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algn-20220331

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


☐			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.

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ALIGN TECHNOLOGY, INC.

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PART I	F INANCIAL INFORMATION	3
Item 1.	F inancial S tatements (U naudited ):	3
	C ondensed C onsolidated S tatements of O p erations	3
	C ondensed C onsolidated S tatements of C omprehensive Income	4
	C ondensed C onsolidated B alance S h eets	5
	C ondensed C onsolidated S tatements of S tockholders ’ E q uity	6
	C ondensed C onsolidated S tatements of C ash F l ows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Q uantitative and Q ualitative D isclosures A bout M arket R isk	34
Item 4.	C ontro ls and P r ocedures	35
PART II	O THER INFORMATION	35
Item 1.	L egal P roceedings	35
Item 1A.	R isk F a ctors	35
Item 2.	U nregistered S ales of E quity S ecurities and U se of P r oceeds	59
Item 3.	D efaults U pon S enior S e curities	59
Item 4.	M ine S afety D i sclosures	59
Item 5.	O ther I n formation	59
Item 6.	E x hibits	60
S i gnatures		61

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.

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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.

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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.

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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.

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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.

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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.

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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”, "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

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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.

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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


									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.

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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	$	—	$	—





Short-term investments:


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

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Description	Balance as of December 31, 2021		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	343,010	$	343,010	$	—	$	—

Corporate bonds	1,042		—		1,042		—
Municipal bonds	516		—		516		—

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		—



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		—


Other assets:
Investments in privately held companies	8,621		—		—		8,621
	$	554,322	$	385,938	$	159,763	$	8,621

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):


	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

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	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):


	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):


	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):


	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):

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	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):


	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):


	Clear Aligner		Systems and Services		Total
Balance as of December 31, 2021	$	112,208	$	306,339	$	418,547

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