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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 September 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 October 28, 2021 was 78,853,069.

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
September 30,
Nine Months Ended
September 30,
 2021202020212020
Net revenues$1,015,906 $734,144 $2,921,485 $1,637,421 
Cost of net revenues260,750 200,056 730,693 484,649 
Gross profit755,156 534,088 2,190,792 1,152,772 
Operating expenses:
Selling, general and administrative428,409 312,492 1,257,445 852,365 
Research and development65,587 44,527 177,839 126,420 
Total operating expenses493,996 357,019 1,435,284 978,785 
Income from operations261,160 177,069 755,508 173,987 
Interest income and other income (expense), net:
Interest income401 329 2,427 2,788 
Other income (expense), net427 7,147 34,476 (12,368)
      Total interest income and other income (expense), net828 7,476 36,903 (9,580)
Net income before provision for (benefit from) income taxes261,988 184,545 792,411 164,407 
Provision for (benefit from) income taxes81,019 45,174 211,352 (1,452,493)
Net income$180,969 $139,371 $581,059 $1,616,900 
Net income per share:
Basic
$2.29 $1.77 $7.36 $20.54 
Diluted
$2.28 $1.76 $7.29 $20.45 
Shares used in computing net income per share:
Basic
78,904 78,824 78,971 78,729 
Diluted
79,516 79,163 79,677 79,078 

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
September 30,
Nine Months Ended
September 30,
 2021202020212020
Net income$180,969 $139,371 $581,059 $1,616,900 
Change in foreign currency translation adjustment, net of tax(12,037)15,810 (25,902)25,793 
Change in unrealized gains (losses) on investments, net of tax20   (194)
Other comprehensive income (loss)
(12,017)15,810 (25,902)25,599 
Comprehensive income$168,952 $155,181 $555,157 $1,642,499 

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)
September 30,
2021
December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents$1,237,822 $960,843 
Accounts receivable, net of allowance for doubtful accounts of $9,174 and $10,239, respectively
855,037 657,704 
Inventories207,116 139,237 
Prepaid expenses and other current assets155,332 91,754 
Total current assets2,455,307 1,849,538 
Property, plant and equipment, net1,002,769 734,721 
Operating lease right-of-use assets, net92,727 82,553 
Goodwill426,594 444,817 
Intangible assets, net115,794 130,072 
Deferred tax assets1,502,250 1,552,831 
Other assets54,668 35,151 
Total assets$5,650,109 $4,829,683 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$174,916 $142,132 
Accrued liabilities545,286 405,582 
Deferred revenues1,070,113 777,887 
Total current liabilities1,790,315 1,325,601 
Income tax payable125,986 105,748 
Operating lease liabilities74,352 64,445 
Other long-term liabilities142,694 100,024 
Total liabilities2,133,347 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; 78,852 and 78,860 issued and outstanding, respectively)
8 8 
Additional paid-in capital972,450 974,556 
Accumulated other comprehensive income (loss), net17,599 43,501 
Retained earnings2,526,705 2,215,800 
Total stockholders’ equity3,516,762 3,233,865 
Total liabilities and stockholders’ equity$5,650,109 $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 September 30, 2021SharesAmount
Balance as of June 30, 202178,948 $8 $895,831 $29,616 $2,458,955 $3,384,410 
Net income— — — — 180,969 180,969 
Net change in unrealized gains (losses) from investments— — — 20 — 20 
Net change in foreign currency translation adjustment— — — (12,037)— (12,037)
Issuance of common stock relating to employee equity compensation plans69 — 12,490 — — 12,490 
Tax withholdings related to net share settlements of equity awards— `(2,454)— — (2,454)
Common stock repurchased and retired(165)— (1,819)— (113,219)(115,038)
Equity forward contract related to accelerated stock repurchase— — 40,000 — — 40,000 
Stock-based compensation— — 28,402 — — 28,402 
Balance as of September 30, 202178,852 $8 $972,450 $17,599 $2,526,705 $3,516,762 


Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss), NetRetained EarningsTotal
Nine Months Ended September 30, 2021SharesAmount
Balance as of December 31, 202078,860 $8 $974,556 $43,501 $2,215,800 $3,233,865 
Net income— — — — 581,059 581,059 
Net change in foreign currency translation adjustment— — — (25,902)— (25,902)
Issuance of common stock relating to employee equity compensation plans434 — 25,623 — — 25,623 
Tax withholdings related to net share settlements of equity awards— — (107,343)— — (107,343)
Common stock repurchased and retired(442)— (4,884)— (270,154)(275,038)
Stock-based compensation— — 84,498 — — 84,498 
Balance as of September 30, 202178,852 $8 $972,450 $17,599 $2,526,705 $3,516,762 

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 September 30, 2020SharesAmount
Balance as of June 30, 202078,781 $8 $918,495 $9,101 $1,917,441 $2,845,045 
Net Income— — — — 139,371 139,371 
Net change in foreign currency translation adjustment— — — 15,810 — 15,810 
Issuance of common stock relating to employee equity compensation plans68 — 9,652 — — 9,652 
Tax withholdings related to net share settlements of equity awards— — (1,636)— — (1,636)
Stock-based compensation— — 25,229 — — 25,229 
Balance as of September 30, 202078,849 $8 $951,740 $24,911 $2,056,812 $3,033,471 


Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss), Net
Retained EarningsTotal
Nine Months Ended September 30, 2020SharesAmount
Balance as of December 31, 201978,433 $8 $906,937 $(688)$439,912 $1,346,169 
Net income— — — — 1,616,900 1,616,900 
Net change in unrealized gains (losses) from investments— — — (194)— (194)
Net change in foreign currency translation adjustment— — — 25,793 — 25,793 
Issuance of common stock relating to employee equity compensation plans416 — 20,314 — — 20,314 
Tax withholdings related to net share settlements of equity awards— — (48,674)— — (48,674)
Stock-based compensation— — 73,163 — — 73,163 
Balance as of September 30, 202078,849 $8 $951,740 $24,911 $2,056,812 $3,033,471 

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)
 Nine Months Ended
September 30,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $581,059 $1,616,900 
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes48,104 (1,502,459)
Depreciation and amortization79,141 68,769 
Stock-based compensation84,498 73,163 
Non-cash operating lease cost19,364 16,819 
Allowance for doubtful accounts provisions1,559 13,090 
Arbitration award gain(43,403) 
Other non-cash operating activities14,092 14,189 
Changes in assets and liabilities, net of effects of acquisition:
Accounts receivable(216,081)(101,888)
Inventories(83,249)(11,774)
Prepaid expenses and other assets(74,736)(28,251)
Accounts payable13,495 21,837 
Accrued and other long-term liabilities107,159 (28,343)
Long-term income tax payable20,263 119 
Deferred revenues348,430 128,585 
Net cash provided by operating activities
899,695 280,756 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of cash acquired(8,002)(420,788)
Purchase of property, plant and equipment(292,002)(101,757)
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 17,828 
Proceeds from arbitration award43,403  
Other investing activities(3,712)1,760 
Net cash used in investing activities(255,719)(186,840)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock25,623 20,314 
Common stock repurchases(275,038) 
Payroll taxes paid upon the vesting of equity awards(107,344)(48,674)
Net cash used in financing activities(356,759)(28,360)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash(10,241)(568)
Net increase in cash, cash equivalents, and restricted cash276,976 64,988 
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$1,238,450 $616,122 
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 nine months ended September 30, 2021 and 2020, our comprehensive income for the three and nine months ended September 30, 2021 and 2020, our financial position as of September 30, 2021, our stockholders’ equity for the three and nine months ended September 30, 2021 and 2020, and our cash flows for the nine months ended September 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 nine months ended September 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 and 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. Further, we could also be materially adversely affected by supply chain disruptions, including shortages and inflationary pressures, uncertain or reduced demand, labor shortages, delays in collection of outstanding receivables and the impact of any initiatives or programs that we may undertake to address financial and operational challenges faced by our customers.

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

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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.

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 September 30, 2021 and December 31, 2020 (in thousands):
DescriptionBalance as of
September 30, 2021
Level 1

Level 2
Cash equivalents:
Money market funds$582,227 $582,227 $ 
Prepaid expenses and other current assets:
Israeli funds4,170  4,170 
$586,397 $582,227 $4,170 
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 nine months ended September 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 nine months ended September 30, 2021. Refer to Note 6 “Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements included for more information on the arbitration.

Investments in Privately Held Companies

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Investments in equity securities of privately held companies without readily determinable fair values was $8.6 million as of September 30, 2021 and not material as of December 31, 2020 and are reported as nonrecurring investments within other assets in our Condensed Consolidated Balance Sheet. Our investments in equity securities are considered Level 3 in the fair value hierarchy since the investments are in private companies without quoted market prices and we adjust the carrying value based on observable price changes. The adjustments to the carrying value of these investments was not material during the nine months ended September 30, 2021 and 2020.

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 September 30, 2021 and 2020, we recognized net gains of $14.7 million and net losses of $12.1 million, respectively, and during the nine months ended September 30, 2021 and 2020, we recognized net gains of $14.1 million and $0.6 million, respectively. As of September 30, 2021 and December 31, 2020, the fair value of foreign exchange forward contracts outstanding was not material.

The following table presents the gross notional value of all our foreign exchange forward contracts outstanding as of September 30, 2021 and December 31, 2020 (in thousands):
September 30, 2021
Local Currency AmountNotional Contract Amount (USD)
Euro192,600$222,456 
Chinese Yuan¥1,021,000157,701 
Canadian DollarC$100,00078,563 
Japanese Yen¥6,097,80054,496 
British Pound£40,25054,296 
Brazilian RealR$285,00052,073 
Polish ZlotyPLN142,00035,710 
Mexican PesoM$310,00015,065 
Israel ShekelILS38,40011,914 
Swiss FrancCHF10,60011,356 
Australian DollarA$5,9004,252 
$697,882 

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 
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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 nine months ended September 30, 2020, we recognized a loss of $10.2 million within other income (expense), net in our Condensed Consolidated Statement of Operations.

Note 3. Balance Sheet Components

Inventories consist of the following (in thousands):
September 30,
2021
December 31,
2020
Raw materials$104,017 $76,404 
Work in process51,527 31,393 
Finished goods51,572 31,440 
Total inventories$207,116 $139,237 

Accrued liabilities consist of the following (in thousands): 
September 30,
2021
December 31,
2020
Accrued payroll and benefits$229,743 $170,106 
Accrued expenses62,828 42,536 
Accrued sales and marketing expenses55,310 34,488 
Accrued property, plant and equipment41,389 27,692 
Accrued income taxes35,152 30,130 
Accrued professional fees29,488 20,617 
Current operating lease liabilities22,170 21,735 
Other accrued liabilities69,206 58,278 
Total accrued liabilities$545,286 $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):
Nine Months Ended
September 30,
 20212020
Balance at beginning of period$12,615 $11,205 
Charged to cost of net revenues13,400 8,047 
Actual warranty expenditures(11,040)(8,229)
Balance at end of period$14,975 $11,023 

Deferred revenues consist of the following (in thousands):
September 30,
2021
December 31,
2020
Deferred revenues - current$1,070,113 $777,887 
Deferred revenues - long-term 1
$108,387 $62,551 

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

During the three months ended September 30, 2021 and 2020, we recognized $1.0 billion and $734.1 million of net revenues, respectively, of which $112.6 million and $99.6 million was included in the deferred revenues balance at December 31, 2020 and 2019, respectively.

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During the nine months ended September 30, 2021 and 2020, we recognized $2.9 billion and $1.6 billion of net revenues, respectively, of which $349.7 million and $263.3 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 September 30, 2021 were $1.2 billion. These performance obligations are expected to be recognized over the next one to five years.

Note 4. Goodwill and Intangible Assets

During the three months ended September 30, 2021, we completed an immaterial business combination which increased goodwill and existing technology intangible assets.

Goodwill

The change in the carrying value of goodwill for the nine months ended September 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 
Additions from acquisition3,646  3,646 
Foreign currency translation adjustments
(3,062)(18,807)(21,869)
Balance as of September 30, 2021$113,275 $313,319 $426,594 

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
September 30, 2021
Accumulated
Amortization
Accumulated
Impairment Loss
Net Carrying
Value as of
September 30, 2021
Existing technology10$104,531 $(19,923)$(4,328)$80,280 
Customer relationships1155,000 (24,888)(10,751)19,361 
Trademarks and tradenames1016,600 (4,087)(4,179)8,334 
Patents and other 86,511 (4,296) 2,215 
$182,642 $(53,194)$(19,258)110,190 
Foreign currency translation5,604 
Total intangible assets$115,794 

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 September 30, 2021 is as follows (in thousands):

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Fiscal Year Ending December 31,Amortization
Remainder of 2021$4,158 
202215,392 
202314,772 
202413,831 
202513,455 
Thereafter48,582 
Total$110,190 

Amortization expense for the three months ended September 30, 2021 and 2020 was $4.4 million and $4.1 million, respectively, and amortization expense for the nine months ended September 30, 2021 and 2020 was $12.2 million and $9.5 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 principal, together with accrued and unpaid interest, is due on the maturity date. As of September 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 was held on October 21, 2021. At the hearing, the Court directed Lead Plaintiff to file an amended motion seeking preliminary approval of the settlement by November 1, 2021 and the Court indicated it will thereafter grant preliminary approval of the settlement. The settlement is subject to notice to class members and final 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
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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 and filed its opening appeal brief with the United States Court of Appeals for the Ninth Circuit on September 1, 2021. Respondents’ brief in opposition is due November 22, 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, 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 motion to dismiss these 3Shape counterclaims was 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 business tort and patent infringement counterclaims. Align moved to dismiss the business tort counterclaims. The Court granted Align’s motion
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to dismiss all of the business tort counterclaims except for a counterclaim of fraudulent inducement. Align filed a separate motion to dismiss on that counterclaim which is pending.

3Shape and Align’s District Court patent infringement complaints and 3Shape’s 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 a jury 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. 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. A jury trial is scheduled to begin in this matter on 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 moved to dismiss the first amended complaint. On September 30, 2021, the Court dismissed the complaint and granted Plaintiffs leave to amend. Plaintiffs filed a second amended complaint on October 21, 2021. Align has not yet responded to the second amended complaint. Align believes the plaintiffs’ claims are without merit and intends to vigorously defend itself.

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
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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. This arbitration is set for hearing in the first quarter of 2022.

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 September 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.

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 September 30, 2021, we did not have any material indemnification claims that were probable or reasonably possible.

Note 8. Stockholders’ Equity

As of September 30, 2021, the 2005 Incentive Plan (as amended) has a total reserve of 27,783,379 shares of which 4,236,601 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 nine months ended September 30, 2021 and 2020 is as follows (in thousands):
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 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Cost of net revenues$1,451 $1,247 $4,175 $3,485 
Selling, general and administrative22,229 19,951 67,131 58,284 
Research and development4,722 4,031 13,192 11,394 
Total stock-based compensation$28,402 $25,229 $84,498 $73,163 

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 nine months ended September 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, 2020