~~GP Adoption.~~

We want to enable GPs, who have access to a large patient base, to more easily identify Invisalign cases they can treat, monitor patient progress or, if needed, help refer cases to an orthodontist while providing high-quality restorative, orthodontic, and dental hygiene care. In 2019, we continued to commercialize Invisalign Go, a simplified and streamlined solution designed for GPs and trained over 3,700 new Invisalign Go doctors primarily in EMEA. In the EMEA region, we segmented sales and marketing for certain country markets into two separate organizations to serve each customer segment, orthodontists and GP dentists separately, thereby increasing our focus and effectiveness on GP dentists. The iTero scanner is an important component to that customer experience and is central to a digital approach as well as overall customer utilization of Invisalign treatment. The iTero scanner is optimized for Invisalign treatment with the Invisalign Outcome Simulator, Invisalign Progress Assessment tool, and TimeLapse technology. This highlights areas of diagnostic interest to dental professionals and helps foster a proactive conversation with the patient regarding potential restorative or orthodontic solutions. In March 2019, we began a collaboration with Digital Smile Design to deliver dedicated education programs, enable simplified, streamlined integration of digital end-to-end workflows into GPs' practices and offer doctors more opportunities to learn about digital tools and treatment planning support. In September 2019, we formed a collaboration with Zimmer Biomet Dental to leverage their extensive direct global salesforce and network of dental clinicians and laboratories to help drive further penetration of iTero scanners and services in the growing digital restorative market. The collaboration also offers Zimmer Biomet Dental customers access to Invisalign clear aligners through the iTero platform to facilitate a comprehensive interdisciplinary treatment approach.

~~Patient Demand & Conversion.~~ Our goal is to make Invisalign a highly recognized name brand worldwide by creating awareness for Invisalign treatment among consumers and motivating potential patients to seek Invisalign treatment. We accomplish this objective through an integrated consumer marketing strategy that includes television, media, social networking and event marketing and strategic alliances with professional sports teams as well as educating patients on treatment options and directing them to high volume Invisalign doctors. In January 2019, we expanded our Smile Concierge program which educates consumers on the benefits of Invisalign treatment, answers their questions and helps them schedule an appointment with an Invisalign doctor. The program simultaneously helps doctors better engage with prospective customers through more detailed customer insights. Additionally, in August 2019, we significantly increased our investment in consumer marketing in the U.S. The U.S. campaign was launched across all key media channels to over 140 million consumers, combining a robust paid media strategy across prime broadcast, cable and connected TV channels with paid search and social media.

~~Orthodontist Utilization.~~ We continue to innovate and increase product applicability and predictability to address a wide range of cases, from simple to complex, thereby enabling doctors to confidently treat teenagers and adults with the Invisalign System. Over the last several years, we launched Invisalign Comprehensive with Mandibular Advancement and Invisalign First. We also continue to make improvements to our Invisalign treatment software, ClinCheck Pro, designed to deliver an exceptional user experience and increase treatment control to help our doctors achieve their treatment goals.

Manufacturing and Suppliers

We have three manufacturing facilities for clear aligners, which are located in Juarez, Mexico, where we conduct our aligner fabrication, distribution, ~~repair of our iTero scanners~~ and ~~perform our CAD/CAM services. In~~certain services for the ~~fourth quarter of 2018, we also began fabricating our aligners in~~Americas market, Ziyang, China, where we fabricate aligners for China and other APAC markets and Wroclaw Poland, where we fabricate aligners for EMEA markets. We have designed this Regional Hub Model to primarily cater to our ~~first aligner fabrication facility outside of Juarez, Mexico. In addition, we~~respective market areas, enable us to better serve our global customer base by being closer to our doctor customers and drive efficiencies in the business. We produce our handheld intraoral scanner wand, perform final scanner assembly and repair our scanners at our facilities in ~~Or Yehuda,~~Ziyang, China and Petah Tikva, Israel and ~~Ziyang, China. Our Invisalign~~service and repair certain scanners in Juarez, Mexico.

We also perform digital treatment planning and interpretation for ~~iTero~~ restorative cases based on digital scans generated by our iTero intraoral scanners. Our digital treatment planning facilities are ~~conducted at our facilities~~ located worldwide, including in ~~San Jose,~~ Costa Rica, ~~Chengdu,~~ China, ~~Cologne,~~ Germany, ~~Madrid,~~ Spain, ~~Wroclaw,~~ Poland and ~~Yokohama, Japan. Information regarding risks associated with our manufacturing process and foreign operations may be found in~~ ~~Item 1A~~ ~~of this Annual Report on Form 10-K under the heading~~ ~~“Risk Factors.”~~Japan, among other international locations.

Our quality system is required to be in compliance with the Quality System regulations enforced by the FDA, and similar regulations enforced by other worldwide regulatory authorities. We are certified to EN ISO 13485:~~2003,~~2016, an internationally recognized standard for medical device ~~manufacturing.~~quality. We are routinely audited by third party certification bodies as well as global health authorities for our compliance to this quality standard as well as international regulations. We have a formal, documented quality system by which quality objectives are defined, understood and achieved. Systems, processes and procedures are implemented to ensure high levels of product and service quality. We monitor the effectiveness of the quality system based on internal data and direct customer feedback and strive to continually improve our systems and processes, taking corrective action, as needed.

Since the mass-customized treatment planning and manufacturing ~~process~~processes of our products requires substantial and varied technical expertise, we believe that our manufacturing capacity and capabilities are important to our success. In order to produce our ~~highly customized, highly precise,~~highly-customized, highly-precise, medical quality products in volume, we have developed a number of proprietary processes and technologies. These technologies include complex software algorithms and solutions, including artificial intelligence and machine-learning based CAD/CAM software, Vision systems, CT scanning, stereolithography and automated custom aligner ~~fabrication.~~fabrication equipment. To increase the efficiency and yield of our manufacturing processes, we continue to focus our efforts on software development, equipment development and the improvement of rate-limiting processes or bottlenecks. We continuously upgrade our proprietary, three-dimensional treatment planning software to enhance computer analysis of treatment data and to reduce time spent on manual and judgmental tasks for each case, thereby increasing the efficiency of our technicians. In addition, to improve efficiency and increase the scale of our operations, we continue to invest in the development of automated systems for the fabrication and packaging of aligners.

In addition, predictable and consistent production is essential to our commitment to timely deliver products to our customers efficiently and profitably. Our production can be disrupted by such things as supply chain issues, production manufacturing software system issues and production equipment downtime. Accordingly, as we have grown our operations, we have included flexibility and resiliency in our overall manufacturing design to mitigate the risks of production downtime. Our manufacturing facilities include backup generators and systems and each facility has an emergency response plan that is part of ongoing employee training and testing through recurring cross functional scenario-based simulation exercises. Likewise, the Regional Hub Model provides us with greater flexibility and capacity to redirect production to one or more of our production facilities as needed.

As part of our manufacturing resiliency design efforts, we have also considered climate change, climate-related risks - higher average global temperatures, rising sea levels and more frequent and severe wildfires, hurricanes, floods, winter storms, heat waves and other events and natural disasters (collectively, “climate-related risks”). We view climate-related risks to be one of many operational challenges we face, and factor them into our business continuity planning and strategic risk mitigation efforts.

For instance, our manufacturing plants and operations may be impacted by extreme temperatures and weather, subjecting us to potential brownouts and blackouts, increased energy costs and capital investments needed to maintain ideal operating temperatures. Our manufacturing facility in Juarez, Mexico is located in an area classified as high-water stress and our operations could be impacted by water shortages, rationing and droughts. Our California, Costa Rica, Mexico and North Carolina operations are located in areas that have historically been impacted by extreme weather events such as hurricanes, tornados, wildfires or flooding.

In part to help mitigate risks to our manufacturing operations, we have strategically located our clear aligner production facilities in three facilities on different continents. This allows us to both respond more quickly to customer demand while also

offering redundancy in the event natural disasters or climate-related events affect operations at one or more facilities. Moreover, each of our three key clear aligner manufacturing facilities are located at elevations less likely to be impacted by rising sea levels and at least two hundred miles inland.

Moreover, we are highly dependent on manufacturers of specialized scanning equipment, rapid prototyping machines, resin and other advanced materials for our aligners, as well as the optics, electronic and other mechanical components of our intraoral scanners. We maintain single ~~supply~~supplier relationships for many of these machines and materials technologies. In particular, our CT scanning and stereolithography equipment used in our aligner manufacturing and many of the critical components for the optics of our intraoral scanners are provided by single or sole source suppliers. We ~~are~~ also ~~committed to purchasing all of~~currently purchase our resin and polymer, the primary raw materials used in our manufacturing process for clear aligners, from a single source. ~~The need to replace one of our single source suppliers could cause a disruption in our ability to timely deliver certain of our products or increase costs. For a~~A discussion of the risks of our supply and manufacturing operations, ~~see~~ including foreign operations, may be found in Item 1A ~~Risk Factors~~. of this Annual Report on Form 10-K under the heading "Risk Factors."

Sales and Marketing

Our sales and marketing efforts are focused on increasing adoption and utilization of the Invisalign System and Vivera retainers by orthodontists and GPs worldwide and integrating the iTero scanner and services and exocad CAD/CAM products into ~~the doctors practice.~~dental labs and practices. The iTero scanner is an important component to the customer experience and is central to a digital approach as well as overall customer utilization of Invisalign ~~treatments.~~clear aligners. In each region, we have direct sales, marketing and support organizations, which include quota carrying sales representatives, sales management and sales administration. We also have distribution partners in certain markets. ~~In the EMEA region, we segmented~~Our sales and marketing ~~for certain country markets into two separate organizations~~personnel are organized primarily to support orthodontists and GPs separately, allowing highly trained and specialized personnel to serve each customer ~~segment, orthodontists and GP dentists separately,~~channel, thereby increasing our focus and effectiveness on ~~GP dentists.~~both. We continue to expand in existing markets through targeted investments in sales resources, professional marketing and education ~~programs, along with~~programs. Additionally, our consumer marketing ~~in select countries.~~programs are designed to create awareness and educate consumers on the benefits of Invisalign treatment and Vivera retainers, including where they can find a trained doctor to provide treatment.

We provide training, marketing and clinical support to orthodontists and GPs. As of December 31, ~~2019,~~2022, we had approximately ~~96,000~~124,500 active Invisalign trained doctors. We define doctors ~~which we define~~ as ~~having~~active if they have submitted at least one Invisalign case in the prior ~~12 month~~12-month period.

Research and Development

We are committed to investing in world-class digital technology development, which we believe is critical to achieving our goal of establishing the Invisalign System as the standard method for treating malocclusion, ~~and~~ our intraoral ~~scanning platform~~scanners as the preferred scanning ~~protocol~~technology for digital ~~scans.~~dental scans, and our exocad CAD/CAM software as the solution of choice for dental labs.

Our research and development activities are directed toward developing ~~the~~digital technology innovations that we believe will deliver our next generation of products and ~~platforms.~~solutions to enable the Align Digital Platform. These activities range from accelerating product and clinical innovation to developing manufacturing process improvements to researching future technologies, products and ~~products.~~software.

In an effort to demonstrate the broad treatment capabilities of the Invisalign System, various clinical case studies and articles have been published that highlight the clinical applicability of Invisalign treatment to malocclusion cases, including those of severe complexity. Similarly, various studies have also been published demonstrating the capabilities of our scanners, including advanced features such as our NIRI technology. We undertake pre-commercialization trials and testing of our technological improvements to ~~the product~~our products and manufacturing process. We furthermore fund research in the field of orthodontics and dentistry through initiatives such as our Annual Research Award Program, which was in its 13th year in 2022, our donations to the American Association of Orthodontists Foundation and our partnership with MedTech Innovator Asia Pacific, a nonprofit startup accelerator for the medical technology industry that connects healthcare industry leaders with innovative medical technology startups for mentorship and support.

Intellectual Property

We believe our intellectual property portfolio represents a substantial business advantage. As of December 31, ~~2019,~~2022, we had ~~489~~739 active U.S. patents, ~~462~~831 active foreign patents, and ~~559~~813 pending global patent applications. Our active U.S. patents expire between ~~2020~~2023 and ~~2039.~~2041. When patents expire, we lose the protection and competitive advantages they provided, ~~to us,~~ which could negatively impact our operating results; however, as we continue to pursue ~~further~~new innovations, we seek intellectual property protection for new inventions and know-how through U.S. and foreign patent applications and non-disclosure agreements. We

also seek to protect our software, documentation and other written materials under trade secret and copyright laws. We ~~cannot be certain~~furthermore have a broad and diverse trademark portfolio that ~~patents will be issued as a result of any patent application or that patents that have been issued~~we use to ~~us or that may be issued in the future will remain valid~~highlight and ~~enforceable or sufficient to~~ protect our technology or products. Our intellectual property rights may not be successfully asserted in the future or may be invalidated, circumvented or challenged. In addition, the laws of various foreign countries do not protect our intellectual property rights to the same extent as U.S. laws. Our inability to protect our proprietary information could harm our business.universally recognized brands. Information

regarding risks associated with our proprietary technology and our intellectual property rights may be found in Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors.”

Seasonal Fluctuations

General economic conditions impact our business and financial results, and we ~~experience~~have historically experienced seasonal trends within our two operating segments, customer channels and the geographic locations that we serve. Sales of the Invisalign ~~treatments~~system are often weaker in Europe, especially southern European countries during the summer months due to our customers and their patients being on holiday and seasonally higher in China during the third ~~quarter, particularly related to increased teen cases.~~quarter. Similarly, other international holidays like ~~Chinese~~Lunar New Year can ~~also negatively~~ impact our sales in APAC. In North America, summer is typically the busiest season for orthodontists with practices that have a high percentage of adolescent and teenage patients as many parents want to get their teenagers started in treatment before the start of the school year; however, many GPs are on vacation during this time and therefore tend to start fewer cases. For our ~~Scanner~~Systems and Services segment, capital equipment sales are often stronger in the fourth calendar quarter. Consequently, these seasonal trends have caused and may continue to cause fluctuations in our quarterly results, including fluctuations in sequential revenue growth rates.

~~Backlog~~

All Invisalign treatments are individually unique and prescribed by a doctor so, no two cases are alike. The period from which a treatment data package (or a "case”) is received until the acceptance of the digital ClinCheck treatment plan is dependent on the dental professional’s discretion to modify, accept or cancel the treatment plan. Therefore, we consider the case a firm order to manufacture aligners once the dental professional has approved the ClinCheck treatment plan. Our Invisalign backlog consists of ClinCheck treatment plans that However, our typical seasonal patterns have been accepted but not yet shipped. Because aligners are shipped shortly after the ClinCheck treatment plan has been accepted, we believe that backlog is not a good indicator of future clear aligner revenues. Our quarterly clear aligner revenues can be impacted by macroeconomic uncertainty including significant changes in foreign exchange rates, the ~~timing~~effects of COVID-19 , the ~~ClinCheck treatment plan acceptances~~military conflict between Russia and ~~our ability~~Ukraine and other macroeconomic challenges, and it remains unclear when or if they will return to ship those cases in the same quarter. We define our iTero scanner backlog as orders where credit and financing are generally approved and payment is reasonably assured but the scanner has not yet shipped. Our Invisalign and iTero scanner backlogs as of December 31, 2019 were immaterial.historical norms.

Competition

~~Currently, our~~Our clear aligner products compete directly against traditional orthodontic treatments that use metal brackets and wires and increasingly against clear aligner products manufactured and distributed by various companies, both within and outside the U.S. Although the number of competitors varies by segment, product, geography and customer, ~~we encounter a wide variety of competitors, including~~they include new and well-established regional competitors in certain foreign markets, as well as larger companies, or divisions of larger companies or well-capitalized new entrants with substantial sales, marketing, research and financial capabilities. ~~Due in part to the expiration of certain of our key patents beginning in 2017, we are facing increased competition~~Competition in the clear aligner ~~market.~~market continues to increase. In addition, corresponding foreign patents began expiring in 2018 which has increased competition ~~in markets~~ outside the U.S. These competitors include existing larger companies in certain markets who have the ability to leverage their existing channels in the dental market to compete directly with us, direct-to-consumer (“DTC”) companies that provide clear aligners ~~using a remote teledentistry model~~ requiring little or no in-office care from trained and licensed ~~physicians, and~~ doctors themselves who can manufacture retainers and custom aligners for treatment of very simple malocclusion in their offices using modern 3D printing technology. Unlike our DTC competitors, we are committed to ~~a doctor as~~doctors being at the core of ~~everything we do,~~our business strategy, and Invisalign ~~Treatment~~treatment requires a doctor's prescription and an in-person physical examination of the patient’s dentition before treatment can begin.

Additionally, we face competition in the emerging and rapidly evolving markets for intraoral scanners and software solutions, including CAD/CAM. The global intraoral scanner market is very dynamic with participants spanning from traditional dental conglomerates to companies dedicated primarily to scanner development and sales with new entrants from South Korea and China playing larger roles. The iTero intraoral scanner competes with PVS impressions that doctors use for clear aligner therapy or other dental procedures, as well as other intraoral scanners. It also competes with traditional bite wing 2D dental x-rays for detecting interproximal caries. Information regarding risks associated with increased competition may be found in Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors.”

~~Key competitive factors include:~~

~~Our SmartTrack aligner materials;~~

~~effectiveness of treatment;~~

~~price;~~

~~software features;~~

~~aesthetic appeal of the treatment method;~~

~~customer support;~~

~~customer online interface;~~

~~brand awareness;~~

~~innovation;~~

~~distribution network;~~

~~comfort associated with the treatment method;~~

~~oral hygiene;~~

~~ease of use; and~~

~~dental professionals’ chair time.~~

We believe we are well positioned to compete in the markets we target. We have a dedicated, highly skilled sales force of over 4,000 employees who are focused on key demographics in our target markets that allow us to uniquely address customer needs and thereby enhance the customer experience. Our significant historical and ongoing investments in research and development and design around the movement of teeth, SmartTrack aligner materials and design, intraoral scanning, 3D manufacturing, global scale of manufacturing and treatment planning, strong brand name recognition, and an in depth understanding of the drivers and motivations within the orthodontic and GP dental markets are among a few of our ~~products~~key competitive factors that compare favorably with our competitors’ products ~~with respect to each of these factors.~~and services.

Government Regulation

Many countries throughout the world have established regulatory ~~framework~~frameworks for commercialization of medical devices. As a designer, manufacturer, and marketer of medical devices, we are obligated to comply with the respective ~~framework~~frameworks of these countries to obtain and maintain access to these global markets. The ~~framework~~frameworks often ~~defines~~define requirements for ~~premarket~~marketing authorizations which vary ~~from country to~~by country. Failure to obtain appropriate ~~premarket~~marketing authorization and to meet all local requirements, including specific quality and safety standards in any country in which we currently market our products, could cause commercial disruption and/or subject us to sanctions and fines. Delays in receipt of, or a failure to receive, such ~~premarket~~ marketing

authorizations, or the loss of any previously received ~~premarket~~ authorizations, could have a material adverse effect on our business, financial condition and results of operations.

With regards to premarket authorization in the U.S., many of our products are classified as medical devices under the U.S. Food, Drug, and Cosmetic Act ("(“FD&C ~~Act"~~Act”). The FD&C Act requires these products, when sold in the U.S., to be safe and effective for their intended use and to comply with medical device regulations defined by the FDA. The regulatory framework depends on a set of written processes for ensuring consistent quality called a Quality Management System (“QMS”) coupled with a product marketing authorization which depends on the risk classification of the product. This regulatory framework is comparable to the framework established in the European Union ~~("EU"~~(“EU”). Within the EU, our products are subject to the requirements defined by the Medical Device Regulation EU 2017/745 which replaced the Medical Device Directive ~~which~~93/42/EEC with a final transition date of May 26, 2021. Similar market access regulations exist in Brazil, China, Japan and other countries. Our QMS is ~~generally consistent~~routinely audited by certification bodies as well as country regulators for compliance with ~~FDA~~applicable regulations.

We believe we are in compliance with all state, federal, and international regulatory requirements ~~that are~~ applicable to our products.

We are also subject to various laws ~~inside~~around the world that govern interactions with our customers as healthcare professionals or government officials. The laws govern different interactions and ~~outside the U.S. concerning our relationships with~~may include: prohibiting improper influence of or payments to healthcare professionals and government ~~officials,~~officials; setting out rules for when and how to engage healthcare professionals as our vendors; requiring price reporting ~~and regulation,~~regulations; requiring marketing of our products within the regulatory approval (e.g., on label) promotion, ~~sales~~sale and marketing of our products and ~~services,~~services; the ~~importation~~importing and ~~exportation~~exporting of our ~~products,~~products; the operation of our facilities and distribution of our ~~products.~~products; and disclosure of payments to healthcare professionals and entities. As ~~a global company,~~ we ~~are subject~~expand our operations footprint, countries to ~~varying degrees of government regulation in the various countries in~~ which we dosell and invest in new business models, compliance with applicable laws becomes more complex and the general trend is toward increasingly stringent oversight and enforcement.

Initiatives sponsored by government agencies, legislative bodies, and the private sector to limit the growth of healthcare expenses generally are ongoing in markets where we do business. It is not possible to predict at this time the long-term impact of such cost containment measures on our future business.

Our customers are healthcare providers that may be reimbursed by state or federal funded programs such as Medicaid, or a foreign national healthcare program, or private pay insurance, each of which may offer some degree of oversight. As we expand our customer base and product offering, it is increasingly possible that there will be new opportunities to seek reimbursement from public and private payors for services that include our products, and additional laws or regulatory enforcement requirements may apply now or in the future. Also, as a medical device manufacturer and seller, we are subject to transparency reporting laws (also known as sunshine laws) that in certain countries and U.S. States require us to report transfers of value to healthcare professionals that perform services or receive other items from us (e.g., meals, travel, branded promotional or educational items, or other benefits of value). Many government agencies, both domestic and foreign, have increased their mining of this data and have used this data to drive enforcement activities with respect to healthcare providers and companies in recent years. Enforcement actions and associated ~~defense~~efforts to respond or defend against such actions can be expensive, and any resulting findings carry the risk of significant civil and criminal penalties.

In addition, we must comply with numerous data protection ~~requirements~~and data governance laws that ~~span from individual state and national laws~~now do or soon will regulate or restrict cross border data transfers, such as in the EU, Switzerland, U.S. ~~to multinational requirements in the EU.~~Federal and States, Brazil, China, Japan, Korea, and other countries. In the U.S., we may be required to comply with final regulations implementing amendments to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) ~~became effective~~and the associated HIPAA Security Rule, and are in the ~~latter part of 2013 with the HIPAA Omnibus Rule. We are also required~~same position as other companies working to ~~be in~~ensure compliance with ~~the California Consumer~~new State Privacy ~~Act (“CCPA”), which went~~laws coming into effect in ~~January 2020.~~2023, such as California, Virginia, Colorado and Connecticut. In the EU, we must comply with the General Data Protection Regulation, ~~(“GDPR”),~~ which serves as a harmonization of European data-privacy ~~laws. Further expansion into~~law and the Swiss Federal Act on Data Protection, where we have our EMEA headquarters. In LATAM markets, ~~will require us to prepare for~~we must comply with Brazil's Lei Geral de Proteção de ~~Dados ("LGPD") scheduled~~Dados.

We also have cybersecurity policies to ~~take effect in August 2020. Meanwhile,~~protect confidential personal information and confidential company information. We have internal monitoring and detection systems to safeguard against cyber attacks. We have implemented a security awareness and phishing program to educate our users about the ~~APAC~~importance of cybersecurity. We evaluate products to ensure compliance with cybersecurity regulations. We have established a business resiliency program and ~~EMEA regions~~perform regular backups of our critical IT systems to protect against business interruption. In addition, we periodically scan our external environment for vulnerabilities, perform annual external penetration tests and engage an independent third party to assess effectiveness of our security practices for critical IT systems. We also have ~~also seen rapid development~~cybersecurity and other forms of ~~privacy laws including India, Russia, China, South Korea, Singapore, Hong Kong,~~insurance coverage related to a breach event covering expenses for notification, credit monitoring, investigation, crisis management, public relations and ~~Australia.~~

legal advice.

We believe we have designed our product and service offerings to be compliant with the requirements of applicable data protection laws and regulations. Maintaining systems that are compliant with these laws and regulations is costly and could require complex changes in the way we do business or provide services to our customers and their patients. Additionally, our success may be dependent on the success of healthcare providers in managing data protection requirements.

Information regarding risks associated with data security and privacy may be found in Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors.”

~~Employees~~

Human Capital

We believe our culture and commitment to employees provide unique value that benefits Align, its stockholders and the communities and other stakeholders we serve. Every employee, and every job, is important to our success and helps us achieve our purpose of transforming smiles and changing lives. Align is committed to building a workforce of diverse cultural backgrounds and life experiences. Fostering a culture of dignity, integrity, open dialogue, open-mindedness, compassion, fairness, recognition, and shared goals allows us to attract and retain the best talent, which has ultimately led to the growth and success of our company.

As of December 31, ~~2019,~~2022, we had approximately ~~14,530~~23,165 employees, an increase of approximately 3% and 28% over December 31, 2021, and December 31, 2020, respectively. The number of employees for each of the last five years and our employees’ roles as of December 31, 2022 are as follows:

We are a global organization with the majority of our employees in direct-labor roles in our manufacturing and clinical treatment planning facilities. Set forth in the following paragraphs are some of the most important elements of our culture and commitment to our employees.

Governance. Our commitment to improving the lives of our employees and the communities in which we live and work, including conducting our business ethically, responsibly and transparently through open and clear disclosures that allow us and others to hold us accountable, begins with our Board of Directors (“Board”) and management team. They set the tone for our organization by establishing and clearly communicating our core values of Agility, Customer and Accountability that inform our culture. Our Global Code of Conduct (“Code”) and quality policies are designed to enable us to operate with integrity and deliver superior treatment outcomes and experiences to patients. We seek to create an environment that values the health, safety and well-being of our teams, and we work to equip them with the knowledge and skills to serve our business and develop in their careers. We believe that by effectively managing our business with these values as the foundation, we will drive long-term value for our stockholders and all stakeholders.

As part of our Board’s commitment to our environmental, social and governance (“ESG”) efforts, the Board previously delegated ESG oversight responsibility to our Nominating and Governance Committee. The evolution of our ESG programs was furthered in 2022 when our Board amended the charter of our Compensation Committee to specifically include oversight responsibilities of all human capital management strategies, programs and policies in addition to its oversight of diversity, equity and inclusion initiatives. In doing so, the Board deemed it important to rename the committee to the Compensation and Human Capital Committee in recognition of its additional human capital management oversight responsibilities.

The Compensation and Human Capital Committee regularly reviews and discusses key performance indicators regarding employee and human capital that allow it to more fully monitor trends involving issues such as our total headcount, recruiting, attrition, career development, diversity, compensation, benefits, and other measures of employee engagement and interest to management and the committee.

Diversity. Fostering diversity and encouraging inclusion and belonging in the workplace makes Align a more welcoming and enjoyable place to work. Our products and services are used broadly across age groups, gender identities, races, ethnicities, and cultures, so we aim to build a workforce that optimally reflects this diversity. We believe our success continues to be driven by our focus on integrating and welcoming employees of all different backgrounds, orientations, beliefs, perspectives and capabilities into our workforce. Our approximately 23,165 employees bring a positive mix of ethnic and culturally diverse backgrounds to the more than 40 different countries in which we operate.

Our management team is comprised of diverse individuals from varying countries and nationalities and who are committed to promoting and encouraging the health and well-being of our employees at work, at home and in society in general. We were selected by Untapped, a diversity recruiting platform, for having one of the Top Internship Programs of 2022. Untapped created a list of 75 top programs at companies that provide quality internship experiences, career advancement opportunities, an inclusive and diverse work environment, and significant growth potential. We were recognized for focus and dedication to diversity, equality, inclusion, and belonging.

Our work culture is designed to create financial, health, career and personal benefits for our employees and organization. We sponsor diverse and cultural recognition events to increase awareness of inclusion and diversity, including its importance in creating an environment where every employee can thrive.

We also sponsor employee resource groups based on shared characteristics or life experiences which are open to all employees, including ~~9,470~~those who do not directly identify with other members but are passionate in ~~manufacturing~~supporting the group's members in creating an educated, supportive and inclusive culture.

Talent Recruitment and Engagement. We employ a variety of career development, employee benefits, compensation and other policies and programs designed to attract, develop, and retain employees. We focus on building a talent pipeline that nurtures those early in their careers, encourages continuous learning and growth, and incentivizes employees to stay and contribute to our success over the long term. Our programs include early recruitment at high schools and universities, initiatives such as internships, co-ops, apprenticeships, and training programs, quarterly performance management check-ins focused on individual goals and commitment to values and conducting regular employee surveys to build trust and strengthen relationships.

Our efforts have resulted in numerous awards for our positive work environment and culture. In 2022 alone, we were recognized by:

•Great Places to Work and Best Places to Work based on our employee-validated great workplaces in the following countries - Brazil, Costa Rica, Germany, India, Italy, Poland, Singapore, Taiwan, Thailand, Vietnam - as well as in Raleigh, North Carolina

•100 Best Companies to Work for in Israel by CofaceBdi

•Computerworld Best Place to Work in IT, based on its survey of organizations across the U.S. to identify those that provide the best benefits and amenities for IT professionals

•AmCham Cares Distinction Award Recipient in Singapore based on our volunteer and fundraising campaigns

We believe it is imperative to provide a vibrant employee experience and we value our employees’ collective voices. Accordingly, we conduct employee surveys to collect employee feedback critical to improving our culture. The process serves as a wellness check for us as the surveys cover a broad variety of topics including engagement, inclusion, development, leadership, compliance, alignment and enablement. Our response rates to our annual surveys are consistently high, reflecting strong engagement by our global employees. In 2022, our global employee participation was 89% of eligible employees. We have used information learned from our surveys to improve the way our employees experience us. Examples of the improvements we have made as a result of employee feedback include the design of our hybrid return to office approach, increased career development training opportunities, and a pilot program that allows CAD designers to learn new skills that provide potential pathways to software and operations ~~2,880~~engineering, cybersecurity and quality/regulatory engineering.

Training and Professional Development. Training is an integral part of developing and retaining our employees and creating a culture of leadership within the Company.

Training at Align begins with our Code and our strong commitment to ethical business practices in ~~sales~~all aspects of our operations. Every employee and ~~marketing~~contractor is required to review the Code and confirm they understand it. We routinely reference the Code in presentations and as part of everyday operations.

As a further part of our standard onboarding program, we train employees on important environmental health and safety topics to protect them and our environment as we operate our business. As a general practice, employees are trained to perform their jobs in accordance with any and all applicable statutory and regulatory requirements and that training is routinely re-administered, updated and refreshed.

At Align, we believe employees learn best when skills development is driven by the changing and immediate needs of our employees and where all employees are empowered to take action and ownership of their careers. We also believe learning should be relevant and actionable as well as rooted in our purpose and values. Align University Online enables our global employee population to access a diverse portfolio of approximately one thousand self-directed courses in up to 80 languages. We also offer a full suite of custom leadership development programs, beginning with aspiring leaders, continuing with managers and directors, and culminating with executive development opportunities. In 2022, we introduced Voyage, Align’s approach to career development encouraging employees to think differently about career growth by challenging them to be intentional in planning their development, learning from others, practicing reflection, and embracing a growth mindset. At the end of 2022, 65% of Align employees had completed at least one professional development opportunity.

Compensation and Benefits. Our commitment to our employees starts with benefit and compensation programs that reflect the value and the contributions our employees make. In addition to competitive base pay, we offer an assortment of benefits that vary by country, including performance-base variable compensation programs, health and welfare benefit plans, retirement planning services and benefits, holiday and leave policies, equity participation programs such as our Incentive Plan and Employee Stock Purchase Plan, and charitable and community service opportunities. Besides these, we also offer discounts to our employees and their dependents when they undergo Invisalign treatment.

We are furthermore committed to pay equity practices. We exceed minimum pay requirements for our manufacturing personnel and we regularly review our pay equity practices globally and locally so that we can appropriately address discrepancies.

Health, Wellness and Safety. Our employees are essential to us as a business and their health and well-being is critical to our success and their continuing achievements. Our objective is to prevent injuries and occupational diseases by focusing first and foremost on creating and maintaining environments that are safe. We therefore offer a wide variety of robust programs and initiatives designed to promote the overall health and welfare of all our employees and their families. It is our responsibility to support the health and well-being of our employees. Every year, we have a month dedicated to well-being, called Month of Wellness, which ~~includes customer~~is a worldwide movement fostering employee health. Throughout the Month of Wellness, employees participate in a variety of activities such as informational sessions and health fairs and receive useful resources aligned to our wellness pillars - mental resilience, physical well-being and healthy living, social/family connections, and financial wellness. This provides employees with a variety of meaningful ways to embrace wellness and well-being through mindfulness, meditation, nutrition and mental wellness activities, exercise, hikes, yoga, volunteer activities, financial education sessions, social events and stress management.

We have environmental, health, safety and sustainability personnel who are responsible for ensuring health and safety programs and processes are maintained and effective at each of our locations. Major worksites, such as our aligner fabrication sites, and large offices have dedicated Environmental Health and Safety (“EHS”) departments that ensure health and safety programs are maintained while contributing Best Management Practices (“BMP”) and general input to corporate-wide programs. Each EHS department is responsible for ensuring all employees at their location are properly trained on various EHS topics and at the appropriate frequencies. A training suite is determined for each employee depending on their responsibilities and function modeled off of ISO 45001.

Community. We actively encourage employees to support local charitable organizations by providing opportunities for volunteerism, team building, and donation and matching programs. In 2022, our employees continued to make us proud through their generosity and dedication, especially during our annual Month of Smiles initiative in October where we encourage our employees to make a difference individually and as teams through volunteer activities, charitable donations, fundraising, and intentional acts of goodness. In addition, through our Align Foundation, we support organizations whose visions closely align with our mission to improve smiles, supporting and educating teens, and empowering our customers through partnerships with learning institutions and foundations. Below are some of our key community initiatives in 2022:

•In honor of our 25th anniversary, we donated $250,000 to Junior Achievement Worldwide, an organization that delivers hands on, immersive learning in work readiness, financial health, entrepreneurship, sustainability, STEM, economics, and more. In addition, we held several volunteer activities with Junior Achievement.

•Since 2013 we have been a proud supporter of Operation Smile, a global medical nonprofit providing hundreds of thousands of free surgeries for people born with cleft lips and cleft palates in low- and middle-income countries. As of December 31, 2022, we had donated more than $2.5 million to Operation Smile.

•For 15 years we have supported America’s ToothFairy, an organization with a mission to ensure underserved children in the United States have access to dental care ~~800~~and learn about oral health by supporting nonprofit clinics and community partners. As of December 31, 2022, we have provided almost $2 million for the foundation’s operational expenses and children’s oral health programs.

We also provide product donations to the dental community to help patients in ~~research~~need of healthy, beautiful smiles. For more information on our charitable and ~~development and 1,380 in general and administrative functions.~~community efforts, please refer to the Corporate Social Responsibility portion of our corporate website located at https://www.aligntech.com/about/corporate_social_responsibility.

Available Information

Our corporate website is www.aligntech.com, and our investor relations website is http://investor.aligntech.com. The information on or accessible through our websites is not part of this Annual Report on Form 10-K. Our Annual ~~Reports~~Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, our proxy statement on Schedule 14A for our annual stockholders’ meeting and amendments to such reports are available, free of charge, on our investor relations website as soon as reasonably practicable after we electronically file or furnish such material with the SEC. Further, the SEC maintains an internet site that contains reports, proxy and information statements and other information regarding our filings at http://www.sec.gov.

Information about our Executive Officers

The following table sets forth certain information regarding our executive officers as of February ~~28, 2020:~~27, 2023:



Name			Age	Position	Period
Joseph M. Hogan			6265	President and Chief Executive Officer of Align • Chief Executive Officer of ABB • Chief Executive Officer of GE Healthcare	2015-Present 2008-2013 2000-2008
John F. Morici			5356	Chief Financial Officer and Executive Vice President, Global Finance of Align • Chief Financial Officer and Senior Vice President, Global Finance
~~Simon Beard~~	53	~~Senior~~ of Align • Chief Financial Officer of Align • Executive Vice President and Managing Director ~~Americas~~of NBC Universal • Chief Financial Officer/Chief Operating Officer of NBC Universal • Senior Vice President and Chief Financial Officer of NBC Universal	2022-Present 2018-2022 2016-2018 2014-2016 2011-2014 2007-2011
Julie Coletti			5255	Executive Vice President, Chief Legal and Regulatory Officer of Align • Senior Vice President, Chief Legal and Regulatory Officer of Align • Vice President, Associate General Counsel, Strategic Commercial Affairs of Align • Vice President, Global General Counsel and Chief Compliance Officer of Danaher • Vice President, Chief Legal Officer and Corporate Secretary of Bayer HealthCare's MEDRAD/Radiology and Interventional Division	2022-Present 2019-2022 2018-2019 2013-2017 2007-2013
Stuart Hockridge			4851	~~Senior~~ Executive Vice President, Global Human Resources
~~Sreelakshmi Kolli~~	45	of Align • Senior Vice Present, Global Human Resources of Align • Vice President, Global ~~Information Technology~~Human Resources of Align • Vice President of Talent of Visa	2022-Present 2018-2022 2016-2018 2013-2016
~~Jennifer Olson~~ Emory M. Wright			4253	~~Senior Vice President and Managing Director, Customer Success~~
~~Raj Pudipeddi~~	47	~~Senior Vice President and Chief Marketing Officer~~
~~Zelko Relic~~	55	~~Chief Technology Officer and Senior~~ Executive Vice President, Global ~~Research & Development~~
~~Markus Sebastian~~	54	~~Senior Vice President and Managing Director, EMEA~~
~~Yuval Shaked~~	46	~~Senior Vice President and Managing Director, iTero Scanner and Services Business~~
~~Julie Tay~~	53	~~Senior Vice President and Managing Director, APAC~~
~~Emory M. Wright~~	50	Operations of Align • Senior Vice President, Global Operations of Align • Vice President, Operations of Align • Various roles at Align including Vice President, Manufacturing	2022-Present 2018-2022 2007-2018 2000-2007

~~Joseph M. Hogan~~ has served as our President and Chief Executive Officer and as a member of our Board of Directors since June 2015. Prior to joining us, Mr. Hogan was Chief Executive Officer of ABB Ltd., a global power and automation technologies company based in Zurich, Switzerland from 2008 to 2013. Prior to working in ABB, Mr. Hogan worked at General Electric Company (GE) in a variety of executive and management roles from 1985 to 2008, including eight years as Chief Executive Officer of GE Healthcare from 2000 to 2008.

Item 1A. Risk Factors.

~~John F. Morici~~
has served as our Chief Financial Officer since November 2016, whose title was changed to Chief Financial Officer and Senior Vice President, Global Finance in February 2018. Prior to joining us, Mr. Morici was at NBC Universal from 2007 to 2016 where he held several senior management positions in their Universal Pictures Home Entertainment U.S. and Canadian business, including Chief Financial Officer, Chief Operating Officer, and most recently, Executive Vice President and Managing Director from 2014 to 2016. Prior to NBC Universal, Mr. Morici was in various senior financial management positions at GE Healthcare from 1999 to 2007, including Chief Financial Officer for its Diagnostic Imaging and Global Products units from 2002 to 2003.

~~Simon Beard~~ has served as our Senior Vice President and Managing Director, Americas since June 2019. Mr. Beard also served as our Vice President and Managing Director, EMEA from October 2015 to February 2018, when his title was changed to Senior Vice President and Managing Director, EMEA, a title he held until June 2019. Prior to joining us, from 2012 to 2014, Mr. Beard was Regional Director for the South East Asia business of Smith & Nephew, a multinational medical equipment manufacturing company. From 2006 to 2012, Mr. Beard was Director & General Manager for UK and Ireland for Smith & Nephew's Advanced Woundcare business. Prior to Smith & Nephew, Mr. Beard held multiple commercial, strategic, and general management positions in companies such as DePuy International (Johnson & Johnson), Sankyo Pharmaceutical and Sanofi Aventis.

~~Julie Coletti~~ has served as our Senior Vice President, Chief Legal and Regulatory Officer since May 2019. Ms. Coletti joined Align in May 2018 serving as Vice President and Associate General Counsel, Strategic Commercial Affairs until her promotion in 2019. Prior to Align, Ms. Coletti was Vice President, Global General Counsel and Chief Compliance Officer for Danaher Corporation, a healthcare, environmental and industrial equipment manufacturer, in its dental platform business.

~~Stuart Hockridge~~ has served as our Vice President, Global Human Resources since May 2016, whose title was changed to Senior Vice President, Global Human Resources in February 2018. Prior to joining us, Mr. Hockridge was Senior Vice President of Talent at Visa Inc. from 2013 to 2016. Prior to Visa, Mr. Hockridge held a number of human resource management positions at GE Healthcare from 2002 to 2012 leading HR processes both globally and for various divisions.

~~Sreelakshmi Kolli~~ has served as our Vice President, Information Technology since December 2012, whose title was changed to Senior Vice President, Global Information Technology in February 2018. Ms. Kolli joined us in June 2003 and has held positions leading business operations and engineering for customer-facing applications. Before joining us, she held technical lead positions with Sword CT Space and Accenture.

~~Jennifer Olson~~ has served as our Senior Vice President and Managing Director, Customer Success since May 2019. Ms. Olson also served as our Vice President and Managing Director, Doctor-Directed Consumer Channel from August 2016 to February 2018, when her title was changed to Senior Vice President and Managing Director, Doctor-Directed Consumer Channel, a title she held until May 2019. Ms. Olson joined us in 2002 and has held multiple roles in sales, marketing, and business development. Most recently, she was Area Sales Director for the North America region where she led all sales activities in Western Canada and the Western region of the U.S. Prior to joining Align, Ms. Olson was with technology companies including Extreme Networks and PWI Technologies.

~~Raj Pudipeddi~~ joined Align in February 2019 as our Senior Vice President and Chief Marketing Officer. Prior to joining us, Mr. Pudipeddi was the Director, Consumer Business and Chief Marketing Officer at Bharti Airtel, an Indian telecom leader from February 2017 to May 2018. Prior to Bharti Airtel, Mr. Pudipeddi spent 14 years at Procter & Gamble serving in a number of leadership roles across businesses in North America, Asia and Latin America, most recently as Vice President, North America, Oral Care.

~~Zelko Relic~~ joined Align in 2013 as Vice President, Research & Development. In December 2017, he became Chief Technology Officer, Vice President, Research & Development, whose title was changed to Chief Technology Officer, Senior Vice President, Global Research & Development in February 2018. Prior to joining us, Mr. Relic was Vice President, Engineering for Datalogic Automation, a global leader in automatic data capture and industrial automation markets, from 2012. Mr. Relic was previously Vice President, Engineering at Danaher Corporation, Accu-Sort Systems business from 2010 to 2012 before it was acquired by Datalogic Automation. From 2005 to 2010, he was at Siemens Medical Solutions USA, most recently as Vice President, and from 2002 to 2004, he held senior management positions in engineering at Kulicke & Soffa Industries, designers and manufactures of semiconductor products. He also held management positions at KLA-Tencor from 1994 to 2000.

~~Markus Sebastian~~ has served as our Senior Vice President and Managing Director, EMEA since June 2019. Mr. Sebastian also served as our Vice President Orthodontic Channel Core EU and as interim GM of the DACH and France country markets from September 2018 to June 2019. Prior to Align, Mr. Sebastian spent more than 25 years in the healthcare and medical device industries, including as Chief Commercial Officer for Lohmann & Rauscher, and in multiple commercial, strategic and general management positions for Smith & Nephew, and Coloplast.

~~Yuval Shaked~~ joined Align in June 2017 as our Vice President, iTero Scanner and Services Business. In August 2018, Mr. Shaked was promoted to Senior Vice President, iTero Scanner and Services. Prior to joining Align, Mr. Shaked spent more than 15 years at GE Healthcare in the U.S. and Israel in a variety of roles at multiple business units. Most recently, he served as General Manager, Diagnostic Cardiology, leading on- and off-shore R&D and marketing teams in the U.S., Germany, India and China. Prior to that, he was General Manager for GE’s VersaMed business unit, with responsibility for R&D, innovation, manufacturing, quality and commercial activity. Mr. Shaked was the former CEO of SHL Telemedicine Ltd., an Israel-based advanced personal telemedicine company.

~~Julie Tay~~ has served as our Vice President and Managing Director, Asia Pacific since March 2013, whose title changed to Senior Vice President and Managing Director, Asia Pacific in February 2018. Prior to joining us, Ms. Tay was regional head of Bayer Healthcare (Diabetes Care) overseeing operations across Asia from 2010 to 2013. From 2006 to 2010, Ms. Tay served as director of marketing and corporate accounts at Sealed Air Corporation (formerly Johnson Diversey), a global provider of food safety and security, facility hygiene and product protection. Prior to that, Ms. Tay spent 15 years with Johnson & Johnson Medical.

~~Emory M. Wright~~ has served as our Vice President, Operations since December 2007, whose title changed to Senior Vice President, Global Operations in February 2018. He has been with us since March 2000 predominantly in manufacturing and operations roles including Vice President, Manufacturing and was General Manager of New Product Development. Prior to joining Align, from 1999 to 2000, Mr. Wright was Senior Manufacturing Manager at Metrika, Inc. a medical device manufacturer. Mr. Wright served as Manager of Manufacturing and Process Development for Metra Biosystems Inc.


~~ITEM 1A.~~	~~RISK FACTORS~~

The following ~~discussion is divided into two sections. The first, entitled “Risks Relating to our Business,”~~ discusses some of the risks that may affect our business, results of operations and financial condition. ~~The second, captioned "Risks Related to our Common Stock," discusses some of the risks relating to owning our common stock.~~ You should carefully review ~~both sections,~~this section, as well as our consolidated financial statements and notes thereto and other information appearing in this Annual Report on Form 10-K, for important information regarding these and other risks that may affect us. The ~~fact~~order we have chosen to list ~~one section before~~ the ~~other~~risks below or ~~that~~the sections in which we have identified ~~risks in either section earlier than others~~them should not be interpreted to mean we deem any risks to be more or less important or ~~more~~ likely to occur ~~than others~~ or, if any do occur, that their impact may be any less significant than others. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this report because they could cause our actual results and conditions to differ materially from those statements. Before you invest in Align, you should know that investing involves risks, including those described below. The risks below are not the only ones we face. If any of the risks actually occur, our business, financial condition and results of operations could be negatively affected, the trading price of our common stock could decline, and you may lose all or part of your investment.

Summary of Risk Factors

Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows, and prospects. These risks are discussed more fully below and include, but are not limited to:

Macroeconomic and External Risks ~~Relating~~

•Global and regional economic conditions

•Major health crises

•Political events, international disputes, war and terrorism

•Natural disasters

Business and Industry Risks

•Changes in demand for our products

•Increased competition

•Failure of our new products, or changes to our ~~Business~~existing products, to attract or retain consumers or generate revenue

•Our ability to successfully integrate our acquisitions

Operational Risks

•Business disruptions

•Predicting demand

•Availability of supplies

•Shipping delays

•Personnel development and retention

•Effectiveness of marketing and our ability to attract consumers

Legal, Regulatory and Compliance Risks

•Government investigations, enforcement actions, and settlements

•Our ability to comply with laws and regulatory and legislative mandates or guidance

•Privacy, cybersecurity and data protection

•Litigation, including class action lawsuits

Intellectual Property Risks

•Our ability to obtain, maintain, protect, and enforce our intellectual property rights

Financial, Tax and Accounting Risks

•Impairment of our goodwill

•Compliance with accounting, financial reporting, and tax laws

•Management of our stock plans

•Volatility of our stock

Macroeconomic and External Risks

Our operations and financial performance depend on global and regional economic conditions. Inflation, fluctuations in currency exchange rates, changes in consumer confidence and demand, and weakness in general economic conditions and threats, or actual recessions, have and could in the future materially affect our business, results of operations, and financial condition.

Macroeconomic conditions impact consumer confidence and discretionary spending, which can adversely affect demand for our products. Consumer spending habits are affected by, among other things, inflation, fluctuations in currency exchange rates, weakness in general economic conditions, threats or actual recessions, pandemics, wars and military actions, levels of employment, wages, debt obligations, discretionary income, interest rates, volatility in capital, and consumer confidence and perceptions of current and future economic conditions. Changes and uncertainty can, among other things, reduce or shift spending away from elective treatments and procedures, drive patients to purchase orthodontic treatments that may cost less than our Invisalign treatment options, result in a decrease in the number of overall orthodontic and dental case starts, reduce patient traffic in dentists’ offices or reduce demand for dental services generally. Further, decreased demand for dental services can cause dentists and labs to postpone investments in capital equipment, such as intraoral scanners and CAD/CAM equipment and software. The recent declines in, or uncertain economic outlooks for, the U.S., Chinese, European and certain other international economies has and may continue to adversely affect consumer and dental practice spending. The increase in the cost of fuel and energy, food and other essential items along with climbing interest rates could reduce consumers' disposable income, resulting in less discretionary spending for products like ours. Decreases in disposable income and discretionary spending or change in consumer confidence and spending habits has and may continue to adversely affect our revenues and operating results.

Inflation continues to adversely impact spending and trade activities and we are unable to predict the impacts of higher inflation on global and regional economies. Higher inflation has also increased domestic and international shipping costs, raw material prices, and labor rates, which could adversely impact the costs of producing, procuring and shipping our products. Our ability to recover these cost increases through price increases may continue to lag, resulting in downward pressure on our operating results. Attempts to offset cost increases with price increases may reduce sales, increase customer dissatisfaction or otherwise harm our reputation. Further, we are unable to predict the impact of efforts by central banks and federal, state and local governments to combat elevated levels of inflation. If their efforts to reduce inflation are too aggressive, they may lead to a recession. Alternatively, if they are insufficient or are not sustained long enough to lower inflation to more acceptable levels, consumer spending may be adversely impacted for a prolonged period of time. Any of these events could materially affect our business and operating results.

We have international operations and sales outside the U.S. We earn a large portion of our total revenues from international sales generated through our foreign direct and indirect operations and we expect to increase our sales and presence outside the U.S., particularly in markets we believe have high-growth potential. Moreover, we perform most of our key

production steps in locations outside of the U.S. For instance, we perform our digital treatment planning and aligner fabrication in multiple international locations, including large-scale operations in Mexico, Costa Rica, Poland, Japan and China. Additionally, we maintain significant global sales and marketing operations in Switzerland, Singapore and China, along with research and development operations globally, including in the U.S., Spain, Israel, Armenia and Germany. Our reliance on international operations and sales exposes us to fluctuations in foreign currencies that may adversely impact our business or results of operations. Although the U.S. dollar is our reporting currency, a growing portion of our net revenues and net income are generated in foreign currencies. While we utilize forward contracts to reduce the adverse earnings impact from the effect of exchange rate fluctuations on certain assets and liabilities, our hedging strategies may not be successful, and currency exchange rate fluctuations have and could continue to have a material adverse effect on our operating results and cash flows. In addition, our foreign currency exposure on assets, liabilities and cash flows that we do not hedge have and could continue to have a material impact on our financial results in periods when the U.S. dollar significantly fluctuates in relation to foreign currencies.

Our business could be impacted by major public health issues, including pandemics, and our business has been and continues to be materially affected by the global and regional spread of COVID-19.

Major public health issues, including pandemics such as the spread of COVID-19, have adversely affected, and could in the future materially affect, our business due to their impact on the global economy and regional economies, demand for consumer products, the imposition or removal of public safety measures. Public health concerns may also limit the movement of products between regions, disrupt or delay supply chains and sales and distribution channels, resulting in interruptions of the supply of products. While we maintain insurance coverage for certain types of losses, such insurance coverage may be insufficient to cover all losses that may arise.

COVID-19 has created significant, widespread and unprecedented volatility, uncertainty, and economic instability, disrupting broad aspects of global and regional economies, our operations and the businesses of our customers and suppliers. Many of these effects continue to varying degree as variants of COVID-19 and outbreaks globally or regionally continue to harm recovering consumer confidence. Therefore, comparing our financial results for the reporting periods of 2022 to the same reporting periods of 2021 or earlier may not be a useful means by which to evaluate the health of our business and our results of operations.

As a result of outbreaks of COVID-19 and its variants, customer demand and doctor availability has been inconsistent and difficult to predict. Although the practices of the doctors, dental service organizations and labs that are our principal customers have largely reopened following the initial outbreak of COVID-19 in 2020, many continue to operate at less than pre-pandemic capacities. For example, in China the impact of widespread population lockdowns under the country’s zero tolerance policies was more pronounced in 2022, leading to the complete closure of dental offices in major metropolitan and other areas for extended periods of time. Conversely, the reversal of China’s zero tolerance policies has resulted in a significant increase in infections that may impact consumer and doctor demand in 2023. These fluctuations are currently and have previously adversely impacted our results of operations and are expected to continue to impact our results, particularly in the near term.

The effects of the pandemic continue to linger and evolve and we cannot predict future direct and ancillary impacts on our business or results of operations, although they may be material to our business as well as the businesses of our customers, suppliers and economic activity generally.

The COVID-19 pandemic has impacted virtually all aspects of our business and society. It has exacerbated many pre-existing risks to our business by making them more likely to occur or more impactful when they do occur. Accordingly, you should consider the risks described in this risk factor in addition to, and not in lieu of, the risks described elsewhere throughout these risk factors.

Our business could be impacted by political events, trade and other international disputes, war, and terrorism, including the military conflictbetween Russia and Ukraine.

Political events, trade and other international disputes, war, and terrorism could harm or disrupt international commerce and the global economy and could have a material effect on our business as well as our customers, suppliers, contract manufacturers, distributors, and other business partners.

Political events, trade and other international disputes, wars, and terrorism can lead to unexpected tariffs or trade restrictions, which could adversely impact our business. Tariffs increase the cost of our products and the components and raw materials to make them. These increased costs could adversely impact our gross margin and make our products less competitive or reduce demand. Countries could also adopt other measures, such as controls on imports or exports of goods, technology or data, that could adversely impact our operations and supply chain and limit our ability to offer products and services. These measures could require us to take various actions, including changing suppliers or restructuring business relationships. Complying with new or changed trade restrictions is expensive, time-consuming and disruptive to our operations. Such restrictions can be announced with little or no advance notice and we may be unable to effectively mitigate the adverse impacts

of such measures. If disputes and conflicts escalate in the future, actions by governments in response could be significantly more severe and restrictive and could materially affect our business.

Political unrest, threats, tensions, actions and responses to any social, economic, business, geopolitical, military, terrorism, or acts of war involving key commercial, development or manufacturing markets such as China, Mexico, Israel, Europe, or other countries could materially impact our international operation. For example, our employees in Israel could be obligated to perform annual reserve duty in the Israeli military and be called for additional active duty under emergency circumstances. If any of these events or conditions occur, the impact to us, our employees and customers is uncertain, particularly if emergency circumstances, armed conflicts or an escalation in political instability or violence disrupts our product development, data or information exchange, payroll or banking operations, product or materials shipping by us or our suppliers and other unanticipated business disruptions, interruptions and limitations in telecommunication services or critical systems or applications reliant on a stable and uninterrupted communications infrastructure.

The military conflictbetween Russia and Ukraine has materially adversely impacted global economies, and has materially impacted our global and regional operations. Governments including the U.S., United Kingdom, and those of the European Union have imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia which has triggered retaliatory sanctions by the Russian government and its allies. Our commercial operations have been impacted by the conflict and if we fail to support existing customers, we may frustrate those customers, harm our reputation, and be subject to regulatory action in Russia. Additionally, a majority of our research and development personnel in Russia relocated to locations outside of Russia in 2022. Whether they remain in their new locations over the long-term remains unknown. If we are unable to retain key skilled personnel from where they have relocated, or we are unable to quickly replace such personnel with individuals of equivalent technical expertise and qualifications, our business and financial condition could be materially effected.

The outcome and future impacts of the Russia and Ukraine conflict remain highly uncertain, continue to evolve and may grow more severe the longer the military action and sanctions remain in effect. Moreover, this conflict and existing and future sanctions may have broad and pervasive impacts to the global and regional economies and our operations, heightening and affecting many of the other risks described elsewhere throughout these risk factors, any of which could materially and adversely affect our business and results of operations. Such risks include adverse effects on general economic and political conditions such as inflation, supply chain and trade disruptions, and reduced consumer spending; disruptions to our IT systems, including through network failures, malicious or disruptive software, or cyberattacks; energy shortages or rationing that may adversely impact our manufacturing facilities; rising fuel and/or rising costs of producing, procuring and shipping our products; our exposure to foreign currency exchange rate fluctuations; and constraints, volatility or disruption in the financial markets. We may not be successful in our efforts to mitigate the negative impacts of the conflict, particularly the longer sanctions and retaliatory sanctions remain in effect. How we respond to the conflict may also subject us to risk. The resumption of sales in Russia or our decision to continue supporting our personnel and existing customers in Russia may result in reputational harm or boycotts of our products that could impact our sales and operations inside and outside of Russia or subject us to litigation for which we may be found liable in courts or other tribunals in Russia or elsewhere. Moreover, production could be impaired should hostilities spread to other countries such as Poland, where our newest aligner fabrication facility is located.

We have no way to predict the progress or outcome of the conflict in Ukraine or the reactions by governments, businesses or consumers. A prolonged conflict, intensified military activities or more extensive sanctions impacting the region and the resulting economic impact could have a material effect on our business, results of operations, financial condition, liquidity, growth prospects and business outlook.

Our operations may be impacted by natural disasters, which may become more frequent or severe as a result of climate change, and may adversely impact our business and operating results as well as those of our customers and suppliers.

Natural disasters can impact us and our customers, as well as suppliers critical to our operations. Natural disasters include earthquakes, tsunamis, floods, droughts, hurricanes, wildfires, and other extreme weather conditions that can cause deaths, injuries, and critical health crises, power outages, restrictions and shortages of food, water, shelter, and medical supplies, telecommunications failures, materials scarcity, price volatility and other ramifications. Climate change is likely to increase both the frequency and severity of natural disasters and, consequently, risks to our business and operations. Our digital dental modeling and certain of our customer facing operations are primarily processed in our facilities located in Costa Rica. Our aligner molds and finished aligners are fabricated in China, Mexico and Poland. Our locations in Costa Rica and Mexico as well as others are in earthquake and hurricane zones and may be subject to other natural disasters. Moreover, a significant portion of our research and development activities are located in California, which suffers from earthquakes, periodic droughts, heat waves, flooding, power shortages and wildfires. If there is a natural disaster in a region where one of these facilities is located, our employees could be impacted, our research could be lost, and our ability to create ClinCheck treatment plans, respond to customer inquiries or manufacture and ship our aligners or intraoral scanners could be compromised which could result in our customers experiencing significant product and services delays.

The effects of climate change on regional and global economies could change the supply, demand or availability of sources of energy or other resources material to our products and operations and affect the availability or cost of natural resources and goods and services on which we and our suppliers rely.

Business and Industry Risks

Demand for our products may not increase or may decrease due to resistance to non-traditional treatment methods, which could have a material impact on our business and operating results.

Invisalign treatment represents a significant change from traditional metal wires and brackets orthodontic treatment, and customers and consumers may not find it cost-effective or preferable to traditional treatment. For instance, a number of dental professionals continue to believe the Invisalign treatment is appropriate for only a limited percentage of patients. Increased market acceptance of our products depends in part upon the recommendations of dental professionals, as well as other factors including efficacy, safety, ease of use, reliability, aesthetics, and price compared to competing products and treatment methods. If demand for our products fails to increase, including due to resistance to nontraditional treatment methods, this could materially affect our business and operating results.

Our net revenues ~~are dependent~~depend primarily on our Invisalign ~~System~~system and iTero ~~Scanners~~scanners and any decline in sales or average selling price of these products ~~for any reason, would~~may adversely affect net revenues, gross margin and net income.

Our net revenues ~~are~~remain largely dependent on ~~the~~ sales of our Invisalign ~~System~~system of clear aligners ~~and~~and iTero intraoral scanners. Of the two, we expect net revenues from the sale of the Invisalign ~~System,~~system, primarily our comprehensive products, will continue to account for the ~~vast~~ majority of our net revenues, ~~for~~making the ~~foreseeable future. Continued~~continued and widespread acceptance of the Invisalign ~~System~~system by orthodontists, GPs and consumers is critical to our future success. Our iTero ~~scanners are used by dental professionals for restorative and orthodontic procedures as well as Invisalign System case submissions. Sales of our iTero scanners are continuing to grow, becoming~~business also contributes a ~~larger~~material percentage of our overall ~~revenues~~net revenues. Our CAD/CAM software solutions are important to the continuing evolution of our Align Digital Platform and ~~as a means to further adoption of digital dentistry and the Invisalign System. If~~ our business overall. Our operating results could be harmed if:

•orthodontists and GPs experience a reduction in consumer demand for orthodontic ~~services, if~~ services;

•consumers ~~prove~~are unwilling to adopt Invisalign ~~System~~system treatment as rapidly or in the volumes we anticipate and at the prices ~~offered, if~~ offered;

•orthodontists or GPs choose to ~~use~~continue using wires and brackets or competitive products rather than the Invisalign if system or the rates at which they utilize the Invisalign system fail to increase or increase as rapidly as anticipated;

•sales of our iTero scanners decline or fail to grow sufficiently or as ~~expected,~~anticipated;

•the growth of CAD/CAM solutions does not produce the results anticipated; or

•if the average selling price of our products ~~decline~~declines.

The average selling prices of our products, particularly our Invisalign system, are influenced by numerous factors, including the type and timing of products sold (particularly the timing of orders for ~~any reason, particularly~~additional clear aligners for certain Invisalign products) and foreign exchange rates. In addition, we sell a number of products at different list prices which may differ based on country. Our average selling prices for our Invisalign system and iTero scanners have been impacted in the ~~case of~~ past and may be adversely affected again in the future if:

•we introduce new or change existing promotions, general or volume-based discount programs, product or services bundles, or consumer rebate programs;

•participation in any promotions or programs unexpectedly increases or decreases or drives demand in unexpected and material ways;

•our ~~Invisalign System as a result of a shift in~~geographic, channel, or product mix ~~towards~~shifts to lower priced products or to products that have a higher percentage of deferred revenue;

•we decrease prices on one or more products or services in response to increasing competitive pricing pressures;

•we introduce new or change existing products or services, or modify how we market or sell any of our new or existing products or services;

•governments impose pricing regulations such as ~~a result~~the volume-based procurement regulations in China; or

•estimates used in the calculation of ~~promotions, or competition,~~deferred revenue differ from actual average selling prices.

If our ~~operating results would~~average selling prices decline, our net revenues, gross margin and net income may be ~~harmed.~~adversely affected.

Competition in the markets for our products is increasing and we expect aggressive competition from existing competitors, ~~and~~ other companies that may introduce new technologies or products in the ~~future.~~future and customers who alone or with others create orthodontic appliances and solutions or other products or services that compete with us.

The dental industry is in a period of immense and rapid digital transformation involving products, technologies, distribution channels and business ~~models, much of which is based on digital transformation involving information technology, data, artificial intelligence, scanning, 3D printing, software~~models. While solutions such as our Invisalign system, iTero scanners and ~~algorithms. While our clear aligner and iTero scanners~~CAD/CAM

software facilitate this transition, ~~there remains significant uncertainty concerning the~~whether our technologies ~~that~~ will achieve market acceptance and, if adopted, whether and when they may become obsolete, ~~as new offerings become available.~~remains unclear.

Currently, ~~our clear aligner products compete directly~~the Invisalign system competes primarily against traditional metal ~~brackets~~wires and ~~wires~~brackets and increasingly against clear ~~aligner products~~aligners manufactured and distributed by new market entrants ~~as well as traditional~~and manufacturers of traditional wires and brackets, both within and outside the U.S., and from traditional medical device companies, laboratories, startups and, in some cases, ~~from~~ doctors and DSOs themselves. ~~Although the~~The number and ~~type~~types of competitors ~~varies~~are diverse and growing rapidly. They vary by segment, geography, and ~~customer, we encounter a wide variety of competitors, including~~size, and include new and well-established regional competitors in ~~certain foreign~~dental markets, as well as larger companies or divisions of larger companies with substantial sales, marketing, research and financial capabilities. ~~Due in part to the expiration of certain of our key patents beginning in 2017, we have faced increased competition in the clear aligner market. These~~Our competitors also include ~~existing larger companies in certain markets who have the ability to leverage their existing channels in the dental market to compete directly with us,~~ direct-to-consumer (“DTC”) companies that provide clear aligners using a remote ~~teledentistry~~business model ~~that requires~~requiring little or no in-office care from trained and licensed ~~physicians,~~doctors, and doctors ~~themselves~~and DSOs who can manufacture custom aligners in their offices using ~~modern~~ 3D printing technology. ~~In addition, corresponding foreign patents began expiring in 2018 which has resulted in increased competition in markets outside the U.S.~~ Large consumer product companies may also ~~enter the~~start supplying orthodontic ~~supply market.~~products.

The manipulation and movement of teeth and bone is a complex and delicate process with potentially painful and debilitating results if ~~not appropriately~~improperly performed ~~and~~or monitored. Accordingly, we ~~remain committed to delivering~~deliver our Invisalign system solutions primarily through trained and skilled doctors. The Invisalign ~~Treatment~~system requires a doctor's prescription and an ~~in person~~in-person physical examination of the patient’s dentition before beginning ~~treatment. However,~~treatment; however, with the advent of DTC providers, ~~accompanied by significant advertising~~

~~campaigns,~~ there has been ~~some shifting~~a shift away from traditional dental practices that may impact our primary selling channels. ~~We also believe doctors~~Doctors and DSOs are sampling alternative products ~~and/or~~and taking advantage of ~~wires~~competitive promotions and ~~brackets bundles that essentially give clear aligners away for free or at reduced prices.~~sale opportunities. In addition, we ~~may also~~ face competition ~~in the future~~ from ~~new~~ companies that ~~may~~ introduce new ~~technologies. We~~technologies and we may be unable to compete with these competitors or ~~one or more of these competitors~~they may render our technology obsolete or economically unattractive. If we are unable to compete effectively with existing products or respond effectively to any new technologies, our business could be harmed. ~~Increased competition has resulted in the past~~

Our iTero intraoral scanner can be used to start clear aligner therapy, as well as other dental procedures, including restorative, implant planning and dentures, and also functions as a diagnostic tool. The iTero intraoral scanner competes with polyvinyl siloxane (“PVS”) impressions that doctors use for clear aligner therapy or other dental procedures, as well as other intraoral scanners. It also competes with traditional bite wing 2D dental x-rays for detecting interproximal caries. If we are unable to compete effectively with these existing products or respond effectively to new technologies, our Systems and Services segment could be harmed.

To stimulate product and services demand, we have a history of offering volume discounts, price reductions and other promotions to targeted customers and consumers. Whether or not successful, these promotional campaigns have had and may in the future ~~result in volume discounting~~have unexpected and ~~price reductions,~~unintended consequences, including reduced gross margins, profitability and ~~profitability, loss of market share, and result in the reduction of dental professionals’ efforts and commitment to use our products, any of which could materially adversely affect our~~average selling prices, net revenues, volume growth, and net ~~income and stock price.~~ income.

We cannot assure that we will be able to compete successfully against our current or future competitors or that competitive pressures will not have a material ~~adverse~~ effect on our business, results of operations and financial condition.

~~We are dependent on our international operations, which exposes us to foreign operational, political and other risks that may harm our business.~~

Our key production steps are performed in operations located outside of the U.S. Technicians use a sophisticated, internally developed computer-modeling program to prepare digital clinical treatment plans (“ClinCheck”), which are then transmitted electronically to our aligner fabrication facilities. These digital files form the basis of the ClinCheck treatment plan and are used to manufacture aligner molds and aligners. Our digital treatment planning and aligner fabrication are performed in multiple international locations and we are continuing to establish these functions closer to our international customers to improve doctor and patient experiences and our operational efficiency. Also, in addition to research and development efforts conducted in the U.S., Russia and Israel, we have operations in Israel and China where we assemble wands, and our intraoral scanner is manufactured. Our reliance on international operations exposes us to risks and uncertainties that may affect our business or results of operation, including:

~~difficulties in hiring and retaining employees generally, as well as difficulties in hiring and retaining employees with the necessary skills to perform the more technical aspects of our operations;~~

~~difficulties in managing international operations, including any travel restrictions on us or our customers such as those recently imposed in China in response to the Novel Coronavirus epidemic;~~

~~fluctuations in currency exchange rates;~~

~~import and export controls, license requirements and restrictions;~~

~~controlling production volume and quality of the manufacturing process;~~

political, social and economic instability, including increased levels of violence in Juarez, Mexico, Hong Kong or the Middle East. We cannot predict the effect on us of any future armed conflict, political instability or violence in these regions. In addition, some of our employees in Israel are obligated to perform annual reserve duty in the Israeli military and may be called for additional active duty under emergency circumstances. We cannot predict the full impact of these conditions on us, particularly if emergency circumstances or an escalation in political situations occur. If many of our employees are called for active duty, our operations in Israel and our business may not be able to function at full capacity;

~~acts of terrorism and acts of war;~~

general geopolitical instability and the responses to it, such as the possibility of sanctions, trade restrictions and changes in tariffs, including recent sanctions against China and Russia and tariffs imposed by the U.S. and China and the possibility of additional tariffs or other trade restrictions between the U.S. and Mexico;

~~interruptions and limitations in telecommunication services;~~

product or material transportation delays or disruption, including as a result of customs clearance, violence, protests, police and military actions, or as a result of natural disasters, such as earthquakes or volcanic eruptions;

~~burdens of complying with a wide variety of regional and local laws, including competition and anti-bribery laws;~~

the impact of government-led initiatives to encourage the purchase or support of domestic vendors, which can affect the willingness of customers to purchase products from, or collaborate to promote interoperability of products with, companies whose headquarters or primarily operations are not domestic;

~~unexpected issues and expenses related to our corporate structure reorganization;~~

~~reduced intellectual property rights protections as compared to the U.S;~~

~~longer payment cycles and greater difficulty in accounts receivable collection; and~~

~~potential adverse tax consequences.~~

The United Kingdom’s (“U.K.”) withdrawal from the EU on January 31, 2020, commonly known as “Brexit,” has exacerbated and may further exacerbate many of the risks and uncertainties described above. The withdrawal of the U.K. from the EU could, among other potential outcomes, adversely affect the tax, tax treaty, currency, operational, legal and regulatory regimes to which our businesses in the region are subject. The withdrawal could also, among other potential outcomes, disrupt the free movement of goods, services and people between the U.K. and the EU and significantly disrupt trade between the U.K. and the EU and other parties. Further, uncertainty around these and related issues could lead to adverse effects on the economy of the U.K., EU and the

~~other economies in which we operate. As the withdrawal continues to unfold, the actual implications of Brexit in their entirety are unlikely to be known for years.~~

~~If any of the risks outlined above materialize in the future, we could experience production delays and lost or delayed revenues.~~

~~We earn an increasingly larger portion of our total revenues from international sales and face risks attendant to those operations.~~

~~We earn an increasingly larger portion of our total revenues from international sales generated through our foreign direct and indirect operations. Since our growth strategy~~success depends ~~in part~~ on our ability to penetrate international markets and increase the localization of our products and services, we expect to continue to increase our sales and presence outside the U.S., particularly in markets we believe to have high-growth potential. Our international operations are subject to risks that are customarily encountered in non-U.S. operations, including:

~~local political and economic instability;~~

the engagement of activities by our employees, contractors, partners and agents, especially in countries with developing economies, that are prohibited by international and local trade and labor laws and other laws prohibiting corrupt payments to government officials, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act of 2010 and export control laws, in spite of our policies and procedures designed to ensure compliance with these laws;

~~fluctuations in currency exchange rates;~~

~~increased expense of developing, testing and making localized versions of our products; and~~

~~health pandemics such as the new coronavirus in China and natural disasters including weather and fires such as those common in California and recently in Australia.~~

~~Any of these factors, either individually or in combination, could materially impact our international operations and adversely affect our business as a whole.~~

Demand for our products may not increase as rapidly as we anticipate due to a variety of factors including a weakness in general economic conditions and resistance to non-traditional treatment methods.

Consumer spending habits are affected by, among other things, prevailing economic conditions, levels of employment, salaries and wage rates, consumer confidence and consumer perception of economic conditions. A general slowdown in the U.S. economy and certain international economies or an uncertain economic outlook would adversely affect consumer spending habits which may, among other things, result in a decrease in the number of overall orthodontic case starts, reduced patient traffic in dentists’ offices, reduction in consumer spending on elective, non-urgent, or higher value procedures or a reduction in the demand for dental services generally, each of which would have a material adverse effect on our sales and operating results. Weakness in the global economy results in a challenging environment for selling dental technologies and dentists may postpone investments in capital equipment, such as intraoral scanners. In addition, Invisalign treatment, which currently accounts for the vast majority of our net revenues, represents a significant change from traditional orthodontic treatment involving metal brackets and wires, and customers and consumers may be reluctant to accept it, or may not find it cost-effective or preferable to traditional treatment. We have generally received positive feedback from orthodontists, GPs and consumers regarding Invisalign treatment as both an alternative to braces and as a clinical method for the treatment of malocclusion, but a number of dental professionals believe that the Invisalign treatment is appropriate for only a limited percentage of their patients. Increased market acceptance of all of our products will depend in part upon the recommendations of dental professionals, as well as other factors including effectiveness, safety, ease of use, reliability, aesthetics, and price compared to competing products and treatment methods.

~~Our success may depend on our ability to~~successfully develop, ~~successfully~~ introduce, ~~and~~ achieve market acceptance of, and manage new products ~~or product offerings.~~and services.

Our success depends on our ability to profitably and quickly develop, manufacture, market, obtain and ~~obtain~~maintain regulatory approval or clearance of new products and services along with improvements to existing ~~products.~~products and services. There is no assurance we can successfully develop, sell and achieve market acceptance of our new or improved products and services. The extent of, and rate at which, new products or services may achieve market acceptance and penetration ~~are achieved by new or future products or offerings~~ is a function of many variables, ~~which include, among other things,~~including our ability to:

~~correctly~~•successfully predict and timely innovate and develop new technologies and ~~cost effectively manufacture or bring to market solutions that meet future customer needs and preferences~~applications with the features and functionality ~~they~~customers desire or expect;

•successfully and timely obtain regulatory approval or clearance of new and improved products or services from government agencies such as the FDA and analogous agencies in other countries;

•cost-effectively and efficiently develop, manufacture, quality test, dispose of, and sell new or improved products and services offerings;

•properly forecast the amount and timing of new or improved product and services demand;

•allocate our research and development funding to products and services with higher growth prospects;

•ensure compatibility of our ~~computer operating~~technology, services and systems ~~and hardware configurations~~ with those of our customers;

•anticipate and rapidly ~~respond~~innovate in response to new competitive products ~~product~~and services offerings and ~~technological innovations;~~technologies;

•differentiate our products and product offerings from our competitors as well as other products in our own portfolio and successfully articulate the benefits ~~of those differences~~ to our customers;

~~innovate~~

•cost effectively manage any increased expense of developing, testing, manufacturing and ~~develop new technologies and applications;~~marketing localized versions of our products internationally;

•manage the ~~availability~~impact of nationalism or initiatives to encourage the purchase or support of domestic vendors, which can influence customers not to purchase products from, or collaborate to promote interoperability of products with foreign companies;

•qualify for third-party reimbursement offor procedures ~~using~~involving our products; and

~~obtain and protect adequate intellectual property rights; and~~

•encourage customers to adopt new ~~technologies.~~technologies and provide the needed technical, sales and marketing support to make new product and services launches successful.

If we fail to accurately predict customer needs and preferences or fail to produce viable technologies, we may invest heavily in research and development ~~of products~~ that dodoes not lead to significant revenues. Even if we successfully innovate and develop new products and product ~~enhancements,~~improvements, we may incur substantial costs in doing so and our profitability may suffer. ~~In addition, even if our new products are successfully introduced, it~~It may be difficult to gain market share and acceptance for new or improved products. Introduction and acceptance of any products and services may take significant time and effort, particularly if ~~doctors~~they require doctor education and training to understand ~~the~~their benefits ~~of the new products~~ or ~~measure~~doctors choose to withhold judgment on a product until patients complete their ~~success only after extended periods of time required to treat patients.~~treatments. For instance, it can take up to 24 months or longer to ~~treat patients~~complete treatment using our Invisalign ~~System. Similarly,~~system.

In addition, we ~~recently introduced~~periodically introduce new business and sales initiatives to meet customers’ needs and demands. In general, our ~~mandibular advancement treatment~~internal resources support these initiatives without clear indications they will prove successful or be without short-term execution challenges. Should these initiatives be unsuccessful, our business, results of operations and ~~expect~~financial condition could be materially impacted.

We have in the past and may again in the future invest in or acquire other businesses, products or technologies which may require significant management attention, disrupt our business, dilute stockholder value and adversely affect our results of operations.

Periodically, we may acquire, or make investments in, companies, products or technologies. Alternatively, we may be unable to find suitable investment or acquisition targets and we may be unable to complete investments or acquisitions on favorable terms, if at all. If we make investments or complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals or desired synergies, and investments or acquisitions we complete could be viewed negatively by our customers, securities analysts and investors. Moreover, to the extent we make strategic investments, the companies in which we invest may fail or we may ultimately own less than a majority of the outstanding shares of the company and be outvoted on critical issues that could harm us or the value of our investment.

Additionally, as an organization we do not have a history of significant acquisitions or integrating their operations and cultures with our own. As such, we are subject to various risks when making a strategic investment or acquisition which could materially impact our business or results of operations, including that we may:

•fail to perform proper due diligence and inherit unexpected material issues or assets, including IP or other litigation or ongoing investigations, accounting irregularities or improprieties, bribery, corruption or other compliance liabilities;

•fail to comply with regulations, governmental orders or decrees;

•experience IT security and privacy compliance issues;

•invest in companies that generate net losses or the markets for their products, services or technologies may be slow or fail to develop;

•not realize a positive return on investment or determine that our investments have declined in value, such that it ~~will~~ may be necessary to record impairments such as future impairments of intangible assets and goodwill;

•have to pay cash, incur debt or issue equity securities to pay for an acquisition, adversely affecting our liquidity, financial condition or the value of our common stock. The sale of equity or issuance of debt to finance any acquisition could result in dilution to our stockholders. The occurrence of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations;

•find it difficult to implement and harmonize company-wide financial reporting, forecasting and budgeting, accounting, billing, IT and other systems due to inconsistencies in standards, internal controls, procedures and policies;

•require significant time and ~~effort on~~resources to effectuate the integration;

•fail to retain key personnel or harm our ~~part to educate doctors to~~existing culture or the culture of an acquired entity;

•not realize any or all or material portions of the expected synergies and benefits of ~~this treatment method. Consequently, doctors may be unwilling~~the acquisition; or

•unsuccessfully evaluate or utilize the acquired technology or acquired company’s know-how or fail to ~~rapidly adopt~~successfully integrate the technologies acquired.

Moreover, opposition to one or more acquisitions could lead to negative ratings by analysts or investors, give rise to objections by one or more stockholders or result in stockholder activism, any of which could harm our ~~new products until they successfully complete at least one case or until more historical clinical results are available.~~stock price.

Operational Risks

Business disruptions could seriously harm our financial condition.

Our ~~ability~~global operations have been disrupted in the past and will likely be disrupted and harmed again in the future. The occurrence of any material or prolonged business disruptions, whether internal or at key suppliers, could harm our business and results of operations, result in material losses, seriously harm our revenues, profitability and financial condition, adversely affect our competitive position, increase our costs and expenses, and require substantial expenditures and recovery time in order to ~~market and sell new products~~fully resume operations.

When business disruptions occur, they may, ~~also be subject to government regulation, including approval~~individually or ~~clearance by~~in the ~~FDA and foreign government agencies. Any failure in~~aggregate, affect our ability to ~~successfully develop~~provide products, services and ~~introduce or achieve market acceptance of~~solutions to our ~~new products or enhanced versions of existing products could have a material adverse effect on our operating results~~customers, and could cause ~~our net revenues~~production delays or limitations, create adverse effects on distributors, disrupt supply chains, result in shipping and distribution disruptions and reduce the availability of or access to ~~decline.~~

one or more facilities. We ~~may experience declines in average selling prices of our products~~have policies and procedures which ~~may decrease our net revenues.~~

~~We provide volume-based discount programs~~are intended to our customers. In addition, we sell a number of products at different list prices which also differ based on regions and or country. If we change volume-based discount programs affecting our average selling prices; if we introduce any price reductions or consumer rebate programs; if we expand our discount programs or participation in these programs increases; if our critical accounting estimates materially differ from actual behavior or results; or if our geographic, channel, or product mix shifts to lower priced products or to products that have a higher percentage of deferred revenue, our average selling prices would be adversely affected. Moreover, we may find that some programs are unsuccessful or, even if successful may drive demand in unexpected ways. Were anymitigate the impact of the ~~foregoing~~business disruptions and crises that we believe could be most significant, and we train employees and work with suppliers to ~~occur, our net revenues, gross profit, gross margin~~prepare for potential disruptions. However, the design or implementation of these policies and ~~net income~~practices may ~~be reduced.~~

~~We are exposed~~fail to ~~fluctuations in currency exchange rates,~~adequately address particular disruptions, which could ~~negatively~~materially and adversely affect our business, financial condition and results of operations.

~~Although the U.S. dollar is our reporting currency, a growing portion of our net revenues and net income are generated in foreign currencies. Net revenues and net income generated by subsidiaries~~Our operating outside of the U.S. are translated into U.S. dollars using constantly fluctuating, often substantially, exchange rates during the respective period. As a result, negative movements in exchange rates against the U.S. dollarresults have and may increasingly adversely affect our net revenues and net income in our consolidated financial statements. We enter into currency forward contract transactions in an effort to cover some of our exposure to currency fluctuations but there is no assurance these transactions will ~~fully or effectively hedge our exposure to currency fluctuations, and, under certain circumstances, these transactions could have an adverse effect on our financial condition.~~

~~As we~~ continue to ~~grow, we are subject to growth related risks, including risks related to excess or constrained capacity~~fluctuate in the future, which makes predicting the timing and ~~operational inefficiencies at~~amount of customer demand, our ~~manufacturing~~revenues, costs and ~~treat facilities.~~expenditures difficult.

~~We are subject to growth related risks, including excess or constrained capacity~~Our quarterly and ~~pressure on our internal systems~~annual operating results have and ~~personnel. In order to manage current operations and future growth effectively, we~~ will ~~need to~~ continue to implement and improve our operational, financial and management information systems and to hire, train, motivate, manage and retain employees. We may be unable to manage such growth effectively. Any such failure could havefluctuate for a material adverse impact on our business, operations and prospects. We continue to establish additional order acquisition, treatment planning and manufacturing facilities closer to our international customers in order to provide doctors with a better experience, improve their confidence in using Invisalign to treat more patients, more often and provide redundancy should other facilities be temporarily or permanently unavailable. Our ability to plan, construct and equip additional order acquisition, treatment planning and manufacturing facilities is subject to significant risk and uncertainty,variety of reasons, including ~~risks inherent in the establishment of a facility, such as hiring and retaining employees and delays and cost overruns~~ as a result of changing doctor and consumer product demand. In addition to the factors otherwise described herein, some of the other factors that have historically and could cause our operating results to fluctuate in the future include:

•higher manufacturing, delivery and inventory costs;

•the creditworthiness, liquidity and solvency of our customers and their ability to timely make payments when due;

•changes in the timing of revenue recognition and changes in our average selling prices, including as a result of the timing of receipt of product orders and shipments, product and services mix, geographic mix, product and services deferrals, the introduction of new products and software releases, product pricing, bundling and promotions, pricing for fees or expenses, modifications to our terms and conditions such as payment terms, or as a result of new accounting pronouncements or changes to critical accounting estimates including, without limitation, estimates based on matters such as our predicted usage of additional aligners;

•seasonal fluctuations, including those related to patient demographics or seasonality as well as the availability of doctors to take appointments;

•longer customer payment cycles and greater difficulty in accounts receivable collection for our international sales;

•costs and expenditures, including connection with the establishment of new treatment planning and fabrication facilities, the hiring and deployment of personnel, litigation, and the success of or changes to our marketing programs from quarter to quarter; and

•timing and fluctuation of spending around marketing and brand awareness campaigns and industry trade shows.

Failing to accurately predict customer demand may cause us to have inadequate staffing, materials or storage required to manufacture our products to meet demand. If we underestimate demand, it may exceed our manufacturing capacity or that of one or more of our suppliers, we may be understaffed and we may not have sufficient materials needed for production. Specifically, our manufacturing process relies on sophisticated computer software and requires new technicians to undergo a relatively long training process, often 120 days or longer. As a result, if we are unable to accurately predict demand, we may have an insufficient number of ~~factors, any~~trained technicians to ensure products are timely manufactured and delivered to meet customers’ expectations, which could damage our relationships with our existing customers or harm our ability to attract new customers. Specifically, production levels for our intraoral scanner are generally forecasted based on forecasts and historic product demand and we often place orders with suppliers for materials, components and sub-assemblies (“materials and components”) as well as finished products weeks or more in advance of projected customer orders.

Conversely, if we overestimate customer demand, we may lose opportunities to increase revenues and profits, we may have excessive staffing, materials, components and finished products, or capacity. If we hire and train too many technicians in anticipation of demand that does not materialize or materializes slower than anticipated, our costs and expenditures may outpace our revenues or revenue growth, harming our gross margin and financial results. Additionally, in order to secure supplies for production of products, we sometimes enter into non-cancelable minimum purchase commitments with vendors, which could impact our ability to adjust our inventory to reflect declining market demands. If product demand decreases or increases more than forecast, we may be ~~out of our control~~required to purchase or lease additional or larger facilities and may negatively impact our gross margin. In addition, these facilities may be located in higher cost regions compared to Mexico and Costa Rica, which may negatively impact our gross margin. If the transition into additional ~~facilities is significantly delayed~~equipment, or ~~demand for our products exceeds our current expectations,~~ we may be unable to fulfill ~~orders timely,~~customer demand in the time frames and with the quantities required, any of which may ~~negatively impact our financial results, reputation and~~take time to

overall business. In addition, because we cannot immediately adapt our production capacity and related cost structures to changing market conditions, our facility capacity may at times exceed or fall short of our production requirements. If product demand decreases or we fail to forecast demand accurately, we could be required to write off inventory or record excess capacity charges, which wouldaccomplish, lower our gross ~~margin.~~margin, inhibit sales or harm our reputation. Production of our Invisalign clear aligners and iTero intraoral scanners ~~may~~are also be limited by capacity constraints due to a variety of factors, including labor shortages, shipping delays, our dependency on ~~third party~~third-party vendors for key materials, parts, components ~~in addition to~~and equipment, and limited production yields. Any or all of these problems could result in the loss of customers, provide an opportunity for competing products to gain market acceptance and otherwise harm our business and financial results.

~~If we fail to sustain or increase profitability or revenue growth in future periods, our profitability may decline.~~

~~If we are to sustain or increase profitability in future periods, we need to continue increasing our net revenues, while controlling expenses. Because~~ and those of our business ~~is evolving, it is difficult~~partners.

Improvements to ~~predict~~or changes in our ~~future operating results or levels~~products may affect the demand and make demand less predictable. We routinely review inventory for usage potential, including fulfillment of ~~growth,~~customer warranty obligations and spare part requirements, and we ~~have not in~~write down to the ~~past~~lower of cost or net realized value the excess and ~~may be unable in the future to sustain our historical growth rates~~obsolete inventory, which may materially affect our results of operations. For instance, periodically we announce new products, capabilities, or technologies that replace or shorten the life cycles of legacy products or cause ~~our profitability~~customers to ~~decline.~~

~~Our operating results have fluctuated in~~defer or stop purchasing legacy products until new products become available. These risks increase the ~~past and may fluctuate in the future, making it difficult to predict the timing and amount~~difficulty of ~~revenues, costs and expenditures.~~

Our operating results have fluctuated in the past and we expect our future quarterly and annual operating results to fluctuate for a variety of reasons, particularly as we focus on increasing doctor and consumeraccurately forecasting demand for ~~our products. Some of the factors that could cause our operating results to fluctuate include:~~

~~limited visibility into~~discontinued and ~~difficulty predicting from quarter to quarter, the level of activity in our customers’ practices;~~

~~changes in geographic, channel, or product mix;~~

~~weakness in consumer spending as a result of a slowdown in the global, U.S. or other economies;~~

~~higher manufacturing costs;~~

~~competition in general and competitive developments in the market;~~

~~changes in relationships with our dental support organizations and distributors, including timing of orders;~~

~~changes in the timing of when revenues are recognized, including as a result of the timing of receipt of product orders and shipments, the introduction of~~ new products and software releases, product offerings or promotions, modifications to our terms and conditions or as a result of new accounting pronouncements or changes to critical accounting estimates including, without limitation, those estimates based on such matters as our predicted usage of additional aligners;

~~fluctuations in currency exchange rates against the U.S. dollar;~~

~~our inability to scale, suspend or reduce production based on variations in product demand;~~

~~increased participation in our customer rebate or discount programs could adversely affect our average selling prices;~~

~~seasonal fluctuations, including those related to patient demographics such as teen buying habits in China and Europe~~ as well as the ~~number~~likelihood of ~~doctors in their offices~~inventory obsolescence, loss of revenue and ~~their availability to take appointments;~~associated gross profit.

~~success of or changes to our marketing programs from quarter to quarter;~~

~~our reliance on our contract manufacturers for the production of sub-assemblies for our intraoral scanners;~~

~~increased advertising or marketing efforts or aggressive price competition from competitors;~~

~~changes to our effective tax rate;~~

unanticipated delays and disruptions in the manufacturing process caused by insufficient capacity or availability of raw materials, turnover in the labor force or the introduction of new production processes, power outages or natural or other disasters beyond our control;

~~underutilization of manufacturing and treat facilities;~~

~~major changes in available technology or the preferences of customers may cause our current product offerings to become less competitive or obsolete;~~

~~costs and expenditures in connection with litigation;~~

~~costs and expenditures in connection with the establishment of treatment planning and fabrication facilities in international locations;~~

~~costs and expenditures in connection with hiring and deployment of direct sales force personnel;~~

~~unanticipated delays in our receipt of patient records made through intraoral scanners for any reason;~~

disruptions to our business due to political, economic or other social instability or any governmental regulatory or similar actions, including the impact of an epidemic such as recent developments beginning in China in connection with the Novel Coronavirus, any of which results in changes in consumer spending habits, consumers unable or unwilling to visit the orthodontist or general practitioners office, as well as any impact on workforce absenteeism;

~~inaccurate forecasting of net revenues, production and other operating costs;~~

~~investments in research and development to develop new products and enhancements;~~

~~material impairments in the value of our privately held companies; and~~

~~timing of industry tradeshows.~~

~~To respond to these and other factors, we~~We may make business decisions that adversely affect our operating results such as modifications to our pricing ~~policy,~~policies and payment terms, promotions, development efforts, product releases, business structure or operations. Most of our expenses, such as employee compensation and lease ~~payment~~ obligations, are relatively fixed in the short term. Moreover, our expense levels are based, in part, on our expectations ~~regarding~~for future ~~revenue levels.~~revenues. As a result, if our net revenues for a particular period ~~fall~~are below expectations, we may be unable to ~~adjust~~timely or effectively reduce spending ~~quickly enough~~ to offset any shortfall in net revenues. Due to these and other factors, we believe that quarter-to-quarter comparisons of our operating results may not be meaningful. You should not rely on our results for any one quarter as an indication of our future performance.

~~A disruption in the operations of our primary freight carrier or higher shipping costs could cause a decline in our~~ net revenues ~~or a reduction in our earnings.~~shortfall.

We are ~~dependent on commercial freight carriers, primarily UPS,~~subject to ~~deliver our products. If the operations of these carriers are disrupted for any reason, we may be unable to timely deliver our products to our customers. If we cannot deliver our products on time~~operating risks, including excess or constrained capacity and cost effectively, our customers may choose competitive offerings or create their own aligners causing our net revenues and gross margins to decline, possibly materially. In a rising fuel cost environment, our freight costs will increase. In addition, we earn an increasingly larger portion of our total revenues from international sales. International sales carry higher shipping costs which could negatively impact our gross margin and results of operations. If freight costs materially increase and we are unable to pass that increase along to our customers for any reason or otherwise offset such increases in our cost of net revenues, our gross margin and financial results could be adversely affected.

If we are unable to accurately predict our volume growth and fail to hire a sufficient number of technicians in advance of such demand, or hire technicians faster than our actual growth projections, the delivery time of our products could be delayed or our costs may exceed our revenues, each ofoperational inefficiencies, which could adversely affect our results of operations.

~~Treatment~~We are subject to operating risks, including excess or constrained capacity and pressure on our internal systems, personnel and suppliers. In order to manage current and anticipated future operations effectively, we must continually implement and improve our operational, financial and management information systems, hire, train, motivate, manage and retain employees, and ensure our suppliers remain diverse and capable of meeting growing demand for the systems, raw materials, parts and components essential to the manufacture and delivery of our products. We may be unable to balance near-term efforts to meet existing demand with future customer demand, including adding personnel, creating scalable, secure and robust systems and operations, and automating processes needed for long term efficiencies. Any such failure could have a material impact on our business, operations and prospects.

Additionally, we have established treatment planning ~~is a key step leading~~and manufacturing facilities closer to our ~~manufacturing process which relies on sophisticated computer software. This requires new technicians~~international customers to ~~undergo~~provide them with better experiences, improve their confidence using our products to treat patients, create efficiencies, and provide redundancy should other facilities be temporarily or permanently unavailable. Our ability to obtain and maintain regulatory clearance and certifications and equip facilities is subject to significant risk and uncertainty. If a ~~relatively long training process, often up~~facility is temporarily or permanently, partially or fully shut down, or if demand for our products outpaces our ability to ~~120 days or longer. As a result, if~~hire qualified personnel and effectively implement systems and infrastructure, we ~~are~~may be unable to ~~accurately predict~~fulfill orders timely, or at all, which may negatively impact our ~~volume growth, we may have an insufficient number of trained technicians to deliver our~~financial results, reputation and overall business.

Our products ~~within the time frame our customers expect. Such a delay could cause us to lose existing customers or fail to attract new customers. This could cause a decline in our net revenues~~ and net income and could adversely affect our results of operations. Conversely, if we hire and train technicians in anticipation of volume growth that does not materialize or materializes at a rate we do not anticipate, our costs and expenditures may outpace our revenue growth, harming our gross margins, operating expenses and financial results.

~~Our~~ information technology systems are critical to our business. ~~System~~Issues with product development or enhancements, IT system integration, implementation, updates and ~~implementation issues~~upgrades have previously and ~~system security risks~~ could again in the future disrupt our operations ~~which could~~and have a material ~~adverse~~ impact on our business and operating results.

We rely on the efficient, uninterrupted and ~~uninterrupted~~secure operation of our own complex ~~information technology systems.~~IT systems and are dependent on key third party software embedded in our products and IT systems as well as third-party hosted IT systems to support our operations. All ~~information technology~~software and IT systems are vulnerable to damage, cyber attacks or interruption from a variety of sources. ~~As our business has grown in size and complexity, the growth has placed, and will continue to place significant demands on such systems.~~ To effectively manage ~~this growth,~~and improve our ~~information~~operations, our IT systems and applications require an ongoing commitment of significant expenditures and resources to maintain, protect, upgrade, enhance and ~~enhance~~restore existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving industry and regulatory standards, increasingly sophisticated cyber threats, and changing customer preferences. ~~We are continuing~~Expanded remote working and increased usage of online and hosted technology platforms by us, our customers and suppliers, including teledentistry and new or expanded use of online service platforms, products and solutions such as video conferencing applications, doctor, consumer and patient apps have increased the demands on and risks to our IT systems and personnel. Moreover, we continue to transform certain business processes, extend established processes to new subsidiaries and/or implement additional functionality in our enterprise resource planning, ~~(“ERP”)~~product development, manufacturing, and other software ~~system~~and IT systems which entails certain risks, including ~~difficulties with changes in business processes that could disrupt~~disruption of our operations, such as our ability to develop and update products that are safe and secure, track orders and timely ship products, manage our supply chain and aggregate financial and operational data.

~~System upgrades~~ Failure to adequately protect and ~~enhancements require significant expenditures~~maintain the integrity of our products and ~~allocation of valuable employee resources. Delays~~IT systems may result in ~~integration or disruptions to our business from implementation of these new or upgraded systems could have~~ a material ~~adverse impact~~effect on our financial ~~condition~~position, results of operations and ~~operating results.~~cash flows.

We have a complex, global iTero intraoral scanner installed base of older and newer models. These models are continually updated to add, expand or improve on existing or new features with hardware improvements, improvements to third party

components, or part repair or replacement. We have experienced hardware issues in the past and may in the future, including issues relating to manufacturing, design, quality, or safety, of which we become aware only after products or changes have been introduced into the market. We also have not been and may not be able to ensure that third party components or any changes to the foregoing will not be incompatible with, or have a negative impact on the functionality of our iTero intraoral scanners. As a result, there have been and may be widespread failures of our iTero intraoral scanners or we may experience epidemic failures of our iTero intraoral scanner to perform as anticipated. Previously, we have not been and in the future may not be prepared for, or have the infrastructure to, timely and adequately remediate or implement corrective measures for such failures, including due to our dependency on third party providers or suppliers. As a consequence, remediation has been and may be in the future time-consuming and difficult to achieve, which may materially impact our customers and our business partners, damage our reputation and result in lost business and revenue opportunities, and could be materially costly.

Additionally, we continuously upgrade and issue new releases of our products and customer facing software applications, ~~specifically the ClinCheck software, MyAligntech~~upon which customer facing, manufacturing and ~~the Invisalign Doctor Site.~~treatment planning operations depend. Software applications and products containing software frequently contain errors or defects, especially when ~~they are~~ first introduced or when new versions are released. Additionally, the third-party software integrated into or interoperable with our products and services will routinely reach end of life, and as a consequence, certain models of our iTero intraoral scanners may be exposed to additional vulnerabilities, including increased security risks, errors and malfunctions that may be irreparable or difficult to repair. The discovery of a defect, error or ~~error~~security vulnerability in our products, software applications or ~~information~~IT systems, or incompatibility with customers’ computer operating systems and hardware configurations with a new release or upgraded version or the failure of our products or primary ~~information~~IT systems may ~~result in the following~~cause adverse consequences, ~~among others:~~including: delay or loss of revenues, orsignificant remediation costs, delay in market acceptance, loss of data, disclosure of financial, health or other personal information of our customers or their patients, product recalls, damage to our reputation, loss of market share ~~to competition~~ or increased service costs, any of which could have a material ~~adverse~~ effect on our business, financial condition or results of ~~operations.~~our operations and the operations of our customers or our business partners.

A significant portion of our clear aligner production is dependent on digital scans from our globally dispersed and decentralized installed base of iTero and third-party intraoral scanners. Failures of all or any portion of ours or third-party software or other components or systems to interoperate with iTero or third-party scanners, termination of interoperability with third-party scanners, malware or ransomware attacks, product or system vulnerabilities or defects, interference or disruptions for us, our customers, labs or other business partners in the use of our products or the transmission or processing of data needed for the use or ordering of our products, or a system outage for any reason have harmed our operations previously and in the future could affect materially and adversely our ability to accept scans, manufacture clear aligners or restorative procedures or treatments and services or otherwise service our customers which may, amongst other things, harm our sales, damage our reputation, adversely impact our strategic partners or result in litigation.

We are highly dependent on third-party suppliers, some of whom are sole source suppliers, for certain key machines, components and materials, and our business and operating results could be harmed if supply is restricted or ends, or if the price of raw materials used in our manufacturing process increases.

We are highly dependent on our supply chain, particularly manufacturers of specialized scanning equipment, rapid prototyping machines, resin and other advanced materials, as well as the optics, electronic and other mechanical components of our intraoral scanners. We maintain single supply relationships for many of these machines and materials. In particular, our CT scanning and stereolithography equipment used in our aligner manufacturing and many of the critical components for the optics of our scanners are provided by single suppliers. We rely on a single third-party manufacturer to supply key sub-assemblies for our iTero Element scanner. We purchase the vast majority of our resin and polymer, the primary raw materials used in our manufacturing process for clear aligners, from a single source. By using single suppliers for materials and manufacturing in a limited number of locations, we risk multiple supply chain vulnerabilities. For example, damage to or destruction of a facility can materially disrupt our ability to timely deliver key parts, components and materials or products or a supplier could encounter financial, operating or other difficulties, be unable to hire or maintain personnel, fail to timely obtain supplies, fail to maintain manufacturing standards or controls. To the extent any of our suppliers or others' suppliers in our supply chain are dependent on raw materials, components or other parts from Russia or Ukraine, the foregoing risks may be more likely to occur as a result of the military conflict in Ukraine. Any one of these occurrences would adversely impact our supply chain.

Because of our dependence on our suppliers, changes in our relationships with any of them can result in disruptions to the supply chain, which can materially impact our business. For instance, we may be unable to quickly establish or qualify replacement suppliers creating production interruptions, delays and inefficiencies. Finding substitute manufacturers may be expensive, time-consuming or impossible and could result in a significant interruption in the supply of one or more products causing us to lose revenues and suffer damage to our customer relationships. Technology changes by our service providers, vendors, and other third parties could disrupt access to required manufacturing capacity or require expensive, time-consuming development efforts to adapt and integrate new equipment or processes. In the event of technology changes, delivery delays, labor stoppages or shortages, or shortages of, or increases in price for these items, sales may decrease and our business and prospects may be harmed.

We use distributors for a portion of the importation, marketing and sales efforts related to our products and services, which exposes us to risks to our sales and operations, including the risk that these distributors do not comply with applicable laws or our internal procedures.

In addition to our direct sales force, we have and expect to continue to use distributors to import, market, sell, service and support our products. Our agreements with these distributors are generally non-exclusive and terminable by either party with little notice. If alternative distributors must be quickly found and trained in the use, marketing, sales and support of our products and services, our revenues and ability to sell or service our products in markets key to our business could be adversely affected. These distributors may also choose to sell alternative or competing products or services. In addition, we may be held responsible for the actions of these distributors and their employees and agents for compliance with laws and regulations, including fair competition, bribery and corruption, trade compliance, safety, data privacy and marketing and sales activities. A distributor may also affect our ability to effectively market our products in certain foreign countries or regulatory jurisdictions if it holds the regulatory authorization in such countries or within such regions and causes, by action or inaction, the suspension of such marketing authorization or sanctions for non-compliance or prevents us from taking control of any such authorization. It may be difficult, expensive, and time-consuming for us to re-establish market access or regulatory compliance.

A disruption in the operations of a primary freight carrier, higher shipping costs or shipping delays could disrupt our supply chain and impact our revenues or gross margin.

We are dependent on commercial freight carriers, primarily UPS, to deliver our products. If the ~~information~~operations of carriers are disrupted, we ~~rely~~may be unable to timely deliver our products to our customers who may choose alternative products which could cause our net revenues and gross margin to materially decline. For example, after Russia's military attacks in Ukraine in 2022, UPS ceased shipments to Russia and we suspended new product sales there. Moreover, when fuel costs increase, our freight costs generally do so as well. In 2022, due to increased fuel costs, we experienced a material increase in freight costs. In addition, we earn an increasingly larger portion of our total revenues from international sales, which carry higher shipping costs that could negatively impact our gross margin and results of operations. If freight costs materially increase and we are unable to successfully pass all or significant portions of the increases along to our customers, or we cannot otherwise offset such increases in our cost of net revenues, our gross margin and financial results could be materially affected.

Our success depends largely on the talents and efforts of our personnel, and if we are unable to ~~run~~attract, motivate, train or retain our ~~businesses were~~personnel, it may be more difficult to grow effectively and pursue our strategic priorities, and could materially effect on our results of operations.

We are highly dependent on the talent and effort of our personnel, including highly skilled personnel like orthodontists and production technicians in our treatment planning facilities, and employees on our clinical engineering, technology development and sales teams. As a result, we strive to retain our personnel, by providing competitive compensation and benefits, development opportunities and training, flexible work options, and an inclusive corporate culture. However, there is substantial competition in our industry for highly-skilled personnel, in particular significantly higher demand for technical and digital talent. Furthermore, our compensation and benefit arrangements, such as our equity award programs, may not always be ~~found~~successful in attracting new employees and retaining and motivating existing employees. In addition, other internal and external factors can impact our ability to hire and retain talent, including insufficient advancement or career opportunities and restrictive immigration policies. The loss of any of our key personnel, particularly executive management, key research and development personnel or key sales team personnel, could harm our business and prospects and could impede the achievement of our research and development, operational or strategic objectives.

We provide significant training to our personnel and our business will be ~~inaccurate~~impacted if our training fails to properly prepare our personnel to perform the work required, we are unable to successfully instill technical expertise in new and existing personnel or ~~unreliable,~~ if our techniques prove unsuccessful or not cost-effective. Moreover, for certain roles, this training and experience can make key personnel, such as our sales personnel, highly desirable to competitors and lead to increased attrition. The loss of the services and knowledge from our highly-skilled employees may significantly delay or prevent the achievement of our development and business objectives and could harm our business. For example, it can take up to twelve months or more to train sales representatives to successfully market and sell our products and for them to establish strong customer relationships.

Additionally, facilitating seamless leadership transitions for key positions is a critical factor in sustaining the culture and maintaining the success of our organization. If our succession planning efforts are not effective, it could adversely impact our business. We continue to assess the key personnel that we believe are essential to our long-term success, as future organizational changes could also cause our employee attrition rate to increase. If we fail to ~~properly maintain~~effectively manage any organizational or strategic changes, our ~~information systems~~financial condition, results of operations, and ~~data~~reputation, as well as our ability to successfully attract, motivate and retain key employees, could be harmed.

In 2022, we gradually reopened many of our offices that had been substantially closed to employees during the COVID-19 pandemic. Where our offices have reopened, we have adopted a hybrid work schedule that allows many of our employees the opportunity to collaborate and connect with others in our offices for some days of the week while having the

option to work remotely other days. This hybrid work approach that we have adopted may materially increase our costs or create unforeseen challenges or complications, including:

•difficulties maintaining our corporate culture, disruption of morale or decreased loyalty;

•difficulties with hiring and retention, particularly if we must compete against other companies that offer generous or broad remote working policies;

•negative impacts to collaboration, performance and productivity;

•increased stress, fatigue or “burn out” by employees unable to disengage their work life from home life;

•increased operational, governance, compliance, and tax risks;

•increased attrition or limits to our ability to attract employees who prefer to continue working remotely full time, or in offices or geographies different from where they were hired or are expected to work;

•problems managing office space requirements;

•concerns regarding favoritism or discrimination;

•strains to our business continuity plans and difficulties achieving our strategic objectives; and

•increased labor and employment claims and litigation.

Also, we believe a key factor in our success has been the culture we have created that emphasizes a shared vision and values focusing on agility, customer success and accountability. We believe this culture fosters an environment of integrity, innovation, creativity, and teamwork. We have experienced and may continue to experience in the future, difficulties attracting and retaining employees that meet the qualifications, experience, compliance mindset and values we expect. If we are unable to attract and retain personnel that meet our selection criteria or relax our standards in order to meet the demands of our growth or if ~~we fail to develop new capabilities to meet our business needs in a timely~~

manner, we could suffer operational disruptions, have customer disputes, fail to produce timely and accurate reports, have regulatory or other legal problems, experience increases in operating and administrative expenses, lose existing customers, have difficulty in attracting new customers or in implementing our growth ~~strategies, or suffer~~is not managed effectively, our corporate culture, ability to achieve our strategic objectives, and our compliance with obligations under our internal controls and other ~~adverse consequences. In addition, experienced computer programmers and hackers~~requirements may be able to penetrate our network security or our cloud-based software servers hosted by third parties and misappropriate our confidential information or that of third parties, create system disruptions or cause shutdowns. Furthermore, sophisticated hardware and operating system software and applications that we either internally develop or procure from third parties may contain defects in design and manufacture, including “bugs” and other problems that can unexpectedly interfere with the operation of the system. The costs to eliminate or alleviate security problems, viruses and bugsharmed. This could ~~be significant, and the efforts to address these problems could result in interruptions that may~~ have a material adverse ~~impact~~effect on our results of operations ~~net revenues~~ and our ability to maintain market share.

We are dependent on our marketing activities to deepen our market penetration and raise awareness of our brand and products, which may not prove successful or may become less effective or more costly to maintain in the long term.

Our marketing efforts and costs are significant and include national and regional campaigns in multiple countries involving television, print and social media and, more recently, alliances with professional sports teams, social media influencers and other strategic partners. We attempt to structure our advertising campaigns to increase brand awareness, adoption and goodwill; however, there is no assurance our campaigns will achieve the returns on advertising spend desired, increase brand or product awareness sufficiently or generate goodwill and positive reputational goals. Moreover, should any entity or individual endorsing us or our products take actions, make or publish statements in support of, or lend support to events or causes which may be perceived by a portion of society negatively, our sponsorships or support of these entities or individuals may be questioned, boycotts of our products announced, and our reputation may be harmed, any of which could have a material effect on our gross margin and business overall.

In addition, various countries prohibit certain types of marketing activities. For example, some countries restrict direct to consumer advertising of medical devices. We could run afoul of restrictions and be ordered to stop certain marketing activities. Moreover, competitors do not always follow these restrictions, creating an unfair advantage and making it more difficult and costly for us to compete.

Additionally, we rely heavily on data generated from our campaigns to target specific audiences and evaluate their effectiveness, particularly data generated from internet activities on mobile devices. To obtain this data, we are dependent on third parties and popular mobile operating ~~results.~~systems, networks, technologies, products, and standards that we do not control, such as the Android and iOS operating systems and mobile browsers. Any changes in such systems that degrade, reduce or eliminate our ability to target or measure the results of ads or increase costs to target audiences could adversely affect the effectiveness of our campaigns. For example, Apple has released mobile operating systems that include significant data privacy changes that may limit our ability to interpret, target and measure ads effectively.

~~Furthermore,~~Legal, Regulatory and Compliance Risks

We are subject to antitrust and competition regulatory activity, litigation and enforcement actions that may result in fines, penalties, restrictions on our business ~~requires~~practices, and product or operational changes which could materially impact our business.

We are and may be in the ~~secure transmission of confidential patient health information over public networks. Because we store~~future subject to antitrust or competition related investigations, enforcement actions, and ~~transmit sensitive information including protected patient health information, security breaches~~settlements, by governmental agencies, competitors, consumers, customers, and others which could ~~expose~~cause us to incur substantial costs or require us to change our business practices in a ~~risk~~manner materially adverse to our business. Governments, enforcement

authorities and other legislative bodies are actively developing new competition laws and regulations aimed at the technology sector, artificial intelligence and digital platforms, coordinating globally, and enforcing competition laws and regulations, and this includes scrutiny in potentially large markets such as the EU, U.S., and China. Government regulatory actions and court decisions may result in fines or hinder our ability to provide certain benefits to our consumers, reducing the attractiveness of ~~regulatory action, litigation, possible liability~~our products and ~~loss. We~~the revenue that comes from them. Other companies and government agencies have ~~experienced breaches~~ in the past and may in the future allege that our ~~security measures~~actions violate the antitrust or competition laws or otherwise constitute unfair competition. Such claims and investigations, even if without foundation, may be ~~inadequate~~very expensive to ~~prevent future security breaches,~~defend, involve negative publicity and substantial diversion of management time and effort and could result in significant judgments against us or require us to change our business practices, any of which may materially impact our results of operations.

Obtaining approvals and complying with governmental regulations, particularly those related to personal healthcare information, financial information, quality systems, anti-corruption and anti-bribery are expensive and time-consuming. Any failure to obtain or maintain approvals or comply with regulations regarding our products or services or the products and services of our suppliers or customers could materially harm our sales, result in substantial penalties and fines and cause harm to our reputation.

We and many of our healthcare provider customers, suppliers and distributors are subject to extensive and frequently changing regulations under numerous federal, state, local and foreign laws, including those regulating:

•the storage, transmission and disclosure of medical information and healthcare records;

•prohibitions against the offer, payment or receipt of remuneration to induce referrals to entities providing healthcare services or goods or to induce the order, purchase or recommendation of our products; and

•the design, manufacture marketing and advertising of our products.

The healthcare and technology markets are also highly regulated and subject to changing political, economic and regulatory influences. Global regulators are expanding and changing the regulations and guidance for products, which can limit the potential benefits of products and result in protracted review timelines for new product introductions. We are also incorporating artificial intelligence into our software to make it more effective for us, our customers, suppliers and consumers; however, this subjects us to risks of compliance with the expanding and changing regulations regarding the use artificial intelligence. Our critical vendors and service providers are similarly subject to various regulations. Our failure or the failure of our suppliers, customers, advertisers and influencers to strictly adhere to clearances or approvals in the labeling, marketing and sales of our products and services could subject us to claims or litigation, including actions alleging false or misleading advertising or other violations of laws or regulations, which may result in costly investigations, fines, penalties, as well as material judgments, settlements or decrees. We are also subject to complex and changing environmental and health and safety regulations. Additionally, a large portion of our revenues are derived from international sales and we are dependent on our international operations, ~~and profitability would be adversely affected~~which exposes us to additional foreign regulations not otherwise described herein, including without limitation, pricing regulations imposed by ~~among other things, loss of customers and potential criminal and civil sanctions if they are not prevented.~~

governments like the volume-based procurement regulations in China. There can be no assurance that we will adequately address the business risks associated with the implementation and compliance with such laws and our ~~process of improving existing systems, developing new systems~~internal processes and procedures to ~~support our expanding operations, integrating new systems, protecting confidential patient health information, and improving service levels will not be delayed~~comply with such laws or that ~~additional systems issues~~we will ~~not arise~~be able to take advantage of any resulting business opportunities.

Furthermore, in general before we can sell a new medical device or market a new use of or claim for an existing product, we must obtain clearance or approval before marketing the product unless an exemption applies. For instance, in the ~~future.~~U.S., FDA regulations are wide ranging and govern, among other things, product design, development, manufacturing and testing; product labeling and product storage. It takes significant time, effort and expense to obtain and maintain clearances or approvals of products and services from governmental regulators such as the FDA, and there is no guarantee we will successfully or timely obtain or maintain approvals in all or any of the countries in which we do business. In other countries, the requirements, time, effort and expense to obtain and maintain similar marketing authorizations may differ materially from those of the FDA. Moreover, these laws may change, resulting in additional time and expense or loss of market access. If approvals to market our products or services are delayed, we may be unable to offer them in markets we deem important to our business. Additionally, failure to comply with applicable regulatory requirements could result in enforcement actions with sanctions including, among other things, fines, civil penalties and criminal prosecution. Failure or delays to obtain or maintain regulatory approvals or to comply with regulatory requirements may materially harm our domestic or international operations, and adversely impact our business.

We and certain of our vendors must also comply with facility registration and product listing requirements of regulators and adhere to applicable Quality System regulations. The FDA enforces its Quality System regulations through periodic unannounced inspections. Failure to ~~adequately protect and maintain the integrity of our information systems and data may~~satisfactorily correct an adverse inspection finding or to comply with applicable manufacturing regulations can result in enforcement actions, we may be required to find alternative manufacturers, which could be a long and costly process and may cause reputational harm. Enforcement actions by regulators could have a material ~~adverse~~ effect on our ~~financial position, results~~business.

We are also subject to anti-corruption and anti-bribery (“ABAC”) laws such as the Foreign Corrupt Practices Act ("FCPA") and the U.K. Bribery Act of ~~operations~~2010, which generally prohibit corrupt payments to foreign officials for the purpose of obtaining or keeping business, securing an advantage and ~~cash flows.~~directing business to another. To comply with ABAC laws, regulators require the maintenance of accurate books and records and a system of internal accounting controls. Under the FCPA, we may be held liable for any corrupt actions taken by directors, officers, employees, agents, or other strategic or local partners or representatives.

~~If the security of~~In addition, while we have policies requiring our ~~customer and patient information is compromised or we are unable~~personnel to comply with applicable laws and regulations and we provide significant training to foster compliance, they may not properly adhere to our policies or applicable laws or regulations, including such as our policies on the use of certain electronic communications and maintaining accurate books and records. If our personnel or the personnel of our agents or suppliers fail to comply with any laws, regulations, policies or procedures, or we fail to audit and enforce compliance, it could subject us to harm to our reputation, loss of customers, loss or revenues, or regulatory investigations, actions and fines.

Security breaches, data breaches, cyber attacks, other cybersecurity incidents or the failure to comply with privacy, security and data protection laws could materially impact our operations, patient care could suffer, ~~and~~ we could be liable for ~~related~~ damages, and our business, operations and reputation could be ~~impaired.~~harmed.

We retain confidential customer personal and financial, ~~as well as~~ patient health information and our own proprietary information and data essential to our business operations. We rely upon the effective operation of our IT systems, and those of our service providers, vendors, and other third parties to safeguard the information and data. Additionally, our success may be dependent on the success of healthcare providers, many of whom are comprised of individual or small operations with limited IT experience and inadequate or untested security protocols, in ~~our processing centers. Therefore, it~~managing data privacy and data security requirements. It is critical that the facilities, infrastructure and IT systems on which we depend to run our ~~facilities~~business and ~~infrastructure~~the products we develop remain secure and ~~are also~~be perceived by the marketplace and our customers to be secure. Despite the implementation of security features in our products and security measures ~~we have experienced breaches~~ in ~~the past~~our IT systems, we and our ~~infrastructure may~~service providers, vendors, and other third parties continue to be ~~vulnerable~~targeted by or subject to physical break-ins, computer viruses or other malicious code, unauthorized or fraudulent access, programming errors or other technical malfunctions, hacking or phishing attacks, ~~by third parties,~~malware, ransomware, employee error or malfeasance, cyber attacks, and other breaches of IT systems or similar disruptive ~~problems. If~~actions, including by organized groups and nation-state actors. For example, we ~~fail~~have experienced, and may again experience in the future, cybersecurity incidents and unauthorized internal employee exfiltration of company information.

Further, the frequency of third-party cyber-attacks has increased over the last several years.The military conflict in Ukraine may cause nation-state actors or hackers sympathetic to ~~meet~~either side of the conflict to carry out cyber-attacks to achieve their goals, which may include espionage, information gathering operations, monetary gain, ransomware, disruption, and destruction. To respond to potential increases in cyber-attacks, in 2022, we increased efforts to identify and respond to any attacks, including placing our ~~customer~~cybersecurity operations team on high alert. Significant service disruptions, breaches in our infrastructure and ~~patients’ expectations regarding the security of customer and patient information, we~~IT systems or other cybersecurity incidents could ~~be liable for damages and~~expose us to litigation or regulatory investigations, impair our reputation and competitive position, ~~could~~ be ~~impaired.~~distracting to our management, and require significant time and resources to address. Affected parties or regulatory agencies could initiate legal or regulatory action against us, which could prevent us from resolving the issues quickly or force us to resolve them in unanticipated ways, cause us to incur significant expense and liability, or result in judicial or governmental orders forcing us to cease operations or modify our business ~~practices.~~practices in ways that could materially limit or restrict the products and services we provide. Concerns over our privacy practices could adversely affect others’ perception of us and deter customers, ~~advertisers~~patients and partners from using our products. In addition, patient care could suffer, and we could be liable if our products or IT systems fail to deliver ~~correct~~accurate and complete information in a timely manner. We have internal monitoring and detection systems as well as cybersecurity and other forms of insurance coverage related to a breach event covering expenses for notification, credit monitoring, investigation, crisis management, public relations and legal advice. ~~The policy also provides coverage for regulatory action defense including fines and penalties, potential payment card industry fines and penalties and costs related to cyber extortion; however, damage~~However, damages and claims arising from such incidents may not be covered or may exceed the amount of any ~~coverage.~~coverage and do not cover the time and effort we may incur investigating and responding to any incidents, which may be material.The costs to eliminate, mitigate or recover from security problems and cyber attacks and incidents could be material and depending on the nature and extent of the problem and the networks or products impacted, may result in network or systems interruptions, decreased product sales, or data loss that may have a material impact on our operations, net revenues and operating results.

Additionally, our globally-dispersed installed base of iTero intraoral scanners at customer, strategic business partner or other locations may be independently or collectively the target of a cybersecurity incident or attack or subject to the intrusion of a virus, bug, or other similar negative intruder. Due to the large and growing number of these decentralized locations, we may not be able to, or not have the capacity, knowledge, or infrastructure to, respond to or remedy a cybersecurity issue in a timely manner, which may cause loss or damage to us or our customers or strategic business partners or may cause further malfunctions in, or damage to, our servers, databases, systems or products and services, loss or damage of our data, interruption or temporary cessation of our operations, or an overall negative impact to our business or reputation.

We are also subject to federal, state and foreign laws and regulations, including regulations affecting the security and privacy of patient healthcare information applicable to healthcare providers and their business associates, such as HIPAA, ones relating to privacy, data security and protection, content regulation, and consumer ~~protection.~~protection, among others. We ~~may be or become~~are subject to various national and regional data localization or data residency laws such as the General Data Protection Regulation in the EU and analogous laws in China which generally require that certain types of data collected within a country be stored and processed only within that country or approved ~~countries. Some~~ countries ~~including Russia~~ and ~~China, have enacted, and others~~other countries are considering enacting similar data localization or data residency laws. ~~If countries~~We have and likely will again in ~~which we have customers adopt data localization or data residency laws, we could~~the future be required to implement new or expand existing data storage protocols, build new storage facilities, and/or devote additional resources to comply with ~~the requirements of~~ such laws, any of which could ~~have significant cost implications.~~be costly. We ~~may~~are also be subject to data export restrictions orand international transfer laws which prohibit or impose conditions upon the transfer of such data from one country to another. These laws and regulations are constantly evolving and may be interpreted, applied, created or amended in a manner that could adversely affect our business.

~~In addition,~~Our business exposes us to potential liability for the quality and safety of our products and services, how we ~~must~~advertise and market those products and services and how and to whom we sell them, and we may incur substantial expenses or be found liable for substantial damages or penalties if we are subject to claims or litigation.

Our products and services involve an inherent risk of claims concerning their design, manufacture, safety and performance, how they are marketed and advertised in a complex framework of highly regulated domestic and international laws and regulations, how we package, bundle or sell them to customers who may be private individuals or companies or public entities such as hospitals and clinics and how we train and support doctors, their staffs and patients who administer or use our products. Moreover, consumer products and services are routinely subject to claims of false, deceptive or misleading advertising, consumer fraud and unfair business practices. Additionally, we may be held liable if any product we develop or manufacture or services we offer or perform causes injury or is otherwise found unhealthy. If our products are safe but they are promoted for use or used in unintended or unexpected ways or for which we have not obtained clearance or approvals (“off-label” usage), we may be investigated, fined or have our products or services enjoined or approvals rescinded or we may be required to defend ourselves in litigation. Although we maintain insurance for product liability, business practices and other types of activities we make or offer, coverage may not be available on acceptable terms, if at all, and may be insufficient for actual liabilities. Any claim for product liability, sales, advertising and business practices, regardless of its merit or eventual outcome, could result in material legal defense costs and damage our reputation, increase our expenses and divert management’s attention.

Increased focus on current and anticipated environmental, social and governance (“ESG”) laws and increased scrutiny of our ESG policies and practices may materially increase our costs, expose us to potential liability, adversely impact our reputation, employee retention, willingness of customers and suppliers to do business with us and willingness of investors to invest in us.

Our operations are subject to a variety of existing local, regional and global ESG laws and regulations, and we will likely be required to comply with ~~numerous data protection~~new, broader, more complex and more costly laws and regulations that focus on ESG matters. Our compliance obligations will likely span all aspects of our business and operations, including product design and development, materials sourcing and other procurement activities, product packaging, product safety, energy and natural resources usage, facilities design and utilization, recycling and collection, transportation, disposal activities and workers’ rights.

Environmental regulations related to greenhouse gases are expected to have an increasingly larger impact on our or our suppliers’ energy sources. Many U.S. and foreign regulators have enacted or are considering enacting new or additional disclosure requirements or limits on the emissions of greenhouse gases, including, but not limited to, carbon dioxide and methane, from power generation units using fossil fuels. The effects of greenhouse gas emission limits on power generation are subject to significant uncertainties, including the timing of any new requirements, levels of emissions reductions and the scope and types of emissions regulated. These limits may have the effect of increasing our costs and those of our suppliers and could result in manufacturing, transportation and supply chain disruptions and delays if clean energy alternatives are not readily available in adequate amounts when required. Moreover, alternative energy sources, coupled with reduced investments in traditional energy sources and infrastructure, may fail to provide the predictable, reliable, and consistent energy that ~~span from individual state~~we, our suppliers and ~~national laws~~other businesses need for operations.

Regulations related to sourcing of certain metals may have an impact on our business. For instance, the sourcing and availability of metals that may be used in the ~~U.S. to multinational requirements~~manufacture of, or contained in, ~~the EU. In the EU, we must comply with the General Data Protection Regulation (“GDPR”) which serves as a harmonization of European data-privacy laws. We believe we have designed~~ our ~~product and service offerings to~~products may be ~~compliant with the requirements of applicable data protection~~affected by laws and ~~regulations. Maintaining systems~~regulations regarding the use of minerals obtained from certain regions of the world like the Democratic Republic of Congo and adjoining countries. Although we do not believe that we or our suppliers source minerals from this region, these laws and regulations may decrease the number of suppliers capable of supplying our needs for certain metals, thereby negatively affecting our ability to manufacture products in sufficient quantities or at competitive prices, leading customers to potentially choose competitive goods and services.

Meeting our obligations under existing ESG laws, rules, or regulations is already costly to us and our suppliers, and we expect those costs to increase as new laws are ~~compliant~~enacted, possibly materially. Additionally, we expect regulators to perform investigations, inspections and periodically audit our compliance with these laws and regulations, isand we cannot provide assurance that our efforts or operations will be compliant. If we fail to comply with any requirements, we could be subject to significant penalties or liabilities and we may be required to implement new and materially more costly processes and procedures to come into compliance. Further these laws are subject to unpredictable changes. Even if we successfully comply with these laws and regulations, our suppliers may fail to comply. We may also suffer financial and reputational harm if customers require, and we are unable to deliver, certification that our products are conflict free. In all of these situations, customers may stop purchasing products from us, and may take legal action against us, which could ~~require complex changes~~harm our reputation, revenues and results of operations.

Investor advocacy groups, institutional investors, investment funds, proxy advisory services, stockholders, and customers are also increasingly focused on corporate ESG practices. Additionally, public interest and legislative pressure related to public companies’ ESG practices continues to grow. If our ESG practices fail to meet investor or other industry stakeholders' evolving expectations and standards, including environmental stewardship, support for local communities, board of director and employee diversity, human capital management, employee health and safety practices, product quality, supply chain management, corporate governance and transparency and employing ESG strategies in ~~the way we~~our operations, our brand, reputation and employee retention may be negatively impacted, customers and suppliers may be unwilling to do business ~~or provide services to our customers~~with us and ~~their patients. Additionally, our success~~investors may be ~~dependent on the success of healthcare providers~~unwilling to invest in ~~managing data protection requirements.~~

us. In ~~order~~addition, as we work to ~~deepen~~align our ~~market penetration and raise awareness of our brand and products,~~ESG practices with industry standards, we have ~~increased~~expanded and will likely continue to expand our disclosures in these areas. We also expect to incur additional costs and require additional resources to monitor, report, and comply with our various ESG practices. If we fail to adopt ESG standards or practices as quickly as stakeholders desire, report on our ESG efforts or practices accurately, or satisfy the ~~amount we spend on marketing activities, which may not ultimately prove successful or an effective use of our resources.~~

To increase awareness of our products and services domestically and internationally, we have increased the amount we spend, and anticipate spending in the future on marketing activities. Our marketing efforts and costs are significant and include national and regional campaigns involving television, print media, social media and, more recently, alliances with professional sports teamsdisclosure and other ~~strategic partners. We attempt to structure~~expectations of stakeholders, our ~~advertising campaigns in ways we believe most likely to increase brand awareness~~reputation, business, financial performance, growth, and adoption; however, there is no assurance our campaigns will achieve the returns on advertising spend desired or successfully increase brand or product awareness sufficiently to sustain or increase our growth goals, which could have an adverse effect on our gross margin and business overall.stock price may be adversely impacted.

Intellectual Property Risks

Our success depends in part on our proprietary technology, and if we ~~are unable~~fail to successfully obtain or enforce our intellectual property (“IP”) rights, our competitive position may be harmed. ~~Litigating claims of this type is costly and could distract our management and cause a decline in our results of operations and stock price.~~

Our success depends in part on our ability to maintain existing ~~intellectual property~~IP rights and to obtain and maintain further ~~intellectual property~~IP protection for our ~~products, both in the U.S. and in other countries.~~products. Our inability to do so could harm our competitive position.

~~For further details concerning our patents and other intellectual property, please see “Intellectual Property” in Part I, Item 1. Business” of this annual report on Form 10-K.~~

We ~~intend to~~ rely on our portfolio of issued and pending patent applications in the U.S. and in other countries to protect a large part of our ~~intellectual property~~IP and our competitive position; however, these patents may be insufficient to protect our ~~currently pending or future patent filings may not result in the issuance of patents. Additionally, any~~IP rights because our patents ~~issued to us~~ may be challenged, invalidated, held unenforceable, circumvented, or may not be sufficiently broad to prevent third parties from producing competing products similar in design to our ~~products. In addition, any protection afforded by~~products and foreign patents protections may be more limited than ~~that~~those provided under U.S. patents and ~~intellectual property~~IP laws. ~~Certain~~Additionally, international IP rights laws are typically less protective than the protections afforded under the laws of the U.S.

Additionally, we may fail to timely file a patent application, or any of our ~~key~~patent applications may not result in an issued patent or the scope of the patent ultimately issued may be narrower than we initially sought. We may not be afforded the protection of a patent if our currently pending or future patent filings do not result in the issuance of patents ~~began~~or we fail to ~~expire in 2017, which have resulted in increased competition~~apply for patent protection. We may fail to apply for a patent if our personnel fail to disclose or recognize new patentable ideas or innovations. Remote working can decrease the opportunities for our personnel to collaborate, thereby reducing the opportunities for effective invention disclosures and ~~less expensive competitive products.~~ patent application filings. We may choose not to file a foreign patent application if the limited protections provided by a foreign patent do not outweigh the costs to obtain it.

We also ~~rely on protection of~~protect our IP through copyrights, trademarks, trade secrets, ~~know-how~~ and ~~proprietary information.~~confidentiality obligations. We generally enter into confidentiality agreements with our employees, consultants and ~~our~~ collaborative partners upon commencement of a relationship with ~~us; however,~~us. However, despite the existence of these protections, we have experienced incidents in which our proprietary information has been misappropriated and believe it could be misappropriated again in the future. If these agreements ~~may~~do not provide meaningful protection against the unauthorized use or disclosure of our trade secrets or other confidential information, ~~and~~ adequate remedies may not exist ifto prevent unauthorized ~~use~~uses or ~~disclosure were to occur.~~ disclosures.

Our inability to maintain the proprietary nature of our technology through patents, copyrights or trade secrets would impair our competitive advantages and could have a material ~~adverse~~ effect on our operating results, financial condition and future growth prospects. In particular, a failure to protect our ~~proprietary~~IP rights might allow competitors to copy our technology or create counterfeit or pirated versions of our products, which could adversely affect our reputation, pricing and market share. ~~In addition, in an effort~~

Litigation regarding our IP rights, rights claimed by third parties, or IP litigation by any vendors on whose products or services we rely for our products and services may impact our ability to ~~protect our intellectual property we are currently, have in the past been, and may in the future be involved in litigation. The potential effects on~~grow our business, adversely impact our results of operations ~~resulting from~~and adversely impact our reputation.

Extensive litigation ~~that we may participate~~over patents and other IP rights is common in ~~the future, whether or not ultimately determined in~~medical device, optical scanner, 3D printing and other technologies and industries on which our ~~favor or settled by us,~~products and services are ~~costly and divert the efforts and attention of our management and technical personnel from normal business operations.~~

based. Litigation, interferences, oppositions, re-exams, inter partes reviews, post grant reviews or other proceedings ~~are,~~ have been necessary and ~~may~~will likely be needed in the future ~~be necessary in some instances~~ to determine the validity and scope of certain of our ~~proprietary~~IP rights and ~~in other instances~~the IP rights claimed by third parties. These proceedings are used to determine the validity, scope or non-infringement of certain patent rights ~~claimed by third parties to be~~ pertinent to the manufacture, use or sale of our ~~products. Litigation, interference, oppositions, re-exams, inter partes reviews, post grant reviews, administrative challenges~~products and the products of competitors. We have been sued for infringement of third parties’ patents in the past and we are currently defending patent infringement lawsuits and other legal claims. In addition, we periodically receive letters from third parties drawing our attention to their IP rights and there may be other third-party IP rights of which we are presently unaware. Asserting or ~~other similar~~defending these types of proceedings ~~are~~can be unpredictable, ~~and may be~~ protracted, time-consuming, expensive and distracting to ~~management. The outcome of such proceedings~~management and technical personnel. Their outcomes could adversely affect the validity and scope of our patent or other ~~proprietary~~IP rights, hinder our ability to manufacture and market our products, require us to seek a license for ~~the infringed product~~infringing products or ~~technology~~technologies or result in the assessment of significant monetary damages. An unfavorable ruling could include monetary damages, ~~or, in cases where injunctive relief is sought,~~ an injunction prohibiting us from selling our ~~products. Any~~products, or an exclusion order preventing us from importing our products in one or more countries. Moreover, independent actions by competitors, customers or others have been brought alleging that our efforts to enforce our patent or other IP rights constitute unfair competition or violations of ~~these results~~antitrust laws in the U.S. and other jurisdictions and investigations and additional litigation based on the same or similar claims may be brought in the future. The potential effects on our business operations resulting from litigation, whether or not ultimately determined in our ~~litigation~~favor or settled by us, are costly and could ~~adversely~~materially affect our results of operations and ~~stock price.~~reputation.

~~Obtaining approvals~~Financial, Tax and ~~complying with regulations enforced by the FDA and foreign regulatory authorities is an expensive and time-consuming process, and any failure to obtain~~Accounting Risks

If our goodwill or ~~maintain approvals for our products or services or failure to comply with regulations could materially harm our sales, result in substantial penalties and cause harm to our reputation.~~

Our products are considered medical devices and are subject to extensive and widely varying regulations in the U.S. and internationally. Before we can sell a new medical device in the U.S., or market a new use of or claim for an existing product, we must obtain FDA clearance or approval unless an exemption applies. Internationally, similar requirements apply on a country by country basis. In the U.S., FDA regulations are wide ranging and govern, among other things:

~~product design, development, manufacturing and testing;~~

~~product labeling;~~

~~product storage;~~

~~pre-market clearance or approval;~~

~~complaint handling and corrective actions;~~

~~advertising and promotion; and~~

~~product sales and distribution.~~

It takes significant time, effort and expense to obtain and maintain FDA approvals of our products and services. In other countries, the requirements to obtain and maintain similar approvals may differ materially from those of the FDA. Moreover, there is no guarantee we will successfully obtain or maintain approvals in all or any of the countries in which we do business now or in the future. Even if we are successful, the time and effort may take significantly longer, and costs may be significantly greater. If approvals to market our products or services are delayed, whether in the U.S. or other countries, we may be unable to market our products or services in markets we deem important to our business. Were any of these risks to occur, our domestic or international operations may be materially harmed, and our business as a whole adversely impacted.

In addition, our failure to comply with applicable regulatory requirements could result in enforcement actions in the U.S. and other countries. For example, enforcement actions by the FDA may include any of the following sanctions:

~~warning letters, fines, injunctions, consent decrees and civil penalties;~~

~~repair, replacement, refunds, recall or seizure of our products;~~

~~operating restrictions or partial suspension or total shutdown of production;~~

~~refusing our requests for 510(k) clearance or pre-market approval of new products, new intended uses, or modifications to existing products;~~

~~withdrawing clearance or pre-market approvals that have already been granted; and~~

~~criminal prosecution.~~

We must also comply with facility registration and product listing requirements of the FDA and adhere to applicable Quality System regulations. The FDA enforces its Quality System regulations through periodic unannounced inspections. Our failure to take satisfactory corrective action in response to an adverse inspection or the failure to comply with applicable manufacturing regulations could result in enforcement action, andlong-lived assets become impaired, we may be required to ~~find alternative manufacturers,~~record a material charge to earnings.

Under U.S. Generally Accepted Accounting Practices (“GAAP”), we review our goodwill and long-lived asset group for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Additionally, goodwill must be tested for impairment at least annually. The qualitative and quantitative analysis used to test goodwill are dependent upon various assumptions and reflect management’s best estimates. Changes in certain assumptions, including revenue growth rates, discount rates, earnings multiples and future cash flows may cause a change in circumstances indicating that the carrying value of goodwill or the asset group may be impaired and assessing these assumptions and predicting and forecasting future events can be difficult. Goodwill and purchased assets require periodic fair value assessments to determine if they have become impaired. Consequently, we may be required to record a material charge to earnings in the financial statements during the period in which any impairment of goodwill or long-lived asset group is determined.

Changes in, or interpretations of, accounting rules and regulations, could ~~be a long and costly process. Any enforcement action~~result in unfavorable accounting charges.

We prepare our consolidated financial statements in conformity with GAAP. These principles are subject to interpretation by the ~~FDA~~SEC and various bodies formed to interpret and create appropriate accounting policies. A change in these policies or ~~foreign governments~~in the way these policies are interpreted by us or regulators could have a material ~~adverse~~ effect on ~~us.~~our reported results and may even retroactively affect previously reported financial statements.

The sourcing and availability of metals used in the manufacture of a limited number of parts (if any) contained in our products may be affected by laws and regulations in the U.S. or internationally regarding the use of minerals obtained from certain regions of the world like the Democratic Republic of Congo and adjoining countries. These laws and regulations may decrease the number of suppliers capable of supplying our needs for certain metals, thereby negatively affecting our ability to obtain products in sufficient quantities or at competitive prices. We may furthermore suffer financial and reputational harm if customers require, and we are unable to deliver, certification that our products are conflict free. Regardless, we will incur additional costs associated with compliance with these laws and regulations, including time-consuming and costly efforts to determine the source of any conflict minerals used in our products.

We are required to annually assess our internal control over financial reporting and any ~~future~~ adverse results from such assessment ~~could~~may result in a loss of investor confidence in our financial reports and ~~have an adverse~~adversely effect on our stock price.

We have implemented and routinely assess, update and refine our internal control over financial reporting for its effectiveness. Pursuant to the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated by the SEC, we are required to furnish in our Form 10-K a report by our management regarding the effectiveness of our internal control over financial ~~reporting. The report~~reporting that includes, among other things, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether ~~or not~~ our internal control over financial reporting is effective. ~~This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management.~~ Our internal controls may become inadequate because of changes in ~~conditions including changes in~~ personnel, updates and upgrades to existing software, ~~including our ERP software system,~~failure to maintain accurate books and records, changes in accounting standards or interpretations of existing standards, and, as a result, the degree of compliance of our internal control over financial reporting with the existing policies or procedures may become ineffective. Establishing, testing and maintaining an effective system of internal control over financial reporting requires significant resources and time commitments on the part of our management and our finance staff, may require additional staffing and infrastructure investments and increases our costs of doing business. If we are unable to assert that our internal control over financial reporting is effective in any future period (or if our auditors are unable to express an opinion on the effectiveness of our internal controls or conclude that our internal controls are ineffective), the timely filing of our financial reports could be delayed or we could be required to restate past reports, and cause us to lose investor confidence in the accuracy and completeness

of our financial reports in the future, which could have an adverse effect on our stock price.

~~If we lose our key personnel or are unable to attract and retain key personnel, we may be unable to pursue business opportunities or develop our products.~~

We are highly dependent on the key employees in our clinical engineering, technology development, sales, training and marketing personnel and management teams. The loss of the services provided by those individuals may significantly delay or prevent the achievement of our product development and other business objectives and could harm our business. Our future success will also depend on our ability to identify, recruit, train and retain additional qualified personnel, including orthodontists and production technicians in our treatment planning facilities. Few orthodontists are accustomed to working in a manufacturing environment since they are generally trained to work in private practices, universities and other research institutions. Thus, we may be unable to attract and retain personnel with the advanced qualifications necessary for the further development of our business. Furthermore, we may not be successful in retaining our key personnel or their services. If we are unable to attract and retain key personnel, our business could be materially harmed.

~~If we infringe the patents or proprietary rights of other parties or are subject to a patent infringement claim, our ability to grow our business may be severely limited.~~

Extensive litigation over patents and other intellectual property rights is common in the medical device industry. We have been sued for infringement of third party’s patents in the past and we may be the subject of patent or other litigation in the future. We periodically receive and may in the future receive letters from third parties drawing our attention to their patent rights. While we do not believe we infringe upon any valid and enforceable rights that have been brought to our attention, there may be other more pertinent rights of which we are presently unaware. The defense and prosecution of intellectual property suits, interference proceedings and related legal and administrative proceedings could result in substantial expense to us and significant diversion of effort by our technical and management personnel. An adverse determination of any litigation or interference proceeding to which we may become a party could subject us to significant liabilities. An adverse determination of this nature could also put our patents at risk of being invalidated or interpreted narrowly or require us to seek licenses from third parties. Licenses may not be available on commercially reasonable terms or at all, in which event, our business would be materially adversely affected.

We maintain single supply relationships for certain key machines and materials, and our business and operating results could be harmed if supply is restricted or ends or the price of raw materials used in our manufacturing process increases.

We are highly dependent on manufacturers of specialized scanning equipment, rapid prototyping machines, resin and other advanced materials, as well as the optics, electronic and other mechanical components of our intraoral scanners. We maintain single supply relationships for many of these machines and materials technologies. In particular, our CT scanning and stereolithography equipment used in our aligner manufacturing and many of the critical components for the optics of our scanners are provided by single suppliers. We are also committed to purchasing the vast majority of our resin and polymer, the primary raw materials used in our manufacturing process for clear aligners, from a single source. If these or other suppliers encounter financial, operating or other difficulties or if our relationship with them changes, we may be unable to quickly establish or qualify replacement sources of supply and could face production interruptions, delays and inefficiencies. In addition, technology changes by our vendors could disrupt access to required manufacturing capacity or require expensive, time consuming development efforts to adapt and integrate new equipment or processes. Our growth may exceed the capacity of one or more of these manufacturers to produce the needed equipment and materials in sufficient quantities to support our growth. Conversely, in order to secure supplies for production of products, we sometimes enter into non-cancelable minimum purchase commitments with vendors, which could impact our ability to adjust our inventory to reflect declining market demands. If demand for our products is less than we expect, we may experience additional excess and obsolete inventories and be forced to incur additional charges and our profitability may suffer. In the event of technology changes, delivery delays, or shortages of or increases in price for these items, our business and growth prospects may be harmed.

We depend on a single contract manufacturer and supplier of parts used in our iTero scanner and any disruption in this relationship may cause us to fail to meet the demands of our customers and damage our customer relationships.

We rely on a third-party manufacturer to supply key sub-assemblies for our iTero Element scanner. As a result, if this manufacturer fails to deliver its components, if we lose its services or if we fail to negotiate or maintain acceptable terms, we may be unable to deliver our products in a timely manner and our business may be harmed. Furthermore, any difficulties encountered by this manufacturer with respect to hiring personnel and maintaining acceptable manufacturing standards, controls, procedures and policies could disrupt our ability to timely deliver our products. Finding a substitute manufacturer may be expensive, time-consuming or impossible and could result in a significant interruption in the supply of our intraoral scanning products. Any failure by our contract manufacturer that results in delays in our fulfillment of customer orders may cause us to lose revenues and suffer damage to our customer relationships.

~~We primarily rely on our direct sales force to sell our products, and any failure to train and maintain our direct sales force could harm our business.~~

Our ability to sell our products and generate revenues primarily depends upon our direct sales force within our Americas and International markets. We do not have any long-term employment contracts with our direct sales force and the loss of the services provided by these key personnel may harm our business. In order to provide more comprehensive sales and service coverage, we continue to increase the size of our sales force to pursue growth opportunities within and outside of our existing geographic markets. Moreover, as we focus on market penetration, we have begun to segregate sales personnel to focus on specific markets such as orthodontists and GPs. To adequately train new representatives to successfully market and sell our products and for them to establish strong customer relationships can take up to twelve months or more. As a result, if we are unable to retain our direct sales personnel or quickly replace them with individuals of equivalent technical expertise and qualifications, if we are unable to successfully instill technical expertise in new and existing sales representatives, if we fail to establish and maintain strong relationships with our customers, or if our efforts at specializing our selling techniques do not prove successful and cost-effective, our net revenues and our ability to maintain market share could be materially harmed. In addition, due to our large and fragmented customer base, we may not be able to provide all of our customers with product support immediately upon the launch of a new product. As a result, adoption of new products by our customers may be slower than anticipated and our ability to grow market share and increase our net revenues may be harmed.

~~As compliance with healthcare regulations becomes more costly and difficult for us or our customers, we may be unable to grow our business.~~

Participants in the healthcare industry are subject to extensive and frequently changing regulations under numerous laws administered by governmental entities at the federal, state and local levels, some of which are, and others of which may be, applicable to our business.

Furthermore, our healthcare provider customers are also subject to a wide variety of laws and regulations that could affect the nature and scope of their relationships with us. The healthcare market itself is highly regulated and subject to changing political, economic and regulatory influences. Regulations implemented pursuant to the Health Insurance Portability and Accountability Act (“HIPAA”), including regulations affecting the security and privacy of patient healthcare information held by healthcare providers and their business associates may require us to make significant and unplanned enhancements of software applications or services, result in delays or cancellations of orders, or result in the revocation of endorsement of our products and services by healthcare participants. The effect of HIPAA and newly enforced regulations on our business is difficult to predict, and there can be no assurance that we will adequately address the business risks created by HIPAA and its implementation or that we will be able to take advantage of any resulting business opportunities.

~~Extensive and changing government regulation of the healthcare industry may be expensive to comply with and exposes us to the risk of substantial government penalties.~~

~~In addition to medical device laws and regulations, numerous state and federal healthcare-related laws regulate our business, covering areas such as:~~

~~storage, transmission and disclosure of medical information and healthcare records;~~

prohibitions against the offer, payment or receipt of remuneration to induce referrals to entities providing healthcare services or goods or to induce the order, purchase or recommendation of our products; and

~~the marketing and advertising of our products.~~

Complying with these laws and regulations could be expensive and time-consuming and could increase our operating costs or reduce or eliminate certain of our sales and marketing activities or our revenues.

~~Our business exposes us to potential product liability claims, and we may incur substantial expenses if we are subject to product liability claims or litigation.~~

Medical devices involve an inherent risk of product liability claims and associated adverse publicity. We may be held liable if any product we develop or any product that uses or incorporates any of our technologies causes injury or is otherwise found unhealthy or unsuitable. Although we intend to continue to maintain product liability insurance, adequate insurance may not be available on acceptable terms, if at all, and may not provide adequate coverage against potential liabilities. A product liability claim, regardless of its merit or eventual outcome, could result in significant legal defense costs and damage our reputation. These costs would have the effect of increasing our expenses and diverting management’s attention away from the operation of our business and could harm our business.

~~Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.~~

Our global operations may be disrupted by natural or human induced disasters including, earthquakes, tsunamis, floods, drought, hurricanes, typhoons, wildfires, extreme weather conditions, power shortages, telecommunications failures, materials scarcity and price volatility, and medical epidemics or health pandemics. Climate change may increase both the frequency and severity of natural disasters and, consequently, risks to our operations and growth. The occurrence of business disruptions could harm our growth and expansion, result in significant losses, seriously harm our revenue, profitability and financial condition, adversely affect our competitive position, increase our costs and expenses, and require substantial expenditures and recovery time in order to fully resume operations. Our digital dental modeling is primarily processed in our facility located in San Jose, Costa Rica. The operations team in Costa Rica creates ClinCheck treatment plans using sophisticated computer software. In addition, our customer facing operations are located in Costa Rica. Our aligner molds and finished aligners are fabricated in Juarez, Mexico and, we have and are building additional facilities in China. Both locations in Costa Rica and Mexico are in earthquake zones and may be subject to other natural disasters. If there is a major earthquake or any other natural disaster in a region where one of these facilities is located, our ability to create ClinCheck treatment plans, respond to customer inquiries or manufacture and ship our aligners could be compromised which could result in our customers experiencing significant delays receiving their aligners and a decrease in service levels for a period of time. Additionally, our sales and operations in China have been impacted and are likely to continue to be disrupted as a result of the Novel Coronavirus outbreak. Moreover, our corporate headquarters and a portion of our research and development activities are located in California, which suffers from earthquakes, periodic droughts, and wildfires affecting the health and safety of our employees. Any such business interruptions could materially and adversely affect our business, financial condition and results of operations.

~~Changes in, or interpretations of, accounting rules and regulations, could result in unfavorable accounting charges.~~

We prepare our consolidated financial statements in conformity with Generally Accepted Accounting Principles in the U.S. ("GAAP"). These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting policies. A change in these policies or in the way these policies are interpreted by us or regulators can have a significant effect on our reported results and may even retroactively affect previously reported transactions.

If we fail to manage our exposure to global financial and securities market ~~risk~~risks successfully, our operating results and financial statements could be materially impacted.

~~The primary objective of our investment activities is to preserve principal. To achieve this objective, a~~A majority of our marketable investments are investment grade, liquid, fixed-income securities and money market instruments denominated in U.S. dollars. If the carrying value of ~~our investments~~an investment exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we ~~will be~~are required to write down the value of ~~our investments,~~the investment, which could materially harm our results of operations and financial condition. Moreover, the performance of certain securities in our investment

portfolio correlates with the credit condition of the U.S. financial sector. In an unstable credit or economic environment, it is necessary to assess the value of our investments more frequently and we might incur ~~significant~~material realized, unrealized or impairment losses associated with these investments.

~~If our goodwill or long-lived assets become impaired, we may be required to record a significant charge to earnings.~~

Under GAAP, we review our goodwill and long-lived asset group for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Additionally, goodwill is required to be tested for impairment at least annually. The qualitative and quantitative analysis used to test goodwill are dependent upon various assumptions and reflect management’s best estimates. Changes in certain assumptions including revenue growth rates, discount rates, earnings multiples and future cash flows may cause a change in circumstances indicating that the carrying value of goodwill or the asset group may be impaired. We may be required to record a significant charge to earnings in the financial statements during the period in which any impairment of goodwill or asset group are determined.

~~We may experience unexpected issues and expenses associated with our corporate structure reorganization, including the relocation of our EMEA regional headquarters to Switzerland.~~

We reorganized our corporate structure and intercompany relationships in January 2020 in an effort to more closely align our international business activities and to achieve financial and operational efficiencies. The implementation of this reorganization plan included the move of our EMEA regional headquarters from the Netherlands to Switzerland, has been time-consuming and costly, may be disruptive to our business, and, following completion of the reorganization plan, may not be more efficient or effective. This relocation is accompanied by a number of risks and uncertainties that may affect our results of operations and statement of cash flows, including:

~~failure to retain key employees who possess specific knowledge or expertise and upon whom we are depending upon for the timely and successful transition;~~

~~difficulties in hiring employees in Switzerland with the necessary skills and expertise; and~~

~~increased costs as we transition the operations to Switzerland along with higher costs of doing business in Switzerland.~~

~~If any of these risks materialize in the future, our operating results, statement of operations and cash flows may be adversely affected.~~

Our effective tax rate may vary significantly from period to period.

Align operates globally and is subject to taxes in the U.S. and foreign countries. Various internal and external factors may ~~have favorable or unfavorable effects on~~affect our future effective tax rate. These factors include ~~but are not limited to,~~ changes in the global economic environment, changes in our legal entity structure ~~and/~~or activities performed within our entities, changes in our business operations, changes in tax laws, regulations and/or rates, new or changes to accounting pronouncements, changing interpretations of existing tax laws or regulations, changes in ~~the~~ relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates, changes in overall levels of pretax earnings, the future levels of tax benefits of stock-based compensation, settlement of income tax audits and non-deductible goodwill impairments. ~~For example, our~~

Our effective tax rate ~~will~~is also dependent in part on forecasts of full year results which can vary ~~significantly in our first quarter of fiscal 2020 due to the relocation of our EMEA regional headquarters from the Netherlands to Switzerland effective January 1, 2020. Also,~~materially. Furthermore, we may continue to experience significant variation in our effective tax rate related to excess tax benefits on stock-based compensation, particularly in the first quarter of each year when the majority of our equity awards vest.

~~Changes in~~New tax laws and practices, changes to existing tax laws and practices, or disputes regarding the positions we take regarding tax ~~rulings~~laws, could negatively ~~impact~~affect our provision for income ~~tax provision and net income.~~taxes as well as our ongoing operations.

~~As a U.S. multinational corporation, we~~We are subject to ~~changing~~ tax laws both within and outside of the U.S. requiring significant judgment in determining our worldwide provision for income taxes. Changes in tax laws or ~~tax rulings, or~~ changes to how those laws are applied to our business in ~~interpretations of existing tax laws,~~practice, could affect ~~our income~~the amount of tax ~~provision~~to which we are subject and ~~net income or require us to change~~ the manner in which we operate our business. In addition, governmental tax authorities are increasingly scrutinizing the tax positions of companies. Many countries in Europe, as well as a number of other countries and organizations, have recently proposed or recommended changes to existing tax laws or have enacted new laws. For example,operate. Additionally, the Organization for Economic Cooperation and ~~Development~~Development’s (“OECD”) ~~has been working on a “Base~~Base Erosion and Profit Shifting ~~Project,” which is focused on a number of issues, including the shifting of profits between affiliated entities~~(“BEPS”) project has resulted in ~~different tax jurisdictions.~~considerable new reporting obligations worldwide as OECD member countries have implemented its guidance. The OECD ~~has issued~~continues to publish guidance pursuant to the BEPS and ~~is expected to continue to issue, guidelines and proposals that~~other projects which, if adopted by member countries, may ~~change various aspects of the existing framework under which~~affect our tax ~~obligations are determined~~positions in many of the countries in which we do business.

WeMoreover, the application of indirect taxes (such as sales and use tax (“SUT”), value-added tax (“VAT”), goods and services tax (“GST”), and other indirect taxes) to our operations is complex and evolving. U.S. states, local and foreign taxing jurisdictions have differing rules and regulations governing differing types of taxes, and these rules and regulations are subject to ~~risks associated with~~varying interpretations and exemptions that may change over time. We collect and remit SUT, VAT, GST and other taxes in many jurisdictions and we are routinely subject to audits. We are also routinely subject to audits regarding our ~~strategic investments. Impairments in the value of our investments~~tax reporting and ~~unsecured promissory note could negatively impact our financial results.~~

~~We have invested in privately held companies for strategic reasons~~remissions by local and ~~to support key business initiatives,~~national government, and we may also be subject to audits in U.S. states, local and foreign jurisdictions for which we have not ~~realize a return on our strategic investments. Many of such companies generate net losses and~~accrued tax liabilities. The positions we take regarding taxes as well as the ~~market for their products, services~~amounts we collect or ~~technologies~~remit may be slow to develop. Further, valuations of privately held companies are inherently complex due to the lack of readily available market data. If we determine that our investments have experienced a decline in value or are determined to be uncollectible,challenged and we may be ~~required~~liable for failing to ~~record impairments~~collect or remit all or any portion of taxes deemed owed or the taxes could exceed our estimates. One or more U.S. states or countries may seek to impose incremental or new sales, use, or other tax collection obligations on us or may determine that such taxes should have but have not been paid by us. If we dispute rulings or positions taken by tax authorities, we may incur expenses and expend significant time and effort to defend our positions, which ~~could~~may be ~~material~~costly.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted. It contains numerous new U.S. federal tax law provisions, including a corporate alternative minimum tax on adjusted financial statement income and ~~could have~~ an ~~adverse~~excise tax on corporate stock repurchases, both effective after December 31, 2022. We continue to evaluate the IRA’s impact ~~on our financial results.~~

~~Risks Related~~ to our ~~Common Stock~~business, which may be material.

The application of existing, new, or future tax laws, and results of audits, whether in the U.S. or internationally, could harm our business. Furthermore, there have been and will continue to be substantial ongoing costs associated with complying with the various tax requirements and defending our positions in the numerous markets in which we conduct or will conduct business.

Historically, the market price for our common stock has been volatile.

The market price of our common stock ~~could be~~is subject to ~~wide~~rapid and large price fluctuations ~~in response~~attributable to various factors, many of which are beyond our control. The factors include:

•quarterly variations in our results of operations and liquidity or changes in our forecasts and guidance;

•our ability to regain or sustain our historical growth rates;

•changes in recommendations by the investment community or ~~in their estimates of our net revenues or operating results;~~

speculation in the press or investment community ~~concerning~~regarding estimates of our ~~business and~~net revenues, operating results ~~of operations;~~or other performance indicators;

•announcements ~~by competitors or new market entrants;~~

~~strategic actions~~ by us or our competitors ~~such as~~or new market entrants, including strategic actions, management changes, and material transactions or acquisitions;

•technical factors in the public trading markets for our stock that may produce price movements that may or may not comport with macro, industry or company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as it may be expressed on financial trading and other social media sites), the amount and status of short interest in our securities, access to margin debt, trading in options and other derivatives on our common stock, fractional share trading, and other technical trading factors or strategies;

•announcements regarding stock repurchases, sales or purchases of our common stock by us, our officers or directors, credit agreements and debt issuances;

•announcements of technological innovations, new, additional or ~~new~~revised programs, business models, products or product offerings by us, our customers or competitors;

•key decisions in pending litigation, new litigation, settlements, judgments or decrees; and

~~sales of stock by us, our officers or directors; and~~

•general economic market ~~conditions.~~conditions, including rising interest rates, inflationary pressures, recessions, consumer sentiment and demand, global political conflict and industry factors unrelated to our actual performance.

In addition, the stock market in general, and the market for technology and medical device companies, in particular, have experienced extreme price and volume fluctuations ~~that have~~ often ~~been~~ unrelated to or disproportionate to ~~the~~corporate operating ~~performance of those companies.~~performance. These broad market and industry factors may ~~seriously harm~~include market expectations of, or actual changes in, monetary policies that have the ~~market price~~goal of ~~our common stock, regardless~~easing or tightening interest rates such as the U.S. federal funds rate and austerity measures of ~~our operating performance.~~governments intended to control budget deficits. Historically, securities litigation, including securities class action ~~litigation~~lawsuits and securities derivative lawsuits, is often brought against an ~~issuing company~~issuer following periods of volatility in the market price of ~~a company’s~~its securities and we have not been ~~excepted~~exempt from such litigation.

We cannot guarantee that we will continue to repurchase our common stock in the future, and any repurchases that we may make may not achieve our desired objectives.

We have a history of recurring stock repurchase programs intended to return capital to our investors. ~~Any authorization or continuance of our share~~Future stock repurchase programs isare contingent on a variety of factors, including our financial condition, results of operations, business requirements, and our ~~board~~Board of ~~directors'~~Directors' continuing determination that ~~share~~stock repurchases are in the best interests of our stockholders and in compliance with all applicable laws and agreements. There is no assurance that we will continue ~~to repurchase~~repurchasing our common stock in the future, consistent with historical levels or at all, or that our stock repurchase programs will have a beneficial impact on our stock price. Additionally, the IRA, among other things, imposes a 1% excise tax on any domestic corporation that repurchases its stock after December 31, 2022, which will increase our cost to make repurchases and may impact if and how much stock we choose to repurchase in the future.

Future sales of significant amounts of our common stock may depress our stock price.

A ~~large~~significant percentage of our outstanding common stock is currently owned by a small number of ~~significant~~ stockholders. These stockholders have sold in the past, and may sell in the future, large amounts of ~~common~~our stock over relatively short periods of time. Sales of substantial amounts of our ~~common~~ stock ~~in the public market~~ by ~~our~~ existing stockholders may adversely affect the market price of our ~~common stock. Such sales could create public~~stock by creating the perception of difficulties or problems with our business ~~and~~that may depress our stock price.

Item 1B. Unresolved Staff Comments.

None.

~~ITEM 1B.~~Item 2.~~UNRESOLVED STAFF COMMENTS~~Properties.

~~None.~~

~~ITEM 2.PROPERTIES~~

We occupy several leased and owned facilities. AtAs of December 31, ~~2019,~~2022, the significant facilities occupied were as follows:

Location

Lease/Own

Primary Use

~~Expiration of Lease~~

Tempe, Arizona, U.S.A.

Lease

Office for corporate headquarters

San Jose, California, U.S.A.

~~Own~~

Own

Office for ~~corporate headquarters,~~ research & development and administrative personnel

~~N/A~~

Raleigh, North Carolina, ~~U.S.A~~U.S.A.

~~Own~~

Own

Office for Americas regional headquarters

~~N/A~~

San Jose, Costa Rica

Lease and Own

Office for administrative personnel, treatment personnel, and customer care

~~July 2023~~

~~Moscow, Russia~~Wroclaw, Poland

~~Lease~~

~~Office for research & development~~

~~March 2024~~

~~Or Yehuda, Israel~~

Lease and Own

Manufacturing and office for treatment and administrative personnel

Petah Tikva, Israel

Lease and Own

Manufacturing and office for research & development and administrative personnel

~~February 2022~~

Rotkreuz, Switzerland

~~Lease~~

Lease

Office for EMEA regional headquarters ~~sales and marketing and administrative personnel~~

~~July 2024~~

Juarez, Mexico

~~Own~~

Own

Manufacturing and office for administrative personnel

~~N/A~~

Ziyang, China

~~Lease and Own~~

Own

Manufacturing and office for administrative personnel

~~May 2021~~

We believe our existing facilities are in good operating condition and are suitable for the conduct of our business. The facilities noted above are used mostly by all our reportable segments.

Item 3.Legal Proceedings.

For a discussion of legal proceedings, refer to Note 7 "Legal Proceedings" of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

~~ITEM 3.~~Item 4.~~LEGAL PROCEEDINGS~~Mine Safety Disclosures.

~~For~~Not applicable.

PART II

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock is traded on the NASDAQ Global Market under the symbol ALGN. As of February 20, 2023, there were approximately 53 holders of record of our common stock. Because the majority of our shares of outstanding common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

Performance Graph

Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following information relating to the price performance of our common stock shall not be deemed “filed” with the SEC or “Soliciting Material” under the Securities Exchange Act of 1934, as amended, or subject to Regulation 14A or 14C, or to liabilities of Section 18 of the Exchange Act except to the extent we specifically request that such information be treated as soliciting material or to the extent we specifically incorporate this information by reference.

The graph below matches our cumulative 5-year total stockholder return on common stock with the cumulative total returns of the NASDAQ Composite index, the S&P 500 index and the S&P 1500 Composite Health Care Equipment & Supplies index. The graph tracks the performance of a ~~discussion~~$100 investment in our common stock and each index (with the reinvestment of ~~legal proceedings, refer~~all dividends) from December 31, 2017 to December 31, 2022.

Unregistered Sales of Equity Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table summarizes the stock repurchase activity for the three months ended December 31, 2022:


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs(1)
October 1, 2022 through October 31, 2022	848,266	$	188.62	848,266	$	249,926,094
November 1, 2022 through November 30, 2022	—	$	—	—	$	249,926,094
December 1, 2022 through December 31, 2022	—	$	—	—	$	249,926,094
Total	848,266			848,266

1 May 2021 Repurchase Program. On May 13, 2021, we announced that our Board of Directors had authorized a plan to repurchase up to $1.0 billion of our common stock. See Note ~~9 "Legal Proceedings"~~10 “Common Stock Repurchase Programs” of the Notes to ~~the~~ Consolidated Financial Statements ~~in Part II, Item 8 of this Form 10-K.~~

for details on the May 2021 Repurchase Program.

~~ITEM 4.MINE SAFETY DISCLOSURES~~

~~Not applicable.~~Item 6.[Reserved]

~~PART II~~

~~ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES~~

~~Market Information~~

As of February 21, 2020, there were approximately 70 holders of record of our common stock. Because the majority of our shares of outstanding common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

~~Performance Graph~~

The graph below matches our cumulative 5-year total stockholder return on common stock with the cumulative total returns of the NASDAQ Composite index, the S&P 500 and the S&P 1500 Composite Health Care Equipment & Supplies index. The graph tracks the performance of a $100 investment in our common stock, in the peer group, and the index (with the reinvestment of all dividends) from December 31, 2014 to December 31, 2019.

~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

~~Following is a summary of stock repurchases for the three months ended December 31, 2019:~~

Period Total Number of Shares Repurchased Average Price Paid per Share Total Number of Shares Repurchased as Part of Publicly Announced Program
Approximate Dollar Value of Shares that May Yet Be Repurchased Under the Program ¹
October 1, 2019 through October 31, 2019 —
$ —
—
$ 200,500,000
November 1, 2019 through November 30, 2019 388,510
$ 258.67
388,510
$ 100,000,000
December 1, 2019 through December 31, 2019 —
$ —
—
$ 100,000,000


¹	In November 2019, we repurchased $100.5 million of our common stock on the open market. As of December 31, 2019, we have $100.0 million available for repurchase under the $600.0 million repurchase program authorized by our Board of Directors in May 2018 (Refer to ~~Note 12 “Common Stock Repurchase Programs” of the Notes to Consolidated Financial Statements~~).

~~ITEM 6.SELECTED CONSOLIDATED FINANCIAL DATA~~

~~The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and accompanying notes and~~ Item 7.Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~. Operations.

Fiscal Year
2019 2018
2017 ²

2016 ²
2015
(in thousands, except per share data)
Statement of Operations Data:
Net revenues
$ 2,406,796
$ 1,966,492
$ 1,473,413
$ 1,079,874
$ 845,486
Gross profit 1,743,897
1,447,867
1,116,947
815,294
640,110
Income from operations
542,493
466,564
353,611
248,921
188,634
Interest income 12,482
8,576
6,948
4,213
2,938
Other income (expense), net 7,676
(8,489 ) 4,240
(10,568 ) (5,471 )
Net income before provision for income taxes and equity in losses of investee
562,651
466,651
364,799
242,566
186,101
Provision for income taxes 112,347
57,723
130,162
51,200
42,081
Equity in losses of investee, net of tax 7,528
8,693
3,219
1,684
—
Net income $ 442,776
$ 400,235
$ 231,418
$ 189,682
$ 144,020
Net income per share:
Basic $ 5.57
$ 5.00
$ 2.89
$ 2.38
$ 1.80
Diluted $ 5.53
$ 4.92
$ 2.83
$ 2.33
$ 1.77
Shares used in computing net income per share:
Basic 79,424
80,064
80,085
79,856
79,998
Diluted 80,100
81,357
81,832
81,484
81,521
Financial Position Data:
Working capital ¹
$ 662,449
$ 610,406
$ 658,316
$ 597,772
$ 460,338
Total assets 2,500,702
2,052,458
1,784,009
1,402,305
1,158,633
Total long-term liabilities 183,563
107,494
129,670
46,427
39,035
Stockholders’ equity $ 1,346,169
$ 1,252,891
$ 1,154,288
$ 999,307
$ 847,926


¹	~~Working capital is calculated as the difference between total current assets and total current liabilities.~~


²	Balances have been recast to reflect the adoption of ASC 606. We recognized a $3.9 million cumulative effect upon adoption as an adjustment to our opening balance of retained earnings as of January 1, 2016 in our Consolidated Statements of Stockholders’ Equity. Refer to ~~Note 1 "Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements~~ ~~for details).~~

~~ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

The following discussion and analysis of our financial condition and results of operations should be read together with ~~“Selected Consolidated Financial Data” and~~ our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

A discussion regarding our financial condition and results of operations for fiscal ~~2019~~2022 compared to fiscal ~~2018~~2021 is presented under Results of Operations of this Form 10-K. Discussions regarding our financial condition and results of operations for fiscal ~~2018~~2021 compared to ~~2017~~2020 have been omitted from this Annual Report on Form 10-K, but can be found in ~~"Item~~"Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2021, filed with the SEC on February ~~28, 2019,~~25, 2022, which is available without charge on the SEC's website at www.sec.gov and on our investor relations website at ~~investor.aligntech.com.~~

~~Overview~~

investor.aligntech.com.

Executive Overview of Results

Trends and Uncertainties

Our ~~goals~~business strategic priorities remain focused on four principal pillars for growth: (i) international expansion; (ii) GP adoption; (iii) patient demand and conversion; and (iv) orthodontic utilization. Our growth strategy depends on our ability to facilitate the digital transformation of dentistry happening around the world, our continuous focus on innovation, and expansion to meet and exceed evolving customer expectations as the array of products and services available to them increases.

We strive to deliver on each of our strategic growth drivers through a variety of interrelated enterprise-wide efforts including:

•Continuing penetration and adoption of Invisalign products, intraoral scanners and CAD/CAM solutions in international markets by investing in manufacturing operations, research and development, clinical treatment planning, sales and marketing and building our quality and regulatory capabilities in existing and emerging markets globally. For instance, in 2022, we opened a new aligner fabrication facility in Wroclaw, Poland as a part of our strategy to bring operational facilities closer to customers to serve them more quickly and respond to their needs more effectively as well as new treatment planning operations in targeted regional geographies. We also diversified our research and development activities throughout Europe in 2022, which has created a longer term, more stable environment for consistent hiring, retention and innovation in a variety of high technology sectors.

•Targeting growth opportunities with international orthodontists and GP customers, particularly with adopters of digital dentistry platforms by tailoring our sales and marketing strategies, manufacturing operations and resources around the

unique needs of each customer channel. As we continue growing, we intend to opportunistically expand our research, development, manufacturing, treatment planning, and sales and marketing operations to meet local and regional demand thoughtfully and deliberately. Over the longer-term, we expect international revenues to grow faster than Americas' revenues as a result of growing international demand, our continued investment in international market expansion, the size of the market opportunities and our relatively low market penetration in these regions.

•Building confidence within the GP and orthodontic communities through training and education efforts to increase their adoption and utilization of digital dental practice transformation and clear aligner treatment. Accordingly, we continue to expand our Invisalign customer base by educating new doctors on the benefits of digital dentistry through the Invisalign system and demonstrating to GPs and orthodontists how the iTero portfolio of intraoral scanners and CAD/CAM restorative services and workflows can increase revenues and profitability for their dental practices by enhancing patient experiences and creating operation practice efficiencies.

•Investing in research and development that allows us to innovate, develop and bring to market products and solutions that deliver the ever-increasing clinical precision and predictability that doctors expect with the speed and convenience their patients require.

•Creating demand and enabling patient conversion through targeted investments in advertising and public relations through social media, influencers and other forms of digital communications to encourage treatment by Invisalign trained doctors. We believe that well-designed, targeted sales and marketing promotions that build on our strong brand awareness allow us to differentiate our products and solutions from traditional and emerging competitors. In 2022, we continued to build on the success of the “Invis-is” consumer advertising campaign with creative content and influencers focused on teens and young adults. We expect to make further investments to create additional demand for Invisalign system treatment driving more consumers to dental professionals for those treatments.

•Pursuing new product lines that complement our doctor-prescribed principal products currently available in certain e-commerce and retail channels in the U.S. Similarly, in 2023 we expect to continue to focus on our doctor subscription plan and grow our underpenetrated share of the retainer business through strategic marketing campaigns focused on driving adoption and increasing market share in the U.S.

•Increasing global orthodontic utilization rates as doctors’ clinical confidence in the efficacy and predictability of the Invisalign system increases with advancements in products and technology and as patients and doctors demand treatments that emphasize convenience and safety through fewer visits and less invasive and quicker treatments. In addition, the teenage and younger market makes up 75% of the approximately 21 million total annual global orthodontic case starts each year. As we continue to emphasize the benefits of the Invisalign system for teenage and younger patient treatments through education, training and sales and marketing programs, we expect utilization rates to rise. However, our utilization rates will fluctuate from period to period due to a variety of factors, which may include seasonal trends in our business, consumer demand due to macroeconomic factors, office closures or slowdowns related to COVID-19-and adoption rates for new products and features.

Macroeconomic Challenges and Military Conflict in Ukraine

Our revenues are susceptible to ~~establish~~fluctuations in macroeconomic conditions, in line with inflation, rising interest rates, threats of or actual recessions, fluctuations in currency exchange rates, supply chain challenges, market volatility, wars and military actions, and other factors, each of which impact customer confidence, consumer sentiment and demand. Many of these same factors are also impacting our costs through higher raw material prices, transportation costs, labor costs, supply and distribution operations and the operations of our suppliers. Additionally, many of our international operations are denominated in currencies other than the U.S. dollar and in 2022 were impacted, and may continue to be impacted, by macroeconomic slowing or contraction causing weakening against the U.S. dollar, which is negatively impacting our financial condition and results of operations. While we expect moderation of the strength of the dollar, we also expect the dollar to remain historically strong against many of these currencies. The nature and extent of the impact of these factors varies by time and region and remains uncertain and unpredictable.

The military conflict between Russia and Ukraine increased the unpredictability of the already uncertain macroeconomic conditions during 2022 and may continue to impact this unpredictability. While we continue to employ research and development personnel in Russia as well as certain sales, marketing and administrative personnel, the total number of employees in Russia was significantly reduced in 2022, complementing programs previously underway aimed at maintaining and growing our research and development operations and diversifying the facilities at which our personnel are located.

Although immaterial to our consolidated financial statements, our commercial business operations in Russia were significantly impacted by the conflict in 2022. Although we remain committed to providing continuity of care consistent with our values and ethical responsibility to patients who are in Invisalign treatment in Russia, we deemed it prudent to align the size of our commercial operations with the ongoing resources needed to perform those functions. Accordingly, in the fourth quarter of 2022, we initiated a restructuring plan to increase efficiencies across the organization and lower our overall cost structure, which reduced the number of employees and our commercial business operations in Russia. Refer to Note 16 “Restructuring and Other Charges” of the Notes to Consolidated Financial Statements for further details.

Our Board of Directors and its applicable committees receive regular updates from management regarding the military conflict between Russia and Ukraine and continue to provide oversight of the risks to our personnel, operations and other areas of strategic importance. Our management continues to closely monitor the situation and evaluate additional ways in which we can support our employees and operations.

COVID-19 Pandemic Update

Although there remains significant uncertainty surrounding the COVID-19 pandemic for regional economies, its global impact has gradually declined. During 2022, we experienced the impacts of the COVID-19 pandemic primarily in the Asia Pacific region, particularly in China, where lockdowns decreased economic activity throughout most of the year. With the easing of the restrictions in China in 2023 and the increased rate of infections, the impacts of the COVID-19 pandemic are likely to persist into 2023 and remain unpredictable, but we expect it to be at a lesser extent than in 2022. Nevertheless, comparing our financial results for the reporting periods of 2023 to the same reporting periods of 2022 or earlier may not be a useful means by which to evaluate our business and results of operations due to volatility in regional business environments caused by the pandemic.

Changing Product Preferences

As the markets for clear aligners and digital processes and workflows used to transform the practice of dentistry continue to mature, we anticipate customer and patient expectations and demands will evolve. We expect to meet customer demands with innovative treatment options that include more choices to address a wider scope of treatment goals and budgets based on our existing and new products. This may result in larger and unpredictable variations in geographic and product mix and selling prices with uncertain implications on our financial statements and business operations.

We strive to manage the challenges from the macroeconomic conditions, the conflict in Ukraine, COVID-19 and the evolution of our target markets by focusing on improving our operations, building flexibility and efficiencies in our processes, adjusting our business models to changing circumstances and offering products that meet market demand. Specifically, we are managing cost impacts through pricing actions, implementing cost saving measures and slowing hiring. We also continue to innovate and introduce new and enhanced products that augment our doctor customer and patient experiences.

Further discussion of the impact of these challenges on our business may be found in Part I, Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors.”

Key Financial and Operating Metrics

We measure our performance against these strategic priorities by the achievement of key financial and operating metrics. For the year ended December 31, 2022, our business operations reflect the following:

◦Revenues of $3,734.6 million, a decrease of 5.5% year-over-year;

◦Clear Aligner revenues of $3,072.6 million, a decrease of 5.4% year-over-year;

▪Americas Clear Aligner revenues of $1,458.8 million, a decrease of 5.6% year-over-year;

▪International Clear Aligner revenuesof $1,349.0 million, a decrease of 10.0% year-over-year;

▪Clear Aligner volume decrease of 7.4% year-over-year and Clear Aligner volume decrease for teenage patients of 0.2% year-over-year;

◦Imaging Systems and CAD/CAM Services revenues of $662.1 million, a decrease of 6.2% year-over-year;

◦Income from operations of $642.6 million and operating margin of 17.2%;

◦Effective tax rate of 39.6%;

◦Net income of $361.6 million with diluted net income per share of $4.61;

◦Cash, cash equivalents and marketable securities of $1,041.6 million as ~~the standard method for treating malocclusion which,~~of December 31, 2022;

◦Operating cash flow of $568.7 million;

◦Capital expenditures of $291.9 million, predominantly related to ~~date,~~increases in our manufacturing capacity and facilities; and

◦Number of employees was 23,165 as of December 31, 2022, an increase of 2.8% year-over-year.

Other Statistical Data and Trends

•As of December 31, 2022, over 814 million people worldwide have been treated with our Invisalign ~~System,~~system. Management measures these results by comparing to the millions of people who can benefit from straighter teeth and uses this data to ~~establish~~target opportunities to expand the ~~iTero intraoral scanner as the preferred scanning device~~market for ~~3D digital scans, ultimately driving increased clear aligner and other product adoption~~orthodontics by ~~dental professionals. We intend to achieve these goals by continued focus and execution of our strategic growth drivers set forth in the~~ ~~Business Strategy~~ ~~section of this Annual Report on Form 10-K.~~

~~The successful execution of our business strategy in 2020 and beyond may be affected by a number of factors including:~~


•	~~New Invisalign Products and Feature Enhancements~~. We believe product innovation drives greater treatment predictability, clinical applicability and ease of use for the dental professionals we serve customers which supports adoption of Invisalign treatment in their practices. Our focus is to develop solutions and features to treat a wide range of cases from simple to complex.

We rolled out Invisalign treatment with Mandibular Advancement, the first clear aligner solution for Class II correction in growing tween and teen patients in multiple regions and countries throughout 2018. This offering combineseducating consumers about the benefits of ~~our clear aligner system with features for moving the lower jaw forward while simultaneously aligning the~~straighter teeth ~~without the need for elastics typically used to treat teen Class II patients.~~

In April 2018, we announced Invisalign Go product with more user-friendly iTero digital chairside experience and greater flexibility to treat a wider range of mild to moderate cases. Invisalign Go also incorporates new data-driven clinical protocols for predictable tooth movement and automated case assessments that leverages our Invisalign patients treated to date. These improvements make it easier for general practitioner (“GP”) dentists to tailor their treatment plans to the individual needs of each patient.

In July 2018, we announced Invisalign First clear aligners which are a treatment option designed with features specifically for younger patients with early mixed dentition with a mixture of primary/baby and permanent teeth. Phase 1 treatment is an early interceptive orthodontic treatment for young patients, traditionally done through arch expanders, or partial metal braces, before all permanent teeth have erupted, typically at ages seven through ten years. Invisalign First clear aligners are designed specifically to address a broad range of younger patients’ malocclusions, including shorter clinical crowns, management of erupting dentition and predictable dental arch expansion.

~~In October 2019, we launched~~using the Invisalign Moderate Package for the treatment of mild to moderate malocclusion. The Invisalign Moderate treatment includes all the features of Invisalign treatment, plus additional features that address the orthodontic needs of teenage patients such as compliance indicators and compensation for tooth eruption. system.


•	~~New iTero Products and Technology Innovation.~~ ~~The iTero scanner is an important component to our customer experience and is central to a digital approach as well as overall customer utilization of Invisalign.~~

In April 2018, we expanded the iTero Element portfolio with the launch of the iTero Element 2 and the iTero Element Flex scanners, building on the existing high precision, full-color imaging and fast scan times of the iTero Element portfolio while streamlining orthodontic and restorative workflows. The next-generation iTero Element 2 is designed for greater performance with 2X faster start-up and 25% faster scan processing time compared to the iTero Element. The new iTero Element Flex wand-only configuration is a portable scanner for easy transport from office to office.

As we continue to expand our global presence, we expect to seek regulatory approvals to offer our iTero portfolio products in more countries, thereby tapping potential growth opportunities in underserved markets

In February 2019, we announced the launch of iTero Element 5D Imaging System for comprehensive, preventative and restorative oral care. The iTero Element 5D Imaging System provides a new comprehensive approach to clinical applications, workflows and user experience that expands the suite of existing high-precision, full color imaging and fast scan times of the iTero Element portfolio. The iTero Element 5D Imaging System is available in the majority of EMEA and select APAC countries. The iTero Element 5D Imaging System is pending regulatory approval and is not yet available in the U.S. or LATAM countries.

In June 2019, we announced the launch of iTero Element Foundation intraoral scanner with restorative software. The iTero Element Foundation extends Align’s portfolio of intraoral scanners with powerful 3D visualization to better meet the needs of doctors, labs and patients. The iTero Element Foundation is available in North America and will also be available in other select countries in 2020.

We believe that over the longterm, clinical solutions and treatment tools will increase adoption of Invisalign and increase sales of our intraoral scanners; however, it is difficult to predict the rate of adoption which may vary by region and channel.

~~The use of iTero and other digital scanners for Invisalign case submission in place of PVS impressions continues to grow and remains a positive catalyst for Invisalign utilization.~~ For the fourth quarter of ~~2019,~~2022, total Invisalign cases submitted with a digital scanner in the Americas increased to ~~79.5%~~92.5%, up ~~slightly~~ from ~~78.8%~~89.1% in the ~~third~~fourth quarter of ~~2019. International~~2021 and international scans increased to ~~64.7%~~86.8%, up from ~~62.6%~~80.8% in the ~~third~~fourth quarter of ~~2019. We believe that over~~2021. For the ~~longterm, technology innovation and added features and functionality~~fourth quarter of ~~our iTero scanners will increase adoption~~2022, 97.4% of Invisalign ~~and increase sales of our intraoral scanners; however, it is difficult to predict the rate of adoption which may vary~~cases submitted by ~~region and channel.~~


•	~~Invisalign Adoption.~~North American orthodontists were submitted digitally. Our goal is to establish Invisalign as the treatment of choice for treating malocclusion ultimately driving increased product adoption and frequency of use by dental professionals, also known as “utilization rates.” Our annual utilization rates for the last three fiscal years are as follows:

•The total utilization rate in 2022 was 18.9 cases per doctor compared to 20.8 cases per doctor in 2021 and 16.1 cases per doctor in 2020. Our utilization rates have declined in 2022 due to the macroeconomic conditions, COVID-19 impacts, and other factors as described in the Trends and Uncertainties section above. In general, we expect utilization rates to rise over time although they are likely to fluctuate from period to period.

•North America: The utilization rate among our North American orthodontist customers was 89.2 cases per doctor in 2022 compared to 98.1 cases per doctor in 2021 and 67.3 cases per doctor in 2020 and the utilization rate among our North American GP customers was 13.9 cases per doctor in 2022 compared to 14.3 cases per doctor in 2021 and 9.6 cases per doctor in 2020.

•International: International doctor utilization rate was 16.2 cases per doctor in 2022 compared to 17.5 cases per doctor in 2021 and 14.5 cases per doctor in 2020.

* Invisalign utilization rates are calculated by the #number of cases shipped divided by the #number of doctors to whom cases were shipped. Our International region includes ~~EMEA~~Europe, Middle East and ~~APAC.~~ Africa (“EMEA”) and Asia Pacific (“APAC”). Latin America (“LATAM”) is excluded from the ~~above chart as it~~International region based on its immateriality to the year; however is ~~immaterial.~~


◦	~~Total utilization in 2019 increased to 15.9 cases per doctor compared to 15.7 cases in 2018.~~


▪	~~North America:~~ Utilization for both our North American orthodontist and GP customers increased in 2019 to 65.0 and 9.5 cases per doctor compared to 56.7 cases and 9.1 cases per doctor in 2018, respectively. The increase in utilization in 2019 reflects improvements in product and technology which continues to strengthen

~~our doctors’ clinical confidence such that they now utilize Invisalign more often and on more complex cases, including their teenage patients.~~


▪	~~International:~~ ~~International doctor utilization remained relatively flat at 13.8 cases per doctor in 2019 compared to 13.9 cases in 2018.~~

~~We expect our utilization rates to gradually improve as a result of advancements in product and technology, which continue to strengthen our doctors’ clinical confidence~~included in the use of Invisalign clear aligners. In addition, since the teenage and younger market makes up 75% of the approximately 12 million total orthodontic case starts each year, and as we continue to drive adoption of teenage and younger patients through sales and marketing programs, we expect our utilization rates to improve. Our utilization rates, however, may fluctuate from period to period due to a variety of factors, including seasonal trends in our business along with adoption rates of new products and features.Total utilization.


•	~~Number of New Invisalign Doctors Trained.~~ We continue to expand our Invisalign customer base through the training of new doctors. In 2019, we trained 22,270 new Invisalign doctors of which 9,765 were trained in the Americas region and 12,505 in the International region.

•

~~International Invisalign Growth.~~ We continue to focus our efforts towards increasing Invisalign clear aligner adoption by dental professionals in the EMEA and APAC markets. On a year-over-year basis, our International Invisalign volume increased 34.0% driven primarily by increased adoption as well as expansion of our customer base in both the EMEA and APAC regions. However, beginning in the second quarter of 2019, we experienced slower growth rates than prior periods in China primarily due to the US-China trade war and resulting economic uncertainty which caused headwind for consumer demand especially for consumption of luxury goods and considered purchases. We also believe there has been increased competitive activity from wires and bracket manufacturers and clear aligner suppliers. In addition, in the first quarter of 2020, the outbreak of the Novel Coronavirus (2019 NCov) in China has caused increased uncertainty and disruption to our employees, doctors’ practices, their patients and consumers. We expect the impact of the Novel Coronavirus and related efforts by the Chinese government to contain its spread, including travel restrictions, extension of the Lunar New Year and discouraging non-essential medical and dental procedures to adversely impact sales and operations in China for a currently indeterminate period of time. Notwithstanding these current issues in China, we continue to see growth from our international orthodontists and GP customers and are seeing more positive traction in the GP channel as we continue to segment our sales and marketing resources and programs specifically around each customer channel. In 2019, we continued to expand in our existing markets through targeted investments in sales coverage and professional marketing and education programs, along with consumer marketing in select country markets. We expect International revenues to continue to grow at a faster rate than the Americas for the foreseeable future due to our continued investment in international market expansion, the size of the market opportunities and our relatively low market penetration of these regions. Our future growth is dependent upon the continued growth of Invisalign adoption and international market penetration.

•

~~Increasing Competition.~~ Starting in the second quarter of 2019, we began experiencing slower adult case growth from North American orthodontists, reflecting a more competitive environment especially for the young adult demographic. Given increased awareness for direct to consumer clear aligners and heavy advertising spend from direct to consumer companies, case starts may be shifting away from traditional practices. We also believe that doctors are sampling alternative products and/or taking advantage of wires and brackets bundles that essentially give clear aligners away for free or at low prices. In the third quarter of 2019, we increased investment in consumer demand with a new advertising campaign for North America and expanding marketing programs such as our Concierge Service, which connects potential patients with Invisalign doctors increasing conversion and loyalty. In addition, we launched new sales tools and professional marketing materials and we also expect to see increased productivity from the approximate 100 sales representatives we added in the first quarter of 2019. If, however, we are unable to compete effectively with existing products or respond effectively to any products developed by new or existing competitors, our business could be harmed.

•

~~Establish Regional Order Acquisition, Treatment Planning and Manufacturing Operations.~~ We expect to continue establishing and expanding additional order acquisition, treatment planning and manufacturing operations closer to our international customers in order to improve our operational efficiency and increase doctors' confidence in Invisalign clear aligners. In the fourth quarter of 2018, we began fabricating our aligners in our manufacturing facility in Ziyang, China, our first aligner fabrication facility outside of Juarez, Mexico. In the third quarter of 2019, we opened our new order acquisition and treatment facility in Wroclaw, Poland and new treatment facility in Yokohama, Japan.


•	~~Corporate Structure Reorganization.~~ In January 2020, we reorganized our corporate structure and intercompany relationships to more closely align with the international nature of our business activities with the goal of achieving financial and operational efficiencies. As part of this corporate structure reorganization, our EMEA regional headquarters

was moved from Amsterdam, the Netherlands to Rotkreuz, Switzerland. As a result, we will continue to incur expenses in the near term and expect to realize the related benefits in subsequent years. The implementation of this reorganization plan has been disruptive to our business, and may not ultimately be more efficient or effective. Moreover, our reorganization activities, including any related expenses and the impact from affected employees, could have a material adverse effect on our business, operating results, financial condition and effective tax rates.


•	~~Expenses.~~ ~~We expect expenses to increase in 2020 due in part to:~~


▪	~~Investments in manufacturing capacity and facilities to enhance our regional capabilities;~~


▪	~~Investments in international expansion;~~


▪	~~Investments in expansion of number of direct sales force personnel;~~


▪	~~Increase in sales, marketing and customer support resources including our new advertising campaign; and~~


▪	~~Product and technology innovation to enhance product efficiency and operational productivity.~~

~~We believe that these investments will position us to increase our revenues and continue to grow our market share, but will negatively impact results of operations, particularly in the near term.~~

•

~~Stock Repurchases.~~ During the year ended December 31, 2019, we repurchased $200.0 million of our common stock on the open market at an average price of $264.93 per share. We also entered into an accelerated stock repurchase agreement to repurchase $200.0 million of our common stock and received a total of 1.1 million shares for an average share price of $176.61. As of December 31, 2019, we have $100.0 million available for repurchase under the $600.0 million repurchase program authorized by our Board of Directors in May 2018 (Refer to ~~Note 12 “Common Stock Repurchase Programs” of the Notes to Consolidated Financial Statements~~ ~~for details on our stock repurchase programs).~~

Results of Operations

Net Revenues by Reportable Segment

We group our operations into two reportable segments: Clear Aligner segment and ~~Scanner~~Systems and Services segment.

•Our Clear Aligner segment consists of Comprehensive Products, Non-Comprehensive Products and Non-Case revenues as defined below:

•Comprehensive Products include, but are not limited to, Invisalign Comprehensive and Invisalign First.

•Non-Comprehensive Products include, but are not limited to, Invisalign Moderate, Lite and Express packages and Invisalign Go ~~in addition to revenues from the sale of aligners to SmileDirectClub (“SDC”) under our supply agreement that expired on December 31, 2019.~~and Invisalign Go Plus.

•Non-Case ~~includes,~~products include, but isare not limited to, ~~Vivera~~retention products, Invisalign training, adjusting tools used by dental professionals during the course of treatment and Invisalign Accessory Products that are complementary to our doctor-prescribed principal products such as aligner cases (clamshells), teeth whitening products, cleaning solutions (crystals, foam and other material) and other oral health products available in certain e-commerce channels in select markets. We also offer in the U.S. and Canada, a Doctor Subscription Program which is a monthly subscription program based on the doctor’s monthly need for retention or limited treatment. The program allows doctors the flexibility to order both “touch-up” or retention aligners within their subscribed tier and is designed for a segment of experienced Invisalign trained doctors who are currently not regularly using our retainers ~~along with our training~~or low-stage aligners.

•Our Systems and ~~ancillary products for treating malocclusion.~~

~~Our Scanner~~Services segment consists of our iTero intraoral scanning systems, which includes a single hardware platform and restorative or orthodontic software ~~options, additional~~options. Our services include subscription software, disposables, rentals, leases, pay per scan services, as well as exocad’s CAD/CAM software solutions that integrate workflows to dental labs and ~~ancillary products. This segment includes our iTero scanner and OrthoCAD services.~~dental practices.

Net revenues for our Clear Aligner and ~~Scanner~~Systems and Services segments by region for the year ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017~~2020 are as follows (in millions):

Year Ended December 31, Year Ended December 31,
Net Revenues 2019 2018 Change 2018 2017 Change
Clear Aligner revenues:
    Americas $ 1,022.1
$ 903.3
$ 118.8
13.2 % $ 903.3
$ 754.1
$ 149.2
19.8 %
    International 881.4
684.2
197.2
28.8 % 684.2
473.5
210.7
44.5 %
    Non-Case 122.3
104.0
18.3
17.6 % 104.0
81.7
22.3
27.3 %
Total Clear Aligner net revenues
$ 2,025.8
$ 1,691.5
$ 334.3
19.8 % $ 1,691.5
$ 1,309.3
$ 382.2
29.2 %
Scanner net revenues 381.0
275.0
106.0
38.5 % 275.0
164.1
110.9
67.6 %
Total net revenues $ 2,406.8
$ 1,966.5
$ 440.3
22.4 % $ 1,966.5
$ 1,473.4
$ 493.1
33.5 %

~~Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.~~

~~Clear Aligner Case Volume by Region~~

~~Case volume data which represents Clear Aligner case shipments by region for the year ended December 31, 2019, 2018 and 2017 is as follows (in thousands):~~

Year Ended December 31, Year Ended December 31,
Region 2019 2018 Change 2018 2017 Change
Americas 867.3
780.7
86.6
11.1 % 780.7
631.6
149.1
23.6 %
International 669.8
499.9
169.9
34.0 % 499.9
344.8
155.1
45.0 %
Total case volume 1,537.1
1,280.6
256.5
20.0 % 1,280.6
976.4
304.2
31.2 %

~~Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.~~

~~Total net revenues increased by $440.3 million in 2019 as compared to 2018 primarily as a result of Invisalign case and scanner volume growth across all regions.~~

~~Clear Aligner - Americas~~

Americas net revenues increased by $118.8 million in 2019 as compared to 2018 due to Invisalign case volume growth across all channels and products which contributed to the net revenue growth by $100.2 million and higher average selling prices ("ASP") which increased net revenues by $18.7 million. Higher ASP was mainly the result of price increases across most products which increased net revenues by $35.1 million and $23.4 million increase in net revenues driven by a product mix shift towards Comprehensive products and less SDC revenues, which carry a lower ASP. We no longer manufacture aligners for SDC as our supply agreement with SDC expired by its terms on December 31, 2019. These ASP increases were partially offset by a reduction in net revenues of $23.1 million from higher promotional discounts and $17.6 million reduction in net revenues as a result of higher net revenue deferrals and unfavorable foreign exchange rates.

~~Clear Aligner - International~~

~~International net revenues increased by $197.2 million in 2019 as compared to 2018~~primarily driven by case volume growth across all channels and products which increased net revenues by $232.5 million. This increase was partially offset by lower ASP that reduced net revenues by $35.3 million. The ASP decline was mainly the result of higher promotional discounts which reduced net revenues by $45.0 million, unfavorable foreign exchange rates lowered net revenues by $37.2 million, and a product mix shift towards Non-comprehensive products reduced net revenues by $19.0 million. These ASP decreases were partially offset by a $47.8 million improvement in net revenues related to price increases across most products along with a benefit from going direct in several additional countries, and lower net revenue deferrals and sales credits that increased net revenues by $18.1 million.

~~Clear Aligner - Non-Case~~

~~Non-case net revenues, consisting of Vivera Retainers, training fees and other product revenues, increased by $18.3 million in 2019 compared to 2018 due to increased Vivera volume across all regions.~~

~~Scanner~~

Scanner and services net revenues increased by $106.0 million in 2019 as compared to 2018. This increase is primarily a result of scanner volume growth which increased net revenues by $58.4 million, and higher CAD/CAM services that increased net revenues by $37.7 million primarily due to a larger install base and increased scanner subscription services. Additionally, net revenues increased by $10.0 million due to an improvement in the scanner ASP mainly attributable to price increases in several regions.

~~Cost of net revenues and gross profit (in millions):~~

Year Ended December 31, Year Ended December 31,
2019 2018 Change 2018 2017 Change
Clear Aligner
Cost of net revenues $ 526.0
$ 411.0
$ 115.0
$ 411.0
$ 289.7
$ 121.3
% of net segment revenues 26.0 % 24.3 % 24.3 % 22.1 %
Gross profit $ 1,499.7
$ 1,280.5
$ 219.2
$ 1,280.5
$ 1,019.6
$ 260.9
Gross margin % 74.0 % 75.7 % 75.7 % 77.9 %
Scanner
Cost of net revenues $ 136.9
$ 107.7
$ 29.2
$ 107.7
$ 66.8
$ 40.9
% of net segment revenues 35.9 % 39.1 % 39.1 % 40.7 %
Gross profit $ 244.2
$ 167.4
$ 76.8
$ 167.4
$ 97.4
$ 70.0
Gross margin % 64.1 % 60.9 % 60.9 % 59.3 %
Total cost of net revenues $ 662.9
$ 518.6
$ 144.3
$ 518.6
$ 356.5
$ 162.1
% of net revenues 27.5 % 26.4 % 26.4 % 24.2 %
Gross profit $ 1,743.9
$ 1,447.9
$ 296.0
$ 1,447.9
$ 1,116.9
$ 331.0
Gross margin % 72.5 % 73.6 % 73.6 % 75.8 %


	Year Ended December 31,								Year Ended December 31,
Net Revenues	2022		2021		Change				2021		2020		Change
Clear Aligner revenues:
Americas	$	1,458.8	$	1,544.8	$	(85.9)	(5.6)	%	$	1,544.8	$	1,010.2	$	534.5	52.9	%
International	1,349.0		1,498.7		(149.7)		(10.0)	%	1,498.7		965.4		533.2		55.2	%
Non-case	264.8		203.7		61.1		30.0	%	203.7		125.8		77.8		61.9	%
Total Clear Aligner net revenues	$	3,072.6	$	3,247.1	$	(174.5)	(5.4)	%	$	3,247.1	$	2,101.5	$	1,145.6	54.5	%
Systems and Services net revenues	662.1		705.5		(43.5)		(6.2)	%	705.5		370.5		335.0		90.4	%
Total net revenues	$	3,734.6	$	3,952.6	$	(217.9)	(5.5)	%	$	3,952.6	$	2,471.9	$	1,480.6	59.9	%

Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.

Clear Aligner Case Volume

Case volume data which represents Clear Aligner case shipments for the year ended December 31, 2022, 2021 and 2020 is as follows (in thousands):


	Year Ended December 31,					Year Ended December 31,
	2022	2021	Change			2021	2020	Change
Total case volume	2,358.7	2,547.7	(189.0)	(7.4)	%	2,547.7	1,645.3	902.4	54.8	%

Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.

Total net revenues decreased by $217.9 million in 2022 as compared to 2021, primarily due to unfavorable foreign exchange rates, a decrease in both Clear Aligner case volumes and scanner volumes, partially offset by increases in Clear Aligner non-case revenues, service revenues and an increase in Clear Aligner average selling price (“ASP”).

Clear Aligner - Americas

Americas net revenues decreased by $85.9 million in 2022 as compared to 2021, primarily due to a decrease in case volumes of 9.4% which reduced net revenues by $145.3 million, partially offset by an increase in ASP which increased net revenues by $59.4 million. Higher ASP was mainly due to processing fees charged on most shipments and price increases in certain markets which increased net revenues by $54.2 million along with lower net deferrals which increased net revenues by $34.5 million. The increases in ASP were partially offset by unfavorable promotional discounts and sales credits which reduced net revenues by $25.1 million.

Clear Aligner - International

International net revenues decreased by $149.7 million in 2022 as compared to 2021due to a 5.0% decrease in case volumes, which decreased net revenues by $75.1 million, and lower ASP, which decreased net revenues by $74.6 million. Lower ASP was largely due to unfavorable foreign exchange rates which resulted in lower net revenues of $150.6 million, a product mix shift to lower priced products which decreased net revenues by $60.5 million, and unfavorable promotional discounts which decreased net revenues $39.4 million. The decrease in ASP was partially offset by processing fees charged on most shipments which increased net revenues by $94.1 million and lower net deferrals which increased net revenues by $81.4 million.

Clear Aligner - Non-Case

Non-case net revenues increased by $61.1 million in 2022 compared to 2021 mainly due to increased volume for retention products across most regions primarily driven by Vivera retainers.

Systems and Services

Systems and Services net revenues decreased by $43.5 million in 2022 as compared to 2021 primarily due to a lower number of scanners sold which decreased net revenues by $97.1 million and lower scanner ASP which decreased net revenues by $9.0 million. The decreases were partially offset by higher service and other revenues which increased net revenues by $62.6 million mostly due to a larger scanner install base.

Cost of net revenues ~~for our Clear Aligner~~ and ~~Scanner segments~~gross profit (in millions):


	Year Ended December 31,								Year Ended December 31,
	2022			2021			Change		2021			2020			Change
Clear Aligner
Cost of net revenues	$	844.4		$	772.7		$	71.7	$	772.7		$	569.3		$	203.4
% of net segment revenues	27.5		%	23.8		%			23.8		%	27.1		%
Gross profit	$	2,228.2		$	2,474.4		$	(246.2)	$	2,474.4		$	1,532.1		$	942.2
Gross margin %	72.5		%	76.2		%			76.2		%	72.9		%
Systems and Services
Cost of net revenues	$	256.4		$	244.5		$	11.9	$	244.5		$	139.4		$	105.1
% of net segment revenues	38.7		%	34.7		%			34.7		%	37.6		%
Gross profit	$	405.6		$	461.0		$	(55.4)	$	461.0		$	231.1		$	229.9
Gross margin %	61.3		%	65.3		%			65.3		%	62.4		%
Total cost of net revenues	$	1,100.9		$	1,017.2		$	83.6	$	1,017.2		$	708.7		$	308.5
% of net revenues	29.5		%	25.7		%			25.7		%	28.7		%
Gross profit	$	2,633.8		$	2,935.4		$	(301.6)	$	2,935.4		$	1,763.2		$	1,172.1
Gross margin %	70.5		%	74.3		%			74.3		%	71.3		%

Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.

Cost of net revenues includes personnel-related costs including payroll and stock-based compensation for staff involved in the production process, the cost of materials, packaging, freight and shipping related costs, depreciation on capital equipment and facilities used in the production process, amortization of acquired intangible assets and training costs.

Clear Aligner

The gross margin percentage decreased in ~~2019~~2022 as compared to ~~2018~~2021 primarily due to ~~an increase~~a higher mix of additional aligners, higher freight costs and increased manufacturing spend as we continue to ramp our new manufacturing facility in ~~aligners per case driven by additional aligners.~~Poland.

~~Scanner~~Systems and Services

The gross margin percentage ~~increased~~decreased in ~~2019~~2022 as compared to ~~2018~~2021 primarily ~~driven~~due to manufacturing inefficiencies from lower production volumes and lower ASP. These factors were partially offset by higher ~~ASP and manufacturing efficiencies.~~service revenues.

Selling, general and administrative (in millions):


	Year Ended December 31,								Year Ended December 31,									Year Ended December 31,								Year Ended December 31,
	2019			2018			Change		2018			2017			Change			2022			2021			Change		2021			2020			Change
Selling, general and administrative	$	1,072.1		$	852.4		$	219.7	$	852.4		$	665.8		$	186.6	Selling, general and administrative	$	1,674.5		$	1,708.6		$	(34.2)	$	1,708.6		$	1,200.8		$	507.9
% of net revenues	44.5		%	43.3		%			43.3		%	45.2		%			% of net revenues	44.8		%	43.2		%			43.2		%	48.6		%

~~for more information).~~

~~Litigation settlement gain~~Income from operations (in millions):

Year Ended December 31, Year Ended December 31,
2019 2018 Change 2018 2017 Change
Litigation settlement gain $ (51.0 ) $ —
$ (51.0 ) $ —
$ —
$ —
% of net revenues (2.1 )% — % — % — %


	Year Ended December 31,								Year Ended December 31,
	2022			2021			Change		2021			2020			Change
Clear Aligner
Income from operations	$	1,134.4		$	1,325.9		$	(191.4)	$	1,325.9		$	768.0		$	557.8
Operating margin %	36.9		%	40.8		%			40.8		%	36.5		%
Systems and Services
Income from operations	$	179.8		$	259.1		$	(79.4)	$	259.1		$	96.1		$	163.1
Operating margin %	27.2		%	36.7		%			36.7		%	25.9		%
Total income from operations 1	$	642.6		$	976.4		$	(333.8)	$	976.4		$	387.2		$	589.2
Operating margin %	17.2		%	24.7		%			24.7		%	15.7		%

Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.

~~In 2019, we recorded a gain of $51.0 million due to the litigation settlement with Straumann (Refer to Note 9 “Legal Proceedings” of the Notes to Consolidated Financial Statements~~1 ~~for more information).~~

~~Income from operations (in millions):~~

Year Ended December 31, Year Ended December 31,
2019 2018 Change 2018 2017 Change
Clear Aligner
Income from operations $ 836.0
$ 712.4
$ 123.6
$ 712.4
$ 564.6
$ 147.8
Operating margin % 41.3 % 42.1 % 42.1 % 43.2 %
Scanner
Income from operations $ 137.7
$ 99.0
$ 38.7
$ 99.0
$ 49.6
$ 49.4
Operating margin % 36.1 % 36.0 % $ —
$ —

Total income from operations ¹
$ 542.5
$ 466.6
$ 75.9
$ 466.6
$ 353.6
$ 113.0
Operating margin % 22.5 % 23.7 % $ —
$ —

~~Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.~~

¹Refer to Note 1715 “Segments and Geographical Information” of the Notes to Consolidated Financial Statements for details on unallocated corporate expenses and the reconciliation to Consolidated Income from Operations.

Clear Aligner

Operating margin percentage decreased in ~~2019~~2022 compared to ~~2018~~2021 primarily due to lower ~~Clear Aligner~~ gross ~~margin percentage as a result of an increase in aligners per case combined with impairment charges on operating lease right-of-use assets, store leasehold improvement~~margin.

Systems and ~~other fixed assets. These decreases were partially offset by a gain recognized from the litigation settlement with Straumann.~~Services

~~Scanner~~

Operating margin percentage ~~remained flat~~decreased in ~~2019~~2022 compared to ~~2018~~2021 primarily due to ~~manufacturing efficiencies and higher ASP partially offset by~~ higher operating ~~expenses.~~expenses as a percentage of net revenues as well as lower gross margin.

Interest income (in millions):

Year Ended December 31, Year Ended December 31,
2019 2018 Change 2018 2017 Change
Interest income $ 12.5
$ 8.6
$ 3.9
$ 8.6
$ 6.9
$ 1.7


	Year Ended December 31,								Year Ended December 31,
	2022			2021			Change		2021			2020			Change
Interest income	$	5.4		$	3.1		$	2.3	$	3.1		$	3.1		$	—
% of net revenues	0.1		%	0.1		%			0.1		%	0.1		%

Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.

Interest income generally includes interest earned on cash, cash equivalents and investment balances.

Interest income increased in ~~2019~~2022 compared to ~~2018 mainly~~2021 primarily due to ~~a larger~~higher interest rates during 2022, which was partially offset by the interest earned from the arbitration award related to our investment ~~portfolio.~~in SmileDirectClub in the first quarter of 2021.

Other income (expense), net (in millions):

Year Ended December 31, Year Ended December 31,
2019 2018 Change 2018 2017 Change
Other income (expense), net $ 7.7
$ (8.5 ) $ 16.2
$ (8.5 ) $ 4.2
$ (12.7 )


	Year Ended December 31,								Year Ended December 31,
	2022			2021			Change		2021			2020			Change
Other income (expense), net	$	(48.9)		$	32.9		$	(81.8)	$	32.9		$	(11.3)		$	44.3
% of net revenues	(1.3)		%	0.8		%			0.8		%	(0.5)		%

Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.

Other income (expense), net, generally includes foreign exchange gains and losses, gains and losses on foreign currency forward contracts, interest expense, gains and losses on equity investments and other miscellaneous charges.

Other income (expense), net ~~increased~~decreased in ~~2019~~2022 compared to ~~2018~~2021 primarily due to a ~~$15.8~~$43.4 million gain ~~from~~associated to the ~~sale of~~arbitration award related to our investment in ~~SDC. This increase was partially offset by a $4.0~~SmileDirectClub recognized in the first quarter of 2021 as well as $30.5 million ~~impairment~~ of ~~our equity investment in a privately held company along with~~higher net foreign exchange losses ~~(Refer~~from the weakening of international currencies against the U.S. dollar in 2022 as compared to 2021.

~~Note 9 “Legal Proceedings” of the Notes to Consolidated Financial Statements~~

Provision for ~~details on SDC legal proceedings discussion).~~

~~Equity in losses of investee, net of tax~~(benefit from) income taxes (in millions):

Year Ended December 31, Year Ended December 31,
2019 2018 Change 2018 2017 Change
Equity in losses of investee, net of tax $ 7.5
$ 8.7
$ (1.2 ) $ 8.7
$ 3.2
$ 5.5


	Year Ended December 31,								Year Ended December 31,
	2022			2021			Change		2021			2020			Change
Provision for (benefit from) income taxes	$	237.5		$	240.4		$	(2.9)	$	240.4		$	(1,396.9)		$	1,637.3
Effective tax rates	39.6		%	23.7		%			23.7		%	(368.6)		%

Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.

Equity in losses of investee, net of tax decreased in 2019 compared to 2018 since we tendered our SDC equity interest on April 3, 2019, and thus, we no longer record our share of SDC's losses (Refer to ~~Note 5 “Equity Method Investments” of the Notes to Consolidated Financial Statements~~ ~~for details on equity method investments).~~

~~Provision for income taxes (in millions):~~

Year Ended December 31, Year Ended December 31,
2019 2018 Change 2018 2017 Change
Provision for income taxes $ 112.3
$ 57.7
$ 54.6
$ 57.7
$ 130.2
$ (72.5 )
Effective tax rates 20.0 % 12.4 % 12.4 % 35.7 %

~~Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.~~

The increase in our effective tax rate for the year ended December 31, ~~2019~~2022 compared to the same period in ~~2018~~2021 is primarily attributable to decreased earnings in low tax ~~benefits recorded last year as~~jurisdictions and an increase in the amount of foreign earnings subject to US tax in 2022. Additionally, a ~~result~~change in U.S. tax laws effective January 1, 2022 which requires capitalization and amortization of ~~expiration of statute limitations that did not recur in 2019~~research and ~~reduced excess~~development expenses incurred after December 31, 2021 increased our effective tax ~~benefits from stock-based compensation mainly due to non-deductible officers’ compensation. For~~rate for the year ended December 31, ~~2019~~2022.

During 2020, we completed an intra-entity transfer of certain intellectual property rights and ~~December 31, 2018, we recognized tax benefits in~~fixed assets to our provision for income taxes of $1.6 million and $22.5 million, respectively, related to expiration of statute of limitations and $13.4 million and $26.5 million, respectively, related to stock-based compensation.

~~Effective January 1, 2020, as a result of the relocation of~~Swiss subsidiary, where our EMEA regional headquarters ~~from Amsterdam, the Netherlands to Rotkreuz, Switzerland, our tax rate for the first quarter~~is located beginning January 1, 2020. The transfer of ~~2020 and for the rest~~intellectual property rights did not result in a taxable gain; however, it did result in a step-up of the ~~year, will reflect~~Swiss tax deductible basis in the transferred assets, and accordingly, created a ~~significant one-time~~temporary difference between the book basis and the tax ~~benefit~~basis of ~~up to $1.6 billion associated with~~such intellectual property rights. Consequently, this transaction resulted in the recognition of a deferred tax asset and related one-time tax benefit of approximately $1,493.5 million during the year ended December 31, 2020, which is the net impact of the deferred tax asset recognized as a result of the additional Swiss tax deductible basis in the transferred assets and certain costs related to the ~~intra-entity~~ transfer of ~~certain intellectual property rights. We continue to assess the realizability~~fixed assets and inventory. The amortization of this deferred tax asset ~~as we take into account new information, including~~depends on the profitability of our Swiss headquarters and ~~ongoing communication with~~ the ~~Swiss~~recognition of this tax ~~authorities.~~benefit is allowed for a maximum recovery period of 15 years.

The U.S. Inflation Reduction Act of 2022 (“IRA”) was enacted in the United States on August 16, 2022. The IRA imposes a 15% alternative minimum tax on the financial statement income of certain corporations which is effective for tax years beginning after December 31, 2022, as well as a 1% excise tax on the net fair market value of stock repurchases made after December 31, 2022. Based upon our analysis of the IRA, we have determined there is no impact to our tax provision for the year ended December 31, 2022. We will continue to evaluate the impact of these tax law changes on future periods.

Liquidity and Capital Resources

~~We fund our operations from product sales.~~

Liquidity and Trends

As of December 31, ~~2019~~2022 and ~~2018,~~2021, we had the following cash and cash equivalents and short-term and long-term marketable securities (in thousands):


	December 31,
	2022		2021
Cash and cash equivalents	$	942,050	$	1,099,370
Marketable securities, short-term	57,534		71,972
Marketable securities, long-term	41,978		125,320
Total	$	1,041,562	$	1,296,662

Year Ended December 31,
2019 2018
Cash and cash equivalents $ 550,425
$ 636,899
Marketable securities, short-term 318,202
98,460
Marketable securities, long-term —
9,112
Total $ 868,627
$ 744,471

As of December 31, ~~2019, we had $868.6~~2022 and 2021, approximately $653.7 million ~~in cash, cash equivalents,~~ and marketable securities. Cash equivalents and marketable securities are comprised of money market funds and highly liquid debt instruments which primarily include commercial paper, corporate bonds, U.S. government agency bonds, U.S. government treasury bonds, and certificates of deposit.

~~As of December 31, 2019, approximately $278.5~~$713.8 million, respectively, of cash, cash equivalents and marketable securities ~~was~~were held by our foreign subsidiaries. We ~~repatriated $350.0 million~~intend to continue reinvesting our foreign subsidiary earnings indefinitely and expect the ~~U.S. during the year ended December 31, 2019 under the Global Intangible Low-Taxed Income (“GILTI”) provisions~~additional costs upon repatriation of ~~the U.S. Tax Cuts and Jobs Act (the “TCJA”) and substantially all of the~~these foreign earnings ~~previously determined~~not to be not indefinitely reinvested have been repatriated. Our intent is to permanently reinvest our earnings from our international operations going forward, and our current plans do not require us to repatriate them to fund our U.S. operations as wesignificant. We generate sufficient domestic operating cash flow and have access to external funding under our ~~current~~$300.0 million revolving line of credit.

We believe that our current cash balances and the borrowing capacity under our credit facility, if necessary, will be sufficient to fund our business for at least the next 12 months.

~~Cash flows~~

The sanctions against Russian banks or international bank messaging systems due to the military conflict between Ukraine and Russia could impact our ability to access our cash in Russia but would not materially impact our liquidity position. As of December 31, 2022, cash and cash equivalents domiciled in Russia, which is required to fund their current operating requirements, represent approximately 2.6% of our total cash, cash equivalents and marketable securities.

Our material cash requirements as of December 31, 2022 are as below:

•Our purchase commitments for goods and services, excluding capital expenditures, totaled $1,151.7 million, of which $860.8 million will be payable within the next 12 months. These commitments primarily relate to agreements with contract manufacturers and suppliers, sales and marketing services, research and development services and technological services.

•We expect our investments in capital expenditures to exceed $200.0 million for the next 12 months. Capital expenditures primarily relate to building construction and improvements as well as additional manufacturing capacity due to international expansion. Despite the challenging market conditions, we intend to expand our investments in research and development, manufacturing, treatment planning, sales and marketing operations to meet actual and anticipated local and regional demands.

•We have future operating lease payments of $158.3 million, which includes $14.3 million for leases that have not yet commenced as of December 31, 2022. Refer to Note 4 “Leases” of the Notes to Consolidated Financial Statements for details on the lease payments.

•We have $249.9 million available for repurchase under the stock repurchase program authorized by our Board of Directors in May 2021 (“May 2021 Repurchase Program”). Our stock repurchase program is subject to periodic evaluations to determine when and if repurchases are in the best interests of our stockholders, taking into account prevailing market conditions. Refer to Note 10 “Common Stock Repurchase Programs” of the Notes to Consolidated Financial Statements for details on our stock repurchase programs. Subsequent to the fourth quarter, in January 2023, our Board of Directors authorized a new plan to repurchase up to $1.0 billion of our common stock. Additionally, in February 2023, we entered into an ASR to repurchase $250.0 million of our common stock, completing our 2021 Repurchase Program. Under the Inflation Reduction Act of 2022, effective January 1, 2023, excise tax of 1% is applicable to stock repurchases. We are currently evaluating the impact of this provision, if any, on our results of operations and cash flows.

Sources and Use of Cash

The following table summarizes our Consolidated Statements of Cash Flows for the year ended December 31, 2022, 2021 and 2020 (inthousands):


	Year Ended December 31,
	2022		2021		2020
Net cash provided by (used in):
Operating activities	$	568,732	$	1,172,544	$	662,174
Investing activities	(213,316)		(563,430)		(231,506)
Financing activities	(501,686)		(458,332)		(30,808)
Effects of foreign exchange rate changes on cash, cash equivalents, and restricted cash	(11,514)		(12,117)		10,480
Net (decrease) increase in cash, cash equivalents, and restricted cash	$	(157,784)	$	138,665	$	410,340

Year Ended December 31,
2019 2018 2017
Net cash provided by (used in):
Operating activities $ 747,270
$ 554,681
$ 438,539
Investing activities (350,444 ) 6,927
(251,477 )
Financing activities (485,540 ) (369,434 ) (135,500 )
Effects of foreign exchange rate changes on cash, cash equivalents, and restricted cash 2,282
(4,733 ) 5,544
Net increase in cash, cash equivalents, and restricted cash
$ (86,432 ) $ 187,441
$ 57,106

Operating Activities

For the year ended December 31, ~~2019,~~2022, cash flows from operations of ~~$747.3~~$568.7 million ~~was~~resulted primarily ~~comprised of~~from our net income of approximately ~~$442.8~~$361.6 million as well as the following:

Significant ~~non-cash activities~~adjustments to net income

•Stock-based compensation of ~~$88.2~~$133.4 million related to equity awards granted to employees and directors; and

•Depreciation and amortization of ~~$79.0~~$125.8 million related to our investments in property, plant and equipment and intangible ~~assets;~~assets.

~~Impairment charges of $28.5 million related to decreases in the fair value of certain assets related to the closure of our Invisalign stores;~~

~~Non-cash operating lease costs of $18.5 million; and~~

~~Gain from the sale of equity method investment of $15.8 million.~~

Significant changes in working capital

•Increase of ~~$189.1~~$241.9 million in deferred revenues ~~corresponding~~due to the ~~increase in case volume;~~deferral of revenue on shipments over the period as well as timing of revenue recognition;

•Increase of ~~$121.0~~$130.1 million in inventories primarily due to lower shipment volumes over the period in addition to our efforts to manage stock at appropriate levels as required; and

•Decrease of $121.9 million in accrued and other long-term liabilities primarily due to the payment of our 2021 corporate bonus as well as timing payment of other activities.

For the year ended December 31, 2021, cash flows from operations of $1,172.5 million resulted primarily from our net income of approximately $772.0 million as well as the following:

Significant adjustments to net income

•Stock-based compensation of $114.3 million related to equity awards granted to employees and directors;

•Depreciation and amortization of $108.7 million related to our investments in property, plant and equipment and intangible assets; and

•Gain related to our SDC arbitration award of $43.4 million.

Significant changes in working capital

•Increase of $462.6 million in deferred revenues primarily related to increased case volumes in our Clear Aligner segment, increased scanner volumes in our Systems and Services segment and timing of revenue recognition;

•Increase of $262.1 million in accounts receivable which is primarily a result of the increase in ~~net revenues; and~~our sales;

•Increase of ~~$60.2~~$158.5 million in accrued and other long-term liabilities and an increase of $124.6 million in prepaid expenses and other assets due to the timing of ~~payment~~prepayment and ~~activities.~~activities; and

~~For~~•Increase of $112.5 million in inventories to support our demand, including safety stock, due to shipping delays during the ~~year ended December 31, 2018, cash flows from operations of $554.7 million resulted primarily from our net income of approximately $400.2 million~~COVID-19 pandemic as well as ~~the following:~~long lead times with our suppliers.

~~Significant non-cash activities~~

~~Stock-based compensation of $70.8 million related to equity awards granted to employees and directors;~~

~~Depreciation and amortization of $54.7 million related to our investments in property, plant and equipment and intangible assets; and~~

~~Net change in deferred tax assets of $15.7 million.~~

~~Significant changes in working capital~~

~~Increase of $136.4 million in deferred revenues corresponding to the increase in case volume;~~

~~Increase of $109.2 million in accounts receivable which is primarily a result of the increase in net revenues; and~~

~~Decrease of $36.5 million in long-term income tax payable due to timing of payments made to IRS.~~

Investing Activities

Net cash used in investing activities was ~~$350.4~~$213.3 million for the year ended December 31, ~~2019,~~2022 which primarily consisted of ~~purchases of marketable securities of $693.3 million,~~ purchases of property, plant and equipment of ~~$149.7~~$291.9 million, purchases of marketable securities of $28.0 million and ~~other investing activities of $14.7 million.~~$12.3 million cash paid relating to a business acquisition. These outflows were partially offset by ~~maturities~~sales and ~~sales~~maturities of marketable securities of ~~$485.4 million and payments of $21.8 million received on an unsecured promissory note issued by SDC in exchange for tendering our shares to them.~~

For 2020, we expect to invest $180 million to $200 million in capital expenditures related to building purchases and improvements as well as additional manufacturing capacity to support our international expansion. Although we believe our current investment portfolio has little risk of impairment, we cannot predict future market conditions or market liquidity and can provide

$121.1 million.

~~no assurance that our investment portfolio will remain unimpaired (Refer to~~
~~Note 10 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements~~ ~~for details on the purchases of buildings in Petach Tivka, Israel and San Jose, California).~~

Net cash ~~provided by~~used in investing activities was ~~$6.9~~$563.4 million for the year ended December 31, ~~2018, which~~2021 and primarily consisted of ~~maturities and sales~~purchases of ~~our marketable securities of $384.7 million and loan repayment from equity investee of $30.0 million. These inflows were partially offset by purchases~~ property, plant and equipment of ~~$223.3~~$401.1 million and purchases of marketable securities of ~~$180.2~~$200.9 million, ~~and purchases~~which were partially offset by $43.4 million of ~~investments in privately held companies of $5.0 million.~~proceeds from our SDC arbitration award.

Financing Activities

Net cash used in financing activities was ~~$485.5~~$501.7 million for the year ended December 31, ~~2019 primarily~~2022 which consisted of payments related to our common stock repurchases of ~~$400.0~~$475.0 million and payroll taxes paid for equity awards through share withholdings of ~~$57.7~~$52.8 million, which were partially offset by $26.1 million of proceeds from the issuance of common stock under our employee stock purchase plan.

Net cash used in financing activities was $458.3 million for the year ended December 31, 2021 which consisted of payments related to our accelerated stock repurchase arrangements of $375.0 million and ~~the purchase~~payroll taxes paid for equity awards through share withholdings of ~~a building that we previously leased under a finance lease~~$108.9 million which were partially offset by $25.6 million of ~~$45.8 million. These outflows were offset in part by $17.9 million~~ proceeds from the issuance of common stock.

Net cash used in financing activities was $369.4 million for the year ended December 31, 2018 primarily consisted of common stock repurchases of $300.0 million and payroll taxes of $86.1 million paid for vesting of RSUs through share withholdings. These outflows were offset in part by $16.6 million from proceeds from the issuance of common stock.

~~Common Stock Repurchases~~

~~Refer to Note 12 "Common Stock Repurchase Programs" of the Notes to Consolidated Financial Statements for details.~~


•	~~April 2016 Repurchase Program.~~ ~~In 2018, we repurchased approximately $200.0 million of our common stock on the open market, completing the April 2016 Repurchase Program.~~


•	~~May 2018 Repurchase Program~~. In May 2018, we announced that our Board of Directors had authorized a plan to repurchase up to $600.0 million of our common stock. We repurchased $100.0 million and $400.0 million of our common stock in 2018 and 2019, respectively, and as of December 31, 2019, we have $100.0 million remaining under this program.

We believe that our current cash, cash equivalents and marketable securities combined with our existing borrowing capacity will be sufficient to fund our operations for at least the next 12 months. If we are unable to generate adequate operating cash flows and need more funds beyond our available liquid investments and those available under our credit facility, we may need to suspend our stock repurchase programs or seek additional sources of capital through equity or debt financing, collaborative or other arrangements with other companies, bank financing and other sources in order to realize our objectives and to continue our operations. There can be no assurance that we will be able to obtain additional debt or equity financing on terms acceptable to us, or at all. If adequate funds are not available, we may need to make business decisions that could adversely affect our operating results such as modifications to our pricing policy, business structure or operations. Accordingly, the failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations and financial condition.

~~Credit Facility~~

On February 27, 2018, we entered into a new credit facility for a $200.0 million revolving line of credit, with a $50.0 million letter of credit sublimit, and a maturity date of February 27, 2021. As of December 31, 2019, we had no outstanding borrowings under this credit facility (Refer to ~~Note 7 "Credit Facility"of the Notes to Consolidated Financial Statements~~ ~~for details of the credit facility)~~.

~~Contractual Obligations / Off Balance Sheet Arrangements~~

~~The impact that our contractual obligations as of December 31, 2019 are expected to have on our liquidity and cash flows in future periods is as follows (in thousands):~~

Payments Due by Period
Total
Less than
1 Year

1-3
Years

4-5
Years

More than
5 Years
Operating leases obligations¹
$ 64,483
$ 18,354
$ 29,904
$ 10,772
$ 5,453
Unconditional purchase obligations 523,652
309,686
210,470
3,496
—
Total contractual cash obligations $ 588,135
$ 328,040
$ 240,374
$ 14,268
$ 5,453

¹ ~~Sublease income is not material and excluded from the table above.~~

Our contractual obligations table above excludes approximately $42.7 million of non-current uncertain tax benefits which are included in other long-term obligations and deferred tax assets on our balance sheet as of December 31, 2019. We have not included this amount because we cannot make a reasonably reliable estimate regarding the timing of settlements with taxing authorities, if any.

As of December 31, 2019, we had additional operating leases that have not yet commenced of $7.9 million. These operating leases will commence between 2020 through 2021 with lease terms of 2 years to 4 years.

~~We had no material off-balance sheet arrangements as defined in Regulation S-K Item 303(a) (4) as of December 31, 2019 other than certain items disclosed in~~ ~~Note 10 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements~~.

~~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 December 31, 2019, we did not have any material indemnification claims that were probable or reasonably possible.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and disclosures at the date of the financial statements. We evaluate our estimates on an on-going basis ~~including those related to revenue recognition, stock-based compensation, goodwill~~ and ~~finite-lived assets and related impairment, and income taxes. We~~ use authoritative pronouncements, historical experience and other assumptions as the basis for making the estimates. Actual results could differ from those estimates.

We believe the following critical accounting policies and estimates affect our more significant judgments used in the preparation of our consolidated financial statements. For further information on all of our significant accounting policies, see Note 1 ~~"Summary~~“Summary of Significant Accounting ~~Policies"~~Policies” of the Notes to Consolidated Financial Statements under Item 8.8.

Revenue Recognition

Our revenues are derived primarily from the sale of aligners, scanners, and services from our Clear Aligner and ~~Scanner~~Systems and Services segments. We enter into sales contracts that may consist of multiple distinct performance obligations where certain performance obligations of the sales contract are not delivered in one reporting period. We measure and allocate revenues according to ASC 606-10, ““Revenues from Contracts with Customers.”

We identify a performance obligation as distinct if both of the following criteria are met: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Determining the standalone selling price (“SSP”)~~, allocation of~~ in order to allocate consideration from the contract to the individual performance obligations ~~and the appropriate timing of revenue recognition,~~ is the result of ~~significant qualitative~~various factors, such as changing trends and ~~quantitative judgments.~~market conditions, historical prices, costs, and gross margins. While changes in the allocation of the SSP between performance obligations will not affect the amount of total revenues recognized for a particular contract, any material changes could impact the timing of revenue recognition, which would have a material effect on our financial position and result of operations. This is because the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation.

~~Clear Aligner~~

We enter into contracts (“treatment plan(s)”) that involve multiple future performance obligations. Invisalign Comprehensive, Invisalign First, Invisalign Moderate, and Lite and Express Packages, include optional additional aligners at no charge for a certain period of time ranging from six months to five years after initial shipment, and Invisalign Go includes optional additional aligners at no charge for a period of up to two years after initial shipment.

Our treatment plans comprise the following performance obligations that also represent distinct deliverables: initial aligners, additional aligners, case refinement, and replacement aligners. We take the practical expedient to consider shipping and handling costs as activities to fulfill the performance obligation. We allocate revenues for each clear aligner treatment plan based on each unit’s SSP. Management considers a variety of factors such as same or similar product historical sales, costs, and gross margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. WeIn addition to historical data, we take into consideration changing trends and market conditions. For treatment plans with multiple options, we also consider usage rates, which is the number of times a customer is expected to order ~~additional aligners.~~more aligners after the initial shipment. Our process for estimating usage rates requires significant judgment and evaluation of inputs, including historical usage data by region, country and channel. We recognize the revenues upon shipment, as the customers obtain physical possession and we have enforceable rights to payment. As we collect most consideration upfront, we consider whether a significant financing component exists; however, as the delivery of the performance obligations are at the customer’s discretion, we conclude that no significant financing component exists.

~~Scanner~~

We sell intraoral scanners and CAD/CAM services through both our direct sales force and distribution partners. The intraoral scanner sales price includes one year of warranty and unlimited scanning services. The customer may also select, for additional fees, extended warranty and unlimited scanning services for periods beyond the initial year. When intraoral scanners are sold with an unlimited scanning service agreement and/or extended warranty, we allocate revenues based on the respective SSPs of the scanner and the subscription service. We estimate the SSP of each element in a scanner system and services sale taking into consideration same or similar product historical prices as well as our discounting strategies. Revenues are then recognized over time as the monthly services are rendered and upon shipment of the scanner, as that is when we deem the customer to have obtained control. Most consideration is collected upfront and in cases where there are payment plans, consideration is collected by the one year mark and, therefore, there are no significant financing components.

~~Volume Discounts~~

In certain situations, we offer promotions in which the discount will increase depending upon the volume purchased over time. We concluded that in these situations, the promotions can represent either variable consideration or options, depending upon the specifics of the promotion. In the event the promotion contains an option, the option is considered a material right and, therefore, included in the accounting for the initial arrangement. We estimate the average anticipated discount over the lifetime of the promotion or contract, and apply that discount to each unit as it is sold. On a quarterly basis, we review our estimates and, if needed, updates are made and changes are applied prospectively.

Unfulfilled Performance Obligations for Clear Aligners and Scanners

~~Our unfilled~~The estimated revenues expected to be recognized in the future related to our unfulfilled performance obligations, including deferred revenues and backlog, as of December 31, ~~2019 and the estimated revenues expected to be recognized in the future related to these performance obligations are $610.3~~2022 is $1,515.4 million. This includes performance obligations from the Clear Aligner segment, primarily the shipment of additional aligners, which are fulfilled over six months to five years. Also included are the performance obligations from the iTero scanner segment, primarily services and support, which are fulfilled over one to five years, and contracted deliveries of additional scanners. The estimate includes both product and service unfulfilled performance obligations and the time range reflects our best estimate of when we will transfer control to the customer and may change based on customer usage patterns, timing of shipments, readiness of customers' facilities for installation, and manufacturing ~~availability.~~

~~Contract Balances~~

~~The timing~~availability some of ~~revenue recognition results in deferred revenues being recognized on~~which involve significant judgement. Generally, our Consolidated Balance Sheet. For both aligners and scanners, we usually collect the total consideration owed prior to all performance obligations being performed with payment terms generally varying from net 30 to net 180 days. Contract liabilities are recorded as deferred revenue ~~balances, which are generated based upon timing~~will be recognized over a period of invoices and recognition patterns, not payments. If the revenue recognition exceeds the billing, the exceeded amount is considered unbilled receivable and a contract asset. Conversely, if the billing occurs priorone to ~~the revenue recognition, the amount is considered deferred revenue and a contract liability.~~five years.

Goodwill and Finite-Lived Acquired Intangible Assets ~~and Long-Lived Assets~~

~~Goodwill~~

Goodwill ~~represents the excess of the purchase price paid over the fair value of tangible~~ and ~~identifiable~~acquired intangible ~~net~~ assets ~~acquired in business combinations~~with finite lives are subject to impairment testing and ~~is allocated to the respective reporting units based on relative synergies generated.~~

~~We evaluate goodwill~~are reviewed for impairment at least annually on November 30th or more frequently if indicators are present, an event occurs or changes in circumstances suggest an impairment may exist and that it would more likely than not reduce the fair value of a reporting unit below its carrying amount. The allocation of goodwill to the respective reporting unit is based on relative synergies generated as a result of an acquisition.

We perform an initial assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In performing the qualitative assessment, we identify and consider the significance of relevant key factors, events, and circumstances that affect the fair value of our reporting units. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as our actual and planned financial performance. We also give consideration to the difference between the reporting unit fair value and carrying value as of the most recent date a fair value measurement was performed. If, after assessing the totality of relevant events and circumstances, we determine that it is more likely than not that the fair value of the reporting unit exceeds its carrying value and there is no indication of impairment, no further testing is performed; however, if we conclude otherwise, the first step of the two-step impairment test is performed by estimating the fair value of the reporting unit and comparing it with its carrying value, including goodwill. Refer to ~~Note 6 "Goodwill and Intangible Assets" of Notes to Consolidated Financial Statements~~ ~~for details on goodwill.~~

~~Finite-Lived Intangible Assets and Long-Lived Assets~~

Our intangible assets primarily consist of intangible assets acquired as part of acquisitions and are amortized using the straight-line method over their estimated useful lives, reflecting the period in which the economic benefits of the assets are expected to be realized.

~~We evaluate long-lived assets (including finite-lived intangible assets) for impairment whenever~~when events or ~~changes in~~ circumstances indicate that the carrying ~~amount~~value of an asset ~~group may~~is not ~~be recoverable. An asset or asset group is considered impaired if its~~recoverable and the carrying amount exceeds its fair value. We evaluate the recoverability of the carrying value of these identifiable intangible assets based on estimated undiscounted cash flows to be generated from such assets. If the cash flow estimates or the significant operating assumptions upon which they are based change in the future, ~~undiscounted net cash flows~~we may be required to record impairment charges.

Assumptions and estimates about future values and remaining useful lives of our acquired intangible assets are complex and subjective. They can be affected by external factors such as industry and economic trends and internal factors such as changes in our business strategy and internal forecasts. Our ongoing consideration of all these factors could result in impairment charges in the ~~asset~~future.

If we were to have impairments to goodwill or ~~asset group is expected to generate. If an asset or asset group is considered to be impaired,~~finite-lived acquired intangible assets, it could adversely affect our operating results. During the fiscal year 2022 and 2021, we did not have any impairment ~~to be recognized is calculated as the amount by which the carrying amount of the asset or asset group exceeds its fair market value. Our estimates of future cash flows attributable~~charges related to our long-lived assets require significant judgment based on our historical and anticipated results and are subject to many factors. Factors we consider important which could trigger an impairment review include significant negative industrygoodwill or economic trends, significant loss of customers and changes in the competitive environment. The estimation of fair value utilizing a discounted cash flow approach includes numerous uncertainties which require our significant judgment when making assumptions of expected growth rates and the selection of discount rates, as well as assumptions regarding general economic and business conditions, and the structure that would yield the highest economic value, among other factors. Refer to ~~Note 6 "Goodwill and Intangible Assets" of Notes to Consolidated Financial Statements~~ ~~for details of the impairment analysis.~~acquired intangible assets.

Accounting for Income Taxes

We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

~~As part of the process of preparing our consolidated financial statements, we~~ are ~~required~~subject to ~~estimate our~~ income taxes in ~~each~~the U.S. and numerous foreign jurisdictions. The evaluation of the jurisdictions in which we operate. This process involves us estimating our current tax exposure under the applicable tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities which are included in our Consolidated Balance Sheet.

We account for uncertainty in income taxes pursuant to authoritative guidance based on a two-step approach to recognize and measure uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit based on its technical merits, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We adjust reserves for our uncertain tax positions ~~due to changing facts and circumstances, such as the closing of a tax audit or refinement of estimates due to new~~

~~information. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will impact our tax provision in our Consolidated Statement of Operation~~involves significant judgment in the ~~period in which such determination is made.~~

interpretation and application of U.S. GAAP and complex domestic and international tax laws related to the allocation of international taxation rights between countries. We ~~assess~~are also required to evaluate the ~~likelihood that we will be able to realize our deferred tax assets. Should there be a change in our ability to realize~~realizability of our deferred tax assets on an ongoing basis in accordance with U.S. GAAP, which requires the assessment of both of our ~~tax provision would increase in the period in which we determine that it is more likely than not that we cannot realize our deferred tax assets. We consider all available evidence, both positive~~historical and ~~negative, including historical levels~~future performance as well as other relevant factors. Realization of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If it is more likely than not that we will not realize our deferred tax assets ~~we will increase~~is dependent on our ~~provision~~ability to generate future taxable income which is determined based on assumptions such as

estimated growth rates in revenues, gross margins, future cash flows and discount rates. The accuracy of these estimates could be affected by unforeseen events or actual results, and the sustainability of our future tax benefits is dependent upon the acceptance of these valuation estimates and assumptions by the taxing authorities.

Accounting for ~~taxes by recording~~Legal Proceedings and Litigation

Estimates of probable losses resulting from litigation are inherently difficult to make, particularly when the matters are in early procedural stages with incomplete facts and information. The final outcome of legal proceedings is dependent on many variables difficult to predict and, therefore, the ultimate cost to entirely resolve such matters may be materially different than the amount of current estimates. Consequently, new information or changes in judgments and estimates could have a ~~valuation allowance against the deferred tax assets that we estimate will not ultimately be realized.~~material adverse effect on our business, financial condition, and results of operations or cash flows.

The U.S. Tax Cuts and Jobs Act includes provisions for certain foreign-sourced earnings referred to as Global Intangible Low-Taxed Income (“GILTI”) which imposes a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. We have made the election to record GILTI tax using the period cost method.

Recent Accounting Pronouncements

See Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in Item 8 for a discussion of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

In the normal course of business, we are exposed to interest rate, foreign currency exchange and inflation risks that could impact our financial position and results of operations. In addition, we are subject to the broad market risk that is created by the global market disruptions and uncertainties resulting from macroeconomic challenges, the military conflict between Russia and Ukraine and the COVID-19 pandemic. Further discussion on these risks may be found in Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors”.

Interest Rate Risk

Changes in interest rates could impact our anticipated interest income on our cash equivalents and investments in marketable securities. Our investments are fixed-rate short-term and long-term securities. Fixed-rate securities may have their fair market value adversely impacted due to a rise in interest rates, and, as a result, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates. As of December 31, 2022, we had approximately $99.5 million invested in available-for-sale marketable securities. An immediate 10% change in interest rates would not have a material adverse impact on our future operating results and cash flows.

We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. As of December 31, 2022, we are not subject to risks from immediate interest rate increases on our unsecured revolving line of credit facility.

Currency Rate Risk

As a result of our international business activities, our financial results have been affected by factors such as changes in foreign currency exchange rates as well as economic conditions in foreign markets, and there is no assurance that exchange rate fluctuations will not harm our business in the future. We generally sell our products in the local currency of the respective countries. This provides some natural hedging because most of the subsidiaries’ operating expenses are generally denominated in their local currencies.

We enter into foreign currency forward contracts for currencies where we have exposures, primarily the Euro, Chinese Yuan, Polish Zloty and Canadian Dollar, to minimize the short-term impact of foreign currency exchange rate fluctuations on cash and certain trade and intercompany receivables and payables.These forward contracts are not designated as hedging instruments and are generally one month in original maturity and are marked to market through earnings every period. The gains and losses on these forward contracts are intended to offset the gains and losses in the underlying foreign currency denominated monetary assets and liabilities being economically hedged. We do not enter into foreign currency forward contracts for trading or speculative purposes. As our international operations grow, we will continue to reassess our approach to managing the risks relating to fluctuations in currency rates. It is difficult to predict the impact forward contracts could have on our results of operations.

Although we will continue to monitor our exposure to currency fluctuations, and, where appropriate, may use forward contracts to minimize the effect of these fluctuations, the impact of an aggregate change of 10% in foreign currency exchange rates relative to the U.S. dollar on our results of operations and financial position could be material.

Military Conflict between Russia and Ukraine

Beginning 2022, the military conflict between Russia and Ukraine has continued to escalate and create challenges to already uncertain macroeconomic conditions. As of December 31, 2022, we do not expect these events to have any material impact on our operations. Our Russia net revenues as a percentage of our consolidated net revenues and our assets domiciled in Russia, including cash and cash equivalents, as a percentage of our total assets, are immaterial.

Inflation Risk

The economy has been impacted by certain macroeconomic challenges which have contributed to a rising inflationary trend that have impacted both our revenues and costs globally, and which we expect will continue into the foreseeable future. If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. There can be no assurance that our results of operations and financial condition will not be materially impacted by inflation in the future.

Item 8.Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Align is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed by, or under supervision of, our CEO and CFO, and effected by the board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:

•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Align;

•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Align are being made only in accordance with authorizations of management and directors of Align; and

•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Align’s assets that could have a material effect on the financial statements.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

Based on our assessment, management has concluded that, as of December 31, 2022, our internal control over financial reporting was effective based on criteria in Internal Control - Integrated Framework (2013) issued by the COSO.

The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.



/S/ JOSEPH M. HOGAN
Joseph M. Hogan
President and Chief Executive Officer
February 27, 2023


/S/ JOHN F. MORICI
John F. Morici
Chief Financial Officer and Executive Vice President, Global Finance
February 27, 2023

Report of Independent Registered Public Accounting Firm

To theBoard of Directors and Stockholders of Align Technology, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Align Technology, Inc. and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition – Determination of Standalone Selling Price of Distinct Performance Obligations in Clear Aligner Contracts

As described in Notes 1 and 15 to the consolidated financial statements, the Company recognized net revenues of $3.1 billion from its Clear Aligner segment for the year ended December 31, 2022. The Company enters into contracts (“treatment plans”) that involve multiple future performance obligations. Management identifies a performance obligation as distinct if both of the following criteria are met: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Management allocates revenues for each treatment plan based on each unit’s standalone selling price. Management considers a variety of factors such as same or similar product historical sales, costs, and gross margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. In addition to historical data, they take into consideration changing trends and market conditions. Management also considers usage rates, which is the number of times a customer is expected to order additional aligners. Management’s process for estimating usage rates requires significant judgment and evaluation of inputs, including historical usage data by region, country and channel.

The principal considerations for our determination that performing procedures related to revenue recognition and the determination of standalone selling price of distinct performance obligations in Clear Aligner contracts is a critical audit matter are the significant judgment by management in determining the estimate of standalone selling price, which includes significant assumptions related to usage rates for each distinct performance obligation. This in turn led to significant auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s determination of the estimates of standalone selling price and usage rates for each distinct performance obligation.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to revenue recognition, including controls over the determination of standalone selling price for each distinct performance obligation in the Company’s Clear Aligner contracts. These procedures also included, among others, (i) testing management’s process for determining the estimate of standalone selling price, which included testing the completeness and accuracy of inputs used and evaluating the reasonableness of factors considered by management related to same or similar product historical sales and usage rates, and (ii) testing management’s process for estimating usage rates, which included evaluating the reasonableness of inputs evaluated by management related to historical usage data by region, country and channel.

/s/ PricewaterhouseCoopers LLP

San Jose, California

February 27, 2023

We have served as the Company’s auditor since 1997.

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)


	Year Ended December 31,
	2022		2021		2020
Net revenues	$	3,734,635	$	3,952,584	$	2,471,941
Cost of net revenues	1,100,860		1,017,229		708,706
Gross profit	2,633,775		2,935,355		1,763,235
Operating expenses:
Selling, general and administrative	1,674,469		1,708,640		1,200,757

Research and development	305,258		250,315		175,307
Restructuring and other charges	11,453		—		—


Total operating expenses	1,991,180		1,958,955		1,376,064
Income from operations	642,595		976,400		387,171
Interest income and other income (expense), net:
Interest income	5,367		3,103		3,125
Other income (expense), net	(48,905)		32,920		(11,347)
Total interest income and other income (expense), net	(43,538)		36,023		(8,222)
Net income before provision for (benefit from) income taxes	599,057		1,012,423		378,949
Provision for (benefit from) income taxes	237,484		240,403		(1,396,939)

Net income	$	361,573	$	772,020	$	1,775,888

Net income per share:
Basic	$	4.62	$	9.78	$	22.55
Diluted	$	4.61	$	9.69	$	22.41
Shares used in computing net income per share:
Basic	78,190		78,917		78,760
Diluted	78,420		79,670		79,230

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

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)


	Year Ended December 31,
	2022		2021		2020
Net income	$	361,573	$	772,020	$	1,775,888
Other comprehensive income (loss):
Change in foreign currency translation adjustment, net of tax	(11,480)		(38,680)		44,383
Change in unrealized gains (losses) on investments, net of tax	(3,130)		(495)		(194)

Other comprehensive income (loss)	(14,610)		(39,175)		44,189
Comprehensive income	$	346,963	$	732,845	$	1,820,077

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

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)


	December 31,
	2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	942,050	$	1,099,370
Marketable securities, short-term	57,534		71,972
Accounts receivable, net of allowance for doubtful accounts of $10,343 and $9,245, respectively	859,685		897,198
Inventories	338,752		230,230
Prepaid expenses and other current assets	226,370		195,305

Total current assets	2,424,391		2,494,075
Marketable securities, long-term	41,978		125,320
Property, plant and equipment, net	1,231,855		1,081,926
Operating lease right-of-use assets, net	118,880		121,257
Goodwill	407,551		418,547
Intangible assets, net	95,720		109,709
Deferred tax assets	1,571,746		1,533,767
Other assets	55,826		57,509
Total assets	$	5,947,947	$	5,942,110

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	127,870	$	163,886
Accrued liabilities	454,374		607,315
Deferred revenues	1,343,643		1,152,870
Total current liabilities	1,925,887		1,924,071
Income tax payable	124,393		118,072
Operating lease liabilities	100,334		102,656
Other long-term liabilities	195,975		174,597
Total liabilities	2,346,589		2,319,396
Commitments and contingencies (Notes 7 and 8)
Stockholders’ equity:
Preferred stock, $0.0001 par value (5,000 shares authorized; none issued)	—		—
Common stock, $0.0001 par value (200,000 shares authorized; 77,267 and 78,710 issued and outstanding, respectively)	8		8
Additional paid-in capital	1,044,946		999,006
Accumulated other comprehensive income (loss), net	(10,284)		4,326
Retained earnings	2,566,688		2,619,374
Total stockholders’ equity	3,601,358		3,622,714
Total liabilities and stockholders’ equity	$	5,947,947	$	5,942,110

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

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss), Net		Retained Earnings		Total
	Shares	Amount








Balance as of December 31, 2019	78,433	$	8	$	906,937	$	(688)	$	439,912	$	1,346,169
Net income	—	—		—		—		1,775,888		1,775,888
Net change in unrealized gains (losses) from investments	—	—		—		(194)		—		(194)
Net change in foreign currency translation adjustment	—	—		—		44,383		—		44,383
Issuance of common stock relating to employee equity compensation plans	427	—		20,314		—		—		20,314
Tax withholdings related to net share settlements of equity awards	—	—		(51,122)		—		—		(51,122)
Stock-based compensation	—	—		98,427		—		—		98,427
Balance as of December 31, 2020	78,860	8		974,556		43,501		2,215,800		3,233,865
Net income	—	—		—		—		772,020		772,020
Net change in unrealized gains (losses) from investments	—	—		—		(495)		—		(495)
Net change in foreign currency translation adjustment	—	—		—		(38,680)		—		(38,680)
Issuance of common stock relating to employee equity compensation plans	442	—		25,623		—		—		25,623
Tax withholdings related to net share settlements of equity awards	—	—		(108,917)		—		—		(108,917)
Common stock repurchased and retired	(592)	—		(6,592)		—		(368,446)		(375,038)
Stock-based compensation	—	—		114,336		—		—		114,336
Balance as of December 31, 2021	78,710	8		999,006		4,326		2,619,374		3,622,714
Net income	—	—		—		—		361,573		361,573
Net change in unrealized gains (losses) from investments	—	—		—		(3,130)		—		(3,130)
Net change in foreign currency translation adjustment	—	—		—		(11,480)		—		(11,480)
Issuance of common stock relating to employee equity compensation plans	305	—		26,149		—		—		26,149
Tax withholdings related to net share settlements of equity awards	—	—		(52,799)		—		—		(52,799)
Common stock repurchased and retired	(1,748)	—		(20,777)		—		(414,259)		(435,036)
Equity forward contract related to accelerated stock repurchase	—	—		(40,000)		—		—		(40,000)
Stock-based compensation	—	—		133,367		—		—		133,367
Balance as of December 31, 2022	77,267	$	8	$	1,044,946	$	(10,284)	$	2,566,688	$	3,601,358

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

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Year Ended December 31,
	2022		2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	361,573	$	772,020	$	1,775,888
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes	(39,495)		15,455		(1,491,577)
Depreciation and amortization	125,793		108,729		93,538
Stock-based compensation	133,367		114,336		98,427
Non-cash operating lease cost	30,520		26,807		22,467


Arbitration award gain	—		(43,403)		—





Other non-cash operating activities	41,288		24,363		33,743
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable	21,549		(262,066)		(139,777)
Inventories	(130,097)		(112,450)		(29,110)
Prepaid expenses and other assets	(65,514)		(124,626)		(21,130)
Accounts payable	(36,523)		19,747		52,206
Accrued and other long-term liabilities	(121,942)		158,543		42,168
Long-term income tax payable	6,327		12,449		(2,802)
Deferred revenues	241,886		462,640		228,133
Net cash provided by operating activities	568,732		1,172,544		662,174
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired	(12,304)		(8,002)		(420,788)
Purchase of property, plant and equipment	(291,900)		(401,098)		(154,916)
Purchase of marketable securities	(28,002)		(200,928)		(5,341)
Proceeds from maturities of marketable securities	23,785		498		42,641
Proceeds from sales of marketable securities	97,316		3,114		278,817
Repayment on unsecured promissory note	—		4,594		26,925
Proceeds from arbitration award	—		43,403		—
Other investing activities	(2,211)		(5,011)		1,156
Net cash used in investing activities	(213,316)		(563,430)		(231,506)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock	26,149		25,623		20,314
Common stock repurchases	(435,036)		(375,038)		—
Payment for equity forward contract related to accelerated stock repurchase agreement	(40,000)		—		—
Payroll taxes paid upon the vesting of equity awards	(52,799)		(108,917)		(51,122)
Net cash used in financing activities	(501,686)		(458,332)		(30,808)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash	(11,514)		(12,117)		10,480
Net (decrease) increase in cash, cash equivalents, and restricted cash	(157,784)		138,665		410,340
Cash, cash equivalents, and restricted cash at beginning of year	1,100,139		961,474		551,134
Cash, cash equivalents, and restricted cash at end of year	$	942,355	$	1,100,139	$	961,474

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

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

~~ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

InBusiness Description

Align Technology, Inc. (“We”, “Our”, “Align”) is a global medical device company primarily engaged in the ~~normal course~~design, manufacture and marketing of ~~business,~~Invisalign® clear aligners for the treatment of malocclusions, or the misalignment of teeth, by orthodontists and general dental practitioners (“GPs”), Vivera® retainers for retention, iTero® intraoral scanners and services for dentistry, and exocad® computer-aided design and computer-aided manufacturing (“CAD/CAM”) software for dental laboratories and dental practitioners. Our vision and strategy is to revolutionize orthodontic and restorative dentistry through digital treatment planning and implementation using our Align Digital PlatformTM, an integrated suite of proprietary technologies and services designed to deliver a seamless, end-to-end solution for patients and consumers, orthodontists and GPs and lab partners. We strive to achieve our vision and strategy through key objectives made possible with the proprietary technologies and services of the Align Digital Platform to establish: clear aligners as the principal solution for the treatment of malocclusions with the Invisalign System as the treatment solution of choice by orthodontists, GPs and patients globally, our intraoral scanners as the preferred scanning technology for digital dental scans, and our exocad CAD/CAM software as the dental restorative solution of choice for dental labs. Our corporate headquarters is located in Tempe, Arizona and we have offices worldwide. Our Americas regional headquarters is located in Raleigh, North Carolina; our European, Middle East and Africa (“EMEA”) regional headquarters is located in Rotkreuz, Switzerland; and our Asia Pacific (“APAC”) regional headquarters is located in Singapore. We have two operating segments: (1) Clear Aligner, known as the Invisalign system, and (2) Imaging Systems and CAD/CAM services (“Systems and Services”), known as the iTero intraoral scanner and CAD/CAM services.

Basis of Presentation and Preparation

The consolidated financial statements include the accounts of Align and our wholly-owned subsidiaries after elimination of intercompany transactions and balances.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America (“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.

Fair Value of Financial Instruments

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 ~~exposed~~ultimately responsible for these underlying estimates.

Level 3 - Unobservable inputs to ~~foreign~~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.

Cash and Cash Equivalents

We consider currency ~~exchange rate~~on hand, demand deposits, time deposits, and all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash and cash equivalents. Cash and cash equivalents are held in various financial institutions in the U.S. and internationally.

Restricted Cash

The restricted cash primarily consists of funds reserved for legal requirements. Restricted cash balances are primarily included in other assets within our Consolidated Balance Sheets.

Marketable Securities

Our marketable securities consist of marketable debt securities which are classified as available-for-sale and are carried at fair value. Our fixed-income securities investment portfolio allows for investments with a maximum effective maturity of up to 40 months on any individual security. Marketable securities classified as current assets have maturities within one year from the balance sheet date. Unrealized gains or losses on such securities are included in accumulated other comprehensive income (loss), net (“AOCI”) in stockholders’ equity. Realized gains and losses from sales and maturities of all such securities are reported in earnings and computed using the specific identification cost method.

All of our marketable securities are subject to a periodic impairment review. We evaluate if an allowance for credit loss is necessary by considering available information relevant to the collectibility of the security and information about credit rating changes, past events, current conditions, and reasonable and supportable forecasts. Any allowance for credit loss is recorded as a charge to other income (expense), net, in our Consolidated Statement of Operations. If we have an intent to sell, or if it is more likely than not that we will be required to sell the security in an unrealized loss position before recovery of its amortized cost basis, we will write down the security to its fair value and record the corresponding charge as a component of other income (expense), net in our Consolidated Statement of Operations.

Variable Interest Entities

We evaluate whether an entity in which we have made an investment is considered a variable interest ~~rate risks~~entity (“VIE”). If we determine we are the primary beneficiary of a VIE, we would consolidate the VIE into our financial statements. In determining if we are the primary beneficiary, we evaluate whether we have the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could ~~impact~~potentially be significant to the VIE. Our evaluation includes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding, financing, and other applicable agreements and circumstances. Our assessments of whether we are the primary beneficiary of a VIE require significant assumptions and judgments. We have concluded that we are not the primary beneficiary of our VIE investments; therefore, we do not consolidate their results into our consolidated financial ~~position~~statements.

Investments in Privately Held Companies

Our investments in privately held companies in which we cannot exercise significant influence and ~~results~~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 ~~operations.~~

~~Interest Rate Risk~~

~~Changes~~our equity investment is adjusted to fair value for observable transactions for identical or similar investments of the same issuer.Investments in ~~interest rates could impact our anticipated interest income~~equity securities are reported on our ~~cash equivalents~~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 ~~marketable securities. Our investments are fixed-rate short-term and long-term securities. Fixed-rate securities may have their~~privately held companies without readily determinable fair market value adversely impacted due to a rise in interest rates, and, as a result, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates. As of December 31, 2019, we had approximately $318.2 million invested in available-for-sale marketable securities. An immediate 10% change in interest rates wouldvalues were not ~~have a~~ material ~~adverse impact on our future operating results and cash flows.~~

We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Based on interest bearing liabilities we have as of December 31, ~~2019, we are not subject~~2022 or 2021 and the associated adjustments to ~~risks from immediate interest rate increases.~~

~~Currency Rate Risk~~

As a result of our international business activities, our financial results could be affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign markets, and there is no assurance that exchange rate fluctuations will not harm our business in the ~~future. We generally sell our products in the local currency~~carrying values of the ~~respective countries. This provides some natural hedging because most of~~investments were not material during the subsidiaries’ operating expenses are generally denominated in their local currencies. Regardless of this natural hedging, our results of operations may be adversely impacted by exchange rate fluctuations.year ended December 31, 2022, 2021 and 2020.

Derivative Financial Instruments

We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations ~~on cash~~associated with certain assets and ~~certain trade and intercompany receivables and payables.~~liabilities. These forward contracts are not designated as hedging ~~instruments and do not subject us to material balance sheet risk due to fluctuations in foreign currency exchange rates.~~instruments. The gains and losses on these forward contracts are intended to offset the gains and losses in the underlying foreign currency denominated monetary assets and liabilities being economically hedged. ~~These instruments are marked to market through earnings every period and generally are one month in original maturity.~~ We do not enter into foreign currency forward contracts for trading or speculative purposes. AsThe net gain or loss from the settlement of these foreign currency forward contracts is recorded in other income (expense), net in the Consolidated Statement of Operations.

Foreign Currency

For our international ~~operations grow,~~subsidiaries, we ~~will continue~~analyze on an annual basis or more often if necessary, if a significant change in facts and circumstances indicate that the functional currency has changed. For international subsidiaries where the local currency is the functional currency, adjustments from translating financial statements from the local currency to ~~reassess our approach to managing~~ the ~~risks relating to fluctuations~~U.S. dollar reporting currency are recorded as a separate component of AOCI in the stockholders’ equity section of the Consolidated Balance Sheet. This foreign currency ~~rates. It is difficult to predict~~translation adjustment reflects the ~~impact forward contracts could have on our results~~translation of ~~operations.~~the balance sheet at period end exchange rates, and the income statement at the transaction date or average exchange rate in effect during the period. The ~~fair value of~~ foreign ~~exchange forward contracts outstanding as of~~currency revaluation that are derived from monetary assets and liabilities stated in a currency other than functional currency are included in other income (expense), net. For the year ended December 31, ~~2019 was~~2022, 2021 and 2020, we had foreign currency net gains (losses) of $(43.8) million, $(13.3) million and $6.8 million, respectively.

Certain Risks and Uncertainties

We are subject to risks including, but not ~~material.~~

~~Although we will continue~~limited to, ~~monitor our exposure to currency~~global and regional economic market conditions, inflation, fluctuations ~~and, where appropriate, may use forward contracts to minimize the effect of these fluctuations, the impact of an aggregate change of 10%~~ in foreign currency exchange rates, ~~relative to the U.S. dollar on our results of operations and financial position could be material.~~

~~ITEM 8.CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA~~

~~Quarterly Results of Operations~~

Three Months Ended
2019 2018
December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 December 31, 2018 September 30, 2018 June 30, 2018 March 31, 2018

(in thousands, except per share data)
(unaudited )
Net revenues $ 649,787
$ 607,341
$ 600,697
$ 548,971
$ 534,020
$ 505,289
$ 490,259
$ 436,924
Gross profit 471,958
437,554
432,289
402,096
383,096
371,781
365,582
327,408
Income from operations 151,150
127,152
176,490
87,701
120,473
125,208
122,691
98,192
Net income 121,262
102,524
147,142
71,848
97,392
100,872
106,105
95,866
Net income per share:
Basic $ 1.54
$ 1.29
$ 1.84
$ 0.90
$ 1.22
$ 1.26
$ 1.32
$ 1.20
Diluted $ 1.53
$ 1.28
$ 1.83
$ 0.89
$ 1.20
$ 1.24
$ 1.30
$ 1.17
Shares used in computing net income per share:
Basic 78,578
79,332
79,943
79,860
79,891
80,111
80,216
80,036
Diluted 79,137
79,825
80,590
80,687
80,943
81,359
81,471
81,628

~~INDEX TO CONSOLIDATED FINANCIAL STATEMENTS~~



	~~Page~~
~~Report of Management on Internal Control over Financial Reporting~~	47
~~Report of Independent Registered Public Accounting Firm~~	48
~~Consolidated Statements of Operations for the year ended December 31, 2019, 2018 and 2017~~	50
~~Consolidated Statements of Comprehensive Income for the year ended December 31, 2019, 2018 and 2017~~	51
~~Consolidated Balance Sheets as of December 31, 2019 and 2018~~	52
~~Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2019, 2018 and 2017~~	53
~~Consolidated Statements of Cash Flows for the year ended December 31, 2019, 2018 and 2017~~	54
~~Notes to Consolidated Financial Statements~~	55

~~REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING~~

~~pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Align;~~

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Align are being made only in accordance with authorizations of management and directors of Align; and

~~provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Align's assets that could have a material effect on the financial statements.~~

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in ~~conditions or that the degree~~consumer confidence and demand, increased competition, dependence on key personnel, protection and litigation of proprietary technology, shifts in taxable income between tax jurisdictions and compliance with ~~the policies or procedures may deteriorate.~~

~~Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making this assessment, management used the criteria set forth in~~ ~~Internal Control-Integrated Framework(2013)~~ ~~issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").~~

~~Based on our assessment, management has concluded that, as of December 31, 2019, our internal control over financial reporting was effective based on criteria in~~ ~~Internal Control - Integrated Framework (2013) issued by the COSO~~.

The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.

/S~~/ JOSEPH M. HOGAN~~

~~Joseph M. Hogan~~

~~President and Chief Executive Officer~~

~~February 28, 2020~~

/S~~/ JOHN F. MORICI~~

~~John F. Morici~~

~~Chief Financial Officer and Senior Vice President, Global Finance~~

~~February 28, 2020~~

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

~~To the Board of Directors and Stockholders of Align Technology, Inc.~~

~~Opinions on the Financial Statements and Internal Control over Financial Reporting~~

We have audited the accompanying consolidated balance sheets of Align Technology, Inc. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, including the related notes and financial statement schedule listed in the index appearing under item 15 (a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in ~~Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).~~

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its~~cash flows for each of the three years in the period ended December 31, 2019~~in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in ~~Internal Control - Integrated Framework(2013)issued by the COSO.~~

~~Change in Accounting Principle~~

~~As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.~~

~~Basis for Opinions~~

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the ~~Securities~~U.S. Food and ~~Exchange Commission~~Drug Administration (“FDA”) and similar international agencies. Further, our operations globally have been impacted by the ~~PCAOB.~~COVID-19 pandemic. Although its impact has been gradually declining, we continue to be exposed to risks and uncertainties posed by it which varies by geographic regions 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.

Our ~~audits~~cash and investments are held primarily by five financial institutions. Financial instruments which potentially expose us to concentrations of ~~the consolidated financial statements included performing procedures~~credit risk consist primarily of cash equivalents and marketable securities. We invest excess cash primarily in money market funds, corporate bonds, asset-backed securities, municipal bonds and U.S. government agency bonds and treasury bonds and periodically evaluate them for credit losses. Such credit losses have not been material to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our ~~audits provide a reasonable basis for our opinions.~~

~~Definition and Limitations of Internal Control over Financial Reporting~~

~~reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the~~ financial statements.

~~Because~~

We purchase certain inventory from sole suppliers. Additionally, we rely on a limited number of ~~its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections~~hardware manufacturers. The inability of any ~~evaluation~~supplier or manufacturer to fulfill our supply requirements could materially and adversely impact our future operating results.

Accounts Receivable, net

Trade accounts receivable are recorded at the invoiced amount. Accounts receivable, net includes allowances for doubtful accounts for any potentially uncollectible amounts. We periodically assess the adequacy of ~~effectiveness~~the allowance for doubtful accounts by reviewing the accounts receivable on a collective basis by considering factors such as aging of the receivables and customers’ expected ability to pay, and on an individual basis for specific customers with known disputes or collectability issues. In determining the amount of the allowance for doubtful accounts, we also evaluate the creditworthiness of customers, current market conditions and forecasts of future ~~periods are subject~~economic conditions to ~~the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.~~

~~Critical Audit Matters~~

~~The critical audit matter communicated below is a matter arising~~make any adjustments. Actual write-offs have not materially differed from the ~~current period audit~~estimated allowances. No individual customer accounted for 10% or more of ~~the consolidated financial statements that was communicated~~our accounts receivable at December 31, 2022 or ~~required to be communicated to the audit committee and that (i) relates to accounts~~2021 or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

~~Revenue Recognition - Determination of Standalone Selling Price of Distinct Performance Obligations in Clear Aligner Contracts~~

~~As described in Notes 1 and 17 to the consolidated financial statements, the Company recognized~~ net revenues ~~of $2 billion from its Clear Aligner segment~~ for the year ended December 31, ~~2019.~~2022, 2021 or 2020.

In 2022, we entered 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 Consolidated Statements of Cash Flows. Total accounts receivable sold under the factoring arrangements was $37.0 million during the year ended December 31, 2022. Factoring fees on the sales of receivables were recorded in other income (expense), net in our Consolidated Statement of Operations and were not material.

Inventories

Inventories are valued at the lower of cost or net realizable value, with cost computed using standard cost which approximates actual cost on a first-in-first-out basis. Excess and obsolete inventories are determined primarily based on future demand forecasts, and write-downs of excess and obsolete inventories are recorded as a component of cost of net revenues.

Property, Plant and Equipment, net

Property, plant and equipment, net are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. Construction in progress is related to the construction or development of property (including land) and equipment that have not yet been placed in service for their intended use. Upon sale or retirement, the asset’s cost and related accumulated depreciation are removed from the balance sheet and any related gains or losses are reflected in income from operations. Maintenance and repairs are expensed as incurred. Refer to Note 3 “Balance Sheet Components" of the Notes of Consolidated Financial Statements for details on estimated useful lives.

Leases - Lessee

We determine if an arrangement is a lease at inception. Leases with a term of 12 months or less are not recorded on the balance sheet. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments as the rate implicit in our leases is not readily determinable. We determine lease terms as the noncancellable period of the lease and may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components which are accounted for as a single lease component. Payments under our lease arrangements are primarily fixed; however, certain lease agreements contain variable payments which are expensed as incurred and not included in the operating lease ROU assets and liabilities.

Business Combinations

We allocate the fair value of the purchase consideration to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. When determining the fair value of assets acquired and liabilities assumed, management is required to make certain estimates and assumptions, especially with respect to intangible assets. The ~~Company enters~~estimates and assumptions used in valuing intangible assets include, but are not limited to, the amount and timing of projected future cash flows including forecasted revenues, the discount rate used to determine the present value of these cash flows, and the determination of the assets’ life cycle. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.

Goodwill and Finite-Lived Acquired Intangible Assets

Goodwill represents the excess of the purchase price paid over the fair value of tangible and identifiable intangible net assets acquired in business combinations and is allocated to the respective reporting units based on relative synergies generated.

Our intangible assets primarily consist of intangible assets acquired as part of our acquisitions. These assets are amortized using the straight-line method over their estimated useful lives ranging from two to fifteen years reflecting the period in which the economic benefits of the assets are expected to be realized.

Impairment of Goodwill and Long-Lived Assets

Goodwill

We evaluate goodwill for impairment at least annually on November 30th or more frequently if indicators are present, an event occurs or changes in circumstances suggest an impairment may exist and that it would more likely than not reduce the fair value of a reporting unit below its carrying amount. The allocation of goodwill to the respective reporting unit is based on relative synergies generated as a result of an acquisition.

performing the qualitative assessment, we identify and consider the significance of relevant key factors, events, and circumstances that affect the fair value of our reporting units. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as our actual and planned financial performance. We also give consideration to the difference between the reporting unit fair value and carrying value as of the most recent date a fair value measurement was performed. If, after assessing the totality of relevant events and circumstances, we determine that it is more likely than not that the fair value of the reporting unit exceeds its carrying value and there is no indication of impairment, no further testing is performed; however, if we conclude otherwise, then we will perform the quantitative impairment test which compares the estimated fair value of the reporting unit to its carrying value, including goodwill. If the carrying amount of the reporting unit is in excess of its fair value, an impairment loss would be recorded in the Consolidated Statement of Operations.

Long-Lived Assets

We evaluate long-lived assets (including finite-lived intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. An asset or asset group is considered impaired if its carrying amount exceeds the future undiscounted net cash flows that the asset or asset group is expected to generate. Factors we consider important which could trigger an impairment review include significant negative industry or economic trends, significant loss of customers and changes in the competitive environment. If an asset or asset group is considered to be impaired, the impairment to be recognized is calculated as the amount by which the carrying amount of the asset or asset group exceeds its fair market value. Our estimates of future cash flows attributable to our long-lived assets require significant judgment based on our historical and anticipated results and are subject to many assumptions. The estimation of fair value utilizing a discounted cash flow approach includes numerous uncertainties which require our significant judgment when making assumptions of expected growth rates and the selection of discount rates, as well as assumptions regarding general economic and business conditions, and the structure that would yield the highest economic value, among other factors.Refer to Note 5 “Goodwill and Intangible Assets” of Notes to Consolidated Financial Statements for details on intangible long-lived assets.

Development Costs for Internal Use Software

Internally developed software includes enterprise-level business software that we customize to meet our specific operational needs. Such capitalized costs include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related costs for employees, who are directly associated with the development of the applications. There were no significant internally developed software costs capitalized in 2022 or 2021.

Development Costs for Software to be Marketed

The costs to develop software that is marketed externally have not been capitalized as we believe our current software development process is essentially completed concurrent with the establishment of technological feasibility. As such, all related software development costs are expensed as incurred and included in research and development expense in our Consolidated Statement of Operations.

Product Warranty

We offer assurance warranties on our products which provide the customer assurance that the product will function as the parties intended because it complies with agreed-upon specifications; therefore, warranties are not treated as a separate revenue performance obligation and are accounted for as guarantees under GAAP.

Clear Aligner

We warrant our Invisalign products against material defects until the treatment plan is complete except in the case of retainers, which are warranted up to three months from expected first use. We accrue for warranty costs, which are primarily based on historical experience as to product failures as well as current information on replacement costs.

Systems and Services

We warrant our intraoral scanners for a period of one year, which includes materials and labor. We accrue for these warranty costs based on average historical repair costs. An extended warranty may be purchased for additional fees. We warrant our CAD/CAM software for a one year period to perform in accordance with agreed product specifications. As we have not historically incurred any material warranty costs, we do not accrue for these software warranties.

Warranty costs are recorded in cost of net revenues upon shipment of products. We regularly review our warranty liability and update these balances based on historical warranty cost trends. Actual warranty costs incurred have not materially differed from those accrued; however future actual warranty costs could differ from the estimated amounts.

Revenue Recognition

Our revenues are derived primarily from the sale of aligners, scanners, and services from our Clear Aligner and Systems and Services segments. We enter into sales contracts ~~(“treatment plans”)~~ that ~~involve~~may consist of multiple ~~future~~distinct performance ~~obligations. Management identifies~~obligations where certain performance obligations of the sales contract are not delivered in one reporting period. We measure and allocate revenues according to ASC 606-10, “Revenues from Contracts with Customers.”

We identify a performance obligation as distinct if both of the following criteria are met: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Determining the standalone selling price ~~allocation of~~(“SSP”) in order to allocate consideration from the contract to the individual performance obligations is the result of various factors, such as changing trends and market conditions, historical prices, costs, and gross margins. While changes in the ~~appropriate~~allocation of the SSP between performance obligations will not affect the amount of total revenues recognized for a particular contract, any material changes could impact the timing of revenue recognition, ~~is the~~which would have a material effect on our financial position and result of ~~significant qualitative~~operations. This is because the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation.

Clear Aligner

We enter into contracts (“treatment plan(s)”) that involve multiple future performance obligations. Invisalign Comprehensive, Invisalign First, Invisalign Moderate, Invisalign Go, Invisalign Go Plus, and ~~quantitative judgments.~~Lite and Express Packages include optional additional aligners at no charge for a certain period of time ranging from six months to five years after initial shipment.

Our treatment plans comprise the following performance obligations that also represent distinct deliverables: initial aligners, the option of additional aligners, case refinement, and replacement aligners. We take the practical expedient to consider shipping and handling costs as activities to fulfill the performance obligation. Where processing fees are charged, the consideration received from the fees are included in the total consideration. We allocate revenues for each treatment plan based on each unit’s standalone selling price. Management considers a variety of factors such as same or similar product historical sales, costs, and gross margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. ~~Management~~In addition to historical data, we take into consideration changing trends and market conditions. For treatment plans with multiple future options, we also ~~considers~~consider usage rates, which is the number of times a customer is expected to order additional aligners. ~~Management’s~~Our process for estimating usage rates requires significant judgment and evaluation of inputs, including historical usage data by region, country and channel. We recognize the revenues upon shipment, as the customers obtain physical possession and we have enforceable rights to payment. As we collect most consideration upfront, we consider whether a significant financing component exists; however, as the delivery of the performance obligations are at the customer’s discretion, we conclude that no significant financing component exists.

Systems and Services

We sell intraoral scanners and CAD/CAM services through both our direct sales force and distribution partners. The intraoral scanner sales price includes one year of warranty and unlimited scanning services. The customer may also select, for additional fees, extended warranty and unlimited scanning services for periods beyond the initial year. When intraoral scanners are sold with an unlimited scanning service agreement and/or extended warranty, we allocate revenues based on the respective SSP of the scanner and the subscription service. We estimate the SSP of each element, taking into account factors such as same or similar historical prices and discounting strategies. Revenues are then recognized over time as the monthly services are rendered and upon shipment of the scanner, as that is when we deem the customer to have obtained control. We also have a rental program, where scanners are leased to customers. The contracts for the program are treated as operating leases, and the revenue is recognized ratably over the lease term.

CAD/CAM services, where sold separately, include the initial software license and maintenance and support. We allocate revenues based upon the respective SSPs of the software license and the maintenance and support. We estimate the SSP of each element using data such as historical prices. Revenues related to the software license are recognized upfront and revenues related to the maintenance and support are recognized over time. For both scanner and service sales, most consideration is

collected upfront and in cases where there are payment plans, consideration is collected within one year and, therefore, there are no significant financing components.

Volume Discounts

Accrued Sales Return Reserve

We provide a reserve for sales returns based on historical sales returns as a percentage of revenues.

Costs to Obtain a Contract

We offer a variety of commission plans to our salesforce; each plan has multiple components. To match the costs to obtain a contract to the associated revenues, we evaluate the individual components and capitalize the eligible components, recognizing the costs over the treatment period. The costs to obtain contracts were $27.4 million and $31.1 million as of December 31, 2022 and 2021, respectively, and are included in other assets in our Consolidated Balance Sheets. We recognized amortization on our costs to obtain a contract of $20.8 million, $17.0 million, and $10.1 million during the year ended December 31, 2022, 2021, and 2020, respectively, which is included in selling, general and administrative expenses in our Consolidated Statements of Operations.

Unfulfilled Performance Obligations for Clear Aligners and Scanners

Our unfulfilled performance obligations, including deferred revenues and backlog, as of December 31, 2022 and the estimated revenues expected to be recognized in the future related to these performance obligations are $1,515.4 million. This includes performance obligations from the Clear Aligner segment, primarily the shipment of additional aligners, which are fulfilled over six months to five years. This also includes the performance obligations from the Systems and Services segment, primarily services and support, which are fulfilled over one to five years, and contracted deliveries of additional scanners. The estimate includes both product and service unfulfilled performance obligations and the time range reflects our best estimate of when we will transfer control to the customer and may change based on customer usage patterns, timing of shipments, readiness of customers' facilities for installation, and manufacturing availability.

Contract Balances

The ~~principal considerations for our determination that performing procedures related to~~timing of revenue recognition results in deferred revenues being recognized on our Consolidated Balance Sheet. For both aligners and scanners, we usually collect the total consideration owed prior to all performance obligations being performed with payment terms generally varying from net 30 to net 180 days. Contract liabilities are recorded as deferred revenue balances, which are generated based upon timing of invoices and recognition patterns, not payments. If the revenue recognition exceeds the billing, the exceeded amount is considered unbilled receivable and a contract asset. Conversely, if the billing occurs prior to the revenue recognition, the amount is considered deferred revenue and a contract liability.

Shipping and Handling Costs

Shipping and handling charges to customers as well as processing fees are included in net revenues, and the ~~determination~~associated costs incurred are recorded in cost of ~~standalone selling price of distinct performance obligations~~net revenues.

Legal Proceedings and Litigations

We are involved in ~~Clear Aligner contracts~~legal proceedings on an ongoing basis. If we believe that a loss arising from such matters is ~~a critical audit matter are there was significant judgment by management~~probable and can be reasonably estimated, we accrue the estimated loss in determining the standalone selling price, which includes significant assumptions related to usage rates for each distinct performance obligation. This in turn led to significant judgment, subjectivity, and effort in applying audit procedures to evaluate the judgments made by management in determining the estimates of standalone selling price and usage rates for each distinct performance obligation.

~~Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming~~ our ~~overall opinion on the~~ consolidated financial statements. ~~These procedures included testing~~If only a range of estimated losses can be determined, we accrue an amount within the ~~effectiveness~~range that, in our judgment, reflects the most likely outcome; if none of ~~controls relating to revenue recognition, including controls over~~ the ~~determination~~estimates within that range is a better estimate than any other amount, we accrue the low end of ~~standalone selling price for each distinct performance obligation in~~ the ~~Company’s Clear Aligner contracts.~~range.

~~These procedures also~~included, among others, (i) testing management’s process for determining the estimate of standalone selling price, which included testing the completeness and accuracy of inputs used and evaluating the reasonableness of factors considered by management, such as historical sales, usage rates, costs, and gross margin, and (ii) testing management’s process for estimating usage rates, which included evaluating the reasonableness of inputs evaluated by management, including historical usage data by region, country and channel.

~~/s/ PricewaterhouseCoopers LLP~~

~~San Jose, California~~Research and Development

~~February 28, 2020~~

Research and development costs are expensed as incurred and includes the costs associated with the research and development of new products and enhancements to existing products. These costs primarily include personnel-related costs, including payroll and stock-based compensation, equipment, material and maintenance costs, outside consulting expenses, depreciation and amortization expense and allocations of corporate overhead expenses including facilities and information technology (“IT”).

~~We have served as the company's auditor since 1997.~~

Advertising Costs

~~ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(in thousands, except per share data)~~

Year Ended December 31,
2019 2018 2017
Net revenues $ 2,406,796
$ 1,966,492
$ 1,473,413
Cost of net revenues 662,899
518,625
356,466
Gross profit 1,743,897
1,447,867
1,116,947
Operating expenses:
Selling, general and administrative 1,072,053
852,404
665,777
Research and development 157,361
128,899
97,559
Impairments and other (gains) charges 22,990
—
—
Litigation settlement gain (51,000 ) —
—
Total operating expenses 1,201,404
981,303
763,336
Income from operations 542,493
466,564
353,611
Interest income 12,482
8,576
6,948
Other income (expense), net 7,676
(8,489 ) 4,240
Net income before provision for income taxes and equity in losses of investee 562,651
466,651
364,799
Provision for income taxes 112,347
57,723
130,162
Equity in losses of investee, net of tax 7,528
8,693
3,219
Net income $ 442,776
$ 400,235
$ 231,418

Net income per share:
Basic $ 5.57
$ 5.00
$ 2.89
Diluted $ 5.53
$ 4.92
$ 2.83
Shares used in computing net income per share:
Basic 79,424
80,064
80,085
Diluted 80,100
81,357
81,832

The ~~accompanying notes~~cost of advertising and media is expensed as incurred. For the year ended December 31, 2022, 2021 and 2020, we incurred advertising costs of $222.0 million, $325.6 million and $161.0 million, respectively.

Stock-Based Compensation

We recognize stock-based compensation cost for shares expected to vest on a straight-line basis over the requisite service period of the award, net of estimated forfeitures. We use the Black-Scholes option pricing model to determine the fair value of employee stock purchase plan shares. We use a Monte Carlo simulation model to estimate the fair value of market-performance based restricted stock units which requires the input of assumptions, including expected term, stock price volatility and the risk-free rate of return. For restricted stock units which vest based on performance conditions, we use the stock price on the grant date to estimate the fair value and stock-based compensation cost is recorded based on expected attainment of performance targets. Forfeitures are ~~an integral~~estimated based on historical experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Income Taxes

We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenues and expenses for tax and financial statement purposes.

As part of ~~these~~the process of preparing our consolidated financial ~~statements.~~statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our current tax exposure under the applicable tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities which are included in our Consolidated Balance Sheets.

We account for uncertainty in income taxes pursuant to authoritative guidance based on a two-step approach to recognize and measure uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit based on its technical merits, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit or refinement of estimates due to new information. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will impact our tax provision in our Consolidated Statement of Operations in the period in which such determination is made.

We assess the likelihood that we will be able to realize our deferred tax assets. Should there be a change in our ability to realize our deferred tax assets, our tax provision would increase in the period in which we determine that it is more likely than not that we cannot realize our deferred tax assets. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If it is more likely than not that we will not realize our deferred tax assets, we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be realizable.

During fiscal 2020, we completed an intra-entity transfer of certain intellectual property rights and fixed assets to our Swiss subsidiary, which resulted in the recognition of deferred tax assets and related tax benefits. Refer to Note 12 “Income Taxes” of Notes to Consolidated Financial Statements for more information. The establishment of deferred tax assets from the intra-entity transfer of intangible assets required us to make significant estimates and assumptions to determine the fair value of intellectual property rights transferred which include, but are not limited to, our expectations of growth rates in revenue, margins, future cash flows, and discount rates. The accuracy of these estimates could be affected by unforeseen events or actual

results, and the sustainability of our future tax benefits is dependent upon the acceptance of these valuation estimates and assumptions by the taxing authorities.

~~ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(in thousands)~~

Year Ended December 31,
2019 2018 2017
Net income $ 442,776
$ 400,235
$ 231,418
Net change in foreign currency translation adjustment 1,787
(3,631 ) 1,741
Change in unrealized gains (losses) on investments, net of tax 299
286
(232 )
Other comprehensive income (loss) 2,086
(3,345 ) 1,509
Comprehensive income $ 444,862
$ 396,890
$ 232,927

The ~~accompanying notes~~U.S. Tax Cuts and Jobs Act includes provisions for certain foreign-sourced earnings referred to as Global Intangible Low-Taxed Income (“GILTI”) which imposes a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. We have made the election to record GILTI tax using the period cost method.

Common Stock Repurchase

We repurchase our own common stock from time to time under stock repurchase programs approved by our Board of Directors. We account for these repurchases under the accounting guidance for equity where we allocate the total repurchase value that is in excess over par value between additional paid-in capital and retained earnings. All shares repurchased are retired.

Recent Accounting Pronouncements

(i) New Accounting Updates Recently Adopted

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2021-08, “Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with ASC 606, Revenue from Contracts with Customers as if the acquirer had originated the contracts. The updated guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2022 on a prospective basis and early adoption is permitted. We early adopted this standard during 2022 which did not have a material impact on our consolidated financial statements and related disclosures.

(ii) Recent Accounting Pronouncements Not Yet Effective

We continue to monitor new accounting pronouncements issued by the 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.

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 Sheet as of December 31, 2022 and 2021 (in thousands):


									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


									Reported as:
December 31, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable securities, short-term		Marketable securities, long-term
Cash	$	754,802	$	—	$	—	$	754,802	$	754,802	$	—	$	—
Money market funds	343,012		—		(2)		343,010		343,010		—		—
Corporate bonds	115,507		9		(398)		115,118		1,042		35,065		79,011
U.S. government treasury bonds	42,976		—		(48)		42,928		—		22,251		20,677
Asset-backed securities	32,031		—		(40)		31,991		—		10,999		20,992
Municipal bonds	7,628		—		(15)		7,613		516		3,657		3,440
U.S. government agency bonds	1,201		—		(1)		1,200		—		—		1,200

Total	$	1,297,157	$	9	$	(504)	$	1,296,662	$	1,099,370	$	71,972	$	125,320

The following table summarizes the fair value of our available-for-sale marketable securities classified by contractual maturity as of December 31, 2022 and 2021 (in thousands):


	December 31,
	2022		2021
Due in 1 year or less	$	51,037	$	59,737
Due in 1 year through 5 years	48,475		139,113
Total	$	99,512	$	198,850

The securities that we invest in are generally deemed to be low risk based on their credit ratings from the major rating agencies. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As interest rates increase, those securities purchased at a lower yield show a mark-to-market unrealized loss. Our unrealized losses as of December 31, 2022 and 2021 are primarily due to changes in interest rates and credit spreads.

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


	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)

As of December 31, 2021, all gross unrealized losses had been in an ~~integral~~unrealized loss position for less than 12 months.

Investment in SmileDirectClub, LLC (“SDC”)

After tendering of our SDC equity interest in 2019, on July 3, 2019, we filed a demand for arbitration regarding SDC’s calculation of the “capital account” balance. On March 12, 2021, the arbitrator ruled in our favor and against SDC and issued an award of $43.4 million along with interest. The gain of $43.4 million was recognized as a part of ~~these consolidated financial statements.~~our other income (expense), net in our Consolidated Statement of Operation during the year ended December 31, 2021.

Fair Value Measurements

~~ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED BALANCE SHEETS~~

~~(in thousands, except per share data)~~

December 31,
2019 2018
ASSETS
Current assets:
Cash and cash equivalents $ 550,425
$ 636,899
Marketable securities, short-term 318,202
98,460
Accounts receivable, net of allowance for doubtful accounts of $6,756 and $2,378, respectively 550,291
439,009
Inventories 112,051
55,641
Prepaid expenses and other current assets 102,450
72,470
Total current assets 1,633,419
1,302,479
Marketable securities, long-term —
9,112
Property, plant and equipment, net 631,730
521,329
Operating lease right-of-use assets, net 56,244
—
Equity method investments —
45,913
Goodwill and intangible assets, net 75,692
81,949
Deferred tax assets 64,007
64,689
Other assets 39,610
26,987
Total assets $ 2,500,702
$ 2,052,458

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 87,250
$ 64,256
Accrued liabilities 319,958
234,679
Deferred revenues 563,762
393,138
Total current liabilities 970,970
692,073
Income tax payable 102,794
78,008
Operating lease liabilities 43,463
—
Other long-term liabilities 37,306
29,486
Total liabilities 1,154,533
799,567
Commitments and contingencies (Notes 9 and 10)

Stockholders’ equity:
Preferred stock, $0.0001 par value (5,000 shares authorized; none issued) —
—
Common stock, $0.0001 par value (200,000 shares authorized; 78,433 and 79,778 issued and outstanding, respectively) 8
8
Additional paid-in capital 906,937
877,514
Accumulated other comprehensive income (loss), net (688 ) (2,774 )
Retained earnings 439,912
378,143
Total stockholders’ equity 1,346,169
1,252,891
Total liabilities and stockholders’ equity $ 2,500,702
$ 2,052,458

The ~~accompanying notes~~following tables summarize our financial assets measured at fair value as of December 31, 2022 and 2021 (in thousands):


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


Description	Balance as of December 31, 2021		Level 1		Level 2
Cash equivalents:
Money market funds	$	343,010	$	343,010	$	—
Corporate bonds	1,042		—		1,042
Municipal bonds	516		—		516
Short-term investments:
U.S. government treasury bonds	22,251		22,251		—
Corporate bonds	35,065		—		35,065
Municipal bonds	3,657		—		3,657
Asset-backed securities	10,999		—		10,999
Long-term investments:
U.S. government treasury bonds	20,677		20,677		—
Corporate bonds	79,011		—		79,011
Municipal bonds	3,440		—		3,440
U.S. government agency bonds	1,200		—		1,200
Asset-backed securities	20,992		—		20,992
Prepaid expenses and other current assets:
Israeli funds	3,841		—		3,841


	$	545,701	$	385,938	$	159,763

Derivatives Not Designated as Hedging Instruments

Recurring foreign currency forward contracts

We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on certain trade and intercompany receivables and payables. These forward contracts are ~~an integral part~~classified within Level 2 of ~~these consolidated financial statements.~~

the fair value hierarchy. As a result of the settlement of foreign currency forward contracts, the net gain recognized during the year ended December 31, 2022 was not material and we recognized a net gain of $18.8 million and a net loss of $22.1 million, during the year ended December 31, 2021 and 2020, respectively. As of December 31, 2022 and 2021, the fair value of foreign exchange forward contracts outstanding was not material.

~~ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(in thousands)~~

Common Stock
Additional
Paid-In
Capital

Accumulated
Other
Comprehensive
Income (Loss), Net
Retained Earnings Total
Shares Amount
Balances at December 31, 2016 79,553
$ 8
$ 864,871
$ (938 ) $ 135,366
$ 999,307
Cumulative effect adjustment from adoption of ASU 2016-16 —
—
—
—
(1,300 ) (1,300 )
Net income —
—
—
—
231,418
231,418
Net change in unrealized gains (losses) from investments —
—
—
(232 ) —
(232 )
Net change in foreign currency translation adjustment

—
—
—
1,741
—
1,741
Issuance of common stock relating to employee equity compensation plans 1,073
—
14,461
—
—
14,461
Tax withholdings related to net share settlements of equity awards —
—
(46,168 ) —
—
(46,168 )
Common stock repurchased and retired (586 ) —
(5,583 ) —
(98,210 ) (103,793 )
Stock-based compensation —
—
58,854
—
—
58,854
Balances at December 31, 2017 80,040
8
886,435
571
267,274
1,154,288
Net income —
—
—
—
400,235
400,235
Net change in unrealized gains (losses) from investments —
—
—
286
—
286
Net change in foreign currency translation adjustment

—
—
—
(3,631 ) —
(3,631 )
Issuance of common stock relating to employee equity compensation plans 795
—
16,635
—
—
16,635
Tax withholdings related to net share settlements of equity awards —
—
(86,067 ) —
—
(86,067 )
Common stock repurchased and retired (1,057 ) —
(10,252 ) —
(289,750 ) (300,002 )
Stock-based compensation —
—
70,763
—
—
70,763
Other —
—
—
—
384
384
Balances at December 31, 2018 79,778
8
877,514
(2,774 ) 378,143
1,252,891
Net income —
—
—
—
442,776
442,776
Net change in unrealized gains (losses) from investments —
—
—
299
—
299
Net change in foreign currency translation adjustment

—
—
—
1,787
—
1,787
Issuance of common stock relating to employee equity compensation plans 542
—
17,907
—
—
17,907
Tax withholdings related to net share settlements of equity awards —
—
(57,676 ) —
—
(57,676 )
Common stock repurchased and retired (1,887 ) —
(18,992 ) —
(381,007 ) (399,999 )
Stock-based compensation —
—
88,184
—
—
88,184
Balances at December 31, 2019 78,433
$ 8
$ 906,937
$ (688 ) $ 439,912
$ 1,346,169

The ~~accompanying notes are an integral part~~following tables presents the gross notional value of ~~these consolidated financial statements.~~all our foreign exchange forward contracts outstanding as of December 31, 2022 and 2021 (in thousands):


	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


	December 31, 2021
	Local Currency Amount	Notional Contract Amount (USD)
Euro	€165,110	$	186,358
Canadian Dollar	C$99,800	78,018
Chinese Yuan	¥494,500	77,358
Polish Zloty	PLN219,800	54,014
Brazilian Real	R$286,500	50,894
Japanese Yen	¥5,548,700	48,206
British Pound	£34,740	46,881
Israeli Shekel	ILS54,110	17,416
Mexican Peso	M$311,500	15,133
Swiss Franc	CHF9,950	10,883
Australian Dollar	A$6,900	5,009
		$	590,170

Other foreign currency forward contract

Prior to the closing of the exocad acquisition on April 1, 2020, we entered into a Euro foreign currency forward contract with a notional contract amount of €376.0 million. Relating to this forward contract, in 2020, we recognized a loss of $10.2 million within other income (expense), net in our Consolidated Statement of Operations.

~~ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(in thousands~~

Year Ended December 31,
2019 2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 442,776
$ 400,235
$ 231,418
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes 307
(15,680 ) 17,572
Depreciation and amortization 78,990
54,727
37,739
Stock-based compensation

88,184
70,763
58,854
Non-cash operating lease cost 18,475
—
—
Impairments on long-lived assets 28,498
—
—
Gain on lease terminations (6,792 ) —
—
Gain from sale of equity method investment (15,769 ) —
—
Equity in losses of investee 7,528
8,693
3,219
Other non-cash operating activities 29,860
17,252
13,847
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (121,014 ) (109,224 ) (90,990 )
Inventories (58,269 ) (24,109 ) (5,481 )
Prepaid expenses and other assets (31,529 ) (9,122 ) (8,669 )
Accounts payable 22,099
25,045
8,175
Accrued and other long-term liabilities 60,240
36,250
24,235
Long-term income tax payable 14,611
(36,548 ) 68,958
Deferred revenues 189,075
136,399
79,662
                   Net cash provided by operating activities 747,270
554,681
438,539
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (149,707 ) (223,312 ) (195,695 )
Purchase of marketable securities (693,284 ) (180,191 ) (390,244 )
Proceeds from maturities of marketable securities 290,754
375,105
349,240
Proceeds from sales of marketable securities 194,677
9,560
39,536
Repayment on unsecured promissory note 21,820
—
—
Purchases of investments in privately held companies —
(5,000 ) (12,764 )
Loan advances to equity investee —
—
(36,000 )
Loan repayment from equity investee —
30,000
6,000
Acquisition, net of cash acquired —
—
(8,953 )
Other investing activities (14,704 ) 765
(2,597 )
                   Net cash provided by (used in) investing activities (350,444 ) 6,927
(251,477 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 17,907
16,635
14,461
Common stock repurchases (399,999 ) (300,002 ) (103,793 )
Payroll taxes paid upon the vesting of equity awards (57,675 ) (86,067 ) (46,168 )
Purchase of finance lease (45,773 ) —
—
                    Net cash used in financing activities (485,540 ) (369,434 ) (135,500 )
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash 2,282
(4,733 ) 5,544
            Net increase (decrease) in cash, cash equivalents, and restricted cash (86,432 ) 187,441
57,106
                    Cash, cash equivalents, and restricted cash at beginning of year 637,566
450,125
393,019
                    Cash, cash equivalents, and restricted cash at end of year $ 551,134
$ 637,566
$ 450,125

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

~~ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Note 1. Summary of Significant Accounting Policies~~

~~Business Description~~

Align Technology, Inc. (“We”, “Our”, or “Align”) was incorporated in April 1997 in Delaware. Align is a global medical device company engaged in the design, manufacture and marketing of Invisalign® clear aligners and iTero® intraoral scanners and services for orthodontics and restorative and aesthetic dentistry. Align’s products are intended primarily for the treatment of malocclusion or the misalignment of teeth and are designed to help dental professionals achieve the clinical outcomes that they expect. We are headquartered in San Jose, California with offices worldwide. Our Americas regional headquarters is located in Raleigh, North Carolina; our European, Middle East and Africa ("EMEA") regional headquarters is located in Rotkreuz, Switzerland, which moved from Amsterdam, the Netherlands in January 2020; and our Asia Pacific ("APAC") regional headquarters is located in Singapore. We have 2 operating segments: (1) Clear Aligner, known as the Invisalign System, and (2) Scanners and Services ("Scanner"), known as the iTero intraoral scanner and OrthoCAD services.

~~Basis of Presentation and Preparation~~

~~The consolidated financial statements include the accounts of Align and our wholly-owned subsidiaries after elimination of intercompany transactions and balances.~~

~~During fiscal year 2018, we adopted Accounting Standards Codification (“ASC”) 606, “Revenues from Contracts with Customers,” using the full retrospective method and ASU 2016-18, “Statement of Cash Flows - Restricted Cash,~~” on a retrospective basis. The Consolidated Statement of Cash Flow for the year ended December 31, 2017 and Consolidated Statement of Stockholders' Equity for the year ended December 31, 2017 have been recast to comply with the adoption of these standards.

~~Use of Estimates~~

The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") in the United States ("U.S.") requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, useful lives of intangible assets and property and equipment, long-lived assets and goodwill, income taxes and contingent liabilities, the fair values of financial instruments, stock-based compensation, unsecured promissory note receivable, and 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.

~~Fair Value of Financial Instruments~~

We measure the fair value of financial assets as the price 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.

~~Cash and Cash Equivalents~~

We consider currency on hand, demand deposits, time deposits, and all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase to be cash and cash equivalents. Cash and cash equivalents are held in various financial institutions in the U.S. and internationally.

~~Restricted Cash~~

~~The restricted cash primarily consists of funds reserved for legal requirements. Restricted cash balances are primarily included in other assets within our Consolidated Balance Sheet.~~

~~Marketable Securities~~

Our marketable securities consist of marketable debt securities which are classified as available-for-sale and are carried at fair value. Marketable securities classified as current assets have maturities within one year. Unrealized gains or losses on such securities are included in accumulated other comprehensive income (loss), net in stockholders’ equity. Realized gains and losses from maturities of all such securities are reported in earnings and computed using the specific identification cost method. Realized gains or losses and charges for other-than-temporary declines in value, if any, on available-for-sale securities are reported in other income (expense), net, as incurred. We periodically evaluate these investments for other-than-temporary impairment.

~~Variable Interest Entities~~

We evaluate whether an entity in which we have made an investment is considered a variable interest entity (“VIE”). If we determine we are the primary beneficiary of a VIE, we would consolidate the VIE into our financial statements. In determining if we are the primary beneficiary, we evaluate whether we have the power to direct the activities that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding, financing, and other applicable agreements and circumstances. Our assessments of whether we are the primary beneficiary of a VIE require significant assumptions and judgments. We have concluded that we are not the primary beneficiary of our VIE investments; therefore, we do not consolidate their results into our consolidated financial statements.

~~Investments in Privately Held Companies~~

~~Investments in privately held companies in which we can exercise significant influence but do not own a majority equity interest or otherwise control are accounted for under ASC 323, “Investments -Equity Method and Joint Ventures~~.” Equity securities qualified as equity method investments are reported on our Consolidated Balance Sheet as a single amount, and we record our share of their operating results within equity in losses of investee, net of tax, in our Consolidated Statement of Operations. 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 ASC 321, “~~Investments -Equity Securities~~.” The equity securities without readily determinable fair values are recorded at cost and adjusted for impairments and observable price changes with a same or similar security from the same issuer (“Measurement Alternative”). Equity securities under ASC 321 are reported on our Consolidated Balance Sheet as other assets, and we record a change in carrying value of our equity securities, if any, in other income (expense), net in our Consolidated Statement of Operations.

Equity securities are evaluated for impairment as events or circumstances indicate that there is an other-than-temporary loss in value. The decrease in value is recognized in the period the impairment occurs and recorded in other income (expense), net in the Consolidated Statement of Operations.

~~Derivative Financial Instruments~~

We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations associated with certain assets and liabilities. These forward contracts are not designated as hedging instruments and do not subject us to material balance sheet risk due to fluctuations in foreign currency exchange rates. The gains and losses on these forward contracts are intended to offset the gains and losses in the underlying foreign currency denominated monetary assets and liabilities being economically hedged. We do not enter into foreign currency forward contracts for trading or speculative purposes. The net gain or loss from the settlement of these foreign currency forward contracts is recorded in other income (expense), net in the Consolidated Statement of Operations.

~~Foreign Currency~~

For our international subsidiaries, we analyze on an annual basis or more often if necessary, if a significant change in facts and circumstances indicate that the functional currency has changed. For international subsidiaries where the local currency is the functional currency, adjustments from translating financial statements from the local currency to the U.S. dollar reporting currency are recorded as a separate component of accumulated other comprehensive income (loss), net in the stockholders’ equity section of the Consolidated Balance Sheet. This foreign currency translation adjustment reflects the translation of the balance sheet at period end exchange rates, and the income statement at an average exchange rate in effect during the period. The foreign currency revaluation that are derived from monetary assets and liabilities stated in a currency other than functional currency are included in other income (expense), net. For the year ended December 31, 2019, 2018 and 2017, we had foreign currency net gains (losses) of $(2.0) million, $(5.6) million and $9.0 million, respectively.

~~Certain Risks and Uncertainties~~

Our operating results depend to a significant extent on our ability to market and develop our products. The life cycles of our products are difficult to estimate due, in part, to the effect of future product enhancements and competition. Our inability to successfully develop and market our products as a result of competition or other factors would have a material adverse effect on our business, financial condition and results of operations.

Our cash and investments are held primarily by three financial institutions. Financial instruments which potentially expose us to concentrations of credit risk consist primarily of cash equivalents and marketable securities. We invest excess cash primarily in money market funds, commercial paper, corporate bonds, U.S. government agency bonds, U.S. government treasury bonds and certificates of deposits. If the carrying value of our investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we will be required to write down the value of our investments, which could adversely affect our results of operations and financial condition. Moreover, the performance of certain securities in our investment portfolio correlates with the credit condition of the U.S. economy.

We provide credit to customers in the normal course of business. Collateral is not required for accounts receivable, but ongoing evaluations of customers’ credit worthiness are performed. We maintain reserves for potential credit losses and such losses have been within management’s expectations. No individual customer accounted for 10% or more of our accounts receivable at December 31, 2019 or 2018, or net revenues for the year ended December 31, 2019, 2018 or 2017.

The U.S. Food and Drug Administration (“FDA”) and similar international agencies regulate the design, manufacture, distribution, pre-clinical and clinical study, clearance and approval of medical devices. Products developed by us may require approvals or clearances from the FDA or other international regulatory agencies prior to commercialized sales. There can be no assurance that our products will receive any of the required approvals or clearances. If we were denied approval or clearance or such approval was delayed, it may have a material adverse impact on us.

We have manufacturing facilities located in Juarez, Mexico, where we conduct our aligner fabrication, distribution, repair of our iTero scanners and perform our CAD/CAM services. In the fourth quarter of 2018, we also began fabricating our aligners in our manufacturing facility in Ziyang, China, our first aligner fabrication facility outside of Juarez, Mexico. In addition, we produce our handheld intraoral scanner wand, perform final scanner assembly and repair our scanners at our facilities in Or Yehuda, Israel and Ziyang, China. Our digital treatment plans using a sophisticated, internally developed computer-modeling program are located in multiple international locations to support our customers within the regions. Our reliance on international operations exposes us to related risks and uncertainties, including difficulties in staffing and managing international operations such as hiring and retaining qualified personnel; controlling production volume and quality of manufacture; political, social and economic instability; interruptions and limitations in telecommunication services; product and material transportation delays or disruption; trade restrictions and changes in tariffs; import and export license requirements and restrictions; fluctuations in foreign currency exchange rates; and potential adverse tax consequences. If any of these risks materialize, our international manufacturing operations, as well as our operating results, may be harmed.

We purchase certain inventory from sole suppliers. Additionally, we rely on a limited number of hardware manufacturers. The inability of any supplier or manufacturer to fulfill our supply requirements could materially and adversely impact our future operating results.

~~Inventories~~

~~Property, Plant and Equipment~~

Property, plant and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. Construction in progress ("CIP") is related to the construction or development of property (including land) and equipment that have not yet been placed in service for their intended use. Upon sale or retirement, the asset’s cost and related accumulated depreciation are removed from the balance sheet and any related gains or losses are reflected in income from operations. Maintenance and repairs are expensed as incurred. Refer to ~~Note 3 "Balance Sheet Components" of the Notes of Consolidated Financial Statements~~ ~~for details on estimated useful lives~~.

~~Leases~~

We lease office and retail spaces, vehicles and office equipment with original lease periods of up to 10 years. We determine if an arrangement is a lease at inception under ASC 842. Operating lease right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. If a lease arrangement does not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Our lease terms may include options to extend or terminate the lease which we include in our lease term when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components which are accounted for as a single lease component. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

~~Goodwill and Finite-Lived Acquired Intangible Assets~~

Our intangible assets primarily consist of intangible assets acquired as part of our acquisitions. These assets are amortized using the straight-line method over their estimated useful lives ranging from one to fifteen years, reflecting the period in which the economic benefits of the assets are expected to be realized.

~~Impairment of Goodwill and Long-Lived Assets~~

~~Goodwill~~

We evaluate goodwill for impairment at least annually on November 30th or more frequently if indicators are present, an event occurs or changes in circumstances suggest an impairment may exist and that it would more likely than not reduce the fair value of a reporting unit below its carrying amount. The allocation of goodwill to the respective reporting units is based on relative synergies generated as a result of an acquisition.

We perform an initial assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In performing the qualitative assessment, we identify and consider the significance of relevant key factors, events, and circumstances that affect the fair value of our reporting units. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as our actual and planned financial performance. We also give consideration to the difference between the reporting unit fair value and carrying value as of the most recent date a fair value measurement was performed. If, after assessing the totality of relevant events and circumstances, we determine that it is more likely than not that the fair value of the reporting unit exceeds its carrying value and there is no indication of impairment, no further testing is performed; however, we conclude otherwise, the first step of the two-step impairment test is performed by estimating the fair value of the reporting unit and comparing it with its carrying value, including goodwill.

Step one of the goodwill impairment test consists of a comparison of the fair value of a reporting unit against its carrying amount, including the goodwill allocated to each reporting unit. If the carrying amount of the reporting unit is in excess of its fair value, step two requires the comparison of the implied fair value of the reporting unit’s goodwill against the carrying amount of the reporting unit’s goodwill. Any excess of the carrying value of the reporting unit’s goodwill over the implied fair value of the reporting unit’s goodwill is recorded as an impairment loss in the Consolidated Statement of Operations.

~~Finite-Lived Intangible Assets and Long-Lived Assets~~

generate. Factors we consider important which could trigger an impairment review include significant negative industry or economic trends, significant loss of customers and changes in the competitive environment. If an asset or asset group is considered to be impaired, the impairment to be recognized is calculated as the amount by which the carrying amount of the asset or asset group exceeds its fair market value. Our estimates of future cash flows attributable to our long-lived assets require significant judgment based on our historical and anticipated results and are subject to many assumptions. The estimation of fair value utilizing a discounted cash flow approach includes numerous uncertainties which require our significant judgment when making assumptions of expected growth rates and the selection of discount rates, as well as assumptions regarding general economic and business conditions, and the structure that would yield the highest economic value, among other factors.~~Refer to~~ ~~Note 6 "Goodwill and Intangible Assets" of the Notes of Consolidated Financial Statements~~ ~~for details on intangible long-lived assets~~.

~~Development Costs for Internal Use Software~~

~~Product Warranty~~

~~Clear Aligner~~

We warrant our Invisalign products against material defects until the treatment plan is complete except in the case of retainers, which are warranted up to three months from expected first use. We accrue for warranty costs in cost of net revenues upon shipment of products which is primarily based on historical experience as to product failures as well as current information on replacement costs.

~~Scanners and Services~~

We warrant our intraoral scanners for a period of one year, which include materials and labor. We accrue for these warranty costs based on average historical repair costs. An extended warranty may be purchased for additional fees.

~~Actual warranty costs could differ materially from the estimated amounts. We regularly review our warranty liability and update these balances based on historical warranty cost trends.~~

~~Allowance for Doubtful Accounts~~

We maintain an allowance for doubtful accounts for customers that are not able to make payments. We periodically review these balances, including an analysis of the customers’ payment history and information regarding the customers’ creditworthiness. Actual write-offs have not materially differed from the estimated allowances.

~~Revenue Recognition~~

Our revenues are derived primarily from the sale of aligners, scanners, and services from our Clear Aligner and Scanner segments. We enter into sales contracts that may consist of multiple distinct performance obligations where certain performance obligations of the sales contract are not delivered in one reporting period. We measure and allocate revenues according to ASC 606-10, “~~Revenues from Contracts with Customers.~~”

allocation of the SSP between performance obligations will not affect the amount of total revenues recognized for a particular contract, any material changes could impact the timing of revenue recognition, which would have a material effect on our financial position and result of operations. This is because the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation.

~~Clear Aligner~~

We enter into contracts (“treatment plan(s)”) that involve multiple future performance obligations. Invisalign Comprehensive, Invisalign First, Invisalign Moderate, and Lite and Express Packages include optional additional aligners at no charge for a certain period of time ranging from six months to five years after initial shipment, and Invisalign Go includes optional additional aligners at no charge for a period of up to two years after initial shipment.

Our treatment plans comprise the following performance obligations that also represent distinct deliverables: initial aligners, additional aligners, case refinement, and replacement aligners. We take the practical expedient to consider shipping and handling costs as activities to fulfill the performance obligation. We allocate revenues for each treatment plan based on each unit’s SSP. Management considers a variety of factors such as historical sales, costs, and gross margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. We also consider usage rates, which is the number of times a customer is expected to order additional aligners. Our process for estimating usage rates requires significant judgment and evaluation of inputs, including historical usage data by region, country and channel. We recognize the revenues upon shipment, as the customers obtain physical possession and we have enforceable rights to payment. As we collect most consideration upfront, we consider whether a significant financing component exists; however, as the delivery of the performance obligations are at the customer’s discretion, we conclude that no significant financing component exists.

~~Scanner~~

We sell intraoral scanners and CAD/CAM services through both our direct sales force and distribution partners. The intraoral scanner sales price includes one year of warranty and unlimited scanning services. The customer may also select, for additional fees, extended warranty and unlimited scanning services for periods beyond the initial year. When intraoral scanners are sold with an unlimited scanning service agreement and/or extended warranty, we allocate revenues based on the respective SSPs of the scanner and the subscription service. We estimate the SSP of each element, taking into consideration historical prices as well as our discounting strategies. Revenues are then recognized over time as the monthly services are rendered and upon shipment of the scanner, as that is when we deem the customer to have obtained control. Most consideration is collected upfront and in cases where there are payment plans, consideration is collected by the one year mark and, therefore, there are no significant financing components.

~~Volume Discounts~~

~~Accrued Sales Return Reserve~~

~~We accrue for sales return reserve based on historical sales returns as a percentage of revenues.~~

~~Costs to Obtain a Contract~~

~~Unfulfilled Performance Obligations for Clear Aligners and Scanners~~

Our unfilled performance obligations, including deferred revenues and backlog, as of December 31, 2019 and the estimated revenues expected to be recognized in the future related to these performance obligations are $610.3 million. This includes performance obligations from the Clear Aligner segment, primarily the shipment of additional aligners, which are fulfilled over six months to five years. Also included are the performance obligations from the iTero scanner segment, primarily services and

support, which are fulfilled over one to five years, and contracted deliveries of additional scanners. The estimate includes both product and service unfulfilled performance obligations and the time range reflects our best estimate of when we will transfer control to the customer and may change based on customer usage patterns, timing of shipments, readiness of customers' facilities for installation, and manufacturing availability.

~~Contract Balances~~

The timing of revenue recognition results in deferred revenues being recognized on our Consolidated Balance Sheet. For both aligners and scanners, we usually collect the total consideration owed prior to all performance obligations being performed with payment terms generally varying from net 30 to net 180 days. Contract liabilities are recorded as deferred revenue balances, which are generated based upon timing of invoices and recognition patterns, not payments. If the revenue recognition exceeds the billing, the exceeded amount is considered unbilled receivable and a contract asset. Conversely, if the billing occurs prior to the revenue recognition, the amount is considered deferred revenue and a contract liability.

~~Shipping and Handling Costs~~

~~Shipping and handling charges to customers are included in net revenues, and the associated costs incurred are recorded in cost of net revenues.~~

~~Legal Proceedings and Litigations~~

We are involved in legal proceedings on an ongoing basis. If we believe that a loss arising from such matters is probable and can be reasonably estimated, we accrue the estimated loss in our consolidated financial statements. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range.

~~Research and Development~~

Research and development costs are expensed as incurred and includes the costs associated with the research and development of new products and enhancements to existing products. These costs primarily include personnel-related costs, including payroll and stock-based compensation, outside consulting expenses and allocations of corporate overhead expenses including facilities and information technology (“IT”).

~~Advertising Costs~~

The cost of advertising and media is expensed as incurred. For the year ended December 31, 2019, 2018 and 2017, we incurred advertising costs of $119.1 million, $88.4 million and $70.1 million, respectively.

~~Common Stock Repurchase~~

~~Income Taxes~~

We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenues and expenses for tax and financial statement purposes.

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our current tax exposure under the applicable tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities which are included in our Consolidated Balance Sheet.

positions due to changing facts and circumstances, such as the closing of a tax audit or refinement of estimates due to new information. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will impact our tax provision in our Consolidated Statement of Operation in the period in which such determination is made.

~~Stock-Based Compensation~~

We recognize stock-based compensation cost for shares expected to vest on a straight-line basis over the requisite service period of the award, net of estimated forfeitures. We use the Black-Scholes option pricing model to determine the fair value of stock awards and employee stock purchase plan shares. We estimate the fair value of market-performance based restricted stock units using a Monte Carlo simulation model which requires the input of assumptions, including expected term, stock price volatility and the risk-free rate of return. In addition, judgment is also required in estimating the number of stock-based awards that are expected to be forfeited. Forfeitures are estimated based on historical experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

~~Comprehensive Income~~

Comprehensive income includes all changes in equity during a period from non-owner sources including unrealized gains and losses on investments and foreign currency translation adjustments, net of their related tax effect.

~~Recent Accounting Pronouncements~~

~~(i) New Accounting Updates Recently Adopted~~

~~In May 2014, FASB released ASU 2014-09, “Revenue from Contracts with Customers,~~” (Topic 606) to supersede nearly all existing revenue recognition guidance under GAAP. The core principle of the standard is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for the goods or services. We adopted the guidance in the first quarter of fiscal year 2018 by applying the full retrospective method. The impact of adoption was primarily related to the Clear Aligner segment. Our disaggregation of revenues can be found in Note 16 “Segments and Geographical Information.” We elected to take the practical expedient to exclude from the transaction price all taxes assessed by a governmental authority. Prior period presentation for fiscal year 2017 has been retrospectively adjusted. The adoption of ASU 2014-09 did not have a material impact on our Consolidated Statement of Operations, Consolidated Statement of Comprehensive Income or Consolidated Statement of Cash Flows.

~~In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Leases~~” (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The updated guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. In July 2018, the FASB issued ASU 2018-11, “~~Leases-Targeted Improvements,” which p~~rovides an additional transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. We adopted the guidance in the first quarter of fiscal year 2019 by electing the transition method issued in ASU 2018-11 and the package of practical expedients available in the standard. ~~The standard had a material impact on our Consolidated Balance Sheet as we recognized assets and liabilities related to our leases. The adoption did not have an impact to prior periods.~~

~~In February 2018, the FASB issued ASU 2018-02,~~ ~~“Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,”~~ ~~which gives entities the option to~~

reclassify to retained earnings the tax effects resulting from the U.S. Tax Cuts and Jobs Act (the “TCJA”) related to items in accumulated other comprehensive income. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2018 on a retrospective basis and early adoption is permitted. We adopted the standard in the first quarter of fiscal year 2019 which did not have a material impact on our consolidated financial statements and related disclosures. The TCJA did not affect our accumulated other comprehensive income (loss), net, and therefore we did not reclassify any income tax effects from accumulated other comprehensive income (loss), net to our retained earnings.

~~(ii) Recent Accounting Updates Not Yet Effective~~

~~In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses” (Topic 326) to~~ provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this update replace the existing guidance of incurred loss impairment methodology with an approach that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In November 2018, the FASB issued ASU 2018-19, “~~Codification Improvements to Topic 326,~~ ~~Financial Instruments - Credit Losses” which clarifies the scope of guidance in the ASU 2016-13. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years.~~ We will adopt this standard in the first quarter of fiscal 2020 and do not expect the adoption of this standard to have a material impact on our consolidated financial statements and related disclosures.

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~“Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,”~~ to simplify the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. Under the amendments in this update, an entity will recognize an impairment charge for the amount by which the carrying value exceeds the fair value. The updated guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019 on a prospective basis. We will adopt this standard in the first quarter of fiscal 2020 and do not expect the adoption of this standard to have any impact on our consolidated financial statements and related disclosures.

~~In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement,”~~ ~~to modify the disclosure requirements on fair value measurements in Topic 820,~~ ~~Fair Value Measurement~~. The updated guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019 on a prospective basis. We will adopt this standard in the first quarter of fiscal 2020 and do not expect the adoption of this standard to have any impact on our consolidated financial statements and related disclosures.

~~In August 2018, the FASB issued ASU 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,”~~ to clarify the guidance on the costs of implementing a cloud computing hosting arrangement that is a service contract. Under the amendments in this update, the entity is required to follow the guidance in Subtopic 350-40, ~~Internal-Use Software~~, to determine which implementation costs under the service contract to be capitalized as an asset and which costs to expense. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2019 either on a retrospective or prospective basis early adoption is permitted. We will adopt this standard in the first quarter of fiscal 2020 on a prospective basis beginning and do not expect the adoption of this standard to have any impact on our consolidated financial statements and related disclosures.

~~In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes,”~~ to enhance and simplify various aspects of the income tax accounting guidance. The amendment removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The amendments are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. We are currently evaluating the impact of this guidance on our consolidated financial statements and related disclosures; however, we anticipate the adoption of the guidance will not have a material impact to our consolidated financial statements and related disclosures.

~~Note 2. Investments and Fair Value Measurements~~

~~As of December 31, 2019 and 2018, the estimated fair value of our short-term and long-term marketable securities, classified as available for sale, are as follows (in thousands):~~

~~Short-term~~

December 31, 2019
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
Corporate bonds $ 210,891
$ 142
$ (27 ) $ 211,006
U.S. government treasury bonds

70,587
65
$ (2 ) 70,650
U.S. government agency bonds 22,085
17
(1 ) 22,101
Commercial paper

14,426
—
—
14,426
Certificates of deposit 19
—
—
19
Total marketable securities, short-term $ 318,008
$ 224
$ (30 ) $ 318,202

December 31, 2018
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
Corporate bonds $ 45,100
$ —
$ (48 ) $ 45,052
U.S. government agency bonds

19,981
—
(77 ) 19,904
Commercial paper 17,793
—
—
17,793
U.S. government treasury bonds 15,292
—
(1 ) 15,291
Certificates of deposit 420
1
(1 ) 420
Total marketable securities, short-term $ 98,586
$ 1
$ (127 ) $ 98,460

~~Long-term~~

December 31, 2018
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
Corporate bonds $ 4,957
$ 5
$ (2 ) $ 4,960
U.S. government agency bonds 1,399
8
—
1,407
U.S. government treasury bonds 2,235
9
—
2,244
Certificates of deposit 500
1
—
501
Total marketable securities, long-term $ 9,091
$ 23
$ (2 ) $ 9,112

~~We have no long-term marketable securities as of December 31, 2019.~~

Cash equivalents are not included in the tables above as the gross unrealized gains and losses are not material. We have no short-term or long-term marketable securities that have been in a continuous material unrealized loss position for greater than twelve months as of December 31, 2019 and 2018. Amounts reclassified to earnings from accumulated other comprehensive income (loss), net related to unrealized gains or losses were not material in 2019 and 2018. For the year ended December 31, 2019, 2018 and 2017, realized gains or losses were not material.

Our fixed-income securities investment portfolio consists of investments that can have a maximum effective maturity of up to 40 months on any individual security. 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. The unrealized losses are primarily due to changes in interest rates and credit spreads. We expect to realize the full value of all these investments upon maturity or sale. The weighted average remaining duration of these securities was approximately seven months and four months as of December 31, 2019 and 2018, respectively.

As the carrying value approximates the fair value for our short-term and long-term marketable securities shown in the tables above, the following table summarizes the fair value of our short-term and long-term marketable securities classified by contractual maturity as of December 31, 2019 and 2018 (in thousands):

December 31,
2019 2018
Maturities within one year $ 318,202
$ 98,460
Due in greater than one year —
9,112
Total available for sale short-term and long-term marketable securities $ 318,202
$ 107,572

~~Investments in Privately Held Companies~~

~~Our investments in privately held companies as of December 31, 2019 and 2018 are as follows (in thousands):~~

December 31,
2019 2018
Equity securities under the equity method investment ¹
$ —
$ 45,913
Equity securities without readily determinable fair values ²
$ 5,887
$ 9,862


¹	~~Refer to~~ ~~Note 5 “Equity Method Investments” of the Notes to Consolidated Financial Statements~~ ~~for more information~~


²	The equity securities are reported within other assets in our Consolidated Balance Sheet and valued on a nonrecurring basis. During the year ended December 31, 2019, we recorded a $4.0 million of impairment loss resulting from an observable price change.

~~Fair Value Measurements~~

~~The following tables summarize our financial assets measured at fair value on a recurring basis as of December 31, 2019 and 2018 (in thousands):~~

Description Balance as of December 31, 2019 Level 1

Level 2

Level 3
Cash equivalents:
Money market funds $ 236,923
$ 236,923
$ —
$ —
Short-term investments:
Corporate bonds 211,006
—
211,006
—
Commercial paper 14,426
—
14,426
—
U.S. government agency bonds 22,101
—
22,101
—
U.S. government treasury bonds 70,650
70,650
—
—
Certificates of deposit 19
—
19
—
Prepaid expenses and other current assets:
Israeli funds 3,226
—
3,226
—
Current unsecured promissory note 25,005
—
—
25,005
Other Assets:
Long term unsecured promissory note 7,328
—
—
7,328
$ 590,684
$ 307,573
$ 250,778
$ 32,333

Description Balance as of December 31, 2018

Level 1

Level 2
Cash equivalents:
Money market funds $ 431,081
$ 431,081
$ —
Commercial paper 4,681
—
4,681
Corporate bonds 3,880
—
3,880
U.S. government treasury bonds 2,195
2,195
—
Short-term investments:
Corporate bonds 45,052
—
17,793
Commercial paper 17,793
—
45,052
U.S. government agency bonds 19,904
—
19,904
U.S. government treasury bonds 15,291
15,291
—
Certificates of deposit 420
—
420
Long-term investments:
Corporate bonds 4,960
—
4,960
U.S. government agency bonds 1,407
—
1,407
U.S. government treasury bonds 2,244
2,244

Certificates of deposit 501
—
501
Prepaid expenses and other current assets:
Israeli funds 3,047
—
3,047
$ 552,456
$ 450,811
$ 101,645

Our investments in equity securities is considered Level 3 in the fair value hierarchy since the investments are in private companies without quoted market prices and we adjust the carrying value based on observable price changes.

The unsecured promissory note that was entered into in 2019 is classified as Level 3 in our fair value hierarchy as financial information of third parties may not be timely available and consequently we estimate the fair value based on the best available information at the measurement date. The original amount of the note was $54.2 million which decreased over 2019 due to payments received. Refer to ~~Note 5 “Equity Method Investments” of the Notes to Consolidated Financial Statements~~ ~~for more information.~~

~~Derivative Financial 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. The net gain from the settlement of foreign currency forward contracts during the year ended December 31, 2019 and 2018 was $3.2 million and $9.9 million, respectively. As of December 31, 2019 and 2018, the fair value of foreign exchange forward contracts outstanding was not material.

~~The following table presents the gross notional value of all our foreign exchange forward contracts outstanding as of December 31, 2019 and 2018 (in thousands):~~

December 31, 2019
Local Currency Amount Notional Contract Amount (USD)
Euro €97,000 $ 108,870
Chinese Yuan ¥431,000 60,702
Canadian Dollar C$52,000 39,802
Israeli Shekel ILS63,700 18,439
British Pound £28,000 36,770
Japanese Yen ¥3,000,000 27,604
Brazilian Real R$130,000 32,185
Mexican Peso M$140,000 7,398
Australian Dollar A$3,000 2,101
$ 333,871

December 31, 2018
Local Currency Amount Notional Contract Amount (USD)
Euro €62,000 $ 71,095
Chinese Yuan ¥375,000 54,515
Brazilian Real R$81,000 20,858
Canadian Dollar C$27,000 19,808
British Pound £13,000 16,635
Japanese Yen ¥1,700,000 15,357
Australian Dollar A$3,000 2,114
$ 200,382

Note 3. Balance Sheet Components

~~Inventories~~

Inventories consist of the following (in thousands):


	December 31,
	2022		2021
Raw materials	$	172,758	$	123,234
Work in progress	96,558		51,706
Finished goods	69,436		55,290
Total inventories	$	338,752	$	230,230

December 31,
2019 2018
Raw materials $ 54,947
$ 26,119
Work in process 30,974
13,784
Finished goods 26,130
15,738
Total inventories $ 112,051
$ 55,641



Delaware			94-3267295
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)



Title of each class	Trading ~~Symbol~~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)




	Page
PART I				3
Item 1.		~~Business~~	Business		3
		Information about our Executive Officers ~~of the Registrant~~		1219
Item 1A.		Risk Factors		1319
Item 1B.		Unresolved Staff Comments		2737
Item 2.		~~Properties~~	27Properties		38
Item 3.		Legal Proceedings		2738
Item 4.		Mine Safety Disclosures		2738
PART II				2839
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		2839
Item 6.		~~Selected Consolidated Financial Data~~	29[Reserved]		40
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		3040
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk		4452
Item 8.		~~Consolidated~~ Financial Statements and Supplementary Data		4554
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		8690
Item 9A.		Controls and Procedures		8790
Item 9B.		Other Information		8791
Item 9C.		Disclosure Regarding Foreign Jurisdictions that Prevent Inspections		91
PART III				8791
Item 10.		Directors, Executive Officers and Corporate Governance		8791
Item 11.		Executive Compensation		8791
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		8891
Item 13.		Certain Relationships and Related Transactions and Director Independence		8891
Item 14.		Principal ~~Accounting~~Accountant Fees and Services		8892
PART IV				8993
Item 15.		Exhibits and Financial Statement Schedules		8993
Item 16.		Form 10-K Summary		95
~~Item 16.~~ Signatures				~~Form 10-K Summary~~		9196
~~Signatures~~	92



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



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



Period	Total Number of Shares Repurchased	Average Price Paid per Share		Total Number of Shares Repurchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Repurchased Under the Program ¹
October 1, 2019 through October 31, 2019	—	$	—	—	$	200,500,000
November 1, 2019 through November 30, 2019	388,510	$	258.67	388,510	$	100,000,000
December 1, 2019 through December 31, 2019	—	$	—	—	$	100,000,000



	Fiscal Year
	2019		2018			2017 ²		2016 ²			2015
	(in thousands, except per share data)
Statement of Operations Data:
Net revenues	$	2,406,796	$	1,966,492		$	1,473,413	$	1,079,874		$	845,486
Gross profit	1,743,897		1,447,867			1,116,947		815,294			640,110
Income from operations	542,493		466,564			353,611		248,921			188,634
Interest income	12,482		8,576			6,948		4,213			2,938
Other income (expense), net	7,676		(8,489		)	4,240		(10,568		)	(5,471		)
Net income before provision for income taxes and equity in losses of investee	562,651		466,651			364,799		242,566			186,101
Provision for income taxes	112,347		57,723			130,162		51,200			42,081
Equity in losses of investee, net of tax	7,528		8,693			3,219		1,684			—
Net income	$	442,776	$	400,235		$	231,418	$	189,682		$	144,020
Net income per share:
Basic	$	5.57	$	5.00		$	2.89	$	2.38		$	1.80
Diluted	$	5.53	$	4.92		$	2.83	$	2.33		$	1.77
Shares used in computing net income per share:
Basic	79,424		80,064			80,085		79,856			79,998
Diluted	80,100		81,357			81,832		81,484			81,521
Financial Position Data:
Working capital ¹	$	662,449	$	610,406		$	658,316	$	597,772		$	460,338
Total assets	2,500,702		2,052,458			1,784,009		1,402,305			1,158,633
Total long-term liabilities	183,563		107,494			129,670		46,427			39,035
Stockholders’ equity	$	1,346,169	$	1,252,891		$	1,154,288	$	999,307		$	847,926



	Year Ended December 31,					Year Ended December 31,
Region	2019	2018	Change			2018	2017	Change
Americas	867.3	780.7	86.6	11.1	%	780.7	631.6	149.1	23.6	%
International	669.8	499.9	169.9	34.0	%	499.9	344.8	155.1	45.0	%
Total case volume	1,537.1	1,280.6	256.5	20.0	%	1,280.6	976.4	304.2	31.2	%



			Payments Due by Period
	Total		Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years
Operating leases obligations¹	$	64,483	$	18,354	$	29,904	$	10,772	$	5,453
Unconditional purchase obligations	523,652		309,686		210,470		3,496		—
Total contractual cash obligations	$	588,135	$	328,040	$	240,374	$	14,268	$	5,453



	Three Months Ended
	2019								2018
	December 31, 2019		September 30, 2019		June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018		June 30, 2018		March 31, 2018
	(in thousands, except per share data) (unaudited )
Net revenues	$	649,787	$	607,341	$	600,697	$	548,971	$	534,020	$	505,289	$	490,259	$	436,924
Gross profit	471,958		437,554		432,289		402,096		383,096		371,781		365,582		327,408
Income from operations	151,150		127,152		176,490		87,701		120,473		125,208		122,691		98,192
Net income	121,262		102,524		147,142		71,848		97,392		100,872		106,105		95,866
Net income per share:
Basic	$	1.54	$	1.29	$	1.84	$	0.90	$	1.22	$	1.26	$	1.32	$	1.20
Diluted	$	1.53	$	1.28	$	1.83	$	0.89	$	1.20	$	1.24	$	1.30	$	1.17
Shares used in computing net income per share:
Basic	78,578		79,332		79,943		79,860		79,891		80,111		80,216		80,036
Diluted	79,137		79,825		80,590		80,687		80,943		81,359		81,471		81,628



Description	Balance as of December 31, 2018		Level 1		Level 2
Cash equivalents:
Money market funds	$	431,081	$	431,081	$	—
Commercial paper	4,681		—		4,681
Corporate bonds	3,880		—		3,880
U.S. government treasury bonds	2,195		2,195		—
Short-term investments:
Corporate bonds	45,052		—		17,793
Commercial paper	17,793		—		45,052
U.S. government agency bonds	19,904		—		19,904
U.S. government treasury bonds	15,291		15,291		—
Certificates of deposit	420		—		420
Long-term investments:
Corporate bonds	4,960		—		4,960
U.S. government agency bonds	1,407		—		1,407
U.S. government treasury bonds	2,244		2,244
Certificates of deposit	501		—		501
Prepaid expenses and other current assets:
Israeli funds	3,047		—		3,047
	$	552,456	$	450,811	$	101,645


¹	~~Refer to~~ ~~Note 5“Equity Method Investments” of the Notes to Consolidated Financial Statements~~ ~~for more information.~~


		December 31,
	Generally Used Estimated Useful Life	2022		2021
Clinical and manufacturing equipment	Up to 10 years	$	583,776	$	452,876
Building	20 years	466,003		310,344
Leasehold improvements	Lease term 1	64,238		61,289
Computer software and hardware	3 years	120,544		117,986
Land	—	58,885		58,869
Furniture, fixtures and other	2-5 years	102,933		71,977
Construction in progress	—	285,202		367,686
Total		1,681,581		1,441,027
Less: Accumulated depreciation and impairment charges		(449,726)		(359,101)
Total property, plant and equipment, net		$	1,231,855	$	1,081,926


¹	~~Shorter of the remaining lease term or the estimated useful lives of the assets.~~



Accrued warranty as of December 31, 2017	$	5,929
Charged to cost of net revenues	15,059
Actual warranty expenditures	(12,437		)
Accrued warranty as of December 31, 2018	8,551
Charged to cost of net revenues	12,421
Actual warranty expenditures	(9,767		)
Accrued warranty as of December 31, 2019	$	11,205


Accrued warranty as of December 31, 2020	$	12,615
Charged to cost of net revenues	18,213

Actual warranty expenditures	(14,659)
Accrued warranty as of December 31, 2021	16,169
Charged to cost of net revenues	16,429
Actual warranty expenditures	(14,725)
Accrued warranty as of December 31, 2022	$	17,873


¹	~~Included in other long-term liabilities within our Consolidated Balance Sheet~~



Balance Sheet Caption	December 31, 2019
Operating lease right-of-use assets, net	$	56,244

Accrued liabilities	$	15,737
Operating lease liabilities	43,463
Total operating lease liabilities	$	59,200


	Year Ended December 31,
Lease Cost	2022		2021		2020
Operating lease cost 1	$	37,919	$	33,241	$	27,825
Variable lease cost 2	22,084		11,134		1,429
Total lease cost	$	60,003	$	44,375	$	29,254



Lease Cost	Year Ended December 31, 2019
Operating lease cost ¹	$	22,778
Variable lease cost	1,899
Total lease cost	$	24,677


¹	~~Includes short-term lease expense which is not material.~~


	December 31,
Remaining Lease Term and Discount Rate	2022		2021

Weighted average remaining lease term (in years)	7.2		7.8


Weighted average discount rate	3.5	%	3.2	%



~~Remaining Lease Term and Discount Rate~~	~~December 31, 2019~~
~~Weighted average remaining lease term (in years)~~	~~5.7~~
~~Weighted average discount rate~~	~~4.1~~	%


Fiscal Year Ending December 31,	Operating Leases
2023	$	30,596
2024	24,606
2025	19,480
2026	16,511
2027	13,363
Thereafter	39,449
Total lease payments	144,005
Less: Imputed interest	(17,097)
Total lease liabilities	$	126,908



Fiscal Year Ending December 31,	Operating Lease
2020	$	858
2021	1,145
2022	1,199
2023	1,229
2024	1,259
Thereafter	6,182
Total minimum lease payments	$	11,872



	Total
Balance as of December 31, 2017	$	64,614
Adjustments ¹	(585		)
Balance as of December 31, 2018	64,029
Adjustments ¹	(105		)
Balance as of December 31, 2019	$	63,924


¹	~~Adjustments were related to foreign currency translation within the measurement period.~~


	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


	Weighted Average Amortization Period (in years)	Gross Carrying Amount as of December 31, 2021		Accumulated Amortization		Accumulated Impairment Loss		Net Carrying Value as of December 31, 2021
Existing technology	10	$	104,531	$	(22,495)	$	(4,328)	$	77,708
Customer relationships	11	55,000		(25,891)		(10,751)		18,358
Trademarks and tradenames	10	17,200		(4,547)		(4,179)		8,474
Patents	8	6,511		(4,495)		—		2,016
		$	183,242	$	(57,428)	$	(19,258)	106,556
Foreign currency translation adjustments								3,153
Total intangible assets, net								$	109,709


Fiscal Year	Amortization
2023	$	16,501
2024	15,335
2025	14,959
2026	14,353
2027	11,992
Thereafter	24,492
Total	$	97,632



	For the Year Ended December 31,
	2019		2018		2017
Cost of net revenues	$	5,154	$	3,695	$	3,330
Selling, general and administrative	69,817		56,422		46,550
Research and development	13,213		10,646		8,974
Total stock-based compensation	$	88,184	$	70,763	$	58,854


	Number of Shares Underlying RSUs (in thousands)	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)








Unvested as of December 31, 2021	492	$	369.17
Granted	248	469.12
Vested and released	(200)	333.76
Forfeited	(51)	437.05
Unvested as of December 31, 2022	489	$	427.23	1.2	$	103,138


	Number of Shares Underlying MSUs (in thousands)	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)




Unvested as of December 31, 2021	174	$	551.57
Granted 1	101	607.96
Vested and released	(128)	396.10
Forfeited	(3)	744.39
Unvested as of December 31, 2022	144	$	725.73	1.0	$	30,384