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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)
____________________________ 
Delaware94-3267295
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par valueALGNThe 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 filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No 
The number of shares outstanding of the registrant’s Common Stock, $0.0001 par value, as of July 28, 2023 was 76,533,704.
1

Table of Contents


ALIGN TECHNOLOGY, INC.
TABLE OF CONTENTS
 
PART I
Item 1.
Item 2.
Item 3.
Item 4.
PART II
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

Invisalign, Align, the Invisalign logo, ClinCheck, Invisalign Assist, Invisalign Teen, Invisalign Go, Vivera, SmartForce, SmartTrack, SmartStage, SmileView, iTero, iTero Element, Orthocad, iCast, iRecord and exocad, among others, are trademarks and/or service marks of Align Technology, Inc. or one of its subsidiaries or affiliated companies and may be registered in the United States and/or other countries.
2

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1.        Financial Statements.

ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

Three Months Ended
June 30,
Six Months Ended
June 30,
 2023202220232022
Net revenues$1,002,173 $969,553 $1,945,320 $1,942,772 
Cost of net revenues288,564 281,994 571,057 545,867 
Gross profit713,609 687,559 1,374,263 1,396,905 
Operating expenses:
Selling, general and administrative453,193 426,398 892,884 865,855 
Research and development88,485 72,965 175,932 144,772 
Total operating expenses541,678 499,363 1,068,816 1,010,627 
Income from operations171,931 188,196 305,447 386,278 
Interest income and other income (expense), net:
Interest income4,421 245 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 taxes171,589 173,609 306,213 361,095 
Provision for income taxes59,775 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.
3

Table of Contents

ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
Three Months Ended
June 30,
Six Months Ended
June 30,
 2023202220232022
Net income$111,814 $112,800 $199,612 $247,098 
Other comprehensive income (loss):
Change in foreign currency translation adjustment, net of tax9,158 (13,756)19,632 (21,067)
Change in unrealized gains (losses) on investments, net of tax350 (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.
4

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-term55,805 57,534 
Accounts receivable, net of allowance for doubtful accounts of $13,244 and $10,343, respectively
908,395 859,685 
Inventories312,736 338,752 
Prepaid expenses and other current assets236,564 226,370 
Total current assets2,465,456 2,424,391 
Marketable securities, long-term26,023 41,978 
Property, plant and equipment, net1,279,042 1,231,855 
Operating lease right-of-use assets, net125,881 118,880 
Goodwill414,765 407,551 
Intangible assets, net89,296 95,720 
Deferred tax assets1,605,926 1,571,746 
Other assets138,161 55,826 
Total assets$6,144,550 $5,947,947 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$110,155 $127,870 
Accrued liabilities600,163 454,374 
Deferred revenues 1,396,747 1,343,643 
Total current liabilities2,107,065 1,925,887 
Income tax payable113,309 124,393 
Operating lease liabilities104,650 100,334 
Other long-term liabilities181,225 195,975 
Total liabilities2,506,249 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 capital1,141,623 1,044,946 
Accumulated other comprehensive income (loss), net11,343 (10,284)
Retained earnings2,485,327 2,566,688 
Total stockholders’ equity3,638,301 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.
5

Table of Contents

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

Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss), NetRetained EarningsTotal
Three Months Ended June 30, 2023SharesAmount
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 plans16 — — — — — 
Tax withholdings related to net share settlements of equity awards— — (930)— — (930)
Stock-based compensation— — 37,860 — 37,860 
Balance as of June 30, 202376,532 $8 $1,141,623 $11,343 $2,485,327 $3,638,301 


Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss), NetRetained EarningsTotal
Six Months Ended June 30, 2023SharesAmount
Balance as of December 31, 202277,267 $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 plans207 — 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, 202376,532 $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)
6

Table of Contents


Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss), NetRetained EarningsTotal
Three Months Ended June 30, 2022SharesAmount
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 plans11 —  — —  
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, 202278,059 $8 $1,016,882 $(19,770)$2,601,961 $3,599,081 


Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss), NetRetained EarningsTotal
Six Months Ended June 30, 2022SharesAmount
Balance as of December 31, 202178,710 $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 plans250 — 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, 202278,059 $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,
 20232022
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 amortization71,639 59,907 
Stock-based compensation75,595 65,761 
Non-cash operating lease cost15,531 15,075 
Other non-cash operating activities21,860 16,172 
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable(73,680)(53,462)
Inventories19,064 (91,060)
Prepaid expenses and other assets(16,799)(14,219)
Accounts payable(10,351)(23,944)
Accrued and other long-term liabilities140,284 (212,896)
Long-term income tax payable(11,113)(1,657)
Deferred revenues56,718 136,021 
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 securities17,601 21,690 
Proceeds from sales of marketable securities4,048 92,235 
Purchase of equity investments(75,000) 
Other investing activities74 (2,189)
Net cash used in investing activities(178,314)(72,078)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock14,256 14,827 
Common stock repurchases(292,360)(275,036)
Payments for equity forward contracts related to accelerated share repurchase agreements40,000  
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 cash9,943 (221,953)
Cash, cash equivalents, and restricted cash at beginning of the period942,355 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, 2023Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair ValueCash and Cash EquivalentsMarketable securities, short-termMarketable securities, long-term
Cash$759,407 $— $— $759,407 $759,407 $— $— 
Money market funds192,549 — — 192,549 192,549 — — 
Corporate bonds59,703  (1,740)57,963 — 39,145 18,818 
U.S. government treasury bonds
14,054  (325)13,729 — 9,096 4,633 
Asset-backed securities3,600  (13)3,587 — 2,012 1,575 
Municipal bonds1,437  (18)1,419 — 1,419  
U.S. government agency bonds5,214  (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, 2022Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair ValueCash and Cash EquivalentsMarketable securities, short-termMarketable securities, long-term
Cash$712,921 $— $— $712,921 $712,921 $— $— 
Money market funds229,129 —  229,129 229,129 — — 
Corporate bonds69,390  (2,915)66,475  36,510 29,965 
U.S. government treasury bonds
20,559  (549)20,010 — 15,404 4,606 
Asset-backed securities4,514 1 (37)4,478 — 2,909 1,569 
Municipal bonds3,447  (61)3,386  2,711 675 
U.S. government agency bonds5,231 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, 2023December 31, 2022
Due in 1 year or less $50,644 $51,037 
Due in 1 year through 5 years31,184 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 months12 Months of GreaterTotal
June 30, 2023Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized 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 securities2,565 (5)1,022 (8)3,587 (13)
Municipal bonds  685 (18)685 (18)
U.S. government agency bonds3,980 (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 months12 Months of GreaterTotal
December 31, 2022Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized 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 securities2,636 (17)1,275 (20)3,911 (37)
Municipal bonds  2,412 (61)2,412 (61)
U.S. government agency bonds3,017 (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):
DescriptionBalance 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 bonds4,133  4,133 
U.S. government treasury bonds9,096 9,096  
Corporate bonds39,145  39,145 
Municipal bonds1,419  1,419 
Asset-backed securities2,012  2,012 
Long-term investments:
U.S. government treasury bonds4,633 4,633  
Corporate bonds18,818  18,818 
U.S. government agency bonds997  997 
Asset-backed securities1,575  1,575 
$274,377 $206,278 $68,099 

DescriptionBalance as of December 31, 2022Level 1Level 2
Cash equivalents:
Money market funds$229,129 $229,129 $ 
Short-term investments:
U.S. government treasury bonds15,404 15,404  
Corporate bonds36,510  36,510 
Municipal bonds2,711  2,711 
Asset-backed securities2,909  2,909 
Long-term investments:
U.S. government treasury bonds
4,606 4,606  
Corporate bonds29,965  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 AmountNotional Contract Amount (USD)
Euro218,700$238,786 
Canadian DollarC$106,00079,959 
Polish ZlotyPLN279,70068,452 
Chinese Yuan¥408,00056,266 
British Pound£43,90055,704 
Japanese Yen¥5,340,00037,136 
Swiss FrancCHF30,00033,526 
Brazilian RealR$143,30029,532 
Mexican PesoM$230,00013,491 
Israeli ShekelILS49,38013,300 
New Zealand DollarNZ$9,9006,046 
Czech Koruna60,0002,750 
New Taiwan DollarNT$82,0002,629 
Australian DollarA$3,460$2,302 
Korean Won1,800,0001,365 
$641,244 

December 31, 2022
Local Currency AmountNotional Contract Amount (USD)
Euro186,900$200,010 
Polish ZlotyPLN365,98883,307 
Canadian DollarC$109,00080,514 
Chinese Yuan¥471,00068,223 
British Pound£41,20049,677 
Japanese Yen¥6,200,00047,196 
Israeli ShekelILS110,03031,383 
Swiss FrancCHF25,00027,165 
Brazilian RealR$141,20026,839 
Mexican PesoM$230,000 11,746 
New Zealand DollarNZ$6,0003,806 
Australian DollarA$4,0002,721 
Czech Koruna56,0002,469 
New Taiwan DollarNT$60,0001,959 
$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 process100,468 96,558 
Finished goods63,475 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 expenses76,608 69,124 
Other current assets22,708 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 taxes147,618 74,323 
Accrued expenses63,004 64,341 
Accrued sales and marketing expenses43,628 36,407 
Current operating lease liabilities28,770 26,574 
Accrued property, plant and equipment11,992 19,922 
Other accrued liabilities93,262 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,
 20232022
Balance at beginning of period$17,873 $16,169 
Charged to cost of net revenues9,421 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 AlignerSystems and ServicesTotal
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 technology10$112,051 $(39,434)$(4,328)$68,289 
Customer relationships1021,500 (6,988) 14,512 
Trademarks and tradenames1017,200 (7,361)(4,122)5,717 
Patents 86,511 (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 technology10$112,051 $(33,537)$(4,328)$74,186 
Customer relationships1021,500 (5,913) 15,587 
Trademarks and tradenames1017,200 (6,442)(4,122)6,636 
Patents86,511 (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 
202415,335 
202514,959 
202614,353 
202711,992 
Thereafter24,492 
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 Agreements 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 SDCs motion to re-open. On March 6, 2023, Align filed a petition to confirm the arbitrators 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 SDCs second counterclaim, finding that Align did not breach the Supply Agreement. The final award subsumed the interim award on our claims and SDCs 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,
 2023202220232022
Cost of net revenues$1,901 $1,614 $3,708 $3,128 
Selling, general and administrative29,002 26,491 57,693 51,216 
Research and development6,957 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: