
Weighted Average Grant Date Fair ValueWeighted Average Remaining
Contractual Term (in years)
Aggregate
Intrinsic Value
(in thousands)
Unvested as of December 31, 2020632 $243.55 
Granted
158 597.20 
Vested and released(241)214.71 
Forfeited(24)333.07 
Unvested as of June 30, 2021525