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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________ 

FORM 10-Q

____________________________ 

(Mark One)

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

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 85288

(Address of principal executive offices, including zip code)

(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 July 28, 2023 was 76,533,704.

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Table of Contents

ALIGN TECHNOLOGY, INC.

TABLE OF CONTENTS

 

PART I			FINANCIAL INFORMATION			3
Item 1.			Financial Statements (Unaudited):			3
			Condensed Consolidated Statements of Operations			3
			Condensed Consolidated Statements of Comprehensive Income			4
			Condensed Consolidated Balance Sheets			5
			Condensed Consolidated Statements of Stockholders’ Equity			6
			Condensed Consolidated Statements of Cash Flows			8
			Notes to Condensed Consolidated Financial Statements			9
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			35
Item 4.			Controls and Procedures			36
PART II			OTHER INFORMATION			37
Item 1.			Legal Proceedings			37
Item 1A.			Risk Factors			37
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			54
Item 3.			Defaults Upon Senior Securities			54
Item 4.			Mine Safety Disclosures			54
Item 5.			Other Information			54
Item 6.			Exhibits			55
Signatures						56

Invisalign, Align, the Invisalign logo, ClinCheck, 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

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Table of Contents

PART I—FINANCIAL INFORMATION

Item 1.        Financial Statements.

ALIGN TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

						Three Months Ended June 30,												Six Months Ended June 30,
						2023						2022						2023						2022
Net revenues						$	1,002,173					$	969,553					$	1,945,320					$	1,942,772
Cost of net revenues						288,564						281,994						571,057						545,867
Gross profit						713,609						687,559						1,374,263						1,396,905
Operating expenses:
Selling, general and administrative						453,193						426,398						892,884						865,855
Research and development						88,485						72,965						175,932						144,772
Total operating expenses						541,678						499,363						1,068,816						1,010,627
Income from operations						171,931						188,196						305,447						386,278
Interest income and other income (expense), net:
Interest income						4,421						245						6,758						922
Other income (expense), net						(4,763)						(14,832)						(5,992)						(26,105)
Total interest income and other income (expense), net						(342)						(14,587)						766						(25,183)
Net income before provision for income taxes						171,589						173,609						306,213						361,095
Provision for income taxes						59,775						60,809						106,601						113,997
Net income						$	111,814					$	112,800					$	199,612					$	247,098
Net income per share:
Basic						$	1.46					$	1.44					$	2.60					$	3.15
Diluted						$	1.46					$	1.44					$	2.60					$	3.13
Shares used in computing net income per share:
Basic						76,524						78,395						76,722						78,568
Diluted						76,689						78,545						76,897						78,840

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

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Table of Contents

ALIGN TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

						Three Months Ended June 30,												Six Months Ended June 30,
						2023						2022						2023						2022
Net income						$	111,814					$	112,800					$	199,612					$	247,098
Other comprehensive income (loss):
Change in foreign currency translation adjustment, net of tax						9,158						(13,756)						19,632						(21,067)
Change in unrealized gains (losses) on investments, net of tax						350						(301)						1,995						(3,029)
Other comprehensive income (loss)						9,508						(14,057)						21,627						(24,096)
Comprehensive income						$	121,322					$	98,743					$	221,239					$	223,002

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

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Table of Contents

ALIGN TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

						June 30, 2023						December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents						$	951,956					$	942,050
Marketable securities, short-term						55,805						57,534
Accounts receivable, net of allowance for doubtful accounts of $13,244 and $10,343, respectively						908,395						859,685
Inventories						312,736						338,752
Prepaid expenses and other current assets						236,564						226,370
Total current assets						2,465,456						2,424,391
Marketable securities, long-term						26,023						41,978
Property, plant and equipment, net						1,279,042						1,231,855
Operating lease right-of-use assets, net						125,881						118,880
Goodwill						414,765						407,551
Intangible assets, net						89,296						95,720
Deferred tax assets						1,605,926						1,571,746
Other assets						138,161						55,826
Total assets						$	6,144,550					$	5,947,947
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable						$	110,155					$	127,870
Accrued liabilities						600,163						454,374
Deferred revenues						1,396,747						1,343,643
Total current liabilities						2,107,065						1,925,887
Income tax payable						113,309						124,393
Operating lease liabilities						104,650						100,334
Other long-term liabilities						181,225						195,975
Total liabilities						2,506,249						2,346,589
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; 76,532 and 77,267 issued and outstanding, respectively)						8						8
Additional paid-in capital						1,141,623						1,044,946
Accumulated other comprehensive income (loss), net						11,343						(10,284)
Retained earnings						2,485,327						2,566,688
Total stockholders’ equity						3,638,301						3,601,358
Total liabilities and stockholders’ equity						$	6,144,550					$	5,947,947

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

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Table of Contents

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 June 30, 2023						Shares						Amount
Balance as of March 31, 2023						76,516						$	8					$	1,104,693					$	1,835					$	2,373,513					$	3,480,049
Net income						—						—						—						—						111,814						111,814
Net change in unrealized gains (losses) from investments						—						—						—						350						—						350
Net change in foreign currency translation adjustment						—						—						—						9,158						—						9,158
Issuance of common stock relating to employee equity compensation plans						16						—						—						—						—						—
Tax withholdings related to net share settlements of equity awards						—						—						(930)						—						—						(930)
Stock-based compensation						—						—						37,860												—						37,860
Balance as of June 30, 2023						76,532						$	8					$	1,141,623					$	11,343					$	2,485,327					$	3,638,301

						Common Stock												Additional Paid-In Capital						Accumulated Other Comprehensive Income (Loss), Net						Retained Earnings						Total
Six Months Ended June 30, 2023						Shares						Amount
Balance as of December 31, 2022						77,267						$	8					$	1,044,946					$	(10,284)					$	2,566,688					$	3,601,358
Net income						—						—						—						—						199,612						199,612
Net change in unrealized gains (losses) from investments						—						—						—						1,995						—						1,995
Net change in foreign currency translation adjustment						—						—						—						19,632						—						19,632
Issuance of common stock relating to employee equity compensation plans						207						—						14,256						—						—						14,256
Tax withholdings related to net share settlements of equity awards						—						—						(21,787)						—						—						(21,787)
Common stock repurchased and retired						(942)						—						(11,387)						—						(280,973)						(292,360)
Equity forward contract related to accelerated stock repurchase						—						—						40,000						—						—						40,000
Stock-based compensation						—						—						75,595						—						—						75,595
Balance as of June 30, 2023						76,532						$	8					$	1,141,623					$	11,343					$	2,485,327					$	3,638,301

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)

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						Common Stock												Additional Paid-In Capital						Accumulated Other Comprehensive Income (Loss), Net						Retained Earnings						Total
Three Months Ended June 30, 2022						Shares						Amount
Balance as of March 31, 2022						78,805						$	8					$	992,287					$	(5,713)					$	2,680,270					$	3,666,852
Net income						—						—						—						—						112,800						112,800
Net change in unrealized gains (losses) from investments						—						—						—						(301)						—						(301)
Net change in foreign currency translation adjustment						—						—						—						(13,756)						—						(13,756)
Issuance of common stock relating to employee equity compensation plans						11						—						—						—						—						—
Tax withholdings related to net share settlements of equity awards						—						—						(654)						—						—						(654)
Common stock repurchased and retired						(757)						—						(8,891)						—						(191,109)						(200,000)
Stock-based compensation						—						—						34,140												—						34,140
Balance as of June 30, 2022						78,059						$	8					$	1,016,882					$	(19,770)					$	2,601,961					$	3,599,081

						Common Stock												Additional Paid-In Capital						Accumulated Other Comprehensive Income (Loss), Net						Retained Earnings						Total
Six Months Ended June 30, 2022						Shares						Amount
Balance as of December 31, 2021						78,710						$	8					$	999,006					$	4,326					$	2,619,374					$	3,622,714
Net income						—						—						—						—						247,098						247,098
Net change in unrealized gains (losses) from investments						—						—						—						(3,029)						—						(3,029)
Net change in foreign currency translation adjustment						—						—						—						(21,067)						—						(21,067)
Issuance of common stock relating to employee equity compensation plans						250						—						14,827						—						—						14,827
Tax withholdings related to net share settlements of equity awards						—						—						(52,187)						—						—						(52,187)
Common stock repurchased and retired						(901)						—						(10,525)						—						(264,511)						(275,036)
Stock-based compensation						—						—						65,761						—						—						65,761
Balance as of June 30, 2022						78,059						$	8					$	1,016,882					$	(19,770)					$	2,601,961					$	3,599,081

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

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ALIGN TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

						Six Months Ended June 30,
						2023						2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income						$	199,612					$	247,098
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes						(36,688)						14,747
Depreciation and amortization						71,639						59,907
Stock-based compensation						75,595						65,761
Non-cash operating lease cost						15,531						15,075
Other non-cash operating activities						21,860						16,172
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable						(73,680)						(53,462)
Inventories						19,064						(91,060)
Prepaid expenses and other assets						(16,799)						(14,219)
Accounts payable						(10,351)						(23,944)
Accrued and other long-term liabilities						140,284						(212,896)
Long-term income tax payable						(11,113)						(1,657)
Deferred revenues						56,718						136,021
Net cash provided by operating activities						451,672						157,543
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment						(122,664)						(163,348)
Purchase of marketable securities						(2,373)						(20,466)
Proceeds from maturities of marketable securities						17,601						21,690
Proceeds from sales of marketable securities						4,048						92,235
Purchase of equity investments						(75,000)						—
Other investing activities						74						(2,189)
Net cash used in investing activities						(178,314)						(72,078)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock						14,256						14,827
Common stock repurchases						(292,360)						(275,036)
Payments for equity forward contracts related to accelerated share repurchase agreements						40,000						—
Payroll taxes paid upon the vesting of equity awards						(21,788)						(52,187)
Net cash used in financing activities						(259,892)						(312,396)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash						(3,523)						4,978
Net increase (decrease) in cash, cash equivalents, and restricted cash						9,943						(221,953)
Cash, cash equivalents, and restricted cash at beginning of the period						942,355						1,100,139
Cash, cash equivalents, and restricted cash at end of the period						$	952,298					$	878,186

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, 2022, and contain all adjustments, including normal recurring adjustments, necessary to 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, 2022. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 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, 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

Our business has been materially impacted by fluctuations in macroeconomic conditions, which have been exacerbated by ongoing geopolitical issues. While the situation is highly uncertain and evolving, we have been and continue to be impacted by factors such as inflation, supply chain challenges, rising interest rates, volatilities in the financial markets, foreign currency exchange rate fluctuations, impacts on consumer confidence and purchasing power, and global recession concerns which could further subject our business to materially adverse consequences should any portion of its impacts become prolonged or escalate beyond its current scope. Additionally, we could also be materially adversely affected by 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.

While the overall impact of the COVID-19 pandemic is gradually declining, we continue to be exposed to risks and uncertainties posed by it which varies by geographic region at different levels. The extent to which our business could be impacted in the future by the pandemic is highly uncertain and difficult to predict.

Recent Accounting Pronouncements

(i) Recent Accounting Pronouncements Not Yet Effective

We continue to monitor new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) and do not believe any of the recently issued accounting pronouncements will have a material 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 June 30, 2023 and December 31, 2022 (in thousands):

																														Reported as:
June 30, 2023						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value						Cash and Cash Equivalents						Marketable securities, short-term						Marketable securities, long-term
Cash						$	759,407					$	—					$	—					$	759,407					$	759,407					$	—					$	—
Money market funds						192,549						—						—						192,549						192,549						—						—
Corporate bonds						59,703						—						(1,740)						57,963						—						39,145						18,818
U.S. government treasury bonds						14,054						—						(325)						13,729						—						9,096						4,633
Asset-backed securities						3,600						—						(13)						3,587						—						2,012						1,575
Municipal bonds						1,437						—						(18)						1,419						—						1,419						—
U.S. government agency bonds						5,214						—						(84)						5,130						—						4,133						997
Total						$	1,035,964					$	—					$	(2,180)					$	1,033,784					$	951,956					$	55,805					$	26,023

																														Reported as:
December 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						$	712,921					$	—					$	—					$	712,921					$	712,921					$	—					$	—
Money market funds						229,129						—						—						229,129						229,129						—						—
Corporate bonds						69,390						—						(2,915)						66,475						—						36,510						29,965
U.S. government treasury bonds						20,559						—						(549)						20,010						—						15,404						4,606
Asset-backed securities						4,514						1						(37)						4,478						—						2,909						1,569
Municipal bonds						3,447						—						(61)						3,386						—						2,711						675
U.S. government agency bonds						5,231						1						(69)						5,163						—						—						5,163
Total						$	1,045,191					$	2					$	(3,631)					$	1,041,562					$	942,050					$	57,534					$	41,978

The following table summarizes the fair value of our available-for-sale marketable securities classified by contractual maturity as of June 30, 2023 and December 31, 2022 (in thousands):

						June 30, 2023						December 31, 2022
Due in 1 year or less						$	50,644					$	51,037
Due in 1 year through 5 years						31,184						48,475
Total						$	81,828					$	99,512

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 June 30, 2023 and December 31, 2022 are primarily due to changes in interest rates and credit spreads.

The following tables summarize the gross unrealized losses as of June 30, 2023 and December 31, 2022, aggregated by investment category and length of time that individual securities have been in a continuous loss position (in thousands):

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						As of June 30, 2023
						Less than 12 months												12 Months of Greater												Total
June 30, 2023						Fair Value						Unrealized Loss						Fair Value						Unrealized Loss									Fair Value						Unrealized Loss
Corporate bonds						$	1,514					$	(15)					$	56,155					$	(1,725)								$	57,669					$	(1,740)
U.S. government treasury bonds						1,986						(32)						11,743						(293)									13,729						(325)
Asset-backed securities						2,565						(5)						1,022						(8)									3,587						(13)
Municipal bonds						—						—						685						(18)									685						(18)
U.S. government agency bonds						3,980						(33)						1,150						(51)									5,130						(84)
Total						$	10,045					$	(85)					$	70,755					$	(2,095)								$	80,800					$	(2,180)

						As of December 31, 2022
						Less than 12 months												12 Months of Greater												Total
December 31, 2022						Fair Value						Unrealized Loss						Fair Value						Unrealized Loss									Fair Value						Unrealized Loss
Corporate bonds						$	10,639					$	(440)					$	54,634					$	(2,475)								$	65,273					$	(2,915)
U.S. government treasury bonds						5,262						(177)						14,748						(372)									20,010						(549)
Asset-backed securities						2,636						(17)						1,275						(20)									3,911						(37)
Municipal bonds						—						—						2,412						(61)									2,412						(61)
U.S. government agency bonds						3,017						(5)						1,136						(64)									4,153						(69)
Total						$	21,554					$	(639)					$	74,205					$	(2,992)								$	95,759					$	(3,631)

Accounts Receivable Factoring

We enter into factoring transactions on a non-recourse basis with financial institutions to sell certain of our non-U.S. accounts receivable. We account for these transactions as sales of accounts receivables and include the cash proceeds as a part of our cash flows from operations in the Condensed Consolidated Statements of Cash Flows. Total accounts receivable sold under the factoring arrangements was $8.2 million during the three months and $16.2 million for the six months ended June 30, 2023. Factoring fees on the sales of receivables were recorded in other income (expense), net in our Condensed Consolidated Statement of Operations and were not material.

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.

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The following tables summarize our financial assets measured at fair value as of June 30, 2023 and December 31, 2022 (in thousands):

Description						Balance as of June 30, 2023						Level 1						Level 2
Cash equivalents:
Money market funds						$	192,549					$	192,549					$	—
Short-term investments:
U.S. government agency bonds						4,133						—						4,133
U.S. government treasury bonds						9,096						9,096						—
Corporate bonds						39,145						—						39,145
Municipal bonds						1,419						—						1,419
Asset-backed securities						2,012						—						2,012
Long-term investments:
U.S. government treasury bonds						4,633						4,633						—
Corporate bonds						18,818						—						18,818
U.S. government agency bonds						997						—						997
Asset-backed securities						1,575						—						1,575
						$	274,377					$	206,278					$	68,099

Description						Balance as of December 31, 2022						Level 1						Level 2
Cash equivalents:
Money market funds						$	229,129					$	229,129					$	—
Short-term investments:
U.S. government treasury bonds						15,404						15,404						—
Corporate bonds						36,510						—						36,510
Municipal bonds						2,711						—						2,711
Asset-backed securities						2,909						—						2,909
Long-term investments:
U.S. government treasury bonds						4,606						4,606						—
Corporate bonds						29,965						—						29,965
Municipal bonds						675						—						675
U.S. government agency bonds						5,163						—						5,163
Asset-backed securities						1,569						—						1,569
						$	328,641					$	249,139					$	79,502

Investments in Privately Held Companies

Our investments in privately held companies in which we cannot exercise significant influence and do not own a majority equity interest or otherwise control are accounted for under the measurement alternative. Under the measurement alternative, the carrying value of our equity investment is adjusted to fair value for observable transactions for identical or similar investments of the same issuer. Investments in equity securities are reported on our Consolidated Balance Sheet as other assets, and we periodically evaluate them for impairment. We record any change in carrying value of our equity securities, in other income (expense), net in our Consolidated Statement of Operations. The carrying value of our equity investments in privately held companies without readily determinable fair values were not material, excluding Heartland, as of June 30, 2023 or 2022 and the associated adjustments to the carrying values of the investments were not material during the quarters ended June 30, 2023 and 2022.

On April 24, 2023, we entered into a Subscription Agreement (the "Subscription Agreement") with Heartland Dental Holding Corporation (“Heartland”) who is an affiliate of KKR Core Holding Company LLC, which is an investment vehicle

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managed or advised by, or otherwise affiliated with, Kohlberg Kravis Roberts & Co. L.P. (“KKR”). Heartland is a dental support organization (“DSO”) that provides nonclinical administrative and support services to supported dental professional corporations (“PCs”). Pursuant to the Subscription Agreement we acquired less than a 5% equity interest and have no significant influence in Heartland through the purchase of Class A Common Stock for $75 million. In connection with the Subscription Agreement, we entered into a Stockholders’ Agreement, by and among us, Heartland Dental Topco, LLC (“Topco”) and funds and accounts managed by affiliates of KKR & Co. Inc. (“KKR”), and a Side Letter, by and among us, Heartland, Topco and KKR (the "Side Letter"). Subject to certain restrictions set forth in the Side Letter, we agreed to provisions applicable to Heartland’s stockholders, including certain drag-along and voting obligations.

Similar to our other private equity investments Heartland is accounted for under the measurement alternative. Based on review of our equity investment, we determined there were no adjustments to the carrying value and it is properly reflected on our Consolidated Balance Sheet in other assets at $75 million as of June 30, 2023.

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, during the three months ended June 30, 2023 and 2022, we recognized net gains of $1.1 million and of $10.8 million, respectively, and during the six months ended June 30, 2023 and 2022, we recognized a net loss of $5.3 million and a net gain of $9.2 million, respectively. As of June 30, 2023 and December 31, 2022, the fair value of foreign exchange forward contracts outstanding was not material.

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The following tables present the gross notional value of all our foreign exchange forward contracts outstanding as of June 30, 2023 and December 31, 2022 (in thousands):

			June 30, 2023
			Local Currency Amount						Notional Contract Amount (USD)
Euro			€218,700						$	238,786
Canadian Dollar			C$106,000						79,959
Polish Zloty			PLN279,700						68,452
Chinese Yuan			¥408,000						56,266
British Pound			£43,900						55,704
Japanese Yen			¥5,340,000						37,136
Swiss Franc			CHF30,000						33,526
Brazilian Real			R$143,300						29,532
Mexican Peso			M$230,000						13,491
Israeli Shekel			ILS49,380						13,300
New Zealand Dollar			NZ$9,900						6,046
Czech Koruna			Kč60,000						2,750
New Taiwan Dollar			NT$82,000						2,629
Australian Dollar			A$3,460						$	2,302
Korean Won			₩1,800,000						1,365
									$	641,244

			December 31, 2022
			Local Currency Amount						Notional Contract Amount (USD)
Euro			€186,900						$	200,010
Polish Zloty			PLN365,988						83,307
Canadian Dollar			C$109,000						80,514
Chinese Yuan			¥471,000						68,223
British Pound			£41,200						49,677
Japanese Yen			¥6,200,000						47,196
Israeli Shekel			ILS110,030						31,383
Swiss Franc			CHF25,000						27,165
Brazilian Real			R$141,200						26,839
Mexican Peso			M$230,000						11,746
New Zealand Dollar			NZ$6,000						3,806
Australian Dollar			A$4,000						2,721
Czech Koruna			Kč56,000						2,469
New Taiwan Dollar			NT$60,000						1,959
									$	637,015

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Note 3. Balance Sheet Components

Inventories consist of the following (in thousands):

						June 30, 2023						December 31, 2022
Raw materials						$	148,793					$	172,758
Work in process						100,468						96,558
Finished goods						63,475						69,436
Total inventories						$	312,736					$	338,752

Prepaid expenses and other current assets consist of the following (in thousands):

						June 30, 2023						December 31, 2022
Value added tax receivables						$	137,248					$	140,484
Prepaid expenses						76,608						69,124
Other current assets						22,708						16,762
Total prepaid expenses and other current assets						$	236,564					$	226,370

Accrued liabilities consist of the following (in thousands): 

						June 30, 2023						December 31, 2022
Accrued payroll and benefits						$	211,889					$	149,508
Accrued income taxes						147,618						74,323
Accrued expenses						63,004						64,341
Accrued sales and marketing expenses						43,628						36,407
Current operating lease liabilities						28,770						26,574
Accrued property, plant and equipment						11,992						19,922
Other accrued liabilities						93,262						83,299
Total accrued liabilities						$	600,163					$	454,374

Accrued warranty, which is included in the "Other accrued liabilities" category of the accrued liabilities table above, consists of the following activity (in thousands):

						Six Months Ended June 30,
						2023						2022
Balance at beginning of period						$	17,873					$	16,169
Charged to cost of net revenues						9,421						7,660
Actual warranty expenditures						(6,797)						(7,334)
Balance at end of period						$	20,497					$	16,495

Deferred revenues consist of the following (in thousands):

						June 30, 2023						December 31, 2022
Deferred revenues - current						$	1,396,747					$	1,343,643
Deferred revenues - long-term 1						$	148,277					$	160,662

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

During the three months ended June 30, 2023 and 2022, we recognized $1,002.2 million and $969.6 million of net revenues, respectively, of which $199.0 million and $178.4 million was included in the deferred revenues balance at December 31, 2022 and 2021, respectively.

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During the six months ended June 30, 2023 and 2022, we recognized $1,945.3 million and $1,942.8 million of net revenues, respectively, of which $404.7 million and $363.3 million was included in the deferred revenues balance at December 31, 2022 and 2021, respectively.

Our unfulfilled performance obligations, including deferred revenues and backlog, as of June 30, 2023 were $1,552.6 million. These performance obligations are expected to be fulfilled over the next six months to five years.

Note 4. Goodwill and Intangible Assets

Goodwill

The change in the carrying value of goodwill for the six months ended June 30, 2023, categorized by reportable segments, is as follows (in thousands):

			Clear Aligner						Systems and Services						Total
Balance as of December 31, 2022			$	109,480					$	298,071					$	407,551
Foreign currency translation adjustments			959						6,255						7,214
Balance as of June 30, 2023			$	110,439					$	304,326					$	414,765

Intangible Long-Lived Assets

Acquired intangible long-lived assets were as follows, excluding intangibles that were fully amortized (in thousands): 

			Weighted Average Amortization Period (in years)						Gross Carrying Amount as of June 30, 2023						Accumulated Amortization						Accumulated Impairment Loss						Net Carrying Value as of June 30, 2023
Existing technology			10						$	112,051					$	(39,434)					$	(4,328)					$	68,289
Customer relationships			10						21,500						(6,988)						—						14,512
Trademarks and tradenames			10						17,200						(7,361)						(4,122)						5,717
Patents			8						6,511						(5,685)						—						826
									$	157,262					$	(59,468)					$	(8,450)					89,344
Foreign currency translation adjustments																											(48)
Total intangible assets, net 1																											$	89,296

1 Also includes $33.5 million of fully amortized intangible assets related to customer relationships.

			Weighted Average Amortization Period (in years)						Gross Carrying Amount as of December 31, 2022						Accumulated Amortization						Accumulated Impairment Loss						Net Carrying Value as of December 31, 2022
Existing technology			10						$	112,051					$	(33,537)					$	(4,328)					$	74,186
Customer relationships			10						21,500						(5,913)						—						15,587
Trademarks and tradenames			10						17,200						(6,442)						(4,122)						6,636
Patents			8						6,511						(5,288)						—						1,223
									$	157,262					$	(51,180)					$	(8,450)					97,632
Foreign currency translation adjustments																											(1,912)
Total intangible assets, net 1																											$	95,720

1 Also includes $33.5 million of fully amortized intangible assets related to customer relationships.

The total estimated annual future amortization expense for these acquired intangible assets as of June 30, 2023 is as follows (in thousands):

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Fiscal Year Ending December 31,						Amortization
Remainder of 2023						$	8,213
2024						15,335
2025						14,959
2026						14,353
2027						11,992
Thereafter						24,492
Total						$	89,344

Amortization expense for the three months ended June 30, 2023 and 2022 was $4.1 million and $3.9 million, respectively, and amortization expense for both the six months ended June 30, 2023 and 2022 was $8.2 million.

Note 5. Credit Facility

We have a credit facility that provides for a $300.0 million unsecured revolving line of credit, along with a $50.0 million letter of credit. On December 23, 2022, we amended certain provisions in our credit facility which included extending the maturity date on the facility to December 23, 2027 and replacing the interest rate from the existing LIBOR with SOFR (“2022 Credit Facility”). The 2022 Credit Facility requires us to comply with specific financial conditions and performance requirements. Loans under the 2022 Credit Facility bear interest, at our option, at either a rate based on the SOFR for the applicable interest period or a base rate, in each case plus a margin. As of June 30, 2023, we had no outstanding borrowings under the 2022 Credit Facility and were in compliance with the conditions and performance requirements in all material respects.

Note 6. Legal Proceedings

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 our behalf, naming as defendants the then current members of our Board of Directors along with certain of our executive officers. 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 our behalf, which is named solely as a nominal defendant against whom no recovery is sought, as well as disgorgement and the costs and expenses associated with the litigation, including attorneys’ fees. The consolidated action is currently stayed. Defendants have not yet responded to the complaints.

On April 12, 2019, a derivative lawsuit was also filed in California Superior Court for Santa Clara County, purportedly on our behalf, 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 is currently stayed. Defendants have not yet responded to the complaint.

We believe these claims are without merit. We are currently unable to predict the outcome of these lawsuits and therefore cannot determine the likelihood of loss 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 our 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 June 29, 2024. We believe the plaintiffs’ claims are without merit and we intend to vigorously defend ourselves.

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 our alleged market activities in alleged clear aligner and intraoral scanner markets based on Section 2 of the Sherman Act. Plaintiff filed an amended complaint on July 30, 2021 adding new plaintiffs and various state law claims.

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Plaintiffs filed a second amended complaint on October 21, 2021. On March 2, 2022, Plaintiffs filed a third amended complaint. On October 3, 2022, Plaintiffs filed a fourth amended complaint. On May 18, 2023, the court granted plaintiffs leave to file a fifth amended complaint. The amended complaints added allegations based on Section 1 of the Sherman Act. A jury trial is scheduled to begin in this matter on June 29, 2024 for issues related to Section 2 allegations. A jury trial is scheduled to begin in this matter on January 21, 2025 for issues related to Section 1 allegations. We believe the plaintiffs’ claims are without merit and we intend to vigorously defend ourselves.

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

SDC Dispute

On August 27, 2020, we initiated a confidential arbitration proceeding against SmileDirectClub LLC (“SDC”) 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 SDC breached the Supply Agreement’s terms, causing damages to us in an amount to be determined. On January 19, 2021, SDC filed a counterclaim alleging that we breached the Supply Agreement. On May 3, 2022, SDC filed an additional counterclaim alleging that we breached the Supply Agreement. We deny SDC's allegations in the counterclaims and we intend to vigorously defend ourselves against them. The arbitration hearing on our claims and SDC’s first counterclaim was held on July 18-27, 2022 in Chicago, Illinois.

On October 27, 2022, the arbitrator issued an interim award on our claims and SDC’s first counterclaim finding that SDC breached the Supply Agreement, we did not breach the Supply Agreement, and SDC caused harm to us. Based on these findings, the arbitrator awarded us an interim award.

On December 2, 2022, SDC filed a motion to re-open the arbitrator’s interim award in Align’s favor. On March 3, 2023, the arbitrator denied SDC’s motion to re-open. On March 6, 2023, Align filed a petition to confirm the arbitrator’s interim award in the Superior Court for Santa Clara County.

The arbitration hearing on SDC’s second counterclaim was held on February 21-23, 2023 in Chicago, Illinois. On May 18, 2023, the arbitrator issued a final award on SDC’s second counterclaim, finding that Align did not breach the Supply Agreement. The final award subsumed the interim award on our claims and SDC’s first counterclaim and concluded the Supply Agreement arbitration proceedings.

On May 30, 2023, Align filed a petition to confirm the final award in the Superior Court of Santa Clara County. Confirmation of the final award may be material to our results in the quarter reported. On June 16, 2023, SDC filed a petition to vacate the final award before the same court. On August 3, 2023, the Superior Court held arguments on Align's petition to confirm and SDC’s petition to vacate the final award in Align’s favor. Depending on how the Superior Court rules on those petitions, we anticipate recognizing the amount ultimately realizable following confirmation of the final award.

In addition to the above, in the ordinary course of our operations, we are 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 our view of these matters may change in the future as litigation and events related thereto unfold; we currently do not believe that these matters, individually or in the aggregate, will materially affect our financial position, results of operations or cash flows.

Note 7. Commitments and Contingencies

Off-Balance Sheet Arrangements

As of June 30, 2023, 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 8 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.

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Indemnification Provisions

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

It is not possible to make a reasonable estimate of the maximum potential amount under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Additionally, we have a limited history of prior indemnification claims and the payments we have made under such agreements have not had a material adverse effect on our results of operations, cash flows or financial position. However, to the extent that valid indemnification claims arise in the future, future payments by us could be significant and could have a material adverse effect on our results of operations or cash flows in a particular period. As of June 30, 2023, we did not have any material indemnification claims that were probable or reasonably possible.

Note 8. Stockholders’ Equity

As of June 30, 2023, the 2005 Incentive Plan, as amended, has a total reserve of 27,783,379 shares of which 2,734,533 shares are available for issuance.

Summary of Stock-Based Compensation Expense

The stock-based compensation related to our stock-based awards and employee stock purchase plan for the three and six months ended June 30, 2023 and 2022 is as follows (in thousands):

						Three Months Ended June 30,												Six Months Ended June 30,
						2023						2022						2023						2022
Cost of net revenues						$	1,901					$	1,614					$	3,708					$	3,128
Selling, general and administrative						29,002						26,491						57,693						51,216
Research and development						6,957						6,035						14,194						11,417
Total stock-based compensation						$	37,860					$	34,140					$	75,595					$	65,761

Restricted Stock Units (“RSUs”)

The fair value of RSUs is based on our closing stock price on the date of grant. RSUs granted generally vest over a period of four years. A summary for the six months ended June 30, 2023 is as follows:

Number of Shares Underlying RSUs (in thousands)

Weighted Average Grant Date Fair Value

Weighted Average Remaining Contractual Term (in years)