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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 March 31, 2022
or | | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 000-32259
____________________________
ALIGN TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
____________________________ | | | | | |
Delaware | 94-3267295 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
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 class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.0001 par value | ALGN | The NASDAQ Stock Market LLC |
| | (NASDAQ Global Select 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.
| | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 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 April 29, 2022 was 78,805,547.
ALIGN TECHNOLOGY, INC.
TABLE OF CONTENTS
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PART I | | |
Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
PART II | | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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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.
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 March 31, | | |
| | 2022 | | 2021 | | | | |
Net revenues | | $ | 973,219 | | | $ | 894,771 | | | | | |
Cost of net revenues | | 263,873 | | | 217,673 | | | | | |
Gross profit | | 709,346 | | | 677,098 | | | | | |
Operating expenses: | | | | | | | | |
Selling, general and administrative | | 439,457 | | | 397,115 | | | | | |
Research and development | | 71,807 | | | 54,537 | | | | | |
Total operating expenses | | 511,264 | | | 451,652 | | | | | |
Income from operations | | 198,082 | | | 225,446 | | | | | |
Interest income and other income (expense), net: | | | | | | | | |
Interest income | | 677 | | | 1,643 | | | | | |
Other income (expense), net | | (11,273) | | | 34,532 | | | | | |
Total interest income and other income (expense), net | | (10,596) | | | 36,175 | | | | | |
Net income before provision for income taxes | | 187,486 | | | 261,621 | | | | | |
Provision for income taxes | | 53,188 | | | 61,245 | | | | | |
Net income | | $ | 134,298 | | | $ | 200,376 | | | | | |
| | | | | | | | |
Net income per share: | | | | | | | | |
Basic | | $ | 1.71 | | | $ | 2.54 | | | | | |
Diluted | | $ | 1.70 | | | $ | 2.51 | | | | | |
Shares used in computing net income per share: | | | | | | | | |
Basic | | 78,742 | | | 79,000 | | | | | |
Diluted | | 79,193 | | | 79,798 | | | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2022 | | 2021 | | | | |
Net income | | $ | 134,298 | | | $ | 200,376 | | | | | |
Other comprehensive loss: | | | | | | | | |
Change in foreign currency translation adjustment, net of tax | | (7,311) | | | (14,451) | | | | | |
Change in unrealized gains (losses) on investments, net of tax | | (2,728) | | | (20) | | | | | |
Other comprehensive loss | | (10,039) | | | (14,471) | | | | | |
Comprehensive income | | $ | 124,259 | | | $ | 185,905 | | | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
| | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
ASSETS | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 926,119 | | | $ | 1,099,370 | |
Marketable securities, short-term | | 86,749 | | | 71,972 | |
Accounts receivable, net of allowance for doubtful accounts of $9,764 and $9,245, respectively | | 950,892 | | | 897,198 | |
Inventories | | 275,669 | | | 230,230 | |
Prepaid expenses and other current assets | | 241,339 | | | 195,305 | |
Total current assets | | 2,480,768 | | | 2,494,075 | |
Marketable securities, long-term | | 107,695 | | | 125,320 | |
Property, plant and equipment, net | | 1,140,922 | | | 1,081,926 | |
Operating lease right-of-use assets, net | | 125,252 | | | 121,257 | |
Goodwill | | 411,965 | | | 418,547 | |
Intangible assets, net | | 103,499 | | | 109,709 | |
Deferred tax assets | | 1,515,620 | | | 1,533,767 | |
Other assets | | 57,693 | | | 57,509 | |
Total assets | | $ | 5,943,414 | | | $ | 5,942,110 | |
| | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 186,509 | | | $ | 163,886 | |
Accrued liabilities | | 465,071 | | | 607,315 | |
Deferred revenues | | 1,212,067 | | | 1,152,870 | |
Total current liabilities | | 1,863,647 | | | 1,924,071 | |
Income tax payable | | 123,476 | | | 118,072 | |
Operating lease liabilities | | 104,983 | | | 102,656 | |
Other long-term liabilities | | 184,456 | | | 174,597 | |
Total liabilities | | 2,276,562 | | | 2,319,396 | |
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; 78,805 and 78,710 issued and outstanding, respectively) | | 8 | | | 8 | |
Additional paid-in capital | | 992,287 | | | 999,006 | |
Accumulated other comprehensive income (loss), net | | (5,713) | | | 4,326 | |
Retained earnings | | 2,680,270 | | | 2,619,374 | |
Total stockholders’ equity | | 3,666,852 | | | 3,622,714 | |
Total liabilities and stockholders’ equity | | $ | 5,943,414 | | | $ | 5,942,110 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss), Net | | Retained Earnings | | Total |
Three Months Ended March 31, 2022 | | Shares | | Amount | |
Balance as of December 31, 2021 | | 78,710 | | | $ | 8 | | | $ | 999,006 | | | $ | 4,326 | | | $ | 2,619,374 | | | $ | 3,622,714 | |
Net income | | — | | | — | | | — | | | — | | | 134,298 | | | 134,298 | |
Net change in unrealized gains (losses) from investments | | — | | | — | | | — | | | (2,728) | | | — | | | (2,728) | |
Net change in foreign currency translation adjustment | | — | | | — | | | — | | | (7,311) | | | — | | | (7,311) | |
Issuance of common stock relating to employee equity compensation plans | | 239 | | | — | | | 14,827 | | | — | | | — | | | 14,827 | |
Tax withholdings related to net share settlements of equity awards | | — | | | — | | | (51,533) | | | — | | | — | | | (51,533) | |
Common stock repurchased and retired | | (144) | | | — | | | (1,634) | | | — | | | (73,402) | | | (75,036) | |
Stock-based compensation | | — | | | — | | | 31,621 | | | — | | | — | | | 31,621 | |
Balance as of March 31, 2022 | | 78,805 | | | $ | 8 | | | $ | 992,287 | | | $ | (5,713) | | | $ | 2,680,270 | | | $ | 3,666,852 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss), Net | | Retained Earnings | | Total |
Three Months Ended March 31, 2021 | | Shares | | Amount | |
Balance as of December 31, 2020 | | 78,860 | | | $ | 8 | | | $ | 974,556 | | | $ | 43,501 | | | $ | 2,215,800 | | | $ | 3,233,865 | |
Net income | | — | | | — | | | — | | | — | | | 200,376 | | | 200,376 | |
Net change in unrealized gains (losses) from investments | | — | | | — | | | — | | | (20) | | | — | | | (20) | |
Net change in foreign currency translation adjustment | | — | | | — | | | — | | | (14,451) | | | — | | | (14,451) | |
Issuance of common stock relating to employee equity compensation plans | | 276 | | | — | | | 13,133 | | | — | | | — | | | 13,133 | |
Tax withholdings related to net share settlements of equity awards | | — | | | — | | | (66,568) | | | — | | | — | | | (66,568) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Stock-based compensation | | — | | | — | | | 27,241 | | | — | | | — | | | 27,241 | |
Balance as of March 31, 2021 | | 79,136 | | | $ | 8 | | | $ | 948,362 | | | $ | 29,030 | | | $ | 2,416,176 | | | $ | 3,393,576 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited) | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2022 | | 2021 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | |
Net income | | $ | 134,298 | | | $ | 200,376 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Deferred taxes | | 17,464 | | | 28,979 | |
Depreciation and amortization | | 29,626 | | | 25,635 | |
Stock-based compensation | | 31,621 | | | 27,241 | |
Non-cash operating lease cost | | 7,526 | | | 5,911 | |
| | | | |
Arbitration award gain | | — | | | (43,403) | |
Other non-cash operating activities | | 8,612 | | | 5,795 | |
Changes in assets and liabilities: | | | | |
Accounts receivable | | (55,543) | | | (67,423) | |
Inventories | | (49,455) | | | (15,582) | |
Prepaid expenses and other assets | | (48,665) | | | (34,858) | |
Accounts payable | | 7,025 | | | (14,936) | |
Accrued and other long-term liabilities | | (126,400) | | | (475) | |
Long-term income tax payable | | 5,405 | | | 3,920 | |
Deferred revenues | | 68,984 | | | 106,007 | |
Net cash provided by operating activities | | 30,498 | | | 227,187 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | |
| | | | |
Purchase of property, plant and equipment | | (87,328) | | | (43,431) | |
Purchase of marketable securities | | (15,041) | | | — | |
Proceeds from maturities of marketable securities | | 6,095 | | | — | |
Proceeds from sales of marketable securities | | 8,528 | | | — | |
Repayment on unsecured promissory note | | — | | | 4,594 | |
Proceeds from arbitration award | | — | | | 43,403 | |
Other investing activities | | (2,452) | | | — | |
Net cash (used in) provided by investing activities | | (90,198) | | | 4,566 | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | |
Proceeds from issuance of common stock | | 14,827 | | | 13,133 | |
Common stock repurchases | | (75,036) | | | — | |
| | | | |
Payroll taxes paid upon the vesting of equity awards | | (51,533) | | | (66,568) | |
Net cash used in financing activities | | (111,742) | | | (53,435) | |
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash | | (1,826) | | | (7,487) | |
Net (decrease) increase in cash, cash equivalents, and restricted cash | | (173,268) | | | 170,831 | |
Cash, cash equivalents, and restricted cash at beginning of the period | | 1,100,139 | | | 961,474 | |
Cash, cash equivalents, and restricted cash at end of the period | | $ | 926,871 | | | $ | 1,132,305 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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”, "Company", or “Align”) on a consistent basis with the audited Consolidated Financial Statements for the year ended December 31, 2021, and contains all adjustments, including normal recurring adjustments, necessary to state fairly state the information set forth herein. The unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), and, therefore, omit certain information and footnote disclosures necessary to present the unaudited Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (“U.S.”).
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, 2021. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any other future period, and we make no representations related thereto.
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 and the valuation of investments in privately held companies 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
As the pandemic continues and new variants of the virus emerge, we are seeing a resurgence of severe preventative measures to prevent its spread in China and, consequently, continuing fluctuations in the numbers of patients seeking treatment for dental services and the number of doctors providing services and treatments in other markets. The full extent to which the pandemic, including as a result of any new variants, 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.
The military conflict between Russia and Ukraine and its related impacts on the economy has caused significant worldwide challenges. While the situation is highly uncertain and evolving, its impact on the economy such as inflation, supply chain challenges, impacts on consumer confidence, purchasing power, sanctions and retaliatory sanctions among others, have impacted and could potentially subject our business to materially adverse consequences should any portion of its impacts become prolonged or escalate beyond its current scope.
Revenue Recognition
Our revenues are derived primarily from the sale of aligners, scanners, and services from our Clear Aligner and Systems and Services segments. We enter into sales contracts that may consist of multiple distinct performance obligations where certain performance obligations of the sales contract are not delivered in one reporting period. We measure and allocate revenues according to ASC 606-10, “Revenues from Contracts with Customers.”
We identify a performance obligation as distinct if both of the following criteria are met: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Determining the standalone selling price (“SSP”) in order to allocate consideration from the contract to the individual
performance obligations is the result of various factors, such as changing trends and market conditions, historical prices, costs, and gross margins. While changes in the allocation of the SSP between performance obligations will not affect the amount of total revenues recognized for a particular contract, any material changes could impact the timing of revenue recognition, which would have a material effect on our financial position and result of operations. This is because the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation.
Clear Aligner
We enter into contracts (“treatment plan(s)”) that involve multiple future performance obligations. Invisalign Comprehensive, Invisalign First, Invisalign Moderate, and Lite and Express Packages include optional additional aligners at no charge for a certain period of time ranging from six months to five years after initial shipment, and Invisalign Go and Invisalign Go Plus includes optional additional aligners at no charge for a period of up to two years after initial shipment.
Our treatment plans comprise the following performance obligations that also represent distinct deliverables: initial aligners, the option of additional aligners, case refinement, and replacement aligners. We take the practical expedient to consider shipping and handling costs as activities to fulfill the performance obligation. We allocate revenues for each treatment plan based on each unit’s SSP. Management considers a variety of factors such as same or similar product historical sales, costs, and gross margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. In addition to historical data, we take into consideration changing trends and market conditions. For treatment plans with multiple future performance obligations, we also consider usage rates, which is the number of times a customer is expected to order additional aligners. Our process for estimating usage rates requires significant judgment and evaluation of inputs, including historical usage data by region, country and channel. We recognize the revenues upon shipment, as the customers obtain physical possession, and we have enforceable rights to payment. As we collect most consideration upfront, we consider whether a significant financing component exists; however, as the delivery of the performance obligations are at the customer’s discretion, we conclude that no significant financing component exists.
Systems and Services
We sell intraoral scanners and CAD/CAM services through both our direct sales force and distribution partners. The intraoral scanner sales price includes one year of warranty and unlimited scanning services. The customer may also select, for additional fees, extended warranty and unlimited scanning services for periods beyond the initial year. When intraoral scanners are sold with an unlimited scanning service agreement and/or extended warranty, we allocate revenues based on the respective SSP of the scanner and the subscription service. We estimate the SSP of each element, taking into account factors such as same or similar historical prices and discounting strategies. Revenues are then recognized over time as the monthly services are rendered and upon shipment of the scanner, as that is when we deem the customer to have obtained control. CAD/CAM services, where sold separately, include the initial software license and maintenance and support. We allocate revenues based upon the respective SSPs of the software license and the maintenance and support. We estimate the SSP of each element using data such as historical prices. Revenues related to the software license are recognized upfront and revenues related to the maintenance and support are recognized over time. For both scanner and service sales, most consideration is collected upfront and in cases where there are payment plans, consideration is collected within one year and, therefore, there are no significant financing components.
Recent Accounting Pronouncements Not Yet Effective
We continue to monitor new accounting pronouncements issued by the Financial Accounting Standards Board 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. Financial Instruments
Cash, Cash Equivalents and Marketable Securities
The following tables summarize our cash and cash equivalents, and marketable securities on our Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Reported as: |
March 31, 2022 | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Cash and Cash Equivalents | | Marketable securities, short-term | | Marketable securities, long-term |
Cash | | $ | 689,175 | | | $ | — | | | $ | — | | | $ | 689,175 | | | $ | 689,175 | | | $ | — | | | $ | — | |
Money market funds | | 236,960 | | | — | | | (16) | | | 236,944 | | | 236,944 | | | — | | | — | |
Corporate bonds | | 116,307 | | | 3 | | | (2,389) | | | 113,921 | | | — | | | 41,164 | | | 72,757 | |
U.S. government treasury bonds
| | 46,638 | | | — | | | (511) | | | 46,127 | | | — | | | 31,055 | | | 15,072 | |
Asset-backed securities | | 27,453 | | | — | | | (197) | | | 27,256 | | | — | | | 10,984 | | | 16,272 | |
Municipal bonds | | 6,049 | | | — | | | (77) | | | 5,972 | | | — | | | 3,546 | | | 2,426 | |
U.S. government agency bonds | | 1,204 | | | — | | | (36) | | | 1,168 | | | — | | | — | | | 1,168 | |
| | | | | | | | | | | | | | |
Total | | $ | 1,123,786 | | | $ | 3 | | | $ | (3,226) | | | $ | 1,120,563 | | | $ | 926,119 | | | $ | 86,749 | | | $ | 107,695 | |
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| | | | | | | | | | Reported as: |
December 31, 2021 | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Cash and Cash Equivalents | | Marketable securities, short-term | | Marketable securities, long-term |
Cash | | $ | 754,802 | | | $ | — | | | $ | — | | | $ | 754,802 | | | $ | 754,802 | | | $ | — | | | $ | — | |
Money market funds | | 343,012 | | | — | | | (2) | | | 343,010 | | | 343,010 | | | — | | | — | |
Corporate bonds | | 115,507 | | | 9 | | | (398) | | | 115,118 | | | 1,042 | | | 35,065 | | | 79,011 | |
U.S. government treasury bonds
| | 42,976 | | | — | | | (48) | | | 42,928 | | | — | | | 22,251 | | | 20,677 | |
Asset-backed securities | | 32,031 | | | — | | | (40) | | | 31,991 | | | — | | | 10,999 | | | 20,992 | |
Municipal bonds | | 7,628 | | | — | | | (15) | | | 7,613 | | | 516 | | | 3,657 | | | 3,440 | |
U.S. government agency bonds | | 1,201 | | | — | | | (1) | | | 1,200 | | | — | | | — | | | 1,200 | |
| | | | | | | | | | | | | | |
Total | | $ | 1,297,157 | | | $ | 9 | | | $ | (504) | | | $ | 1,296,662 | | | $ | 1,099,370 | | | $ | 71,972 | | | $ | 125,320 | |
The following table summarizes the fair value of our available-for-sale marketable securities classified by contractual maturity as of March 31, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
Due in 1 year or less | | $ | 67,225 | | | $ | 59,737 | |
Due in 1 year through 5 years | | $ | 127,219 | | | 139,113 | |
Total | | $ | 194,444 | | | $ | 198,850 | |
The securities that we invest in are generally deemed to be low risk based on their credit ratings from the major rating agencies. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As interest rates increase, those securities purchased at a lower yield show a mark-to-market unrealized loss. Our unrealized losses as of March 31, 2022 and December 31, 2021 are primarily due to changes in interest rates and credit spreads.
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 as of March 31, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Description | | Balance as of March 31, 2022 | | Level 1 | |
Level 2 | | Level 3 | | | | |
Cash equivalents: | | | | | | | | | | | | |
Money market funds | | $ | 236,944 | | | $ | 236,944 | | | $ | — | | | $ | — | | | | | |
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Short-term investments: | | | | | | | | | | | | |
| | | | | | | | | | | | |
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U.S. government treasury bonds | | 31,055 | | | 31,055 | | | — | | | — | | | | | |
Corporate bonds | | 41,164 | | | — | | | 41,164 | | | — | | | | | |
Municipal bonds | | 3,546 | | | — | | | 3,546 | | | — | | | | | |
Asset-backed securities | | 10,984 | | | — | | | 10,984 | | | — | | | | | |
Long-term investments: | | | | | | | | | | | | |
U.S. government treasury bonds | | 15,072 | | | 15,072 | | | — | | | — | | | | | |
Corporate bonds | | 72,757 | | | — | | | 72,757 | | | — | | | | | |
Municipal bonds | | 2,426 | | | — | | | 2,426 | | | — | | | | | |
U.S. government agency bonds | | 1,168 | | | — | | | 1,168 | | | — | | | | | |
Asset-backed securities | | 16,272 | | | — | | | 16,272 | | | — | | | | | |
| | | | | | | | | | | | |
Other assets: | | | | | | | | | | | | |
Investments in privately held companies | | 11,225 | | | — | | | — | | | 11,225 | | | | | |
| | $ | 442,613 | | | $ | 283,071 | | | $ | 148,317 | | | $ | 11,225 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Description | | Balance as of December 31, 2021 | | Level 1 | | Level 2 | | Level 3 |
Cash equivalents: | | | | | | | | |
Money market funds | | $ | 343,010 | | | $ | 343,010 | | | $ | — | | | $ | — | |
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Corporate bonds | | 1,042 | | | — | | | 1,042 | | | — | |
Municipal bonds | | 516 | | | — | | | 516 | | | — | |
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Short-term investments: | | | | | | | | |
U.S. government treasury bonds | | 22,251 | | | 22,251 | | | — | | | — | |
Corporate bonds | | 35,065 | | | — | | | 35,065 | | | — | |
Municipal bonds | | 3,657 | | | — | | | 3,657 | | | — | |
Asset-backed securities | | 10,999 | | | — | | | 10,999 | | | — | |
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Long-term investments: | | | | | | | | |
U.S. government treasury bonds | | 20,677 | | | 20,677 | | | — | | | — | |
Corporate bonds | | 79,011 | | | — | | | 79,011 | | | — | |
Municipal bonds | | 3,440 | | | — | | | 3,440 | | | — | |
U.S. government agency bonds | | 1,200 | | | — | | | 1,200 | | | — | |
Asset-backed securities | | 20,992 | | | — | | | 20,992 | | | — | |
Prepaid expenses and other current assets: | | | | | | | | |
Israeli funds | | 3,841 | | | — | | | 3,841 | | | — | |
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Other assets: | | | | | | | | |
Investments in privately held companies | | 8,621 | | | — | | | — | | | 8,621 | |
| | $ | 554,322 | | | $ | 385,938 | | | $ | 159,763 | | | $ | 8,621 | |
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Derivatives Not Designated as Hedging Instruments
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, the net losses we recognized during the three months ended March 31, 2022 were not material and we recognized net gains of $12.4 million during the three months ended March 31, 2021. The fair value of foreign exchange forward contracts outstanding was $8.4 million as of March 31, 2022 and was not material as of December 31, 2021.
The following tables present the gross notional value of all our foreign exchange forward contracts outstanding as of March 31, 2022 and December 31, 2021 (in thousands):
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| March 31, 2022 |
| Local Currency Amount | | Notional Contract Amount (USD) |
Euro | €189,795 | | $ | 210,031 | |
Chinese Yuan | ¥520,500 | | 81,862 | |
Polish Zloty | PLN324,500 | | 77,086 | |
Canadian Dollar | C$96,000 | | 76,733 | |
Brazilian Real | R$323,700 | | 67,665 | |
Japanese Yen | ¥5,666,200 | | 46,621 | |
British Pound | £32,275 | | 42,394 | |
Russian Ruble | ₽3,700,000 | | 35,885 | |
Swiss Franc | CHF17,270 | | 18,692 | |
Israeli Shekel | ILS54,210 | | 17,085 | |
Mexican Peso | M$281,560 | | 14,127 | |
Australian Dollar | A$5,000 | | 3,748 | |
| | | $ | 691,929 | |
| | | | | | | | | | | |
| December 31, 2021 |
| Local Currency Amount | | Notional Contract Amount (USD) |
Euro | €165,110 | | $ | 186,358 | |
Canadian Dollar | C$99,800 | | 78,018 | |
Chinese Yuan | ¥494,500 | | 77,358 | |
Polish Zloty | PLN219,800 | | 54,014 | |
Brazilian Real | R$286,500 | | 50,894 | |
Japanese Yen | ¥5,548,700 | | 48,206 | |
British Pound | £34,740 | | 46,881 | |
Israeli Shekel | ILS54,110 | | 17,416 | |
Mexican Peso | M$311,500 | | 15,133 | |
Swiss Franc | CHF9,950 | | 10,883 | |
Australian Dollar | A$6,900 | | 5,009 | |
| | | $ | 590,170 | |
Note 3. Balance Sheet Components
Inventories consist of the following (in thousands):
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| | March 31, 2022 | | December 31, 2021 |
Raw materials | | $ | 133,808 | | | $ | 123,234 | |
Work in process | | 79,495 | | | 51,706 | |
Finished goods | | 62,366 | | | 55,290 | |
Total inventories | | $ | 275,669 | | | $ | 230,230 | |
Prepaid expenses and other current assets consist of the following (in thousands):
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| | March 31, 2022 | | December 31, 2021 |
Value added tax receivables | | $ | 134,941 | | | $ | 93,610 | |
Prepaid expenses | | 74,069 | | | 70,218 | |
Other current assets | | 32,329 | | | 31,477 | |
Total prepaid expenses and other current assets | | $ | 241,339 | | | $ | 195,305 | |
Accrued liabilities consist of the following (in thousands):
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| | March 31, 2022 | | December 31, 2021 |
Accrued payroll and benefits | | $ | 156,272 | | | $ | 288,355 | |
Accrued expenses | | 66,211 | | | 67,169 | |
Accrued income taxes | | 45,646 | | | 33,838 | |
Accrued sales and marketing expenses | | 41,221 | | | 41,387 | |
Accrued professional fees | | 36,340 | | | 31,457 | |
Accrued property, plant and equipment | | 25,296 | | | 46,561 | |
Current operating lease liabilities | | 25,243 | | | 22,719 | |
Other accrued liabilities | | 68,842 | | | 75,829 | |
Total accrued liabilities | | $ | 465,071 | | | $ | 607,315 | |
Accrued warranty, which is included in the "Other accrued liabilities" category of the accrued liabilities table above, consists of the following activity (in thousands):
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2022 | | 2021 |
Balance at beginning of period | | $ | 16,169 | | | $ | 12,615 | |
Charged to cost of net revenues | | 3,536 | | | 4,280 | |
Actual warranty expenditures | | (3,612) | | | (3,160) | |
Balance at end of period | | $ | 16,093 | | | $ | 13,735 | |
Deferred revenues consist of the following (in thousands):
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| | March 31, 2022 | | December 31, 2021 |
Deferred revenues - current | | $ | 1,212,067 | | | $ | 1,152,870 | |
Deferred revenues - long-term 1 | | $ | 146,998 | | | $ | 136,684 | |
1 Included in Other long-term liabilities within our Condensed Consolidated Balance Sheet
During the three months ended March 31, 2022 and 2021, we recognized $973.2 million and $894.8 million of net revenues, respectively, of which $184.9 million and $125.8 million was included in the deferred revenues balance at December 31, 2021 and 2020, respectively.
Our unfulfilled performance obligations, including deferred revenues and backlog, as of March 31, 2022 were $1,385.4 million. These performance obligations are expected to be fulfilled over six months to five years.
Note 4. Goodwill and Intangible Assets
Goodwill
The change in the carrying value of goodwill for the three months ended March 31, 2022, categorized by reportable segments, is as follows (in thousands):
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| Clear Aligner | | Systems and Services | | Total |
Balance as of December 31, 2021 | $ | 112,208 | | | $ | 306,339 | | | $ | 418,547 | |
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Foreign currency translation adjustments | (642) | | | (5,940) | | | (6,582) | |
Balance as of March 31, 2022 | $ | 111,566 | | | $ | 300,399 | | | $ | 411,965 | |
Intangible Long-Lived Assets