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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________ 
FORM 10-Q
____________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20202021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to
Commission file number: 000-32259
____________________________
ALIGN TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
____________________________ 
Delaware94-3267295
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
2820 Orchard Parkway410 North Scottsdale Road, Suite 1300
San Jose, California 95134Tempe, Arizona 85281
(Address of principal executive offices)
(408) 470-1000(602) 742-2000
(Registrant’s telephone number, including area code)
 ____________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.0001 par valueALGNThe NASDAQ Stock Market LLC
(NASDAQ Global Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No 
The number of shares outstanding of the registrant’s Common Stock, $0.0001 par value, as of July 24, 2020 was30, 2021 78,786,683.

was 79,011,543.

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ALIGN TECHNOLOGY, INC.
INDEX
PART I
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.

Invisalign, Align, the Invisalign logo, ClinCheck, Made to Move, Invisalign Assist, Invisalign Teen, Invisalign Go, Vivera, SmartForce, SmartTrack, SmartStage, SmileView, iTero, iTero Element, Orthocad, iCast, iRecord and exocad, among others, are trademarks and/or service marks of Align Technology, Inc. or one of its subsidiaries or affiliated companies and may be registered in the United States and/or other countries.
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PART I—FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019 2021202020212020
Net revenuesNet revenues$352,314  $600,697  $903,277  $1,149,668  Net revenues$1,010,808 $352,314 $1,905,579 $903,277 
Cost of net revenuesCost of net revenues127,986  168,408  284,593  315,283  Cost of net revenues252,270 127,986 469,943 284,593 
Gross profitGross profit224,328  432,289  618,684  834,385  Gross profit758,538 224,328 1,435,636 618,684 
Operating expenses:Operating expenses:Operating expenses:
Selling, general and administrativeSelling, general and administrative256,967  267,948  539,873  515,058  Selling, general and administrative431,921 256,967 829,036 539,873 
Research and developmentResearch and development40,361  38,851  81,893  76,354  Research and development57,715 40,361 112,252 81,893 
Impairments and other charges—  —  —  29,782  
Litigation settlement gain—  (51,000) —  (51,000) 
Total operating expensesTotal operating expenses297,328  255,799  621,766  570,194  Total operating expenses489,636 297,328 941,288 621,766 
Income (loss) from operationsIncome (loss) from operations(73,000) 176,490  (3,082) 264,191  Income (loss) from operations268,902 (73,000)494,348 (3,082)
Interest income and other income (expense), net:Interest income and other income (expense), net:Interest income and other income (expense), net:
Interest incomeInterest income473  3,465  2,459  6,098  Interest income383 473 2,026 2,459 
Other income (expense), netOther income (expense), net(966) 13,892  (19,515) 8,146  Other income (expense), net(483)(966)34,049 (19,515)
Total interest income and other income (expense), net Total interest income and other income (expense), net(493) 17,357  (17,056) 14,244   Total interest income and other income (expense), net(100)(493)36,075 (17,056)
Net income (loss) before provision for (benefit from) income taxes and equity in losses of investee(73,493) 193,847  (20,138) 278,435  
Net income (loss) before provision for (benefit from) income taxesNet income (loss) before provision for (benefit from) income taxes268,802 (73,493)530,423 (20,138)
Provision for (benefit from) income taxesProvision for (benefit from) income taxes(32,891) 43,121  (1,497,667) 51,917  Provision for (benefit from) income taxes69,088 (32,891)130,333 (1,497,667)
Equity in losses of investee, net of tax—  3,584  —  7,528  
Net income (loss)Net income (loss)$(40,602) $147,142  $1,477,529  $218,990  Net income (loss)$199,714 $(40,602)$400,090 $1,477,529 
Net income (loss) per share:Net income (loss) per share:
Net income (loss) per share:
BasicBasic$(0.52) $1.84  $18.78  $2.74  Basic$2.53 $(0.52)$5.06 $18.78 
DilutedDiluted$(0.52) $1.83  $18.70  $2.71  Diluted$2.51 $(0.52)$5.02 $18.70 
Shares used in computing net income (loss) per share:Shares used in computing net income (loss) per share:Shares used in computing net income (loss) per share:
BasicBasic78,769  79,943  78,681  79,901  Basic79,008 78,769 79,004 78,681 
DilutedDiluted78,769  80,590  79,016  80,665  Diluted79,638 78,769 79,737 79,016 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
 2020201920202019
Net income (loss)$(40,602) $147,142  $1,477,529  $218,990  
Change in foreign currency translation adjustment, net of tax9,294  213  9,983  622  
Change in unrealized gains (losses) on investments, net of tax—  192  (194) 276  
Other comprehensive income
9,294  405  9,789  898  
Comprehensive income (loss)$(31,308) $147,547  $1,487,318  $219,888  
Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Net income (loss)$199,714 $(40,602)$400,090 $1,477,529 
Change in foreign currency translation adjustment, net of tax586 9,294 (13,865)9,983 
Change in unrealized gains (losses) on investments, net of tax(20)(194)
Other comprehensive income (loss)
586 9,294 (13,885)9,789 
Comprehensive income (loss)$200,300 $(31,308)$386,205 $1,487,318 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)

June 30,
2020
December 31,
2019
June 30,
2021
December 31,
2020
ASSETSASSETSASSETS
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$404,359  $550,425  Cash and cash equivalents$1,086,357 $960,843 
Marketable securities, short-term—  318,202  
Accounts receivable, net of allowance for doubtful accounts of $17,099 and $6,756, respectively473,314  550,291  
Accounts receivable, net of allowance for doubtful accounts of $9,427 and $10,239, respectivelyAccounts receivable, net of allowance for doubtful accounts of $9,427 and $10,239, respectively808,079 657,704 
InventoriesInventories131,276  112,051  Inventories178,751 139,237 
Prepaid expenses and other current assetsPrepaid expenses and other current assets140,295  102,450  Prepaid expenses and other current assets158,638 91,754 
Total current assetsTotal current assets1,149,244  1,633,419  Total current assets2,231,825 1,849,538 
Property, plant and equipment, netProperty, plant and equipment, net668,951  631,730  Property, plant and equipment, net960,852 734,721 
Operating lease right-of-use assets, netOperating lease right-of-use assets, net68,578  56,244  Operating lease right-of-use assets, net93,425 82,553 
Goodwill and intangible assets, net543,211  75,692  
GoodwillGoodwill432,179 444,817 
Intangible assets, netIntangible assets, net117,721 130,072 
Deferred tax assetsDeferred tax assets1,568,293  64,007  Deferred tax assets1,512,285 1,552,831 
Other assetsOther assets27,580  39,610  Other assets47,281 35,151 
Total assetsTotal assets$4,025,857  $2,500,702  Total assets$5,395,568 $4,829,683 
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:Current liabilities:Current liabilities:
Accounts payableAccounts payable$94,987  $87,250  Accounts payable$225,079 $142,132 
Accrued liabilitiesAccrued liabilities244,774  319,958  Accrued liabilities495,572 405,582 
Deferred revenuesDeferred revenues601,831  563,762  Deferred revenues975,930 777,887 
Total current liabilitiesTotal current liabilities941,592  970,970  Total current liabilities1,696,581 1,325,601 
Income tax payableIncome tax payable115,257  102,794  Income tax payable113,306 105,748 
Operating lease liabilitiesOperating lease liabilities50,619  43,463  Operating lease liabilities74,184 64,445 
Other long-term liabilitiesOther long-term liabilities73,344  37,306  Other long-term liabilities127,087 100,024 
Total liabilitiesTotal liabilities1,180,812  1,154,533  Total liabilities2,011,158 1,595,818 
Commitments and contingencies (Notes 9 and 10)
Commitments and contingencies (Notes 6 and 7)Commitments and contingencies (Notes 6 and 7)00
Stockholders’ equity:Stockholders’ equity:Stockholders’ equity:
Preferred stock, $0.0001 par value (5,000 shares authorized; NaN issued)Preferred stock, $0.0001 par value (5,000 shares authorized; NaN issued)—  —  Preferred stock, $0.0001 par value (5,000 shares authorized; NaN issued)
Common stock, $0.0001 par value (200,000 shares authorized; 78,781 and 78,433 issued and outstanding, respectively)  
Common stock, $0.0001 par value (200,000 shares authorized; 78,948 and 78,860 issued and outstanding, respectively)Common stock, $0.0001 par value (200,000 shares authorized; 78,948 and 78,860 issued and outstanding, respectively)
Additional paid-in capitalAdditional paid-in capital918,495  906,937  Additional paid-in capital895,831 974,556 
Accumulated other comprehensive income (loss), netAccumulated other comprehensive income (loss), net9,101  (688) Accumulated other comprehensive income (loss), net29,616 43,501 
Retained earningsRetained earnings1,917,441  439,912  Retained earnings2,458,955 2,215,800 
Total stockholders’ equityTotal stockholders’ equity2,845,045  1,346,169  Total stockholders’ equity3,384,410 3,233,865 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$4,025,857  $2,500,702  Total liabilities and stockholders’ equity$5,395,568 $4,829,683 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)

Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss), NetRetained EarningsTotalCommon StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss), NetRetained EarningsTotal
Three Months Ended June 30, 2020SharesAmount
Balance as of March 31, 202078,759  $ $895,131  $(193) $1,958,043  $2,852,989  
Net loss—  —  —  —  (40,602) (40,602) 
Three Months Ended June 30, 2021Three Months Ended June 30, 2021SharesAmountAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss), NetRetained EarningsTotal
Balance as of March 31, 2021Balance as of March 31, 202179,136 $
Net incomeNet income— — — — 199,714 199,714 
Net change in foreign currency translation adjustmentNet change in foreign currency translation adjustment—  —  —  9,294  —  9,294  Net change in foreign currency translation adjustment— — — 586 — 586 
Issuance of common stock relating to employee equity compensation plansIssuance of common stock relating to employee equity compensation plans22  —  —  —  —  —  Issuance of common stock relating to employee equity compensation plans89 — — — — — 
Tax withholdings related to net share settlements of equity awardsTax withholdings related to net share settlements of equity awards—  —  (1,643) —  —  (1,643) Tax withholdings related to net share settlements of equity awards— — (38,321)— — (38,321)
Common stock repurchased and retiredCommon stock repurchased and retired(277)— (3,065)— (156,935)(160,000)
Equity forward contract related to accelerated stock repurchaseEquity forward contract related to accelerated stock repurchase— — (40,000)— — (40,000)
Stock-based compensationStock-based compensation—  —  25,007  —  —  25,007  Stock-based compensation— — 28,855 — — 28,855 
Balance as of June 30, 202078,781  $ $918,495  $9,101  $1,917,441  $2,845,045  
Balance as of June 30, 2021Balance as of June 30, 202178,948 $$895,831 $29,616 $2,458,955 $3,384,410 



Common Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss), Net
Retained EarningsTotalCommon StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss), NetRetained EarningsTotal
Six Months Ended June 30, 2020SharesAmount
Balance as of December 31, 201978,433  $ $906,937  $(688) $439,912  $1,346,169  
Six Months Ended June 30, 2021Six Months Ended June 30, 2021SharesAmountAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss), NetRetained EarningsTotal
Balance as of December 31, 2020Balance as of December 31, 202078,860 $
Net incomeNet income—  —  —  —  1,477,529  1,477,529  Net income— — ��� — 400,090 400,090 
Net change in unrealized gains (losses) from investmentsNet change in unrealized gains (losses) from investments—  —  —  (194) —  (194) Net change in unrealized gains (losses) from investments— — — (20)— (20)
Net change in foreign currency translation adjustment
Net change in foreign currency translation adjustment
—  —  —  9,983  —  9,983  Net change in foreign currency translation adjustment— — — (13,865)— (13,865)
Issuance of common stock relating to employee equity compensation plansIssuance of common stock relating to employee equity compensation plans348  —  10,662  —  —  10,662  Issuance of common stock relating to employee equity compensation plans365 — 13,133 — — 13,133 
Tax withholdings related to net share settlements of equity awardsTax withholdings related to net share settlements of equity awards—  —  (47,038) —  —  (47,038) Tax withholdings related to net share settlements of equity awards— — (104,889)— — (104,889)
Common stock repurchased and retiredCommon stock repurchased and retired(277)— (3,065)— (156,935)(160,000)
Equity forward contract related to accelerated stock repurchaseEquity forward contract related to accelerated stock repurchase— — (40,000)— — (40,000)
Stock-based compensationStock-based compensation—  —  47,934  —  —  47,934  Stock-based compensation— — 56,096 — — 56,096 
Balance as of June 30, 202078,781  $ $918,495  $9,101  $1,917,441  $2,845,045  
Balance as of June 30, 2021Balance as of June 30, 202178,948 $$895,831 $29,616 $2,458,955 $3,384,410 

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

















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

Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss), NetRetained EarningsTotal
Three Months Ended June 30, 2019SharesAmount
Balance as of March 31, 201980,000  $ $855,956  $(2,281) $402,021  $1,255,704  
Net income—  —  —  —  147,142  147,142  
Net change in unrealized gains (losses) from investments—  —  —  192  —  192  
Net change in foreign currency translation adjustment—  —  —  213  —  213  
Issuance of common stock relating to employee equity compensation plans26  —   —  —   
Tax withholdings related to net share settlements of equity awards—  —  (2,537) —  —  (2,537) 
Common stock repurchased and retired(161) —  (1,616) —  (47,888) (49,504) 
Stock-based compensation—  —  22,467  —  —  22,467  
Balance as of June 30, 201979,865  $ $874,275  $(1,876) $501,275  $1,373,682  
Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss), NetRetained EarningsTotal
Three Months Ended June 30, 2020SharesAmount
Balance as of March 31, 202078,759 $$895,131 $(193)$1,958,043 $2,852,989 
Net loss— — — — (40,602)(40,602)
Net change in foreign currency translation adjustment— — — 9,294 — 9,294 
Issuance of common stock relating to employee equity compensation plans22 — — — — — 
Tax withholdings related to net share settlements of equity awards— — (1,643)— — (1,643)
Stock-based compensation— — 25,007 — —��25,007 
Balance as of June 30, 202078,781 $$918,495 $9,101 $1,917,441 $2,845,045 



Common Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss), Net
Retained EarningsTotalCommon StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss), Net
Retained EarningsTotal
Six Months Ended June 30, 2019SharesAmount
Balance as of December 31, 201879,778  $ $877,514  $(2,774) $378,143  $1,252,891  
Six Months Ended June 30, 2020Six Months Ended June 30, 2020SharesAmountAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss), Net
Retained EarningsTotal
Balance as of December 31, 2019Balance as of December 31, 201978,433 $
Net incomeNet income—  —  —  —  218,990  218,990  Net income— — — — 1,477,529 1,477,529 
Net change in unrealized gains (losses) from investmentsNet change in unrealized gains (losses) from investments—  —  —  276  —  276  Net change in unrealized gains (losses) from investments— — — (194)— (194)
Net change in foreign currency translation adjustment
Net change in foreign currency translation adjustment
—  —  —  622  —  622  Net change in foreign currency translation adjustment— — — 9,983 — 9,983 
Issuance of common stock relating to employee equity compensation plansIssuance of common stock relating to employee equity compensation plans453  —  9,614  —  —  9,614  Issuance of common stock relating to employee equity compensation plans348 — 10,662 — — 10,662 
Tax withholdings related to net share settlements of equity awardsTax withholdings related to net share settlements of equity awards—  —  (52,718) —  —  (52,718) Tax withholdings related to net share settlements of equity awards— — (47,038)— — (47,038)
Common stock repurchased and retired(366) —  (3,646) —  (95,858) (99,504) 
Stock-based compensationStock-based compensation—  —  43,511  —  —  43,511  Stock-based compensation— — 47,934 — — 47,934 
Balance as of June 30, 201979,865  $ $874,275  $(1,876) $501,275  $1,373,682  
Balance as of June 30, 2020Balance as of June 30, 202078,781 $$918,495 $9,101 $1,917,441 $2,845,045 

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








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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 Six Months Ended
June 30,
 20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$1,477,529  $218,990  
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes(1,504,251) 5,606  
Depreciation and amortization44,283  37,488  
Stock-based compensation47,934  43,511  
Non-cash operating lease cost11,148  8,681  
Allowance for doubtful accounts12,578  3,240  
Impairments on equity investments3,787  3,975  
Impairments on long-lived assets—  28,498  
Gain from sale of equity method investment—  (15,769) 
Equity in losses of investee—  7,528  
Other non-cash operating activities11,542  9,548  
Changes in assets and liabilities, net of effects of acquisition:
Accounts receivable64,645  (89,055) 
Inventories(21,398) (26,681) 
Prepaid expenses and other assets(31,058) (48,949) 
Accounts payable11,918  1,847  
Accrued and other long-term liabilities(106,572) 1,321  
Long-term income tax payable6,707  9,608  
Deferred revenues40,892  95,174  
Net cash provided by operating activities69,684  294,561  
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of cash acquired(420,788) —  
Purchase of property, plant and equipment(80,502) (80,598) 
Purchase of marketable securities(5,341) (353,995) 
Proceeds from maturities of marketable securities42,641  107,021  
Proceeds from sales of marketable securities278,817  14,456  
Repayment on unsecured promissory note11,087  6,598  
Other investing activities1,760  (14,502) 
Net cash used in investing activities(172,326) (321,020) 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock10,662  9,614  
Common stock repurchases—  (99,504) 
Payroll taxes paid upon the vesting of equity awards(47,038) (52,718) 
Purchase of finance lease—  (45,773) 
Net cash used in financing activities(36,376) (188,381) 
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash(7,172) 1,467  
Net decrease in cash, cash equivalents, and restricted cash(146,190) (213,373) 
Cash, cash equivalents, and restricted cash at beginning of the period551,134  637,566  
Cash, cash equivalents, and restricted cash at end of the period$404,944  $424,193  

 Six Months Ended
June 30,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$400,090 $1,477,529 
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes39,961 (1,504,251)
Depreciation and amortization51,527 44,283 
Stock-based compensation56,096 47,934 
Non-cash operating lease cost12,413 11,148 
Allowance for doubtful accounts provisions829 12,578 
Arbitration award gain(43,403)
Impairments on equity investments3,787 
Other non-cash operating activities12,345 11,542 
Changes in assets and liabilities, net of effects of acquisition:
Accounts receivable(164,822)64,645 
Inventories(49,070)(21,398)
Prepaid expenses and other assets(70,132)(31,058)
Accounts payable(5,736)11,918 
Accrued and other long-term liabilities65,650 (106,572)
Long-term income tax payable7,535 6,707 
Deferred revenues231,408 40,892 
Net cash provided by operating activities
544,691 69,684 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of cash acquired(420,788)
Purchase of property, plant and equipment(167,668)(80,502)
Purchase of marketable securities(5,341)
Proceeds from maturities of marketable securities42,641 
Proceeds from sales of marketable securities278,817 
Repayment on unsecured promissory note4,594 11,087 
Proceeds from arbitration award43,403 
Other investing activities(4,249)1,760 
Net cash used in investing activities(123,920)(172,326)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock13,133 10,662 
Common stock repurchases(160,000)
Payments for equity forward contracts related to accelerated stock repurchase agreements(40,000)
Payroll taxes paid upon the vesting of equity awards(104,889)(47,038)
Net cash used in financing activities(291,756)(36,376)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash(3,511)(7,172)
Net increase (decrease) in cash, cash equivalents, and restricted cash125,504 (146,190)
Cash, cash equivalents, and restricted cash at beginning of the period961,474 551,134 
Cash, cash equivalents, and restricted cash at end of the period$1,086,978 $404,944 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by Align Technology, Inc. (“we”, “our”, or “Align”) in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and contains all adjustments, including normal recurring adjustments, necessary to state fairly our results of operations for the three and six months ended June 30, 20202021 and 2019,2020, our comprehensive income for the three and six months ended June 30, 20202021 and 2019,2020, our financial position as of June 30, 2020,2021, our stockholders’ equity for the three and six months ended June 30, 20202021 and 2019,2020, and our cash flows for the six months ended June 30, 20202021 and 2019.2020. The Condensed Consolidated Balance Sheet as of December 31, 20192020 was derived from the December 31, 20192020 audited financial statements. It does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.”).

The results of operations for the three and six months ended June 30, 20202021 are not necessarily indicative of the results that may be expected for the year ending December 31, 20202021 or any other future period, and we make no representations related thereto. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019.2020.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the U.S. requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, useful lives of intangible assets and property and equipment, long-lived assets and goodwill, income taxes and contingent liabilities, the fair values of financial instruments, stock-based compensation, 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.

Significant Accounting Policies

Our significant accounting policies are described in Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K. As a result of our exocad Global Holdings GmbH (“exocad”) acquisition, we have added or amended relevant significant accounting policies as described below. Refer to Note 4 "Business Combination" of the Notes to Condensed Consolidated Financial Statements for additional details on the exocad acquisition which is included in our Imaging Systems and CAD/CAM Services (Systems and Services) reportable segment.

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 estimates and assumptions used in valuing intangible assets include, but are not limited to, the amount and timing of projected future cash flows, the discount rate used to determine the present value of these cash flows, and the determination of the assets’ life cycle. These estimates are inherently uncertain and, therefore, actual results may differ from the estimates made.

Revenue Recognition - Systems and Services

We sell intraoral scanners and computer-aided design/computer-aided manufacturing (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 standalone selling price (SSP”) of the scanner and the subscription service. We estimate the SSP of each element, taking into consideration historical prices as well as our discounting
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strategies. Revenues are then recognized over time as the monthly services are rendered and upon shipment of the scanner, as that is when we deem the customer to have obtained control. CAD/CAM services, where sold separately, include the initial software license and maintenance and support. We allocate revenues based upon the respective SSPs of the software license and the maintenance and support. We estimate the SSP of each element using 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.

Certain Risks and Uncertainties

Due to the COVID-19 pandemic, we are subject to a greater degree of uncertainty than normal in making the judgments and estimates needed to apply our significant accounting policies. AsThe full extent to which the COVID-19 pandemic, continues to beincluding as a global issue, we may make changes to these estimatesresult of any new strains, business restrictions or lockdowns, and judgments, which could result in meaningful impacts to our financial statements in future periods. The extent and duration of the impact of the COVID-19 pandemic onvaccinations, will directly or indirectly impact our business, is highly uncertainresults of operations, cash flows, and difficult to predict and the response to the pandemic is rapidly evolving. The severity of the impact of the COVID-19 pandemic on our businessfinancial condition will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on our customers, all of whichfuture developments that are highly uncertain and cannot be predicted. Our future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that we may undertake to address financial and operations challenges faced by us or our customers. Additionally, the uncertainty of future results and cash flows may impact our significant assumptions and estimates including the collectability of accounts and other receivables and realization of our deferred tax assets. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations is uncertain.accurately determined.

Recent Accounting Pronouncements

(i) New Accounting Updates Recently Adopted

In June 2016, the Financial Accounting Standards Board ("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 adopted this standard in the first quarter of fiscal year 2020 which did not have a material impact on our condensed 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 adopted this standard in the first quarter of fiscal year 2020 which did not have any impact on our condensed 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 adopted this standard in the first quarter of fiscal year 2020 which did not have any impact on our condensed 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 updated guidance is effective for fiscal years and interim periods within those years beginning after December 15,
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2019 either on a retrospective or prospective basis. We adopted this standard in the first quarter of fiscal year 2020 on a prospective basis which did not have any impact on our condensed consolidated financial statements and related disclosures.

(ii) Recent Accounting Updates Not Yet Effective

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (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 impactAdoption of this guidancestandard in the first quarter of fiscal year 2021 did not have a material impact 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 andor related disclosures.

Note 2. Investments and Fair Value Measurements

Marketable Securities(ii) Recent Accounting Updates 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 no short-terman impact on our consolidated financial statements or long-term marketable securities as of June 30, 2020.related disclosures.

As of December 31, 2019, the estimated fair value of our short-term marketable securities, classified as available for sale, are as follows (in thousands):
9
December 31, 2019Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Corporate bonds$210,891  $142  $(27) $211,006  
U.S. government treasury bonds70,587  65  (2) 70,650  
U.S. government agency bonds22,085  17  (1) 22,101  
Commercial paper14,426  —  —  14,426  
Certificates of deposit19  —  —  19  
Total marketable securities, short-term$318,008  $224  $(30) $318,202  

We had no long-term marketable securities as of December 31, 2019.

Cash equivalents are not included in the table above as the gross unrealized gains and losses are not material. We had no short-term marketable securities that have been in a continuous material unrealized loss position for greater than twelve months as of December 31, 2019. Amounts reclassified to earnings from accumulated other comprehensive income (loss), net related to unrealized gains or losses were not material for the three and six months ended June 30, 2020 and 2019. For the three and six months ended June 30, 2020 and 2019, realized gains or losses were not material.

Our fixed-income securities investment portfolio allows for investments with 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 which 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 as of December 31, 2019.

As the carrying value approximates the fair value for our short-term marketable securities shown in the table above, the fair value of our short-term marketable securities as of December 31, 2019 had a contractual maturity one year or less.
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Note 2. Fair Value Measurements

Fair Value Measurementsvalue is an exit price, representing the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use the GAAP fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value:

Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. We obtain fair values for our Level 2 investments. Our custody bank and asset managers independently use professional pricing services to gather pricing data which may include quoted market prices for identical or comparable financial instruments, or inputs other than quoted prices that are observable either directly or indirectly, and we are ultimately responsible for these underlying estimates.

Level 3 — Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

The following tables summarize our financial assets measured at fair value on a recurring basis as of June 30, 20202021 and December 31, 20192020 (in thousands):
DescriptionDescriptionBalance as of
June 30, 2020
Level 1

Level 2
Level 3DescriptionBalance as of
June 30, 2021
Level 1

Level 2
Cash equivalents:Cash equivalents:Cash equivalents:
Money market fundsMoney market funds$149,230  $149,230  $—  $—  Money market funds$531,207 $531,207 $
Prepaid expenses and other current assets:Prepaid expenses and other current assets:Prepaid expenses and other current assets:
Israeli fundsIsraeli funds3,291  —  3,291  —  Israeli funds3,999 3,999 
Current unsecured promissory note21,246  —  —  21,246  
$173,767  $149,230  $3,291  $21,246  
$535,206 $531,207 $3,999 

DescriptionBalance as of December 31, 2019Level 1Level 2Level 3
Cash equivalents:
Money market funds$236,923  $236,923  $—  $—  
Short-term investments:
Corporate bonds211,006  —  211,006  —  
Commercial paper14,426  —  14,426  —  
U.S. government treasury bonds70,650  70,650  —  —  
U.S. government agency bonds22,101  —  22,101  —  
Certificates of deposit19  —  19  —  
Prepaid expenses and other current assets:
Israeli funds3,226  —  3,226  —  
Current unsecured promissory note25,005  —  —  25,005  
Other assets:
Long-term unsecured promissory note7,328  —  —  7,328  
$590,684  $307,573  $250,778  $32,333  
DescriptionBalance as of December 31, 2020Level 1Level 2Level 3
Cash equivalents:
Money market funds$519,228 $519,228 $$
Prepaid expenses and other current assets:
Israeli funds3,500 3,500 
Current unsecured promissory note 1
5,408 5,408 
$528,136 $519,228 $3,500 $5,408 

1The unsecured promissory note that was entered intopaid in 2019full by SmileDirectClub, LLC (“SDC”) during the six months ended June 30, 2021. Besides the repayment on the note, on March 12, 2021, the Arbitrator ruled in favor of us on the SDC dispute and issued an award of $43.4 million along with interest. The gain of $43.4 million is classifiedrecognized as Level 3a part of our other income (expense), net in our fair value hierarchy as financial informationCondensed Consolidated Statement of third parties may not be timely available and consequently we estimateOperation during the fair value based on the best available information at the measurement date. The original amount of the note was $54.2 million which has decreased due to payments received.six months ended June 30, 2021. Refer to Note 6 “Equity Method Investments”“Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements included for more information.

Investments in Privately Held Companies

Our investments in equity securities of privately held companies without readily determinable fair values were $2.1 million and $5.9 million as of June 30, 2020 and December 31, 2019, respectively, and are reported as nonrecurring investments within other assets in our Condensed Consolidated Balance Sheet. Our investments in equity securities are considered Level 3 ininformation on 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. During the six months ended June 30, 2020 and June 30, 2019, we recorded impairment losses of $3.8 million and $4.0 million, respectively, resulting from observable price changes.arbitration.

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 tradetrade and intercompany receivables and payables. These forward contracts are classified within Level 2 of the fair value hierarchy. The net loss fromAs a result of the settlement of foreign currency forward contracts, during the three months ended June 30, 2021 and 2020, waswe recognized net losses of $13.0 million and $3.0 million, respectively, and the net gain from the settlement of foreign currency forward contracts during the six months ended June 30, 2021 and 2020, was $12.7 million. Thewe recognized a net loss of $0.6 million and a net gain (loss) from the settlement of foreign currency forward contracts during the three and six months ended June 30, 2019 was not material.$12.7 million, respectively. As of June 30, 20202021 and December 31, 2019,2020, the fair value of foreign exchange forward contracts outstanding was not material.
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The following table presents the gross notional value of all our foreign exchange forward contracts outstanding as of June 30, 20202021 and December 31, 20192020 (in thousands):
June 30, 20202021
Local Currency AmountNotional Contract Amount (USD)
Chinese YuanEuro¥997,000€202,350$140,618240,334 
EuroChinese Yuan€81,000¥1,170,00090,879180,638 
Canadian DollarC$46,00096,30033,62377,707 
British Pound£45,81063,331 
Japanese Yen¥5,245,75847,408 
Brazilian RealR$153,000224,60027,85944,673 
British PoundPolish Zloty£20,000PLN161,00024,58442,280 
Japanese Yen¥2,385,00022,154 
Israeli ShekelILS33,400ILS54,6009,64716,759 
Mexican PesoM$140,000307,7406,03815,481 
Swiss FrancCHF3,0003,161 
Australian DollarA$2,8007,7001,9245,775 
$360,487734,386 

December 31, 20192020
Local Currency AmountNotional Contract Amount (USD)
Euro97,000126,300$108,870155,125 
Chinese Yuan¥431,000936,00060,702143,393 
Canadian DollarC$52,00065,00039,80250,791 
British Pound£28,00032,30036,77043,879 
Japanese Yen¥4,249,00041,222 
Brazilian RealR$130,000142,00032,18527,264 
Japanese Yen¥3,000,00027,604 
Israeli ShekelILS63,700ILS74,00018,43923,094 
Mexican PesoM$140,0007,3987,002 
Australian DollarA$3,0005,8002,1014,447 
Swiss FrancCHF3,7004,191 
$333,871500,408 

Other foreign currency forward contract

Prior to the closing of the exocad Global Holdings GmbH ("exocad"(“exocad”) acquisition on April 1, 2020, we entered into a Euro foreign currency forward contract with a notional contract amount of €376.0 million. During the three and six months ended June 30, 2020, we recognized losses of $1.0 million and $10.2 million, respectively, within other income (expense), net in our Condensed Consolidated Statement of Operations.

Note 3. Balance Sheet Components

Inventories consist of the following (in thousands):
June 30,
2020
December 31,
2019
June 30,
2021
December 31,
2020
Raw materialsRaw materials$73,183  $54,947  Raw materials$90,018 $76,404 
Work in processWork in process32,232  30,974  Work in process37,505 31,393 
Finished goodsFinished goods25,861  26,130  Finished goods51,228 31,440 
Total inventoriesTotal inventories$131,276  $112,051  Total inventories$178,751 $139,237 

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Prepaid expenses and other current assets consist of the following (in thousands): 
June 30,
2020
December 31,
2019
Tax related receivables$72,481  $41,252  
Prepaid software and maintenance21,543  7,128  
Current promissory note 1
21,314  25,005  
Others24,957  29,065  
Total prepaid expenses and other current assets$140,295  $102,450  

1Refer to Note 6“Equity Method Investments” of the Notes to Condensed Consolidated Financial Statements for more information.

Accrued liabilities consist of the following (in thousands): 
June 30,
2020
December 31,
2019
June 30,
2021
December 31,
2020
Accrued payroll and benefitsAccrued payroll and benefits$82,256  $162,486  Accrued payroll and benefits$212,886 $170,106 
Accrued sales and marketing expensesAccrued sales and marketing expenses67,820 34,488 
Accrued expensesAccrued expenses55,844  55,529  Accrued expenses52,608 42,536 
Accrued property, plant and equipmentAccrued property, plant and equipment33,756 27,692 
Accrued professional feesAccrued professional fees28,844 20,617 
Current operating lease liabilitiesCurrent operating lease liabilities20,860  15,737  Current operating lease liabilities22,547 21,735 
Accrued professional fees19,506  10,410  
Accrued sales tax and value added tax11,733  9,089  
Accrued warranty11,629  11,205  
Others42,946  55,502  
Other accrued liabilitiesOther accrued liabilities77,111 88,408 
Total accrued liabilitiesTotal accrued liabilities$244,774  $319,958  Total accrued liabilities$495,572 $405,582 

We regularly reviewAccrued warranty, which is included in the balance for"Other accrued warranty and update based on historical warranty trends. Actual warranty costs incurred have not materially differed from those accrued; however, future actual warranty costs could differ fromliabilities" category of the estimated amounts. We also 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 accrualaccrued liabilities table above, consists of the following activity (in thousands):
Six Months Ended
June 30,
Six Months Ended
June 30,
20202019 20212020
Balance at beginning of periodBalance at beginning of period$11,205  $8,551  Balance at beginning of period$12,615 $11,205 
Charged to cost of net revenuesCharged to cost of net revenues5,820  6,000  Charged to cost of net revenues8,936 5,820 
Actual warranty expendituresActual warranty expenditures(5,396) (4,052) Actual warranty expenditures(7,105)(5,396)
Balance at end of periodBalance at end of period$11,629  $10,499  Balance at end of period$14,446 $11,629 

Deferred revenues consist of the following (in thousands):
June 30,
2020
December 31,
2019
June 30,
2021
December 31,
2020
Deferred revenues - currentDeferred revenues - current$601,831  $563,762  Deferred revenues - current$975,930 $777,887 
Deferred revenues - long-term 1
Deferred revenues - long-term 1
$36,142  $35,503  
Deferred revenues - long-term 1
$91,379 $62,551 

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

During the three months ended June 30, 20202021 and 2019,2020, we recognized $1.0 billion and $352.3 million and $600.7 million of revenue,net revenues, respectively, of which $72.4$134.4 million and $68.6$72.4 million was included in the deferred revenues balance at December 31, 20192020 and 2018,2019, respectively.

During the six months ended June 30, 20202021 and 2019,2020, we recognized $1.9 billion and $903.3 million and $1.1 billion of revenue,net revenues, respectively, of which $167.9$260.2 million and $137.0$167.9 million was included in the deferred revenues balance at December 31, 20192020 and 2018,2019, respectively.

Our unfilled performanceunfulfilled performance obligations, including deferred revenues and backlog, as of June 30, 20202021 were $651.9 million.$1.1 billion. These performance obligations are expected to be recognized over the next one to five years.
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Note 4. Business Combination

On April 1, 2020 (the “acquisition date”), we completed the acquisition of privately-held exocad for a total purchase consideration of $430.0 million and exocad became a wholly-owned subsidiary. exocad is a German dental CAD/CAM software company that offers fully integrated workflows to dental labs and dental practices. We believe the synergies from the acquisition will strengthen our digital platform by adding exocad’s expertise in restorative dentistry, implantology, guided surgery, and smile design to extend our digital solutions and pave the way for new, seamless cross-discipline dentistry in lab and at chairside.

The total purchase consideration consisted of the following (in thousands):

Cash paid to exocad stockholders$412,287 
Cash paid to settle exocad's bank debt17,691 
Total purchase consideration paid$429,978 

The following table summarizes the allocation of purchase price to assets acquired and liabilities assumed as of April 1, 2020 which are considered preliminary and therefore subject to change (in thousands):

Goodwill$344,238 
Identified intangible assets118,700 
Cash and cash equivalents9,190 
Deferred tax liabilities(35,419)
Other assets (liabilities), net(6,731)
Total$429,978 

Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets, and represents the expected synergies of the transaction and the knowledge and experience of the workforce in place. None of this goodwill is deductible for tax purposes. Under the applicable accounting guidance, goodwill will not be amortized but will be tested for impairment on an annual basis or more frequently if certain indicators are present. We allocated approximately $300.7 million of goodwill to our Systems and Services reporting unit (formerly the "Scanner and Services" reporting unit prior to its renaming during the second quarter of 2020) and approximately $43.5 million of the goodwill to our Clear Aligner reporting unit (Refer to Note 5 "Goodwill and Intangible Assets" of the Notes to Condensed Consolidated Financial Statements for additional details). Our reporting units are the same as our operating segments. Acquisition related costs are recognized separately from the business combination and expensed as incurred.

The following table presents details of the identified intangible assets acquired (in thousands, except years):
Weighted Average Amortization Period (in years)Fair Value
Intangible assets subject to amortization:
  Existing technology10$87,000  
  Customer relationships1021,500  
  Tradenames79,800  
Intangible assets not subject to amortization:
  In-process Research and Development ("IPR&D")400  
Total intangible assets$118,700  

We believe the amount of purchased intangible assets recorded above represent the fair values and approximate the amount a market participant would pay for these intangible assets as of the acquisition date.

Existing technology represents the estimated fair value of exocad’s core technology that has reached technological feasibility. We valued the existing technology using the multi-period excess earnings method under the income approach. The economic useful life of existing technology was determined by considering the life cycle of the technology and related cash flows.

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Customer relationships represent the fair value of future projected revenue that will be derived from sales of products to existing customers. Customer relationships were valued using the with-and-without method under the income approach. The economic useful life for customer relationships was based on historical customer attrition rates.

Tradenames relates to the exocad tradenames that are recognized within the industry. The fair value was determined using the relief-from-royalty method under the income approach. The economic useful life of tradenames was determined by benchmarking against similar transactions entered into by peer companies.

IPR&D refers to the fair value of projects that are not yet completed but have potential value to the company.

Deferred tax liabilities were recorded for significant basis differences primarily to reflect the tax effect of fair value adjustments made to the beginning balance of the intangible assets and deferred revenue as of the acquisition date (Refer to Note 13 "Accounting for Income Taxes" of the Notes to Condensed Consolidated Financial Statements for additional details).

Our condensed consolidated financial statements include the operating results of exocad from the acquisition date. Separate post-acquisition operating results and pro forma results of operations for this acquisition have not been presented as the effect is not material to our financial results.

Note 5.4. Goodwill and Intangible Assets

Goodwill

The change in the carrying value of goodwill for the six months ended June 30, 2020,2021, categorized by reportable segments, is as follows (in thousands):
Clear AlignerSystems and ServicesTotal
Balance as of December 31, 2019$63,924  $—  $63,924  
Additions from exocad acquisition1
43,500  300,738  344,238  
Adjustments 2
574  6,800  7,374  
Balance as of June 30, 2020$107,998  $307,538  $415,536  

1 Refer to Note 4 "Business Combination"of the Notes to Condensed Consolidated Financial Statements for additional details
2 Adjustments were related to foreign currency translation within the measurement period

During the fourth quarter of fiscal 2019, we performed our annual goodwill impairment testing and found 0 impairment as the fair value of our Clear Aligner reporting unit was significantly in excess of the carrying value.

Intangible Long-Lived Assets

Acquired intangible long-lived assets are being amortized as follows (in thousands):
Weighted Average Amortization Period
(in years)
Gross Carrying Amount as of June 30, 2020
Accumulated
Amortization
Accumulated
Impairment Loss
Net Carrying
Value as of
June 30, 2020
Trademarks and tradenames10$16,900  $(2,514) $(4,179) $10,207  
Existing technology1099,600  (5,936) (4,328) 89,336  
Customer relationships1155,000  (19,348) (10,751) 24,901  
Other 1
515,314  (12,083) —  3,231  
Total intangible assets 2
$186,814  $(39,881) $(19,258) $127,675  
1 Includes reacquired rights, patents, IPR&D and other intangible assets
2 Refer to Note 4 "Business Combination"of the Notes to Condensed Consolidated Financial Statements for additional details on intangible assets from our exocad acquisition.
Clear AlignerSystems and ServicesTotal
Balance as of December 31, 2020$112,691 $332,126 $444,817 
Foreign currency translation adjustments
(1,679)(10,959)(12,638)
Balance as of June 30, 2021$111,012 $321,167 $432,179 

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Weighted Average Amortization Period
(in years)
Gross Carrying
Amount as of
December 31, 2019
Accumulated
Amortization
Accumulated Impairment LossNet Carrying
Value as of
December 31, 2019
Trademarks15$7,100  $(2,045) $(4,179) $876  
Existing technology1312,600  (5,831) (4,328) 2,441  
Customer relationships1133,500  (18,405) (10,751) 4,344  
Reacquired rights37,500  (7,059) —  441  
Patents86,796  (3,165) —  3,631  
Other2618  (583) —  35  
Total intangible assets$68,114  $(37,088) $(19,258) $11,768  
Intangible Long-Lived Assets

Acquired intangible long-lived assets were as follows, excluding intangibles that were fully amortized (in thousands): 
Weighted Average Amortization Period
(in years)
Gross Carrying Amount as of
June 30, 2021
Accumulated
Amortization
Accumulated
Impairment Loss
Net Carrying
Value as of
June 30, 2021
Existing technology10$99,400 $(17,351)$(4,328)$77,721 
Customer relationships1155,000 (23,885)(10,751)20,364 
Trademarks and tradenames1016,600 (3,702)(4,179)8,719 
Patents and other86,610 (4,192)2,418 
$177,610 $(49,130)$(19,258)109,222 
Foreign currency translation8,499 
Total intangible assets$117,721 

Weighted Average Amortization Period
(in years)
Gross Carrying
Amount as of December 31, 2020
Accumulated
Amortization
Accumulated Impairment LossNet Carrying
Value as of
December 31, 2020
Existing technology10$99,400 $(12,719)$(4,328)$82,353 
Customer relationships1155,000 (21,879)(10,751)22,370 
Trademarks and tradenames1016,600 (2,934)(4,179)9,487 
Patents and other86,610 (3,785)2,825 
177,610 (41,317)(19,258)117,035 
Foreign currency translation13,037 
Total intangible assets$130,072 

The total estimated annual future amortization expense for these acquired intangible assets as of June 30, 20202021 is as follows (in thousands):

Fiscal Year Ending December 31,

Fiscal Year Ending December 31,

AmortizationFiscal Year Ending December 31,Amortization
Remainder of 2020$8,178  
202115,899  
Remainder of 2021Remainder of 2021$7,809 
2022202214,642  202214,366 
2023202314,022  202313,745 
2024202413,081  202412,805 
2025202512,428 
ThereafterThereafter61,853  Thereafter48,069 
TotalTotal$127,675  Total$109,222 

Amortization expense for the three months ended June 30, 2021 and 2020 and 2019 was $4.1$3.9 million and $1.5$4.1 million, respectively, and amortization expense for the six months ended June 30, 2021 and 2020 and 2019 was $5.4$7.8 million and $3.0$5.4 million, respectively.

Note 6. Equity Method Investments

On July 25, 2016, we acquired a 17% equity interest, on a fully diluted basis, in SmileDirectClub, LLC (“SDC”) for $46.7 million. Concurrently with the investment, we also entered into a supply agreement to manufacture clear aligners for SDC, which expired on December 31, 2019. The sale of aligners to SDC and the income from the supply agreement are reported in our Clear Aligner business segment. On July 24, 2017, we purchased an additional 2% equity interest in SDC for $12.8 million. The investment was accounted for as an equity method investment and recorded in our Condensed Consolidated Balance Sheet. We recorded our proportional share of SDC’s losses within equity in losses of investee, net of tax, in our Condensed Consolidated Statement of Operations.

As a result of the arbitrator’s decision regarding SDC announced on March 5, 2019, we were ordered to tender our SDC equity interest by April 3, 2019 for a purchase price equal to the “capital account” balance as of October 31, 2017 under the terms of the investment. In April 2019, based on the “capital account” value provided by SDC, we entered into an unsecured promissory note with SDC to receive $54.2 million through February 1, 2021 in exchange for the tender of our membership interests. As a result, we derecognized the equity method investment balance of $38.4 million in exchange for an unsecured promissory note of $54.2 million and we recorded the difference of $15.8 million as a gain in the second quarter of 2019 in other income in our Condensed Consolidated Statement of Operations. Although we tendered our membership interests pursuant to the arbitrator’s decision, the parties did not agree on the amount of the “capital account” balance as of October 31, 2017 or the appropriate repurchase price for the membership units. On July 3, 2019, we filed a demand for arbitration regarding SDC’s calculation of the “capital account” balance. The arbitration proceeding remains pending (Refer to Note 9 “Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements for SDC legal proceedings discussion).

Note 7.5. Credit Facility

On February 27, 2018, we entered into a 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 ("2018 Credit Facility"). The 2018 Credit Facility requires us to comply with specific financial conditions and performance requirements. The loans bear interest, at our option, at either a rate based on the reserve adjusted LIBOR for the applicable interest period or a base rate, in each case plus a margin. The base rate is the highest of the credit facility’s publicly announced prime rate, the federal funds rate plus 0.50% and one month LIBOR plus 1.0%. The margin ranges from 1.25% to 1.75% for LIBOR loans and 0.25% to 0.75% for base rate loans. Interest
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on the loans is payable quarterly in arrears with respect to base rate loans and at the end of an interest period (and at three month intervals if the interest period exceeds three months) in the case of LIBOR loans. Principal, together with accrued and unpaid interest, is due on the maturity date. As of June 30, 2020, we had 0 outstanding borrowings under the 2018 Credit Facility and were in compliance with the conditions and performance requirements.

On July 21, 2020 we entered into a new credit facility for a $300.0 million unsecured revolving line of credit, with a $50.0 million letter of credit sublimit, and a maturity date of July 21, 2023 ("(“2020 Credit Facility"Facility”). Upon entry into the 2020 Credit Facility, the 2018 Credit Facility was terminated., replacing our previous credit facility which provided for a $200.0 million revolving line of credit with a $50.0 million letter of credit. The 2020 Credit Facility requires us to comply with specific financial conditions and performance requirements. Loans under the 2020 Credit Facility bear interest, at our option, at either a rate based on the reserve adjusted LIBOR for the applicable interest period or a base rate, in each case plus a margin. The base rate is the highest of the credit facility's publicly announced prime rate, the federal funds rate plus 0.50% and one-month LIBOR plus 1.0%. The margin ranges from 1.50% to 2.25% for LIBOR loans and 0.50% to 1.25% for base rate loans. The 2020 Credit Facility allows for an alternative rate to be identified if LIBOR is no longer available. Interest on the loans is payable quarterly in arrears with respect to base rate loans and at the end of an interest period (and at three month intervals if the interest period exceeds three months) in the case of LIBOR loans. The outstanding
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principal, together with accrued and unpaid interest, is due on the maturity date. As of June 30, 2021, we had 0 outstanding borrowings under the 2020 Credit Facility and were in compliance with the conditions and performance requirements.

Note 8. Impairments and Other Charges

On March 5, 2019, we announced the outcome of the arbitration regarding SDC (Refer to Note 9 “Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements for SDC legal proceedings discussion) which required Align to close its Invisalign stores and tender Align’s equity interest in SDC by April 3, 2019. Accordingly, Align evaluated the ongoing value of the Invisalign stores’ operating lease right-of-use assets and related leasehold improvements and other fixed assets in accordance with ASC 360, Property, Plant and Equipment. Based on the evaluation, Align determined that the carrying value of these assets were not recoverable. Align evaluated the fair value of these assets in accordance with ASC 820, Fair Value Measurement, and we considered the market participant’s ability to generate economic benefits by using these assets in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.As a result, in the first quarter of 2019, we recorded impairment losses of $14.2 million for operating lease right-of-use assets and $14.3 million of leasehold improvements and other fixed assets. In addition, we also recorded $1.3 million of employee severance costs and other charges.

Note 9.6. Legal Proceedings

2018 Securities Class Action Lawsuit

On November 5, 2018, a class action lawsuit against Align and three of our executive officers was filed in the U.S. District Court for the Northern District of California on behalf of a purported class of purchasers of our common stock between July 25, 2018 and October 24, 2018.stock. The complaint generally allegesalleged claims under the federal securities laws and seekssought monetary damages in an unspecified amount and costs and expenses incurred in the litigation. On December 12, 2018, a similar lawsuit was filed in the same court on behalf of a purported class of purchasers of our common stock between April 25, 2018 and October 24, 2018.stock. On November 29, 2019, the lead plaintiff filed an amended consolidated complaint against Align and two of our executive officers alleging similar claims as the initial complaints on behalf of a purported class of purchasers of our common stock from May 23, 2018 and October 24, 2018. A On September 9, 2020, Defendants’motion to dismiss the amended consolidated complaint was filed on January 17, 2020granted in part and denied in part. On June 30, 2021, counsel for the parties signed a Stipulation and Agreement of Settlement to resolve all claims for $16 million. The settlement amount will be funded by insurance proceeds and consequently, we recorded a short term liability and a rulingreceivable for this amount in our condensed consolidated financial statements. Lead Plaintiff filed a motion seeking preliminary approval of the settlement on theJuly 15, 2021. A hearing on that motion is pending. Align believes these claims are without meritcurrently scheduled for December 9, 2021. The settlement is subject to notice to class members and intends to vigorously defend itself. Align is currently unable to predictapproval by the outcome of these lawsuits and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.Court.

2019 Shareholder Derivative Lawsuit

In January 2019, 3 derivative lawsuits were filed in the U.S. District Court for the Northern District of California which were later consolidated, purportedly on behalf of Align, naming as defendants the then current members of our Board of Directors along with certain of our executive officers. The allegations in the complaints are similar to those presentedasserted in the 2018 Securities Class Action Lawsuit, but the complaints assert various state law causes of action, including for breaches of fiduciary duty, insider trading, and unjust enrichment. The complaints seek unspecified monetary damages on behalf of Align, which is named solely as a nominal defendant against whom no recovery is sought, as well as disgorgement and the costs and expenses associated with the litigation, including attorneys’ fees. The consolidated action has been stayed pending final disposition of the 2018 Securities Class Action Lawsuit.

On April 12, 2019, a derivative lawsuit was also filed in California Superior Court for Santa Clara County, purportedly on behalf of Align, naming as defendants the members of our Board of Directors along with certain of our executive officers. The
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allegations in thisthe complaint are similar to those in the derivative suits described above. The matter has been similarly stayed pending final disposition of the 2018 Securities Class Action Lawsuit.

Align is currently unable to predict the outcome of these lawsuits and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.

2020 Securities Class Action Lawsuit

On March 2, 2020, a class action lawsuit against Align and two of our executive officers was filed in the U.S. District Court for the Southern District of New York (later transferred to the U.S. District Court for the Northern District of California) on behalf of a purported class of purchasers of our common stock between April 24, 2019 and July 24, 2019.stock. The complaint filed in the Southern District of New York allegesalleged claims under the federal securities laws and seekssought monetary damages in an unspecified amount and costs and expenses incurred in the litigation. On April 16, 2020, the Court approved the parties’ stipulation to transfer the case to the U.S. District Court for the Northern District of California. The lead plaintiff in this matter is expected to filefiled an amended complaint byon August 4, 2020.2020 against Align and three of our executive officers alleging similar claims as in the initial complaint on behalf of a purported class of purchasers of our common stock from April 25, 2019 to July 24, 2019. On March 29, 2021, defendants’ motion to dismiss the amended complaint was granted with leave for the lead plaintiff to file a further amended complaint. On April 22, 2021, lead plaintiff filed a notice stating it would not file a further amended complaint. On April 23, 2021, the Court dismissed the action with prejudice and judgment was entered. Lead plaintiff filed a notice of appeal on April 28, 2021. Lead plaintiff’s opening brief is currently due September 1, 2021. Align believes these claims are without merit and intends to vigorously defend itself. Align is currently unable to predict the outcome of this lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.

2020 Shareholder Derivative Lawsuit

On May 4, 2020, a derivative lawsuit was filed in the U.S. District Court for the Northern District of California, purportedly on behalf of Align, naming as defendants the members of our Board of Directors along with certain of our executive officers. The allegations in the complaint are similar to those presented in the 2020 Securities Class Action Lawsuit,
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but this complaint asserts state law claims for breach of fiduciary duty and insider trading. The complaint seeks unspecified monetary damages on behalf of Align, which is named solely as a nominal defendant against whom no recovery is sought, as well as disgorgement and the costs and expenses associated with the litigation, including attorneys’ fees. This action has beenis stayed pending final dispositionresolution of the appeal in the 2020 Securities Class Action Lawsuit. Align is currently unable to predict the outcome of this lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.

3Shape Litigation

On November 14, 2017, Align filed several patent infringement lawsuits asserting patents against 3Shape, a Danish corporation, and a related U.S. corporate entity, asserting that 3Shape’s Trios intraoral scanning system and Dental System software infringe Align patents.

These lawsuits included 4 separate complaintswere filed in the U.S. District Court for the District of Delaware alleging patent infringement by 3Shape’s Trios intraoral scanning system and Dental System software. ThreeNaN of the cases are active and one is stayed. Trials have been scheduled3Shape filed counterclaims for breach of contract and business torts. Align’s motions to begin on November 30, 2020, and November 8, 2021, in two of the three active cases, with an additional trial to be scheduled in the third. Certain of Align’s asserted patents in the Delaware actionsdismiss these 3Shape counterclaims were found invalid by the District Court judge.granted.

On May 9, 2018, and June 14,In 2018, 3Shape filed 2 separate complaints in the U.S. District Court for the District of Delaware alleging patent infringement by Align’s iTero Element scanner of two 3Shape patents. On August 19, 2019, the Court consolidated the two2 actions, and on August 30, 2019, 3Shape filed an amended complaint alleging infringement of a third patent. Trial is scheduled to begin on April 12, 2021.complaint.

In December 2018, Align filed 3 additional patent infringement lawsuits asserting 10 additional patents against 3Shape as follows: On December 10, 2018, Align filed one Section 337 complaint with the ITC alleging that 3Shape violates U.S. trade laws by selling for importation and importing the infringing TRIOS intraoral scanning system, Trios Lab Scanners and TRIOS software, TRIOS Module software, Dental System software, and Ortho System Software. On April 30, 2020, an Administrative Law Judge (“ALJ”) issued an initial determination that 3Shape infringed on 7 of the 9 patent claims asserted by Align, found valid 6 of the 9 claims asserted by Align, and found a violation of Section 337 stemming from 3Shape’s infringement of 4 claims in 2 of Align's asserted patents. The ALJ recommended an exclusion order and cease and desist order be entered against 3Shape’s unlawful importation. The Initial Determination is now subject to review by the Commissioners at the ITC. Align filed a petition for review of findings it believes are incorrect, and 3Shape also petitioned for review of the Initial Determination. On July 28, 2020, the Commission determined to review the Initial Determination in part. The current deadline for completing the investigation is September 28, 2020.

In addition to the December 10, 2018 ITC Complaint, on December 11, 2018, Align filed 2 separate complaintsan additional complaint in the U.S. District Court for the District of Delaware alleging patent infringement by 3Shape’s Trios intraoral scanning system, Lab Scanners and Dental and Ortho System Software. One of the District3Shape filed business tort counterclaims. The Court cases was stayed pending the parallel ITC
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investigation.granted Align’s motion to dismiss 3Shape’s business tort counterclaims. The remaining District Court case is in the early stages of discovery and pretrial proceedings. Trial is scheduled to begin on February 7, 2022.currently stayed.

On October 19, 2020, Align filed a complaint in the U.S. District Court for the Western District of Texas alleging patent infringement by 3Shape’s intraoral scanners and associated software products. In response, 3Shape filed a motion to dismiss as well as business tort and patent infringement counterclaims. 3Shape’s motion to dismiss was denied. Align has soughtmoved to invalidate certain of Align’s patents through petitions for inter partes review proceedings. Align disputes 3Shape’s positions and intends to vigorously defenddismiss the validity of its patent rights.business tort counterclaims.

Each of the3Shape and Align’s District Court patent infringement complaints and all of 3Shape’s business tort counterclaims seek monetary damages andand/or injunctive reliefrelief. One of Align’s Delaware District Court cases against further infringement.3Shape is scheduled for a jury trial beginning on May 31, 2022. The case pending in the Western District of Texas has been given an estimated trial date of October 3, 2022. No trial dates have been set in the remaining cases.

On August 28, 2018, 3Shape filed a complaint against Align in the U.S. District Court for the District of Delaware alleging antitrust violations and seeking monetary damages and injunctive relief relating to Align’s alleged market activities, including Align’s assertion of its patent portfolio, in alleged clear aligner and intraoral scanningscanner markets. After the Court dismissed 3Shape’s complaint, with leave, 3Shape filed an amended complaint on October 28, 2019. On May 20, 2020, the Magistrate Judge recommended thatThe Court denied Align’s motion to dismiss the amended complaint be denied. Align’s objection to the Magistrate Judge’s Report and Recommendationon November 25, 2020. No trial date has been fully briefed to the District Court, and the parties are waiting for a ruling.set.

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

Simon & SimonAntitrust Class Actions

On June 5, 2020, a dental practice named Simon and Simon, PC d/b/adoing business as City Smiles brought an antitrust action in the United StatesU.S. District Court for the Northern District of California on behalf of itself and a putative class of similarly situated practices seeking monetary damages and injunctive relief relating to Align’s alleged market activities in alleged clear aligner and intraoral scanningscanner markets. Prior to filing in the Northern District of California,Plaintiff filed an amended complaint and added VIP Dental Spas as a plaintiff on May 4, 2020, Plaintiff voluntarily dismissed a similar action in the U.S. District Court for the District of Delaware after the Magistrate Judge recommended that its complaint be dismissed.August 14, 2020. On July 28,September 9, 2020, Align filed amoved to dismiss Plaintiffs’ amended complaint. On April 8, 2021, the Judge denied Align’s motion to dismiss the complaint.dismiss. A jury trial is scheduled to begin November 20, 2023. Align believes the plaintiffs’ claims are without merit and intends to vigorously defend itself.

On May 3, 2021, an individual named Misty Snow brought an antitrust action in the U.S. District Court for the Northern District of California on behalf of herself and a putative class of similarly situated individuals seeking monetary damages and injunctive relief relating to Align’s alleged market activities in alleged clear aligner and intraoral scanner markets. Plaintiff filed an amended complaint on July 30, 2021 adding new plaintiffs and various state law claims. Align has not yet responded to the amended complaint. Align believes the plaintiffs’ claims are without merit and intends to vigorously defend itself.

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Align is currently unable to predict the outcome of this lawsuitthese lawsuits and therefore cannot determine the likelihood of loss, if any, nor estimate a range of possible loss.

SDC Dispute

In April 2018, the SDC Financial LLC, SmileDirectClub LLC, and the Members of SDC Financial LLC other than the Company (collectively, the “SDC Entities”) instigatedinitiated confidential arbitration proceedings against Align. During December 2018, the parties participated in binding arbitration proceedings and presented closing arguments on January 23, 2019. In an award dated March 4, 2019, (“Award”) an arbitrator found that Align breached the non-compete provision applicable to the SDC Entitiesa restrictive covenant and that Align misused the SDC Entities’ confidential information and violated fiduciary duties to SDC Financial LLC. As part of the Award, Align was enjoined from opening new Invisalign stores or providing certain services in physical retail establishments in connection with the marketing and sale of clear aligners in the U.S., and enjoined from using the SDC Entities’ confidential information. The arbitrator extended the expiration date of specified aspects of the non-compete provisionrestrictive covenant to August 18, 2022. The arbitrator also ordered Align to tender its SDC Financial LLC membership interests to the SDC Entities for a purchase price equal to the “capital account” balance as of October 31, 2017, to be determined in accordance with the applicable provisions of the SDC Operating Agreements. No financial damages were awarded to the SDC Entities. The Circuit Court for Cook County, Illinois confirmed the Award on April 29, 2019.

As required by the Award, Align tendered its membership interests for a purchase price that SDC claimsclaimed to be Align’s “capital account” balance. Align disputesdisputed that the SDC Entities properly determined the value of Align’s “capital account” balance as of October 31, 2017 as required by the SDC Operating Agreements and the Award.2017. Consequently, on July 3, 2019, Align filed a confidential demand for arbitration challenging the propriety of the SDC Entities’ determination. ThatOn March 12, 2021 the Arbitrator issued a final award in favor of Align and against SDC finding that the SDC entities owed Align an additional $43.4 million plus interest. SDC paid the amount due to Align on March 17, 2021.

On August 27, 2020, Align initiated a confidential arbitration proceeding remains pending and a hearing is currently expected to occuragainst the SDC entities before the end of 2020. Relatedly,American Arbitration Association in San Jose, California. This arbitration relates to the Strategic Supply Agreement (“Supply Agreement”) entered into between the parties in 2016. The complaint alleges that the SDC Entities breached the Supply Agreements terms, causing damages to Align in an amount to be determined. On January 19, 2021, SDC filed a contempt petition with the Illinois court which confirmed the Award, asserting that Align had no right to contest the “capital account” determination as made by the SDC Entities. On September 4, 2019, the Illinois court denied in its entirety the contempt petition filed by the SDC Entities. The SDC Entities have appealed the denial of the contempt petition, and that appeal remains pending.

On August 19, 2019, the SDC Entities filed a separate confidential arbitration proceedingcounterclaim alleging that Align has violatedbreached the non-compete provisions applicable to the members ofSupply Agreement. Align denies the SDC Entities by virtue of Align’s alleged dealings with a third-party claimed to be a competitor ofEntities’ allegations in the SDC Entities. On April 27, 2020, the SDC Entities filed an amended arbitration demand, which additionally asserts that Align’s alleged dealings with a third-party constitute contempt of the Award. Align deniescounterclaim and
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intends to will vigorously defend itself against all asserted allegations. The SDC Entities have yet to identify the range of damages they may seek to recover in the course of this arbitration and no hearing date has yet been set.them.

Align is currently unable to predict the outcome of these disputes and therefore cannot determine the likelihood of loss or success nor estimate a range of possible loss.loss or success, if any.

In addition to the above, in the ordinary course of Align’s operations, Align is involved in a variety of claims, suits, investigations, and proceedings, including actions with respect to intellectual property claims, patent infringement claims, government investigations, labor and employment claims, breach of contract claims, tax, and other matters. Regardless of the outcome, these proceedings can have an adverse impact on us because of defense costs, diversion of management resources, and other factors. Although the results of complex legal proceedings are difficult to predict and Align’s view of these matters may change in the future as litigation and events related thereto unfold; Align currently does not believe that these matters, individually or in the aggregate, will materially affect Align’s financial position, results of operations or cash flows.

Note 10.7. Commitments and Contingencies

Other Commitments

On October 3, 2019,In 2018, we entered into a Promotional Rights Agreement (the “Agreement”)purchase agreement, as amended, with an existing single source supplier which requires us to purchase aligner material for $36.0a minimum amount of approximately $425.9 million withover a third-partyfive year period through 2022. On June 24, 2021, we amended the agreement which includes certain advertising and media coverage. Asrequires an additional minimum aligner material purchase of June 30, 2020, the entire Agreementamount was an outstanding commitment which is expected to be paidapproximately $348.0 million from 2023 through 2023.2026.

Off-Balance Sheet Arrangements

As of June 30, 2020,2021, we had no material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources other than certain items disclosed in Note 10 “Commitments11 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K.
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Indemnification Provisions

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

It is not possible to make a reasonable estimate of the maximum potential amount under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Additionally, we have a limited history of prior indemnification claims and the payments we have made under such agreements have not had a material adverse effect on our results of operations, cash flows or financial position. However, to the extent that valid indemnification claims arise in the future, future payments by us could be significant and could have a material adverse effect on our results of operations or cash flows in a particular period. As of June 30, 2020,2021, we did not have any material indemnification claims that were probable or reasonably possible.

Note 11.8. Stockholders’ Equity

Summary of Stock-Based Compensation Expense

As of June 30, 2020,2021, the 2005 Incentive Plan (as amended) has a total reserve of 27,783,379 shares of which 4,611,2804,227,993 shares are available for issuance.

Summary of Stock-Based Compensation Expense

Stock-based compensation is based on the estimated fair value of awards, net of estimated forfeitures, and recognized over the requisite service period. Estimated forfeitures are based on historical experience at the time of grant and may be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The stock-based compensation related to our stock-based awards and employee stock purchase plans for the three and six months ended June 30, 20202021 and 20192020 is as follows (in thousands):
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Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019 2021202020212020
Cost of net revenuesCost of net revenues$891  $1,278  $2,238  $2,390  Cost of net revenues$1,418 $891 $2,724 $2,238 
Selling, general and administrativeSelling, general and administrative20,203  18,037  38,333  34,927  Selling, general and administrative23,058 20,203 44,902 38,333 
Research and developmentResearch and development3,913  3,152  7,363  6,194  Research and development4,379 3,913 8,470 7,363 
Total stock-based compensationTotal stock-based compensation$25,007  $22,467  $47,934  $43,511  Total stock-based compensation$28,855 $25,007 $56,096 $47,934 

Restricted Stock Units (“RSUs”)

The fair value of RSUs is based on our closing stock price on the date of grant. RSUs granted generally vest over a period of four years.

A summary for the six months ended June 30, 20202021 is as follows:
Number of Shares
Underlying RSUs
(in thousands)
Weighted Average Grant Date Fair ValueWeighted Average Remaining
Contractual Term (in years)
Aggregate
Intrinsic
 Value
(in thousands)
Number of Shares
Underlying RSUs
(in thousands)
Weighted Average Grant Date Fair ValueWeighted Average Remaining
Contractual Term (in years)
Aggregate
Intrinsic Value
(in thousands)
Unvested as of December 31, 2019696  $190.60  
Unvested as of December 31, 2020Unvested as of December 31, 2020632 $243.55 
GrantedGranted289  264.97  Granted158 597.20 
Vested and releasedVested and released(288) 149.86  Vested and released(241)214.71 
ForfeitedForfeited(22) 231.28  Forfeited(24)333.07 
Unvested as of June 30, 2020675  $238.47  1.6$185,207  
Unvested as of June 30, 2021Unvested as of June 30, 2021525 $358.92 1.6$320,663 

As of June 30, 2020,2021, we expect to recognize $126.0$147.5 million of total unamortized compensation cost, net of estimated forfeitures, related to RSUs over a weighted average period of 2.62.5 years.

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Market-performance Based Restricted Stock Units (“MSUs”)

We grant MSUs to our executive officers. Each MSU represents the right to one share of Align’s common stock. The actual number of MSUs which will be eligible to vest will be based on the performance of Align’s stock price relative to the performance of a stock market index over the vesting period. MSUs vest over a period of three years and certain MSU grants are also based on Align’s stock price at the end of the performance period. The maximum number of MSUs which will be eligible to vest range fromin the future is 250% to 300% of the MSUs initially granted and the vesting period is three years.granted.

A summary for the six months ended June 30, 20202021 is as follows: 
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)
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, 2019244  $331.35  
Unvested as of December 31, 2020Unvested as of December 31, 2020227 $430.50 
GrantedGranted156  242.04  Granted177 658.02 
Vested and releasedVested and released(173) 120.39  Vested and released(230)513.73 
Unvested as of June 30, 2020227  $430.50  1.6$62,365  
Unvested as of June 30, 2021Unvested as of June 30, 2021174 $551.57 1.5$106,374 

As of June 30, 2020,2021, we expect to recognize $46.1$52.2 million of total unamortized compensation cost, net of estimated forfeitures, related to MSUs over a weighted average period of 1.61.5 years.

Employee Stock Purchase Plan (“ESPP”)

In May 2010, our stockholders approved the 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”) which will continue until terminated by either the Board of Directors or its administrator. TheIn May 2021, the 2010 Purchase Plan was amended and restated to increase the maximum number of shares available for purchase under the 2010 Purchase Plan is 2,400,000to 4,400,000 shares. As of June 30, 2020,2021, we have 379,3042,253,444 shares available for future issuance.

The fair value of the option component of the 2010 Purchase Plan shares was estimated at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:
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Six Months Ended
June 30,
Six Months Ended
June 30,
20202019 20212020
Expected term (in years)Expected term (in years)1.01.4Expected term (in years)1.01.0
Expected volatilityExpected volatility41.7 %48.6 %Expected volatility58.8 %41.7 %
Risk-free interest rateRisk-free interest rate1.5 %2.5 %Risk-free interest rate0.1 %1.5 %
Expected dividendsExpected dividends—  —  Expected dividends
Weighted average fair value at grant dateWeighted average fair value at grant date$80.54  $90.36  Weighted average fair value at grant date$202.74 $80.54 

As of June 30, 2020,2021, there was $5.7$2.2 million of total unamortized compensation costs related to employee stock purchases which we expect to be recognized over a weighted average period of 0.50.2 year.

Note 12.9. Common Stock Repurchase ProgramPrograms

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 (“May 2018 Repurchase Program”). As of June 30, 2021, the authorization under the May 2018 Repurchase Program had been fully utilized and the May 2018 Repurchase Program was completed.

In 2018, we repurchased on the open market approximately 0.1 million sharesMay 2021, our Board of Directors authorized a plan to repurchase up to $1.0 billion of our common stock at an average price(“May 2021 Repurchase Program”). As of $356.54 per share, including commissions,June 30, 2021, we have $900.0 million available for an aggregate purchase pricerepurchase under the May 2021 Repurchase Program.

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Accelerated Stock Repurchase Agreements ("ASRs")

During the three months ended June 30, 2021, we entered into an acceleratedthe following ASRs:
Initial Share Delivery
Effective DateRepurchase ProgramAmount Paid
(in millions)
Initial Shares DeliveredPrice Per ShareValue Of Shares As A Percent Of Contract Value
April 30, 2021May 2018 Repurchase Program$100.0 134,334$595.53 80 %
May 17, 2021May 2021 Repurchase Program$100.0 142,980$559.52 80 %

Under the terms of the ASRs, the financial institution may be required to deliver additional shares of common stock repurchase agreement (“ASR”) to repurchase $50.0Align at final settlement or, under certain circumstances, we may be required at our election, to either deliver shares or make a cash payment to the financial institution. The ASRs limit the number of shares that Align would be required to deliver. As of June 30, 2021, we recorded the remaining $40.0 million ofcontract value from the ASRs as equity forward contracts indexed to our own common stock which was completedincluded in December 2018. We received a totaladditional paid-in capital in stockholders' equity in our Condensed Consolidated Balance Sheet. The final number of approximately 0.2 million shares forto be repurchased will be based on our volume-weighted average stock price under the terms of the ASRs, less an average share price of $213.18.agreed upon discount.

In 2019,Subsequent to the second quarter, on July 30, 2021, we repurchased on the open market approximately 0.8 million shares of our common stock at an average price of $264.93 per share, including commissions, for an aggregate purchase price of $200.0 million. We also entered into an ASR to repurchase $200.0$75.0 million of our common stock which was completed in September 2019.stock. We paid $75.0 million on August 2, 2021 and received a totalan initial delivery of 1.1approximately 0.1 million shares for anbased on current market prices. The final number of shares to be repurchased will be based on our volume-weighted average sharestock price of $176.61.

As of June 30, 2020, we have $100.0 million available for repurchase under the May 2018 Repurchase Program.terms of the ASR, less an agreed upon discount.

Note 13.10. Accounting for Income Taxes

Our provision for income taxes was $69.1 million for the three months ended June 30, 2021 and our benefit from income taxes was $32.9 million for the three months ended June 30, 2020, representing effective tax rates of 25.7% and 44.8%, respectively. Our provision for income taxes was $130.3 million for the six months ended June 30, 2021 and our benefit from income taxes was $1,497.7 million for the six months ended June 30, 2020, representing effective tax rates of 24.6% and 7,437.0%, respectively. Our effective tax rate differs from the statutory federal income tax rate of 21% for the three and six months ended June 30, 2021 primarily due to state income taxes, non-deductible expenses in the U.S. and foreign income taxed at different rates, partially offset by the recognition of excess tax benefits related to stock-based compensation. Our effective tax rate differs from the statutory federal income tax rate of 21% for the three months ended June 30, 2020 primarily due to foreign income taxed at different rates. Our effective tax rate differs from the statutory federal income tax rate of 21% for the six months ended June 30, 2020 mainly as a result of the recognition of a deferred tax asset and related one-time tax benefit associated with the intra-entity transfer of certain intellectual property rights completed last year and the recognition of excess tax benefits related to stock-based compensation, partially offset by foreign income taxed at different rates.

During the six six months ended June 30, 2020, we completed an intra-entity transfer of certain intellectual property rights and fixed assets to our Swiss subsidiary, where our Europe, Middle East and Africa ("EMEA") regional headquarters is located beginning January 1, 2020.entity. The transfer of intellectual property rights did not result in a taxable gain; however, it did result in a step-up of the Swiss tax deductible basis in the transferred assets, and accordingly, created a temporary difference between the book basis and the tax basis of 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 six months ended June 30, 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 transfer of fixed assets and inventory.

Our benefit from income taxes was $32.9 million for the three months ended June 30, 2020 and our provision for income taxes was $43.1 million for the three months ended June 30, 2019, representing effective tax rates of 44.8% and 22.2%, respectively. Our benefit from income taxes was $1,497.7 million for the six months ended June 30, 2020 and our provision for income taxes was $51.9 million for the six months ended June 30, 2019, representing effective tax rates of 7,437.0% and 18.6%, respectively. Our effective tax rate differs from the statutory federal income tax rate of 21% for the three months ended June 30, 2020 primarily due to the recognition of additional tax benefits resulting from changes in annual effective tax rate caused by a shift in jurisdictional mix of forecasted annual income. Our effective tax rate differs from the statutory federal income tax rate of 21% for the six months ended June 30, 2020 mainly as a result of the aforementioned intra-entity transfer and the recognition of excess tax benefits related to stock-based compensation, partially offset by unrecognized tax benefits associated with certain foreign payments. Our effective tax rate differs from the statutory federal income tax rate of 21% for the three and six months ended June 30, 2019 mainly as a result of the recognition of excess tax benefits related to stock-based compensation and certain foreign earnings, primarily from the Netherlands and Costa Rica, being taxed at lower tax rates.

The increase in our effective tax rate for the three months ended June 30, 2020 compared to the same period in 2019 is primarily attributable to the tax impact of a higher annual forecasted effective tax rate driven by changes in the jurisdictional mix of forecasted income. The increase in our effective tax rate for the six months ended June 30, 2020 compared to the same period in 2019 is primarily attributable to the recognition of a deferred tax asset related to the intra-entity transfer of certain intellectual property rights during the six months ended June 30, 2020. While the recognition of a deferred tax asset would
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normally cause a reduction in tax rate, due to our net loss before tax for the six months ended June 30, 2020, it has the effect of increasing the effective tax rate.

We exercise significant judgment in regards to estimates of future market growth, forecasted earnings and projected taxable income in determining the provision for income taxes and for purposes of assessing our ability to utilize any future benefit from deferred tax assets. We continue to assess the realizability of the deferred tax assets as we take into account new information.

We file U.S. federal, U.S. state, and non-U.S. income tax returns. Our major tax jurisdictions include U.S. federal, the State of California and Switzerland. For U.S. federal and state tax returns, weWe are no longer subject to U.S. federal tax examinationsexamination for years before 2015. We are currently2017 and U.S. state tax examination for years before 2016. Our subsidiary in Israel is under examinationaudit by the IRSlocal tax authorities for tax years 2015 and 2016.through 2018. With few exceptions, we are no longer subject to examination by foreign tax authorities for years before 2013.2014.

Our total gross unrecognized tax benefits, excluding interest and penalties, were $57.0$53.2 million and $46.7$46.3 million as of June 30, 20202021 and December 31, 2019,2020, respectively, a material amount of which would impact our effective tax rate if recognized. Our totalTotal interest and penalties accrued as of June 30, 20202021 was not material. We have elected to recognize interest and
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penalties related to unrecognized tax benefits as a component of income taxes. The timing and resolution of income tax examinations is uncertain, and the amounts ultimately paid, if any, upon resolution of issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although it is possible that our balance of gross unrecognized tax benefits could materially change in the next 12 months, given the uncertainty in the development of ongoing income tax examinations, we are unable to estimate the full range of possible adjustments to this balance.

Our total deferred tax liabilities were $35.4$34.0 million and $35.7 million as of June 30, 2021 and December 31, 2020, respectively, which were primarily related to the intangible assets from our exocad acquisition. Our deferred tax liabilities as of December 31, 2019 were not material.

As of December 31, 2019, undistributed earnings of our foreign subsidiaries totaled $452.6 million and substantially all of the earnings previously determined to be not indefinitely reinvested have been repatriated. Under the Global Intangible Low-Taxed Income provisions of the Tax Cuts and Jobs Act, U.S. income taxes have already been provided on the undistributed earnings that is indefinitely reinvested in our international operations; therefore, the tax impact upon distribution is limited to mainly state income and withholding taxes and is not significant.

Note 14.11. Net Income (Loss) per Share

Basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed using the weighted average number of shares of common stock, adjusted for any dilutive effect of potential common stock. Potential common stock, computed using the treasury stock method, includes RSUs, MSUs and our ESPP. Due to our net loss for the three months ended June 30, 2020, the potential common stock instruments such as RSUs, MSUs and ESPP were not included in the computation of diluted net loss per share as the effect of including these shares would have been anti-dilutive.

The following table sets forth the computation of basic and diluted net income (loss) per share attributable to common stock (in thousands, except per share amounts):
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2020201920202019
Numerator:
Net income (loss)$(40,602) $147,142  $1,477,529  $218,990  
Denominator:
Weighted average common shares outstanding, basic78,769  79,943  78,681  79,901  
Dilutive effect of potential common stock—  647  335  764  
Total shares, diluted78,769  80,590  79,016  80,665  
Net income (loss) per share, basic$(0.52) $1.84  $18.78  $2.74  
Net income (loss) per share, diluted$(0.52) $1.83  $18.70  $2.71  
Anti-dilutive potential common shares 1
733  139  231  111  
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 Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Numerator:
Net income (loss)$199,714 $(40,602)$400,090 $1,477,529 
Denominator:
Weighted average common shares outstanding, basic79,008 78,769 79,004 78,681 
Dilutive effect of potential common stock630 733 335 
Total shares, diluted79,638 78,769 79,737 79,016 
Net income (loss) per share, basic$2.53 $(0.52)$5.06 $18.78 
Net income (loss) per share, diluted$2.51 $(0.52)$5.02 $18.70 
Anti-dilutive potential common shares 1
49 733 38 231 

1Represents RSUs, MSUs and MSUsESPP not included in the calculation of diluted net income per share as the effect would have been anti-dilutive.

Note 15.12. Supplemental Cash Flow Information

The supplemental cash flow information consists of the following (in thousands):
 Six Months Ended
June 30,
 20202019
Non-cash investing and financing activities:
Fixed assets acquired with accounts payable or accrued liabilities$13,199  $12,202  
Issuance of promissory note in exchange for sale of equity method investment$—  $54,154  
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$12,817  $9,020  
Investing cash flows from finance leases 1

$—  $10,896  
Financing cash flows from finance leases$—  $45,773  
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$25,545  $21,066  
Finance leases$—  $51,064  

1A portion of finance lease purchase payment relates to leasing a part of the building to a third party as a lessor. This amount is included in Other Investing Activities in our Condensed Consolidated Statements of Cash Flows.
 Six Months Ended
June 30,
 20212020
Non-cash investing and financing activities:
Acquisition of property, plant and equipment in accounts payable and accrued liabilities$133,530 $13,199 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$14,030 $12,817 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$24,338 $25,545 

Note 16.13. Segments and Geographical Information

Segment Information

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is our Chief Executive Officer. We report segment information based on the management approach. The management approach designates the internal reporting used by CODMour Chief Operating Decision Maker for decision making and performance assessment as the basis for determining our reportable segments. The performance measures of our reportable segments include net revenues, gross profit and income from operations. Income from operations for each segment includes all geographic revenues, related cost of net revenues and operating expenses directly attributable to the segment. Certain operating expenses are attributable to operating segments and each allocation is measured differently based on the specific facts and circumstances of the costs being allocated. Costs not specifically allocated to segment income from operations include various corporate expenses such as stock-based compensation and costs related to IT, facilities, human resources, accounting and finance, legal and regulatory, and other
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separately managed general and administrative costs outside the operating segments.

We group our operations into 2 reportable segments: Clear Aligner segment and Imaging Systems and CAD/CAM services ("(“Systems and Services"Services”) segment. The Systems and Services segment was formerly known as the Scanner and Services segment prior to our acquisition of exocad on April 1, 2020 (Refer to Note 4 "Business Combination" of the Notes to Condensed Consolidated Financial Statements for additional details on the exocad acquisition).

Our Clear AlignerSummarized financial information by segment consists of Comprehensive Products, Non-Comprehensive Products and Non-Case revenuesis as defined below:follows (in thousands):

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.

Non-Case includes, but not limited to, Vivera retainers along with our training and ancillary products for treating malocclusion. 

Our Systems and Services segment consists of our iTero intraoral scanning systems, which includes a single hardware platform and restorative or orthodontic software options, OrthoCAD services and ancillary products, as well as exocad's software solution that integrates workflows to dental labs and dental practices.
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These reportable operating segments are based on how our CODM views and evaluates our operations as well as allocation of resources. The following information relates to these segments (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
20202019202020192021202020212020
Net revenuesNet revenuesNet revenues
Clear AlignerClear Aligner$298,341  $496,702  $779,952  $965,907  Clear Aligner$840,959 $298,341 $1,594,228 $779,952 
Systems and ServicesSystems and Services53,973  103,995  123,325  183,761  Systems and Services169,849 53,973 311,351 123,325 
Total net revenuesTotal net revenues$352,314  $600,697  $903,277  $1,149,668  Total net revenues$1,010,808 $352,314 $1,905,579 $903,277 
Gross profitGross profitGross profit
Clear AlignerClear Aligner$192,366  $366,142  $543,858  $717,500  Clear Aligner$646,665 $192,366 $1,231,199 $543,858 
Systems and ServicesSystems and Services31,962  66,147  74,826  116,885  Systems and Services111,873 31,962 204,437 74,826 
Total gross profitTotal gross profit$224,328  $432,289  $618,684  $834,385  Total gross profit$758,538 $224,328 $1,435,636 $618,684 
Income (loss) from operationsIncome (loss) from operationsIncome (loss) from operations
Clear AlignerClear Aligner$38,916  $244,029  $205,304  $402,670  Clear Aligner$347,626 $38,916 $675,091 $205,304 
Systems and ServicesSystems and Services2,893  39,267  17,282  67,526  Systems and Services64,675 2,893 111,903 17,282 
Unallocated corporate expensesUnallocated corporate expenses(114,809) (106,806) (225,668) (206,005) Unallocated corporate expenses(143,399)(114,809)(292,646)(225,668)
Total income (loss) from operationsTotal income (loss) from operations$(73,000) $176,490  $(3,082) $264,191  Total income (loss) from operations$268,902 $(73,000)$494,348 $(3,082)
Stock-based compensationStock-based compensation
Clear AlignerClear Aligner$2,632 $2,096 $4,926 $4,625 
Systems and ServicesSystems and Services174 153 345 231 
Unallocated corporate expensesUnallocated corporate expenses26,049 22,758 50,825 43,078 
Total stock-based compensationTotal stock-based compensation$28,855 $25,007 $56,096 $47,934 
Depreciation and amortizationDepreciation and amortizationDepreciation and amortization
Clear AlignerClear Aligner$9,697  $9,455  $19,818  $18,545  Clear Aligner$12,170 $9,697 $23,290 $19,818 
Systems and ServicesSystems and Services5,005  1,854  6,790  3,362  Systems and Services4,622 5,005 9,167 6,790 
Unallocated corporate expensesUnallocated corporate expenses8,843  7,863  17,675  15,581  Unallocated corporate expenses9,100 8,843 19,070 17,675 
Total depreciation and amortizationTotal depreciation and amortization$23,545  $19,172  $44,283  $37,488  Total depreciation and amortization$25,892 $23,545 $51,527 $44,283 
Impairments and other charges
Clear Aligner$—  $—  $—  $29,782  
Total impairments and other charges$—  $—  $—  $29,782  
Litigation settlement gain
Clear Aligner$—  $(51,000) $—  $(51,000) 
Total litigation settlement gain$—  $(51,000) $—  $(51,000) 

The following table reconciles total segment income from operations in the table above to net income (loss) before provision for (benefit from) income taxes and equity losses of investee (in thousands):
 Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Total segment income from operations$41,809  $283,296  $222,586  $470,196  
Unallocated corporate expenses(114,809) (106,806) (225,668) (206,005) 
Total income (loss) from operations(73,000) 176,490  (3,082) 264,191  
Interest income473  3,465  2,459  6,098  
Other income (expense), net(966) 13,892  (19,515) 8,146  
Net income (loss) before provision for (benefit from) income taxes and equity in losses of investee$(73,493) $193,847  $(20,138) $278,435  

 Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Total segment income from operations$412,301 $41,809 $786,994 $222,586 
Unallocated corporate expenses(143,399)(114,809)(292,646)(225,668)
Total income (loss) from operations268,902 (73,000)494,348 (3,082)
Interest income383 473 2,026 2,459 
Other income (expense), net(483)(966)34,049 (19,515)
Net income (loss) before provision for (benefit from) income taxes$268,802 $(73,493)$530,423 $(20,138)
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Geographical Information

Net revenues are presented below by geographic area (in thousands):
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2020201920202019
Net revenues 1:
United States$140,859  $296,655  $412,564  $575,660  
Switzerland 2
105,495  —  292,771  —  
The Netherlands 2
—  192,188  —  366,932  
China46,377  44,823  66,102  87,439  
Other International59,583  67,031  131,840  119,637  
Total net revenues$352,314  $600,697  $903,277  $1,149,668  

 Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Net revenues 1:
U.S.$434,398 $140,859 $817,400 $412,564 
Switzerland366,334 105,495 681,784 292,771 
China66,440 46,377 127,652 66,102 
Other International143,636 59,583 278,743 131,840 
Total net revenues$1,010,808 $352,314 $1,905,579 $903,277 

1Net revenues are attributed to countries based on the location of where revenues are recognized by our legal entities.
2 During the first quarter of 2020, we implemented a new international corporate structure. This changed the structure of our international procurement and sales operations from the Netherlands to Switzerland.

Tangible long-lived assets, which includes Property, plant and equipment, net, and Operating lease right-of-use assets, net, are presented below by geographic area (in thousands):
June 30,
2020
December 31, 2019 June 30,
2021
December 31, 2020
Long-lived assets 1:
Long-lived assets 1:
Long-lived assets 1:
Switzerland 2
$215,689  $7,755  
United States180,815  164,451  
SwitzerlandSwitzerland$416,871 $257,337 
U.S.U.S.193,814 180,539 
ChinaChina96,565  73,174  China126,033 113,918 
Costa RicaCosta Rica84,348  82,083  Costa Rica95,860 97,804 
The Netherlands 2
999  226,286  
Other InternationalOther International159,113  134,225  Other International221,699 167,676 
Total long-lived assetsTotal long-lived assets$737,529  $687,974  Total long-lived assets$1,054,277 $817,274 
 
1 Long-lived assets are attributed to countries based on the location of our entity that owns or leases the assets.
2 As a result of the new international corporate structure changes, most of the long-lived assets were transferred from our Netherlands entity to our Switzerland entity during the first quarter of 2020.


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ITEM 2.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.OPERATIONS

Forward-Looking Statements

In addition to historical information, this quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.1934 (the Exchange Act). These statements include,include, among other things, our expectations and intentions regarding our strategic objectives and the means to achieve them, our beliefs regarding the impact of technological innovation in general, and in our solutions and products in particular, on target markets, our beliefs regarding digital dentistry and its potential to impact our business, our expectations for the impact of the exocad acquisition,intentions regarding expanding our beliefs regarding the potential for clinical solutions and their utilization to increase sales of our Invisalign system as well as the complementary products and solutions themselves, our expectations regarding product mix and product adoption,business, our expectations regarding the utilization rates for our products, including the impact of marketing on those rates and causes for periodic fluctuations of the rates, our expectations regard the existence and impact of seasonality, our expectations regarding the sales growth of our intra-oral scanner sales in international markets, our expectations regarding the productivity impact additional sales representatives will have on our sales, our expectations regarding the continued expansion of our international markets, including our expectation that international revenues will grow at a faster rate than Americas for the foreseeable future, our expectation regarding customer and consumer purchasing behavior, including expectations related to the consumer demand environment in China especially for U.S. based products and services,digital solutions, our expectations regarding competition,for future investments in and benefits from consumer demand sales and marketing activities, our expectations regarding the near and long-term implications of the COVID-19 pandemic and the health, safety and economic recovery from it, on the global economy, the businesses of our customers and us, including our preparedness to react to changing circumstances and overall on our revenues,demand, results of operations and financial condition, our expectations for our expenses and capital obligations and expenditures in particular, the actions we will take to control spending and for investments, our intentions regarding the investment of our international earnings from operations, our belief regarding the sufficiency of our cash balances and borrowing capacity, our judgments regarding the estimates used in our revenue recognition, and assessment of goodwill and intangible assets, our expectations regarding potential additional litigation with SDC Financial LLCour tax positions and certain affiliates regarding the “capital account” balance and other matters,judgments we make related to our tax obligations, the level of our operating expenses and gross margins and other factors beyond our control, as well as other statements regarding our future operations, financial condition and prospects and business strategies. These statements may contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” or other words indicating future results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in particular, the risks discussed below in Part 2,II, Item 1A “Risk Factors.” We undertake no obligation to revise or update these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 20192020 as filed with the Securities and Exchange Commission.Commission (the “SEC”).

Executive Overview of Results

Align Technology, Inc. (“We”, “Our”, “Align”) is a global medical device company engaged in the design, manufacture and marketing of Invisalign® clear aligners, iTero® intraoral scanners and services for orthodontics, and restorative and aesthetic dentistry, and exocad® computer-aided design and computer-aided manufacturing ("CAD/CAM") software for dental laboratories and dental practitioners. 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 and the results patients desire. Our goal is to establish clear aligners as the principal solution for the treatment of malocclusions and our Invisalign clear aligners as the treatment solution of choice by orthodontists, general dental practitioners and patients globally. To date, over 8.5 million people worldwide have been treated with our Invisalign System.COVID-19 Update

To encourage consumersSince the first quarter of fiscal year 2020, our sales and results of operations have been impacted first by the preventative measures implemented to treat malocclusionsslow the spread of COVID-19, including the complete closure or significantly reduced operations of dental practices and, more recently, the inconsistent pace and scale of recovery in various markets. In 2021, the pandemic continues to cause general business and societal disruptions and uncertainties worldwide, with clear aligners undervariants of the directionCOVID-19 virus appearing to drive regional increases in infections that has led to localized preventative measures of varying degrees to curtail further spread of the virus. Notwithstanding these setbacks, in general the scale and supervision of licensedtime during which these additional measures are implemented are less impactful on our customers and their patients than the most drastic measures imposed in 2020. For instance, globally both public and private dental professionals, we bringpractices largely remain open, although many continue to market solutions we believe will strengthen our digital dental platform for doctors, labs and partners, including establishing the iTero intraoral scanner and related services as the preferred 3D digital scanning solution and integrating newly acquired CAD/CAM solutions and workflows into the markets for clear aligner orthodontics and dental restorative treatments. We intend to continue focusing on these efforts through execution of our strategic growth drivers. For a further description of our strategic growth drivers, please review the Business Strategy section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2020.operate at less than pre-pandemic capacities.

The successful executionConversely, as a result of the restrictive measures imposed to contain the spread of the virus, the demand for digital solutions has increased as society and businesses have adapted to practices such as social distancing and remote working. Our efforts to promote the digital transformation of dental practices with our clear aligners, intraoral scanners, clinical treatment planning and other offerings has allowed us to quickly respond to increased demand in the dental field. We expect the number of customers that realize the efficiencies and benefits of our business strategy may be affected by a number of factors including:digital solutions for their practices and patients to continue to grow even as the pandemic-related restrictions continue to ease generally.

To address the increasing demand for digital solutions, we intend to continue targeting our investment plans in sales, marketing and innovation as well as our capital expenditures, particularly as we expand our manufacturing operations in locations such as Europe, in order to meet the anticipated demand for our solutions.

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New Products, Feature EnhancementsNevertheless, the continuing evolution of the pandemic, including the setbacks occurring as a result of new virus strains and Technology. We believe product innovationthe continuing business restrictions and lockdowns, the positive impacts of vaccinations, the uncertainties regarding consumer spending as demand for entertainment, dining, and travel returns and remote working diminishes, remains highly fluid and unpredictable. Consequently, the COVID-19 pandemic has caused, and is expected to treat a wide rangecontinue causing for an unknown period of cases from simpletime, disruptions to complex drives greater treatment predictability, clinical applicabilitymany of the norms we have historically experienced in the cadence of our quarterly results of operations. As such, our recent operating results and easelevels of use for the dental professionals we serve which supports adoptiongrowth may not be indicative of Invisalign treatment in their practices. Furthermore,our future performance. Ultimately, however, we believe the digital revolutiontransition to dentistry that began before the pandemic will continue to be positive for our business, results of operations, cash flows, and financial condition and we intend to adjust spending to coincide with the pace of recovery and changes in dentistry is an important aspectdemand.

Further discussion of the experience forimpact of the COVID-19 pandemic on our customers and their patients, encouragingbusiness may be found in Part II, Item 1A of this Quarterly Report on Form 10-Q under the utilization of our Invisalign solution. It therefore comprises an important component of our digital approach.heading “Risk Factors.”

Invisalign: Since 2018, we have launched or announced various new offerings including our Invisalign treatment with Mandibular Advancement, Invisalign Go, Invisalign FirstKey financial and Invisalign Moderate. In each instance, we have broadened and strengthened our reach into key markets and demographics central to our strategic plans.operating metrics

iTero Scanner: OverOur business strategic priorities remain focused on four principal pillars of growth: (i) international expansion; (ii) general practitioners (“GP”) adoption; (iii) patient demand & conversion; and (iv) orthodontic utilization. We measure our performance against these strategic priorities by the last two years,achievement of key financial and operating metrics.

For the three months ended June 30, 2021, we have expanded or announced several new aspectsachieved the following, taking into consideration that percentage changes from prior year financial results are unusual due to the significant impact of COVID-19 and do not necessarily reflect our intraoral digital scanning solutions including the iTero Element, iTero Element Foundation and the iTero Element 5D Imaging system, for which we announced in March 2020 that we had obtained U.S. FDA 501(K) clearance. The approval of the iTero Element 5D Imaging system opens the U.S. markets for sales of this unique solution that combines 3D data, intra-oral color photos and NIRI images into a single, integrated scan improving doctor experiences and improving engagement opportunities and communications with their patients. The iTero Element 5D aids in the detection and monitoring of interproximal caries lesions above the gingiva without using harmful radiation.future growth rates:

exocad.Revenues of $1.0 billion, an increase of 186.9% year-over-year;
Clear Aligner revenues of $841.0 million, an increase of 181.9% year-over-year;
Imaging Systems and CAD/CAM Services revenues of $169.8 million, an increase of 214.7% year-over-year;
International Invisalign Revenues On April 1, 2020, we completed the acquisition of privately-held exocad Global Holdings GmbH (“exocad”), a German dental CAD/CAM software company that offers fully integrated workflows$389.7 million, an increase of 151.0% year-over-year;
Clear Aligner volume increased 200.0% year-over-year and Clear Aligner volume for teenage patients increased 156.3% year-over-year;
Income from operations $268.9 million and operating margin 26.6%;
Effective tax rate was 25.7%;
Net income of $199.7 million with diluted net income per share of $2.51;
Cash and cash equivalents were $1.1 billion as of June 30, 2021;
Operating cash flow was $317.5 million;
Capital expenditures were $124.2 million and predominantly relate to dental labsincreases to our manufacturing capacity and dental practices. We believe the acquisition strengthens our digital platform by adding exocad's expertise in restorative dentistry, implantology, guided surgery,facilities; and smile design to extend our digital solutions and paves the way for new, seamless cross-disciplinary dentistry in lab and at chairside. exocad also broadens our reach in digital dentistry with close to 200 partners and more than 35,000 licenses installed worldwide.
Number of employees was 20,395 as of June 30, 2021, an increase of 31.5% year-over-year

To further the transformation of dental practices to the digital age, we introduced virtual solutions such as Invisalign® Virtual AppointmentOther Statistical Data and Invisalign® Virtual Care; solutions that facilitate the safe, effective and successful treatment of patients by conveniently connecting doctors and their patients throughout their treatment plans. We believe that over the long term, clinical solutions, treatment tools and virtual solutions will increase adoption of clear aligners, sales of our intraoral scanners and integration of exocad CAD/CAM solutions chairside and in dental workflows; however, it is difficult to predict the rate and success of adoption or each and all of these products and solutions, which may vary by region and channel.Trends

Invisalign Adoption.Digital Scanner Case Submissions. Our goal is to establish Invisalign clear aligners 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.” Although we believe the closure, reduced operations and slow reopening of many dental and orthodontic practices in the first and second quarters of 2020 negatively impacted the number of patients seen and orders for clear aligners submitted, the use of iTero and other digital scanners for Invisalign case submissions in place of PVS impressions continues to be a positive catalyst for Invisalign utilization.

For the second quarter of 2020,2021, total Invisalign cases submitted with a digital scanner in the Americas increasedincreased to 85.8%86.6%, up from 80.5% in the first quarter of 2020, including 95.9% of all cases submitted85.7% in the second quarter of 2020 and international scans increased to 76.2%, up from 72.0% in the second quarter of 2020. For the second quarter of 2021, 95.8% of Invisalign cases submitted by North American orthodontists. International scans increased to 72.0%, up from 68.7% in the first quarter of 2020. orthodontists were submitted digitally. Our quarterly utilization rates for the last five quarters are as follows:
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* 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 Europe, Middle East and Africa ("EMEA"(EMEA) and Asia Pacific ("APAC"(APAC). Latin America ("LATAM"(LATAM) is excluded from above chart as itthe International region based on its immateriality to the quarter, however is immaterial.included in the Total utilization.

Total utilization rate in the second quarter of 2020 decreased2021 increased to 4.68.0 cases per doctor compared to 6.24.6 cases per doctor in the second quarter of 2019.2020.

North America: Utilization rate among our North American orthodontist customers decreasedincreased to 11.029.4 cases per doctor in the second quarter of 20202021 compared to 18.911.0 cases per doctor in the second quarter of 20192020 and the utilization rate among our North American GP customers decreasedincreased to 5.3 cases per doctor in the second quarter of 2021 compared to 2.5 cases per doctor in the second quarter of 2020 compared to 3.6 cases per doctor in the second quarter of 2019. The decrease in utilization rates for the second quarter of 2020 is due primarily to COVID-19 related practice closures.2020.

International: International doctor utilization rate was 4.7was 7.1 cases per doctor in the second quarter of 20202021 compared to 5.7 cases 4.7 cases in the second quarter of 2019.2020.

We expect global utilization rates to continue to recover from COVID-19 practice closure related decreases absent additional or more restrictive practice closures and thereafter to steadily improve as doctors’ clinical confidence in the use of Invisalign clear aligners increases with advancements in products and technology and as COVID-19 restrictions create demand for treatments that reduce or minimize the need for physical interactions between dental professionals and their patients. In addition, 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 by 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 beyond the impact of COVID-19 pandemic-related preventative measures, including seasonal trends in our business and adoption rates for new products and features.

Number of New Invisalign Doctors Trained. We continue to expand our Invisalign customer base through the training of new doctors. During the six months ended June 30, 2020, we trained 8,125 new Invisalign doctors of which 3,175 were trained in the Americas region and 4,950 in the International region. In 2019, we trained a total of 22,275 new Invisalign doctors, of which 9,765 were trained in the Americas region and 12,510 in the International region.

International Invisalign Growth. Our future growth is dependent upon the continued penetration and expansion of Invisalign product usage in international markets. Accordingly, we continue to focus our efforts towards increasing Invisalign clear aligner adoption by dental professionals internationally. Starting in the first quarter of 2020, the outbreak of COVID-19 caused significant disruption and uncertainty to our business, employees, doctors’ practices, their patients and consumers beginning in China and spreading globally thereafter. While the negative impact of COVID-19 on sales decreased as the second quarter of 2020 progressed, we remain prepared to react should the
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localized spread of the virus result in additional preventative measures that adversely impact us or our customers. For a further discussion of COVID-19 and its impact on our business, see the section entitled "COVID-19 Update" below. Prior to the impact of COVID-19, beginning in the second quarter of 2019, we experienced slower growth rates than prior periods in China primarily due to the U.S.-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. Notwithstanding these issues in China, we continue to see growth opportunities with international orthodontists and GP customers, particularly with adopters of digital dentistry platforms and as we continue to segment our sales and marketing resources and programs specifically around each customer channel. We continue 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. For instance, we increased our sales presence in APAC in the first half of 2020 and will continue to strategically invest in regions as we deem appropriate for long term success. We expect International revenues 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.

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 in the second half of 2020 are looking at further investments to create additional demand for Invisalign treatment and to drive teens and parents to dental professionals for those treatments. In addition, we launched new sales tools and professional marketing materials and we also expect to see increased productivity from sales representatives we added in the U.S. in 2019 and those more recently added in APAC in 2020. 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.

COVID-19 Update

Beginning in the first quarter of fiscal year 2020 and continuing into the second quarter, our sales and results of operations were markedly impacted by the COVID-19 pandemic. As a result, we began to experience a sudden downturn in sales initially in Asia, China in particular, starting in January. As the virus spread beyond China and into Europe and thereafter the Americas in early March, a rapid deceleration of all sales commenced shortly thereafter as the practices of many of our customers were severely curtailed or completely closed.

By the end of the second quarter of 2020, dental practices across every region had largely reopened and were seeing patients, with recovery in the Orthodontic channel leading the GP channel. For the six months ended June 30, 2020, we recorded net revenues of $903.3 million, a decrease of 21.4%compared to the same period in 2019. For the three months ended June 30, 2020, clear aligner case volume was 221.9 thousand, a decrease of41.4% compared to the same period in 2019 and for the three months ended June 30, 2020, Systems and Services net revenues decreased by 48.1% compared to the same period in 2019.

In the short term, our business may be particularly susceptible to the impact of the COVID-19 pandemic. On the one hand, all or a material portion of our products may be viewed as discretionary purchases and therefore more susceptible to any global or regional recession that may result from efforts to prevent or delay the spread of the virus. Moreover, efforts to slow or prevent a recurrence of the spread of the virus are likely to continue causing disruption and uncertainties in the markets resulting in curtailed operations by our customers and their patients for an indeterminate period of time. This in turn could impact our operations as purchasing decisions are delayed or lost, logistics complexities as a result of closed customer offices, sales and marketing efforts are postponed, and manufacturing operations are curtailed to adjust to declining sales. On the other hand, COVID-19 has also demonstrated the benefits of digital dentistry and virtual appointments, which may motivate doctors to use more digital solutions such as Align’s products and services including the iTero scanner and Invisalign system.

As we assess the possible future short and long-term impacts to revenue, operations and financial condition from the COVID-19 pandemic, we are continually evaluating macroeconomic as well as industry-specific factors. For instance, among the many factors we continue to monitor are governmental and societal reactions to the virus, the potential impacts of delays in the restarting of global and regional economic activities, the impact of unemployment on discretionary spending and health insurance coverage, patient reluctance or fear of exposure as a result of orthodontic or dental office visits and other external factors related to COVID-19 that are beyond our control. For example, many jurisdictions have imposed a wide range of
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restrictions on the physical movement of our employees and vendors to limit the spread of COVID-19. Furthermore, if the COVID-19 pandemic or the speed and timeframe in which dental practices reopen and demand for our products increases has a substantial impact on our employees or suppliers, our operations, including our ability to obtain the materials needed to manufacture our products and to actually manufacture and deliver our products to customers, may suffer, and in turn our results of operations, financial condition and overall financial performance may be harmed. Furthermore, if our employees or their families are sickened by COVID-19, our ability to respond or mitigate the impact of COVID-19 may be adversely impacted.

Moreover, we are continuing to provide certain help and take further actions to respond to changes in our environment, including the COVID-19 pandemic, quickly and effectively. As a result of the COVID-19 pandemic, we instructed employees at many of our offices across the globe (including our corporate headquarters) to work from home on a temporary basis. We have also taken additional measures in response to the COVID-19 pandemic including screening our employees, providing them with personal protective equipment, and altering work environments to facilitate social distancing.

Furthermore, we are working to mitigate the impact of social distancing for our customers and their patients. These efforts include moving most of our clinical education program critical to doctor engagement online, launching our Invisalign Virtual Appointment tool and launching the Invisalign Virtual Care Program.

Moreover, as it relates to our products we have provided advice regarding the safety and efficacy of various treatment options doctors are considering as their practices adapt to patient concerns and governmental requirements limiting or reducing the frequency of in-patient appointments, we have purchased equipment to manufacture personal protective equipment and distributed the equipment to doctors and hospitals, and we have redirected shipments to optimize patient care, as needed. Our support to doctors also extends to the financial challenges they may encounter, including providing the assistance of industry experts and helping as they consider strategic relationships with lenders that can help improve their cash flow.

The COVID-19 pandemic continues to impact our employees, customers and the global economy in unprecedented ways. At this time, we believe the markets we serve are recovering from COVID-19 preventative measures at differing rates and times corresponding with regional outbreaks and recoveries. However, the strategic re-implementation of preventative COVID-19 measures in one or more of our principal markets remains possible and could materially impact our business and results of operations in the third quarter of 2020 and beyond.

Please refer to “Risk Factors” for further discussion of the impact of the COVID-19 pandemic on our business.

2020 Expenses

Overall, we expect expenses in 2020 to slightly increase over 2019 levels; however, as a result of the financial impacts of COVID-19, we expect to control our discretionary spend, such as travel and meeting related expenses, and focus investments in the following key areas:

Manufacturing capacity and facilities to enhance our regional capabilities;
Sales and marketing, including additional direct sales force personnel and consumer marketing; and
Product and technology innovation to enhance product efficiency and operational productivity.

We believe that these investments will position us to take advantage of a recovering market, increasing our revenues and growing our market share over the long term, but they could negatively impact our results of operations, particularly in the near term.

Results of Operations

Net Revenues by Reportable Segment

WeWe group our operations into two reportable segments: Clear Aligner segment and Imaging Systems and CAD/CAM Services (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.

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Non-Comprehensive Products include, but are not limited to, Invisalign Moderate, Lite and Express packages and Invisalign Go.

Non-Case includes, but is not limited to, Vivera retainers along with our training and ancillary products for treating malocclusion.

Our Systems and Services segment consists of our iTero intraoral scanning systems, which includes a single hardware platform and restorative or orthodontic software options, OrthoCAD services and ancillary products, as well as exocad'sexocads CAD/CAM software solution that integrates workflows to dental labs and dental practices.

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Net revenues for our Clear Aligner and Systems and Services segments by region for the three and six months ended June 30, 20202021 and 20192020 are as follows (in millions):
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
Net RevenuesNet Revenues20202019
Net
Change
%
Change
20202019
Net
Change
%
Change
Net Revenues20212020
Change
20212020Change
Clear Aligner revenues:
Clear Aligner net revenues:Clear Aligner net revenues:
AmericasAmericas$123.3  $248.5  $(125.3) (50.4)%$378.9  $493.9  $(115.0) (23.3)%Americas$400.5 $123.3 $277.2 224.9 %$757.9 $378.9 $379.1 100.1 %
InternationalInternational155.2  216.5  (61.2) (28.3)%351.1  411.3  (60.3) (14.7)%International389.7 155.2 234.5 151.0 %743.0 351.1 391.9 111.6 %
Non-caseNon-case19.8  31.7  (11.9) (37.5)%50.0  60.7  (10.7) (17.6)%Non-case50.8 19.8 31.0 156.1 %93.3 50.0 43.3 86.5 %
Total Clear Aligner net revenuesTotal Clear Aligner net revenues$298.3  $496.7  $(198.4) (39.9)%$780.0  $965.9  $(186.0) (19.3)%Total Clear Aligner net revenues$841.0 $298.3 $542.6 181.9 %$1,594.2 $780.0 $814.3 104.4 %
Systems and Services net revenuesSystems and Services net revenues54.0  104.0  (50.0) (48.1)%123.3  183.8  (60.4) (32.9)%Systems and Services net revenues169.8 54.0 115.9 214.7 %311.4 123.3 188.0 152.5 %
Total net revenuesTotal net revenues$352.3  $600.7  $(248.4) (41.3)%$903.3  $1,149.7  $(246.4) (21.4)%Total net revenues$1,010.8 $352.3 $658.5 186.9 %$1,905.6 $903.3 $1,002.3 111.0 %

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 three and six months ended June 30, 20202021 and 20192020 is as follows (in thousands):
 Three Months Ended
June 30,
Six Months Ended
June 30,
Region20202019
Net
Change
%
Change
20202019
Net
Change
%
Change
Americas101.0  212.7  (111.7) (52.5)%314.5  425.9  (111.4) (26.2)%
International120.9  165.8  (44.9) (27.1)%266.8  312.0  (45.2) (14.5)%
Total case volume221.9  378.5  (156.6) (41.4)%581.3  737.9  (156.6) (21.2)%
 Three Months Ended
June 30,
Six Months Ended
June 30,
20212020Change20212020Change
Total case volume665.6 221.9 443.7 200.0 %1,261.4 581.3 680.1 117.0 %

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

For the three and six months ended June 30, 2020,2021, total net revenues decreasedincreased by $248.4$658.5 million and $246.4 million$1.0 billion, respectively, as compared to the same periods in 2019 2020 primarily as a result of lowerincreases in Clear Aligner volumesvolume of 200.0% and lower Systems117.0%, respectively, and Services net revenuesan increase in mostthe number of scanners recognized across all regions.

Clear Aligner - Americas

For the three months ended June 30, 2020,2021, Americas net revenues decreasedincreased by $125.3$277.2 million as compared to the same period in 20192020 primarily due to lowera 260.7% increase in Clear Aligner volume which decreasedresulted in higher net revenues by $130.5 million. The volume decrease was slightlyof $321.4 million, partially offset by higherlower Clear Aligner ASP which increasedthat decreased net revenues by $5.3$44.2 million. HigherLower ASP was a result of lowermostly due to higher net deferrals which increaseddecreased net revenues by $6.7$33.8 million in addition to July 2019 price increases across most products and higher revenues from other case revenues contributed $5.4 million to the revenue growth. The ASP increases were partially offset by higher promotional discounts and unfavorable foreign exchange rates that reducedwhich decreased net revenues by $7.3 million.$13.1 million.

For the six months ended June 30, 2020,2021, Americas net revenues decreasedincreased by $115.0$379.1 million as compared to the same period in 20192020 primarily due to a 120.3% increase in Clear Aligner volume which resulted in higher net revenues of $455.7 million, partially offset by lower Clear Aligner volumeASP that decreased net revenues by $76.6 million. Lower ASP was mostly due to higher net deferrals which decreased revenues by $129.0 million. The volume decrease was partially offset by $46.3 million and higher ASPpromotional discounts which increaseddecreased net revenues by $14.2 million as a result of July 2019 price increases across most products which contributed $18.4 million to the revenue growth, and lower net deferrals which increased net revenues by $11.5$34.8 million. In addition, net revenues increased slightly due to a product mix shift towards products with higher ASP,
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primarily driven by decreased SDC revenues which carried a lower ASP. The ASP increases were partially offset by higher promotional discounts that reduced net revenues by $17.9 million in addition to unfavorable foreign exchange rates.

Clear Aligner - International

For the three months ended June 30, 2020,2021, International net revenues decreasedincreased by $61.2$234.5 million as compared to the same period in 20192020 primarily due to decreaseda 149.2% increase in Clear Aligner volume which decreased revenues by $58.6 million. In addition, Clear Aligner ASP decreased slightly asa result of resulted in higher promotional discounts and unfavorable foreign exchange rates that reduced net revenues by $15.0 million partially offset by July 2019 price increases across most products which increased revenues by $6.8 million and lower net deferrals and increased other case revenues which increased net revenues by $6.2 million.of $231.7 million.

For the six months ended June 30, 2020,2021, International net revenues decreasedincreased by $60.3$391.9 million as compared to the same period in 20192020 primarily due to lowera 113.1% increase in Clear Aligner volume which decreasedresulted in higher net revenues of $397.1 million, partially offset by $59.6 million. In addition, we had lower Clear Aligner ASP. Lower ASP which was athe result of higher promotional discounts that reduced net revenuesrevenue deferrals partially offset by $15.8 million, unfavorablefavorable foreign exchange rates and a product mix shift towards lower priced products that combined reduced net revenues by $11.9 million. The ASP decreases were mostly offset by July 2019 price increases across most products, along with a benefit from going direct in several additional countries and therefore we now recognize direct sales at full ASP rather than the discounted distributor ASP, which increased net revenues by $16.5 million, and lower net deferrals that increased net revenues by $9.3 million.rates.
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Clear Aligner - Non-Case

For the three and six months ended June 30, 2020,2021, non-case net revenues consisting of Vivera Retainers, training fees and other product revenues, decreasedincreased by $11.9$31.0 million and $10.7$43.3 million as compared to the same periods in 2019. This was primarily2020 due to decreasedincreased Vivera volume and training revenues across all regions.

Systems and Services

For the three months ended June 30, 2020,2021, Systems and Services net revenues decreasedincreased by $50.0$115.9 million as compared to the same period in 2019 primarily2020 due to a lowerhigher number of scanners recognized decreasingwhich increased net revenues by $46.8 million, lower$63.8 million. Higher scanner ASP decreasingincreased net revenues by $4.2$21.6 million and lowermostly due to favorable product mix shift towards higher priced scanners. Additionally, net revenues increased by $30.5 million primarily as a result of higher iTero service revenues. These decreases were slightly offset by the addition of exocad revenues from our acquisition.mostly due to a larger scanner install base.

For the six months ended June 30, 2020,2021, Systems and Services net revenues decreasedincreased by $60.4$188.0 million as compared to the same period in 2019 primarily2020 due to a lowerhigher number of scanners recognized which decreased net revenues by $46.8 million and a lower scanner ASP which decreased net revenues by $21.7 million. The ASP decrease was mostly due to higher promotional discounts and a product mix shift to lower priced scanners. These decreases were partially offset by higher services revenues which increased net revenues by $8.1$113.2 million. Additionally, net revenues increased by $54.0 million as a result of higher iTero service revenues mostly due to a larger scanner install base and the addition ofadditional exocad revenues from our acquisition.CAD/CAM revenues.

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Cost of net revenues and gross profit (in millions):
 Three Months Ended
June 30,
Six Months Ended
June 30,
 20202019Change20202019Change
Clear Aligner
Cost of net revenues$106.0  $130.6  $(24.6) $236.1  $248.4  $(12.3) 
% of net segment revenues35.5 %26.3 %30.3 %25.7 %
Gross profit$192.4  $366.1  $(173.8) $543.9  $717.5  $(173.6) 
Gross margin %64.5 %73.7 %69.7 %74.3 %
Systems and Services
Cost of net revenues$22.0  $37.8  $(15.8) $48.5  $66.9  $(18.4) 
% of net segment revenues40.8 %36.4 %39.3 %36.4 %
Gross profit$32.0  $66.1  $(34.2) $74.8  $116.9  $(42.1) 
Gross margin %59.2 %63.6 %60.7 %63.6 %
Total cost of net revenues$128.0  $168.4  $(40.4) $284.6  $315.3  $(30.7) 
% of net revenues36.3 %28.0 %31.5 %27.4 %
Gross profit$224.3  $432.3  $(208.0) $618.7  $834.4  $(215.7) 
Gross margin %63.7 %72.0 %68.5 %72.6 %
 Three Months Ended
June 30,
Six Months Ended
June 30,
 20212020Change20212020Change
Clear Aligner
Cost of net revenues$194.3 $106.0 $88.3 $363.0 $236.1 $126.9 
% of net segment revenues23.1 %35.5 %22.8 %30.3 %
Gross profit$646.7 $192.4 $454.3 $1,231.2 $543.9 $687.3 
Gross margin %76.9 %64.5 %77.2 %69.7 %
Systems and Services
Cost of net revenues$58.0 $22.0 $36.0 $106.9 $48.5 $58.4 
% of net segment revenues34.1 %40.8 %34.3 %39.3 %
Gross profit$111.9 $32.0 $79.9 $204.4 $74.8 $129.6 
Gross margin %65.9 %59.2 %65.7 %60.7 %
Total cost of net revenues$252.3 $128.0 $124.3 $469.9 $284.6 $185.4 
% of net revenues25.0 %36.3 %24.7 %31.5 %
Gross profit$758.5 $224.3 $534.2 $1,435.6 $618.7 $817.0 
Gross margin %75.0 %63.7 %75.3 %68.5 %

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

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

Clear Aligner

For the three and six months ended June 30, 2020,2021, our gross margin decreasedpercentage increased as compared to the same periods in 20192020 primarily due to manufacturing efficiencies driven by higher production volumes, which was partially offset by lower clear aligner volumes resulting in higher costs per case.ASP.

Systems and Services

For the three months ended June 30, 2021, our gross margin percentage increased as compared to the same period in 2020 as a result of higher ASP from a product mix shift, an increase in iTero service revenues and manufacturing efficiencies driven by higher production volumes which was partially offset by higher freight costs.

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For the six months ended June 30, 2020,2021, our gross margin decreasedpercentage increased as compared to the same periodsperiod in 20192020 primarily driven by higher ASP from a decrease inproduct mix shift and manufacturing volumes and lower ASP. These factors were offset in partefficiencies driven by lower service support costs.higher production volumes.

Selling, general and administrative (in millions):
 Three Months Ended
June 30,
Six Months Ended
June 30,
 20202019Change20202019Change
Selling, general and administrative$257.0  $267.9  $(11.0) $539.9  $515.1  $24.8  
% of net revenues72.9 %44.6 %59.8 %44.8 %
 Three Months Ended
June 30,
Six Months Ended
June 30,
 20212020Change20212020Change
Selling, general and administrative$431.9 $257.0 $175.0 $829.0 $539.9 $289.2 
% of net revenues42.7 %72.9 %43.5 %59.8 %

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

Selling, general and administrative expense generally includes personnel-related costs including payroll, commissionsstock-based compensation and stock-based compensationcommissions for our sales force, marketing and administration in addition toadvertising expenses including media, and advertising expenses,public relations, marketing materials, clinical education, trade shows and industry events, product marketing, equipment and maintenance costs, legal and outside service costs, equipment, software and maintenance costs, depreciation and amortization expense and allocations of corporate overhead expenses including facilities and Information Technology (“IT”).

For the three months ended June 30, 2020, selling, general and administrative expense decreased compared to the same period in 2019 primarily due to a decrease in advertising and marketing costs of $12.6 million and a decrease in travel related costs of $11.3 million due to the impact of COVID-19. These decreases were partially offset by higher equipment, software and maintenance expenses of $7.7 million and legal and outside service costs of $5.9 million including transaction costs related to our acquisition of exocad.

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For the six months ended June 30, 2020,2021, selling, general and administrative expense increased compared to the same period in 20192020 primarily due to higher expenses from equipment, software and maintenance costs of $13.3 million, legal and outside service costs of $9.5 million including transaction costs related to our acquisition of exocad and higher compensation related costs of $9.6$86.9 million mainly from increased headcount resulting in higher salaries, expense, fringe benefits, commissions, incentive bonuses and stock-based compensation. Higher salaries were driven by an increase in headcount as we continue to invest in sales and marketing to penetrate into new markets. Additionally, we also incurred higher advertising and marketing costs of $64.2 million during the three months ended June 30, 2021.

For the six months ended June 30, 2021, selling, general and administrative expense increased compared to the same period in 2020 primarily due to higher compensation related costs of $150.2 million mainly from higher salaries, fringe benefits, commissions, incentive bonuses and stock-based compensation partially offsetdriven by lower incentive compensation. These increases were offsetan increase in part by a decrease in travel relatedheadcount. We also incurred higher advertising and marketing costs of $9.5$93.8 million due toduring the impact of COVID-19.six months ended June 30, 2021.

Research and development (in millions):
 Three Months Ended
June 30,
Six Months Ended
June 30,
 20202019Change20202019Change
Research and development$40.4  $38.9  $1.5  $81.9  $76.4  $5.5  
% of net revenues11.5 %6.5 %9.1 %6.6 %
 Three Months Ended
June 30,
Six Months Ended
June 30,
 20212020Change20212020Change
Research and development$57.7 $40.4 $17.4 $112.3 $81.9 $30.4 
% of net revenues5.7 %11.5 %5.9 %9.1 %

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

Research and development expense generally includes the personnel-related costs including payroll and stock-based compensation, and outside consulting expensesservice costs associated with the research and development of new products and enhancements to existing products, software, equipment, material and maintenance costs, depreciation and amortization expense and allocations of corporate overhead expenses including facilities and IT.

For the three and six months ended June 30, 2020,2021, research and development expense increased compared to the same periodperiods in 20192020 primarily due to higher equipment and material costs in addition to higher compensation costs mainly from increased headcount resulting inincluding higher salaries, expense, fringe benefits, and stock-based compensation which was partially offset by lower incentive compensation.bonuses mainly from an increased headcount as we continue to focus our investments in innovation and research.
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Impairments and other chargesIncome (loss) from operations (in millions):
 Three Months Ended
June 30,
Six Months Ended
June 30,
 20202019Change20202019Change
Impairments and other charges$—  $—  $—  $—  $29.8  $(29.8) 
% of net revenues— %— %— %2.6 %
 Three Months Ended
June 30,
Six Months Ended
June 30,
 20212020Change20212020Change
Clear Aligner
Income from operations$347.6 $38.9 $308.7 $675.1 $205.3 $469.8 
Operating margin %41.3 %13.0 %42.3 %26.3 %
Systems and Services
Income from operations$64.7 $2.9 $61.8 $111.9 $17.3 $94.6 
Operating margin %38.1 %5.4 %35.9 %14.0 %
Total income (loss) from operations 1
$268.9 $(73.0)$341.9 $494.3 $(3.1)$497.4 
Operating margin %26.6 %(20.7)%25.9 %(0.3)%

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

During the six months ended June 30, 2019, we recorded impairments and other charges of $29.8 million due to costs related to the Invisalign store closures. The impairments and other charges are comprised of operating lease right-of-use assets impairments of $14.2 million, store leasehold improvement and other fixed asset impairments of $14.3 million, and employee severance and other expenses of $1.3 million (Refer to1 Note 8 “Impairments and Other Charges” and Note 9 “Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements for more information).

Litigation settlement gain (in millions):
Three Months Ended
June 30,
Six Months Ended
June 30,
20202019Change20202019Change
Litigation settlement gain$—  $(51.0) $51.0  $—  $(51.0) $51.0  
% of net revenues— %(8.5)%— %(4.4)%

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

For the three and six months ended June 30, 2019, we recorded a gain of $51.0 million due to the litigation settlement with Straumann.

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Income (loss) from operations (in millions):
 Three Months Ended
June 30,
Six Months Ended
June 30,
 20202019Change20202019Change
Clear Aligner
Income from operations$38.9  $244.0  $(205.1) $205.3  $402.7  $(197.4) 
Operating margin %13.0 %49.1 %26.3 %41.7 %
Systems and Services
Income from operations$2.9  $39.3  $(36.4) $17.3  $67.5  $(50.2) 
Operating margin %5.4 %37.8 %14.0 %36.7 %
Total income (loss) from operations 1
$(73.0) $176.5  $(249.5) $(3.1) $264.2  $(267.3) 
Operating margin %(20.7)%29.4 %(0.3)%23.0 %

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

1 Refer to Note 1613 “Segments and Geographical Information” of the Notes to Condensed Consolidated Financial Statements for details on unallocated corporate expenses and the reconciliation to Condensed Consolidated Income from Operations.

Clear Aligner

For the three months ended June 30, 2020, our operating margin decreased compared to the same period in 2019 primarily due to a lower Clear Aligner gross margin due to decreased volumes and a gain recognized from the litigation settlement with Straumann during the second quarter of 2019.

For the six months ended June 30, 2020,2021, our operating margin decreasedpercentage increased compared to the same periodperiods in 2019 primarily2020 due to a lower Clear Aligneroperating leverage on higher net revenues and higher gross margin due to decreased volumes and a gain recognized from the litigation settlement with Straumann during the second quarter of 2019. These decreases were offset in part by costs recognized in the first quarter of 2019 related to the Invisalign store closures.
Systems and Servicesmargins.

Systems and Services

For the three and six months ended June 30, 2020,2021, our operating margin decreasedpercentage increased compared to the same periods in 2019 primarily driven by a lower Systems and Services gross margin primarily2020 due to a lower number of scanners recognized.operating leverage on higher net revenues and higher gross margins.

Interest income (in millions):
 Three Months Ended
June 30,
Six Months Ended
June 30,
 20202019Change20202019Change
Interest income$0.5  $3.5  $(3.0) $2.5  $6.1  $(3.6) 
% of net revenues0.1 %0.6 %0.3 %0.5 %
 Three Months Ended
June 30,
Six Months Ended
June 30,
 20212020Change20212020Change
Interest income$0.4 $0.5 $(0.1)$2.0 $2.5 $(0.4)
% of net revenues— %0.1 %0.1 %0.3 %

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 and our unsecured promissory note.balances.

For the three andmonths ended June 30, 2021, there was no significant change to interest income compared to the same period in 2020.

For the six months ended June 30, 2020,2021, interest income decreased compared to the same periodsperiod in 20192020 mainly due to the divestiture of our marketable securities portfolio during the first quarter of 2020 and loweroffset by interest rates.income recognized during the six months ended June 30, 2021 from the SDC arbitration award regarding the value of Align’s capital account balance.

Other income (expense), net (in millions):
 Three Months Ended
June 30,
Six Months Ended
June 30,
 20202019Change20202019Change
Other income (expense), net$(1.0) $13.9  $(14.9) $(19.5) $8.1  $(27.7) 
% of net revenues(0.3)%2.3 %(2.2)%0.7 %
 Three Months Ended
June 30,
Six Months Ended
June 30,
 20212020Change20212020Change
Other income (expense), net$(0.5)$(1.0)$0.5 $34.0 $(19.5)$53.6 
% of net revenues— %(0.3)%1.8 %(2.2)%

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

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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.
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For the three months ended June 30, 2020,2021, there was no significant change to other income (expense), net decreased compared to the same period in 2019 primarily due to the $15.8 million gain from the sale of our investment in SDC that was recorded during the three months ended June 30, 2019. This decrease was partially offset by net foreign exchange gains in the three months ended June 30, 2020 as compared to net foreign exchange losses in the same period in 2019.2020.

For the six months ended June 30, 2020,2021, other income (expense), net decreasedincreased compared to the same period in 20192020 primarily due to the $15.8a $43.4 million gain fromrelated to the sale of our investment in SDC that was recorded during the six months ended June 30, 2019 and higher lossesarbitration award recognized in the current period includingfirst quarter of 2021 in addition to a $10.2 million loss on a foreign currency forward contract related to the exocad acquisition recognized in addition to foreign exchange net losses.2020.

Equity in losses of investee, net of tax
Provision for (benefit from) income taxes (in millions):
 Three Months Ended
June 30,
Six Months Ended
June 30,
 20212020Change20212020Change
Provision for (benefit from) income taxes$69.1 $(32.9)$102.0 $130.3 $(1,497.7)$1,628.0 
Effective tax rates25.7 %44.8 %24.6 %7,437.0 %
 Three Months Ended
June 30,
Six Months Ended
June 30,
 20202019Change20202019Change
Equity in losses of investee, net of tax$—  $3.6  $(3.6) $—  $7.5  $(7.5) 
% of net revenues— %0.6 %— %0.7 %

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

ForOur effective tax rate differs from the statutory federal income tax rate of 21% for the three and six months ended June 30, 2020, there were no equity2021 primarily due to state income taxes, non-deductible expenses in lossesthe U.S. and foreign income taxed at different rates, partially offset by the recognition of investee, net of tax. After the second quarter of 2019, we no longer incur equity in losses of investee, net ofexcess tax benefits related to SDCstock-based compensation. Our effective tax rate differs from the statutory federal income tax rate of 21% for the three months ended June 30, 2020 primarily due to foreign income taxed at different rates. Our effective tax rate differs from the statutory federal income tax rate of 21% for the six months ended June 30, 2020 mainly as we tendered our SDC equity interest on April 3, 2019 (Refer to Note 6 “Equity Method Investments”a result of the Notesrecognition of a deferred tax asset and related one-time tax benefit associated with the intra-entity transfer of certain intellectual property rights completed last year and the recognition of excess tax benefits related to Condensed Consolidated Financial Statements for details on equity method investments).stock-based compensation, partially offset by foreign income taxed at different rates.

ProvisionThe decrease in our effective tax rate for (benefit from)the three months ended June 30, 2021 compared to the same period in 2020 is primarily attributable to foreign income taxes (in millions):
 Three Months Ended
June 30,
Six Months Ended
June 30,
 20202019Change20202019Change
Provision for (benefit from) income taxes$(32.9) $43.1  $(76.0) $(1,497.7) $51.9  $(1,549.6) 
Effective tax rates44.8 %22.2 %7,437.0 %18.6 %
Changestaxed at lower rates. The decrease in our effective tax rate for the six months ended June 30, 2021 compared to the same period in 2020 is primarily attributable to the recognition of a deferred tax asset and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.related one-time tax benefit associated with the intra-entity transfer of certain intellectual property rights during the six months ended June 30, 2020.

During the six months ended June 30, 2020, we completed an intra-entity transfer of certain intellectual property rights and fixed assets to our Swiss subsidiary, where our EMEA regional headquarters is located beginning January 1, 2020.entity. The transfer of intellectual property rights did not result in a taxable gain; however, it did result in a step-up of the Swiss tax deductible basis in the transferred assets, and accordingly, created a temporary difference between the book basis and the tax basis of 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 six months ended June 30, 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 transfer of fixed assets and inventory.

Our benefit from income taxes was $32.9 million for The amortization of this deferred tax asset depends on the three months ended June 30, 2020 andprofitability of our provision for income taxes was $43.1 million for the three months ended June 30, 2019, representing effective tax rates of 44.8% and 22.2%, respectively. Our benefit from income taxes was $1,497.7 million for the six months ended June 30, 2020 and our provision for income taxes was $51.9 million for the six months ended June 30, 2019, representing effective tax rates of 7,437.0% and 18.6%, respectively. Our effective tax rate differs from the statutory federal income tax rate of 21% for the three months ended June 30, 2020 primarily due to the recognition of additional tax benefits resulting from changes in annual effective tax rate caused by a shift in jurisdictional mix of forecasted annual income. Our effective tax rate differs from the statutory federal income tax rate of 21% for the six months ended June 30, 2020 mainly as a result of the aforementioned intra-entity transferSwiss headquarters and the recognition of excessthis tax benefits related to stock-based compensation, partially offset by unrecognized tax benefits associated with certain foreign payments. Our effective tax rate differs from the statutory federal income tax ratebenefit is allowed for a maximum recovery period of 21% for the three and six months ended June 30, 2019 mainly as a result of the recognition of excess tax benefits related to stock-based compensation and certain foreign earnings, primarily from the Netherlands and Costa Rica, being taxed at lower tax rates.

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The increase in our effective tax rate for the three months ended June 30, 2020 compared to the same period in 2019 is primarily attributable to the tax impact of a higher annual forecasted effective tax rate driven by changes in the jurisdictional mix of forecasted income. The increase in our effective tax rate for the six months ended June 30, 2020 compared to the same period in 2019 is primarily attributable to the recognition of a deferred tax asset related to the intra-entity transfer of certain intellectual property rights during the six months ended June 30, 2020. While the recognition of a deferred tax asset would normally cause a reduction in tax rate, due to our net loss before tax for the six months ended June 30, 2020, it has the effect of increasing the effective tax rate.15 years.

Liquidity and Capital Resources

Liquidity and Trends

We fund our operations from product sales. As of June 30, 20202021 and December 31, 2019,2020, we had the following cash and cash equivalents, and short-term marketable securities (in thousands):
June 30,
2020
December 31,
2019
Cash and cash equivalents$404,359  $550,425  
Marketable securities, short-term—  318,202  
Total$404,359  $868,627  

Cash equivalents and marketable securitieswhich are comprised of money market funds, of $1.1 billion 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.$960.8 million, respectively.

As of June 30, 2021 and December 31, 2020, approximately $244.2$535.3 million and $412.5 million of cash and cash equivalents was held by our foreign subsidiaries.subsidiaries, respectively. 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 we generate sufficient domestic operating cash flow and have access to external funding under our $300.0 million revolving line of credit.

On April 1, 2020, we paid $420.8 million, net of $9.2 million cash acquired, from our cash on hand to complete our acquisition of exocad.

Our business has been materially adversely affected by the COVID-19 pandemic and the global and regional efforts by governments to mitigate its spread, and we expect the adverse impacts to our business to continue.credit. We believe that our current cash balances and the borrowing capacity under ourcredit facility, if necessary, will be sufficient to fund our business for at least the next 12 months. However, as a result of the COVID-19 pandemic,

For 2021, we expect our investments in capital expenditures to experience reduced cash flow frombe approximately $500.0 million. Capital expenditures primarily relate to building construction and improvements as well as additional manufacturing capacity to support our international expansion. This includes our planned investment in a new manufacturing facility in Wroclaw, Poland, our first one
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in the EMEA region. As we expand our manufacturing operations as a resultand penetrate into newer markets, we also expect to invest significantly in sales, marketing and innovation to meet the growing demand for our solutions.

As of decreased revenues and slower collectionsJune 30, 2021, we have $900.0 million available for repurchase under the stock repurchase program authorized by our Board of Directors in May 2021. Subsequent to the second quarter, on our accounts receivable. For additionalJuly 30, 2021, we entered into an accelerated stock repurchase agreement to repurchase $75.0 million under the program.


Additional information regarding the impact of COVID-19 on our liquidity and capital resources refer tomay be found in Part II, Item 1A “Risk Factors."of this QuarterlyReport on Form 10-Q under the headingRisk Factors.

Sources and Uses of Cash
Cash
The following table summarizes our condensed consolidated cash flows(in for the six months ended June 30, 2021 and 2020 (in thousands):
Six Months Ended
June 30,
Six Months Ended
June 30,
20202019 20212020
Net cash flow provided by (used in):Net cash flow provided by (used in):Net cash flow provided by (used in):
Operating activitiesOperating activities$69,684  $294,561  Operating activities$544,691 $69,684 
Investing activitiesInvesting activities(172,326) (321,020) Investing activities(123,920)(172,326)
Financing activitiesFinancing activities(36,376) (188,381) Financing activities(291,756)(36,376)
Effect of exchange rate changes on cash, cash equivalents, and restricted cashEffect of exchange rate changes on cash, cash equivalents, and restricted cash(7,172) 1,467  Effect of exchange rate changes on cash, cash equivalents, and restricted cash(3,511)(7,172)
Net decrease in cash, cash equivalents, and restricted cash$(146,190) $(213,373) 
Net increase (decrease) in cash, cash equivalents, and restricted cashNet increase (decrease) in cash, cash equivalents, and restricted cash$125,504 $(146,190)

Operating Activities

For the six months ended June 30, 2020,2021, cash flows from operations of $69.7$544.7 million resulted primarily from our net income of approximately $1.5 billion$400.1 million as well as the following:

Significant non-cash activitiesAdjustments to net income

Deferred taxes of $1.5 billion related to the one-time tax benefit associated with the intra-entity sale of certain intellectual property rights;
Stock-based compensation of $47.9$56.1 million related to equity awards granted to employees and directors;
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Depreciation and amortization of $44.3$51.5 million related to our investments in property, plant and equipment and intangible assets;
Allowance for doubtful accounts of $12.6 millionGain related to slower collections;our SDC arbitration award of $43.4 million; and
Non-cash operating lease costChanges in deferred taxes of $11.1 million.$40.0 million primarily related to current year amortization and adjustments to our deferred tax assets of our Swiss entity.

Significant changes in working capital

DecreaseIncrease of $106.6$231.4 million in accrueddeferred revenues primarily related to increased sales volume in both our Clear Aligner and other long-term liabilities due toSystems and Services segments and timing of payment and activities;revenue recognition;
DecreaseIncrease of $64.6$164.8 million in accounts receivable which is primarily a result of the decreaseincrease in net revenues due to the impact of COVID-19;
Increase of $40.9 million in deferred revenues corresponding primarily to cases eligible under our additional aligner policy and timing of revenue recognition;sales; and
Increase of $31.1$70.1 million in prepaid expenses and other assets and an increase of $65.7 million in accrued and other long-term liabilities due to the timing of paymentspayment and activities.

Investing Activities

Net cash used in investing activities was $172.3$123.9 million for the six months ended June 30, 2020 which2021 primarily consisted of cash paid for the acquisition of exocad of $420.8 million, net of cash acquired, purchases of property and plant and equipment purchases of $80.5$167.7 million and purchases of marketable securities of $5.3 million. These outflows werewhich was partially offset by maturities and sales$43.4 million of marketable securities of $321.5 million and payments of $11.1proceeds from our SDC arbitration award in addition to $4.6 million received on an unsecured promissory note issued by SDC in exchange for tendering our shares to them.

For the remainder of 2020 we expect to invest an additional $90.0 million to $100.0 million in capital expenditures related to building purchases and improvements as well as additional manufacturing capacity to support our international expansion.note.

Financing Activities

Net cash used in financing activities was $36.4$291.8 million for the six months ended June 30, 20202021 which consisted of payments related to our accelerated stock repurchase agreements of $200.0 million and payroll taxes paid for equity awards
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through share withholdings of $47.0$104.9 million which waswere partially offset by $10.7$13.1 million of proceeds from the issuance of common stock.

Common Stock Repurchases

As of June 30, 2020, 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 Condensed Consolidated Financial Statements for details on our stock repurchase programs).

Contractual Obligations

Our contractual obligations have not significantly changed since December 31, 20192020 as disclosed in our Annual Report on Form 10-K, other than obligations described in the Form 10-Q herein, including items disclosed in Note 10 “Commitments7 Commitments and Contingencies”Contingencies of the Notes to Condensed Consolidated Financial Statements. 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. However, as a result of the COVID-19 pandemic, we expect to experience reduced cash flow from operations as a result of decreased revenues and slower collections on our accounts receivable. 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.

Off-Balance Sheet Arrangements

As of June 30, 2020,2021, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources other than certain items disclosed in Note 10 “Commitments11 Commitments and Contingencies”Contingencies of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K.

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Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the U.S.United States of America. The preparation of condensed consolidated 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, business combination, income taxes and related impairment,legal proceedings and income taxes.litigations. We use authoritative pronouncements, historical experience and other assumptions as the basis for making estimates. Actual results could differ from those estimates.

Other than the addition of the Business Combinations policy and the amendment of the Systems and Services (formerly named "Scanner") Revenue Recognition policy, thereThere have been no material changes to our critical accounting policies and estimates from the information provided in the “Critical Accounting Policies and Estimates” section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2019. The addition of the Business Combinations policy and the amendment of the Systems and Services Revenue Recognition policy are discussed in Note 1 “Summary of Significant Accounting Policies” of the Notes to Condensed Consolidated Financial Statements.2020.

Recent Accounting Pronouncements

See Note 1 “SummarySummary of Significant Accounting Policies” Policiesof the Notes to Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements.

ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

InThere have been no material changes in our market risk during the normal course of business, we are exposed to foreign currency exchange rate and interest rate risks that could impact our financial position and results of operations. In addition, we are subjectsix months ended June 30, 2021, compared to the broad market risk that is created by the global market disruptions and uncertainties resulting from the COVID-19 pandemic. Please refer to disclosures in Part II, Item 1A “Risk Factors”7A of our Annual Report on Form 10-K for th for further discussion of the impact of the COVID-19 pandemic on our business.e year ended December 31, 2020.

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 June 30, 2020, we had no investments 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. Based on interest bearing liabilities we have as of June 30, 2020, we are not subject 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 of the respective countries. This provides some natural hedging because most of 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.

We primarily enter into foreign currency forward contracts 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 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. These instruments are marked to market through earnings every period and generallyare one month in original maturity. Prior to the closing of the
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exocad acquisition on April 1, 2020, we entered into a Euro foreign currency forward contract with a notional contract amount of €376.0 million. During the six months ended June 30, 2020, we recognized a loss of $10.2 million within other income (expense), net in our Condensed Consolidated Statement of Operation. 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.

ITEM 4.        CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of June 30, 2020,2021, to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely
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decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange CommissionSEC rules and forms.

Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting during the quarter ended June 30, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION
 
ITEM 1.        LEGAL PROCEEDINGS

For a discussion of legal proceedings, refer to Note 9 "Legal Proceedings"6 Legal Proceedings of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

ITEM 1A.RISK FACTORS

The following discussion is divided into two sections. The first, entitled “RisksRisks 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,"General Risk Factors, discusses some of the risks relatedthat apply generally to companies and to owning our common stock.stock, in particular. You should carefully review both sections, as well as our condensed consolidated financial statements and notes thereto and other information appearing in this Quarterly Report on Form 10-Q, for important information regarding these and other risks that may affect us. The factorder we have chosen to list one section before the otherrisks below or the sections in which we have identified risks in either section earlier than othersthem 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

The following is a summary of the risks that are more fully described below in this “Risk Factors” section:

Risks Relating to our Business Operations and Strategy

Our results of operations have been materially adversely affected by global and regional efforts to mitigate the spread of COVID-19 and we expect this will continue in as yet unknown ways and to varying degrees in the future.
Our net revenues are dependent primarily on our Invisalign System and iTero Scanners and any decline in sales or average selling price of these products for any reason, may adversely affect net revenues, gross margin and net income.
Competition in the markets for our products is increasing and we expect aggressive competition from existing competitors, other companies that may introduce new technologies in the future and customers who alone or with others create aligners or retainers or other products or services that compete with us.
An increasingly larger portion of our total revenues are derived from international sales and we are dependent on our international operations, which exposes us to foreign operational, political and other risks that may harm our business.
Demand for our products may not increase as rapidly as we anticipate or may decrease due to a variety of factors, including a weakness in general economic conditions and resistance to non-traditional treatment methods.
Our success depends on our ability to develop, successfully introduce and achieve market acceptance of new products and services.
We may not achieve the anticipated benefits from our acquisition of exocad in the timeframe expected, or at all, which may have an adverse effect on our business and our financial results.
As we continue to grow, we are subject to growth related risks, including risks related to excess or constrained capacity and operational inefficiencies at our manufacturing and treat facilities.
Our products and information technology systems are critical to our business. Issues with product development or enhancements, IT system integration, implementation, updates and upgrades along with security and data protection risks have previously and could again in the future disrupt our operations, which could have a material adverse impact on our business and operating results.
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If we are unable to protect our customer or patient information or if we are unable to comply with applicable privacy, security and data protection laws, our operations may be severely adversely impacted, patient care could suffer, we could be liable for related damages, and our business, operations and reputation could be harmed.
If we fail to sustain or increase revenue growth while controlling expenses, our profitability may decline.
Our operating results have and will fluctuate in the future, which makes predicting the timing and amount of our revenues, costs and expenditures difficult.
A disruption in the operations of a primary freight carrier or higher shipping costs could cause a decline in our net revenues or a reduction in our earnings.
If we fail to accurately predict our volume growth and hire too many or too few technicians, the delivery time of our products could be delayed or our costs may exceed our revenues, each of which could adversely affect our results of operations.
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 success depends in part on our proprietary technology, and if we fail to successfully obtain or enforce our intellectual property 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.
Obtaining approvals and complying with governmental regulations, particularly those related to personal healthcare information, financial information and data privacy, is expensive and time-consuming, and 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 cause harm to our reputation.
If we or any vendors on whose products or services we rely for our products and services infringe the patents or IP rights of other parties or are subject to a patent infringement claim, our ability to grow our business may be severely limited.
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 primarily rely on our direct sales force to sell our products, and any failure to train and maintain our key sales force personnel could harm our business.
We use distributors for a portion of the importation, marketing and sales efforts related to our products and services, which exposes us to risks that may be harmful to our sales and operations.
Our business exposes us to potential liability for the quality and safety of our products and services, how we 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.
We are subject to risks associated with our strategic investments. Impairments in the value of our investments could negatively impact our financial results.

General Risk Factors

We rely on highly skilled personnel and, if we fail to attract, motivate or retain personnel, or if our growth harms our corporate culture, it may be more difficult to grow effectively and pursue our strategic priorities.
Business disruptions could seriously harm our financial condition.
Changes in, or interpretations of, accounting rules and regulations, could result in unfavorable accounting charges.
We are required to annually assess our internal control over financial reporting and any adverse results from such assessment may result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.
We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.
If we fail to manage our exposure to global financial and securities market risk successfully, our operating results and financial statements could be materially impacted.
If our goodwill or long-lived assets become impaired, we may be required to record a significant charge to earnings.
Our effective tax rate may vary significantly from period to period.
Changes in tax laws or tax rulings could negatively impact our income tax provision and net income.
We have in the past and may again in the future acquire other businesses, products or technologies which could require significant management attention, disrupt our business, dilute stockholder value and adversely affect our results of operations.
Historically, the market price for our common stock has been volatile.
We cannot guarantee we will repurchase our common stock again in the future, and any repurchases may not achieve our objectives.
Future sales of significant amounts of our common stock may depress our stock price.
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Increased scrutiny of our environmental, social or governance responsibilities have and will likely continue to result in additional costs and risks, and may adversely impact our reputation, employee retention, and willingness of customers and suppliers to do business with us.

Risks Relating to our Business Operations and Strategy

Our results of operations have been materially adversely affected by the COVID-19 pandemic and the global and regional efforts by governments to mitigate itsthe spread of COVID-19 and we expect this will continue in as yet unknown ways and to varying degrees in the adverse impacts to our business to continue.future.

The spreadbroad and extensive impact of the COVID-19 pandemic on virtually all aspects of our business and society generally has exacerbated many of the 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 set forth in this risk factor in addition to, and not in lieu of, the risks identified elsewhere in these risk factors.

Moreover, any comparisons of our financial results for the reporting periods of 2021 to the same reporting periods of 2020 may not be a useful means by which to evaluate the health of our business and our results of operations because of the broad and significant global impact to our business and the businesses of our customers from the pandemic followed by variances and inconsistencies in regional and local economies as they recover.

COVID-19 has created significant, widespread and unprecedented volatility, uncertainty, and economic instability, disrupting broad aspects of the global economy, our operations and the businesses of our customers and suppliers. Protective and preventative efforts to stop or minimize its spread have andMany of these effects continue to center on minimizing its transmission through decreased social interactions (social distancing). As a resultvarying degrees and further outbreaks of measures imposed by the governments in certain affected regions starting in the first quarterCOVID-19 globally or regionally may harm recovering consumer confidence or renew implementation of 2020, many commercial activities, businesses and schools were suspended as part of quarantines and other measures intended to contain this pandemic.harsh preventative measures. Because COVID-19 spreads readily through airways in nasal passages and the mouth, our principal customers, dentistsdental and orthodontists and their patients,orthodontic practices, were an initial primary focus of efforts to prevent the protective and preventative efforts. For instance, in many countries governments and dental regulatory associations acted quicklyspread of the virus leading to prohibit non-essential dental procedures; therebythe complete or substantial closures of their operations; materially limiting or preventing our customers from conducting most or all business activities and materially adversely harming our sales and sales efforts. Since then, theIn particular, these preventative measures have been reduced such that byin the end of thefirst and second quarterquarters of 2020 dentalmaterially adversely impacted our business and financial results. In the quarters that have followed, practices across every region hadall regions have largely reopened, although many continue to operate at less than pre-pandemic capacities.

The pandemic also increased demand for digital solutions such as the products and were seeing patients, althoughsolutions we offer in the dental field. As restrictions continue to ease or are removed entirely, employees return to office work environments, and the availability of travel, dining, entertainment and other similar purchases and activities rebound, it is uncertain whether increased demand for our products will continue or continue at varying degrees of previous capacities based on differing regions and times.the pace seen in recent quarters.

In response to the COVID-19 pandemic, in 2020 we implemented numerous measures to minimizeaimed at limiting its spread for the health and safety of our employees, customers, patients and the communities in which we live and work as well as in accordance with guidelines, orders and decrees of governmental agencies throughout the world.agencies. These measures included diagnostic screenings at our facilities, increased social distancing at clinical and manufacturing facilities, temporarymandates, closures of physical offices, manufacturing and treatment planning facilities, including our U.S. corporate headquarters in the U.S. and regional headquarters in Europe, the Americas and Asia, mandating that a large percentage of our global workforce work remotely,facilities worldwide, implementing remote working where feasible, prohibiting non-essential travel, and converting ourunderutilized manufacturing facilitiescapacity to produce personal protective equipment. Many of these actions remain in effect to varying degrees although we may implement new or revise existing requirements as circumstances require. The actions weand reactions to voluntary and involuntary requirements have taken and any further health and safety measures we may be required or choose to implement in response to the pandemic are and may bebeen highly disruptive to our business and may ultimately prove insufficientcontinue to prevent employees or their relatives from getting ill, potentially severely,be disruptive. As physical offices are allowed to reopen, the rules and potentially impacting our operations. Even if these measures are completely or partially effective,regulations for reopening will likely increase in complexity, making compliance more difficult. Furthermore, if employees perceive themthe protocols and requirements we implement to create a safe and effective work environment to be inadequate, or alternatively, overly burdensome or they prove difficultno longer necessary, employees may choose to maintain over extended periods of time,leave, productivity may decline or we may experience employee unrest, slowdowns, or stoppages or other demands, we may be unablefail to timely meet customer demand or fulfill existing orders, the costs to maintain or implement protective measures or deliver our products may increase, or we may be required to store products that cannot be delivered to closed orthodontic and dental offices, and we may be subject to increased litigation, including for claims related to product liability and workeroccupational safety and working conditions.condition claims.

As the economic and societal impact of the implementation of the various protective and preventative measurespandemic continues to unfold, we are continually evaluating macroeconomic as well as industry-specific factors, including how and to whatthe extent our business and financial results are or may be impacted as well as those of our customers and suppliers, and the financial health and stability of businesses and consumers overall depends on numerous evolving factors, many of which we cannot control nor accurately predict. Examples include:

the duration, scope, and severity of the pandemic;
future governmental, actions mandated, or business and societal actions taken, in response to the pandemic;
the speed and time frames in which dental practices reopen and demand for our products increases and our ability to timely and effectively respond;
the impact on worldwide economic activity, and employment rates and actions taken by central banks and governments;
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demand for productscustomer and services, particularly thoseconsumer purchasing behavior changes as pandemic-related restrictions are curtailed or lifted, remote working declines and travel and discretionary spending patterns shift and our ability to timely and effectively respond to any resulting decreases or increases in demand;
the response of employees, customers and suppliers to the easing of social distancing mandates and returning to in office or facility working, including anxieties regarding the continuing risks of the spread of the virus or any of its variants, vaccination requirements, and other mandates that may be deemed discretionaryimpact employee productivity and engagement, retention or that can be delayed or cancelled, particularly in an environment of high unemployment;require additional costly protective measures;
the liquidity and financial stability of consumers, customers, and patients, including their willingness to purchase our products and services, at existing, or any, prices and delays paying for products or services, requests for extended payment terms, or payment defaults;
the ability or willingness of our suppliers or others in our supply chains to timely provide materialstravel and make deliveries on our behalf;
travelgathering restrictions, including those that adversely impair or prohibit patients from visiting their physicians and our sales personnel from interacting with customers;
diversioncustomers or that limit patients from visiting their doctors or the number of management as they focus on the short- and long-term ramifications of the pandemic;patients doctors can see in their offices;
actions by us or our competitors such as price reductions, aggressive product promotions, changes in or the launch or termination of products or product lines, and mergers, consolidations and consolidations;liquidations;
the confidence of our customers and patients that our products and solutions are sanitary and safe to use;
trade restrictions and sanctions;
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restrictions or limitations on the ability of our customers to effectively use digital platforms and applications when governmental mandates or societal pressures limit physical interactions with patients; and
data privacy and cybersecurity risks from new or expanded use of remote working and/or teledentistry by our suppliers, customers, and us, including new or expanded use of online service platforms, products and solutions such as video conferencing applications, doctor, consumer and patient apps, inadequately secured computing networks, servers, software or servers,software applications, overheard telephone conversations, viewable computer screens, stolen passwords or access information, increased phishing and other online cyber threats.threats;

A sustained downturn may also result in the carrying valueimpact of our goodwill or other intangible assets, including those as a result of the exocad acquisition that closed in April 2020, exceeding their fair value, which may require us to recognize an impairment to those assets.

The effects of the pandemic, including remote working arrangements for employees, may also impacton our financial reporting systems and internal control over financial reporting, including our ability to ensure information required to be disclosed in our current, quarterlyis timely and annual reports under the Securities Exchange Act of 1934, as amended, isaccurately recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer,Officers, as appropriate, to allow for timely decisions regarding required disclosure.disclosure; and
diversion of management as they focus on the short- and long-term ramifications of the pandemic.

Events are changing rapidlyThe impact of the pandemic continues to evolve and we cannot at this time predict the future impact on our business or results of operations; however,although it may the pandemic or the perception of its effects could continue to have a material adverse effect on our business, financial condition, results of operations, cash flows and stock price in the future.Moreover, the pandemic could worsen in countries that are already afflicted, could continue to spread to additional countries, or could return to countries where the pandemic was thought to have been partially contained, each of which could further adversely impact our operations,as well as the businesses of our orthodontist and dentist customers, and economic activity generally.

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

Our net revenues are largely dependent on the sales of our Invisalign System of clear aligners and iTero intraoral scanners. Of the two, we expect net revenues from the sale of the Invisalign System, primarily our comprehensive products, will continue to account for the vast majority of our net revenues forrevenues; making the foreseeable future. Continuedcontinued and widespread acceptance of the Invisalign 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 have grown,are becoming a larger percentage of our overall revenues and as a means to further adoption of digital dentistry and the Invisalign System, and we expect the acquisition of exocad Global Holdings GmbH (“exocad”) willto complement our iTero scanners to support salesthe adoption of our Invisalign System.digital dentistry. If orthodontists and GPs experience a reduction in consumer demand for orthodontic services, if consumers prove unwilling to adopt Invisalign System treatment as rapidly or in the volumes we anticipate and at the prices offered, if orthodontists or GPs choose to usecontinue using wires and brackets or competitive products rather than the Invisalign System or the rates at which they utilize the Invisalign System fail to increase, if sales of our iTero scanners decline or fail to grow sufficiently or as expected, if the acquisition of exocad does not produce the results expected, or if the average selling price of our products declinedeclines for any reason, our operating results could be harmed.

The average selling prices of our products, particularly in the case of our Invisalign System, as a resultare influenced by numerous factors, including the type and timing of a shift inproducts sold, price increases and reductions, product mix, towardsproduct and services bundling, promotions, and foreign exchange rates. We provide volume-based discount programs to our customers. In addition, we sell a number of products at different list prices which may differ based on country and season. If we change volume-based discount programs that affect our average selling prices; if we introduce price reductions or consumer rebate programs; if we implement new or expand existing discount programs or participation in these programs increases; if 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; 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 asto products that have a resulthigher percentage of promotions, or competition,deferred revenue, our operating resultsaverage selling prices would be harmed.adversely affected. Moreover, some programs, products and services may be unsuccessful or may drive demand in unexpected ways. If any of the foregoing to occur, our net revenues, gross profit, gross margin and net income may decline.

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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 in the future.future and customers who alone or with others create aligners, or retainers 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 and algorithms.models. While solutions such as our clear aligner and iTero scanners facilitate this transition, there remains significant uncertainty concerning thewhether our technologies that will achieve market acceptance and, if adopted, whether and when they may become obsolete as new offerings become available.available remains unclear.

Currently, our clear aligner products competesystem competes directly against traditional metal bracketswires and wiresbrackets and increasingly against clear aligner productsaligners manufactured and distributed by new market entrants as well asand traditional manufacturers of wires and brackets, both within and outside the U.S., and from traditional medical device companies, laboratories, startups and, in some cases, doctors and dental service organizations ("DSOs") themselves. AlthoughDue in part to market opportunities and the expiration of certain of our key patents beginning in 2017, competition in the clear aligner market is increasing. The number and typetypes of competitors variesare diverse and vary by segment, geography and customer, we encounter a wide variety of competitors,customers, including new and well-established regional competitors, in certain foreign markets, as well as larger companies or divisions of larger companies with substantial sales, marketing, research and financial capabilities. Due in part tocapabilities, including the expiration of certain of our key patents beginning in 2017, competition in the clear aligner market has
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increased. Competitors include existing larger companies ableability to leverage existing dental market channels to compete directly with us,us. Our competitors also include 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,doctors, doctors and doctors themselvesDSOs 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 international competition. Large consumer product companies may also enter the orthodontic supply market.

The manipulation and movement of teeth and bone is a delicate process with potentially painful and debilitating results if not appropriatelyimproperly performed andor monitored. Accordingly, we remainare committed to delivering our Invisalign System solutions primarily through trained and skilled doctors. Invisalign TreatmentSystem treatment requires a doctor's prescription and an in person physical examination of the patient’s dentition before beginning treatment; however, with the advent of DTC providers accompanied by significant advertising campaigns, there has been a shift away from traditional practices that may impact our primary selling channels. We also believe doctors and DSOs are sampling alternative products and/or taking advantage of wirescompetitive 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 introduce new technologies. Wetechnologies and we may be unable to compete with these competitors or one or more of these competitorsthey 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 pastTo stimulate product and may in the future result inservices demand, we have a history of offering volume discountingdiscounts, price reductions and price reductions,other promotions to targeted customers and consumers. Whether or not successful, these promotional campaigns can have unexpected and unintended consequences, including reduced gross margins, profitability and profitability,average selling prices, loss of market share, and result in the reduction ofmay discourage dental professionals’ efforts and commitment to use our products, any of which could materially adversely affect our net revenues, volume growth, net income and stock price. 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.

WeAn increasingly larger portion of our total revenues are derived from international sales and we are dependent on our international operations, which exposes us to foreign operational, political and other risks that may harm our business.

OurWe earn an increasingly larger 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, many of our key production steps are performed in operations locatedlocations outside of the U.S. TechniciansFor instance, technicians use a sophisticated, internally developed computer-modeling program to prepare digital clinical treatment plans (“ClinCheck”), which are thenapproved by licensed doctors before being 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 andour aligners. Our digital treatment planning and aligner fabrication are performed in multiple international locations, including large-scale operations in Mexico, Costa Rica and China and we are continuingcontinue to establish these functionsadditional sites closer to our international customers to improve doctorsuch as our recently announced facility in Poland. Also, we maintain significant regional sales and patient experiencesmarketing operations in Switzerland, Singapore and our operational efficiency. Also, in addition toChina along with research and development efforts conductedoperations globally, including in the U.S., Russia, Israel, and now Germany with the acquisition of exocad, we have operations in Israel and China where we assemble wands and manufacture our intraoral scanner.Germany. Our reliance on international operations exposes us to risks and uncertainties that may affect our business or results of operation,operations, 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 managing international operations, including any travel restrictions on us or our customers such as those recently imposed domestically and globally in response to the COVID-19 pandemic;customers;
fluctuations in currency exchange rates;
import and export risks, penalties, controls, license requirements and restrictions;
controlling production volume and quality of the manufacturing process;
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difficulties hiring and retaining employees, particularly employees with software and technological design and development backgrounds necessary to create, develop and perform the more technical aspects of our operations as well as to service, market and sell complex medical devices and technologies;
the engagement in activities by our employees, contractors, partners and agents prohibited by international and local trade, labor and other laws such as those 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;
increased expense of developing, testing, manufacturing and marketing localized versions of our products;
political, military, social, economic, or business instability, acts of terrorism and acts of war, including increased levels of violence and military hostilities and protests in Juarez,various regions of the world, including regions in which we operate such as the U.S., 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.East, Eastern Europe and Africa. 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 impactcircumstances which may materially impair all or a portion of our business operations critical to our iTero operations. If any of these events or conditions onto occur, the impact to us, our employees and customers is uncertain, particularly if emergency circumstances, armed conflicts 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 ableinstability or violence were to function at full capacity;occur;
general geopolitical instability and the responses to it, such as the possibility, threat of, imposition of, or changes in sanctions, trade restrictions and changes in tariffs, including recent sanctions againstparticularly involving key customer, development or manufacturing markets such as China, andMexico, Russia, and tariffs imposed by the U.S. and China and the possibility of additional tariffsEastern Europe or other trade restrictions between the U.S. and Mexico;countries;
interruptions and limitations in telecommunication services;services or critical systems or applications reliant on a stable and uninterrupted communications infrastructure;
production or material transportation delays or disruption, including as a result of customs clearance, violence, protests, workforce unrest, slowdowns or stoppages, police and military actions,unionization efforts, or as a result of disasters, whether as a natural disasters, such as earthquakesforces or volcanic eruptions and pandemics like the current COVID-19 pandemic;human caused;
burdens of complying with a wide variety of regional and local laws, including anti-trust, and competition and anti-bribery laws;
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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 primarilyprimary operations are not domestic;
unexpected issues and expenses related to our corporate structure reorganization;
reduced intellectual property rights protections as compared to the protections afforded under the laws of the U.S.;
longer payment cycles and greater difficulty in accounts receivable collection; and
potential adverse tax consequences.

The potential impacts of the United Kingdom’s (“U.K.”UK”) withdrawal from the European Union ("EU") on January 31, 2020, commonly known as “Brexit,” has exacerbatedis still unfolding 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 inare subject, including those involving data privacy and the region are subject.regulation of medical devices. The withdrawal could also, among other potential outcomes, disrupt the free movement of goods, services, people, data and people between the U.K. and the EUinformation and significantly disrupt trade between the U.K. and the EU and other parties.trade. Further, uncertainty around these and related issues could lead to adverse effects on the economyeconomies and political stability of the U.K.,UK, 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.

IfShould 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 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 in 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 COVID-19 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, occur they 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 or may decrease 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, pandemics, prevailing economic conditions, levels of employment, salaries and wage rates, debt obligations, discretionary income, consumer confidence and consumer perception of current and future economic conditions. A decreaseDeclines in, or uncertain economic outlooks for, the U.S. or certain international economies or an uncertain economic outlook, both of which are occurring as a result of the COVID-19 pandemic, wouldcould adversely affect consumer spending habits which may, among other things, result in a decrease in the number of overall orthodontic and dental case starts, reducedreduce patient traffic in dentists’ offices, reduction in consumerreduce or shift spending onaway from elective, non-urgent, or higher value procedures or a reduction in thereduce demand for dental services generally, eachany of which wouldcould materially adversely affect our sales and operating results. Conversely, the pandemic may have temporarily limited options for consumer spending and demand for our products may decline once travel and other restrictions are eased. Weakness in the global economy resultscan result in a challenging environment for selling dental technologies and dentists may postpone investments in capital equipment, such as intraoral scanners and CAD/CAM software. 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 orthodontic treatment, and customers and consumers 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, butFor 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 all of our products will dependdepends in part
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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.
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Our success may dependdepends on our ability to develop, successfully introduce and achieve market acceptance of new products or product offerings.and services.

Our success depends on our ability to profitably and quickly develop, manufacture, market and obtain 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 new or improvedour products and services. The extent of, and rate at which, market acceptance and penetration are achieved by new or futureany products or offerings is a function of many variables, including our ability to:

correctly predict, timely develop and cost effectively manufacture or bring to market solutions that meet future customer needs and preferences with the features and functionality they desire or expect;
allocate our research and development funding to products with higher growth prospects;
ensure compatibility of our computer operatingtechnology, services and systems and hardware configurations with those of our customers;
anticipate and rapidly respond to new competitive products, product offerings and technological innovations;
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 and develop new technologies and applications;applications and timely obtain approval or clearance by government agencies such as the FDA and analogous agencies in other countries;
qualify for third-party reimbursement for procedures using our products;
obtainsuccessfully identify, timely develop and/or market new and adequately protect our intellectual property rights;existing products and services offerings to effectively meet customer demand and compete in evolving target markets; 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 do not lead to significant revenues. Even ifIf we successfully innovate and develop new products and product enhancements, we may incur substantial costs in doing so and our profitability may suffer. In addition, evenEven if our new products are successfully introduced, it may be difficult to gain market share and acceptance, particularly if doctors require education to understand the benefits of the new products or measure their success only after extended periods of time required to treat patients. For instance, it can take up to 24 months or longer to treat patients using our Invisalign System. Similarly, in 2018 we introduced our mandibular advancement treatment and expect it will require significant time and effort on our part to educate doctors of its benefits. Consequently, doctors may be unwilling to rapidly adopt our new products until they successfully complete one or more cases or until more historical clinical results are available.

Our ability to market and sell new products may also be subject to government regulation, including approval or clearance by the FDA and foreign governments. Any failure to successfully develop and introduce or achieve market acceptance of new products or enhancements to existing products could materially adversely affect net revenues and cause our operating results and cause our net revenues to decline.

We may experience declines in average selling prices of our products which may decrease our net revenues.

We provide volume-based discount programs to our customers. In addition, we sell a number of products at different list prices which also differ based on region or country. If we change volume-based discount programs that affect our average selling prices; if we introduce price reductions or consumer rebate programs; if we expand 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, if successful, may drive demand in unexpected ways. Were any of the foregoing to occur, our net revenues, gross profit, gross margin and net income may decline.

We may not achieve the anticipated benefits from our recent acquisition of exocad in the timeframe expected, or at all, which may have an adverse effect on our business and our financial results.

We closed our acquisition of exocad on April 1, 2020. We acquired exocad for its dental CAD/CAM software technology and employees. We believe exocad’s tools and features for diagnostic, restorative, implant, and orthodontic workflows will strengthen and extend our digital solutions; helping pave the way for new, seamless cross-discipline dentistry in labs and in practices; extending our Invisalign and iTero solutions while broadening our reach in digital dentistry to exocad’s existing and future customer base. However, for a variety of reasons, many of which are outside our control or ability to predict, there can beThere is no guarantee that the acquisition will achieve the desired benefits and synergies or will result in additional sales of either Invisalign or iTero solutions or that the exocad CAD/CAM software will continue to succeed in the marketplace.

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In addition, successful post-acquisition integrations are difficult to accomplish under normal circumstances for companies with a history of acquisitions. As an organization, we do not have a history of significant acquisitions and attempting to integrateintegrating exocad in the midst ofduring the COVID-19 pandemic poses challenges. As such, wehas presented and continues to pose challenges which may experience difficulties achievingmake it difficult to achieve the expected financial, technical or strategic benefits of the acquisition.acquisition in the time frames anticipated if at all. Potential risks we may experience include:

difficulties integrating the business of exocad in the timeframes expected or as anticipated and without adversely impacting our existing operations or the operations of exocad;
slower adoption of or technological difficulties uniting our product and service offerings to produce solutions that efficiently and effectively integrate with the workflows between physicians,doctors, laboratories and other market participants;
slower adoption or lack of acceptance of CAD/CAM software in general alone or in combination with other rapidly evolving and groundbreaking advances that are fundamentally changing the dental industry and the way new and existing participants market and provide products and services to consumers;
diversion of management resources;
the inability to retain or attract key personnel;
the failure to accurately estimate the potential markets and market shares for the companies’exocad’s products, the nature and extent of competitive responses to the acquisition and the ability to achieve or exceed projected market growth rates;
difficulties cost-effectively integrating and dealing with tax, employment, logistics, and other related issues unique to international operations, particularly when travel restrictions make collaboration efforts more difficult;
the potential that our due diligence did not uncover risks and potential liabilities, that we fail to adequately mitigate or control them, or that new risks and potential liabilities associated with the exocad;exocad arise;
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changes in consumer spending habits as a resultTable of among other things, prevailing economic conditions, levels of employment, salaries and wages and consumer confidence;Contents
the failure to successfully manage relationships with Align and exocad’s historic customers, suppliers and strategic partners and develop new relationships;
product development delays and errors;
possible inconsistencies in standards, internal controls, procedures and policies which may make it more difficult to implement and harmonize company-wide financial reporting, forecasting and budgeting, accounting, billing, information technology and other systems;
all or material portions of the expected synergies and benefits of the acquisition may change or disappear or may take longer to realize, particularly if the impact of the pandemic to the economy overall, or more specifically to orthodontic and dental practices, is lengthy or significant;realize;
negative impact on our GAAP and non-GAAP results of operations, financial condition, and liquidity from acquisition-related costs, charges, amortization of intangible assets and/or asset or goodwill impairment charges;
outcomes or rulings in known, or as yet to be discovered, regulatory enforcement, intellectual property and other litigation, anti-bribery and corruption or other similar matters that are, alone or in the aggregate, materially adverse; and
our ability to protect our intellectual property rights as well as protect our IT networks from cybersecurity threats and ensure customer and sensitive personal and health data remain secure;
the potential impact of the acquisition on our future tax rates;
the failure to successfully advocate the benefits or value proposition of the combined entity or its products to analysts and investors which may harm the market price of our common stock; and
expectations regarding the continued growth of our international markets and difficulties predicting customer and consumer purchasing behavior, particularly in the midst and aftermath of the COVID-19 pandemic.secure.

If we cannot successfully integrate exocad with our existing business, our results of operations and financial condition could be adversely affected, possibly materially.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our 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 operating outside of the U.S. are translated into U.S. dollars using constantly fluctuating, often substantially, exchange rates. As a result, negative movements in exchange rates against the U.S. dollar 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.harmed.

As we continue to grow, we are subject to growth related risks, including risks related to excess or constrained capacity and operational inefficiencies at our manufacturing and treat facilities.
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We are subject to growth related risks, including excess or constrained capacity and pressure on our internal systems, personnel and personnel.suppliers. In order to manage current operations and future growth effectively, we will need tomust continue to implementimplementing and improveimproving our operational, financial and management information systems, and to hire, train, motivate, manage and retain employees.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 manage such growth effectively.effectively; balancing near-term efforts to meet existing demand while 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 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,experiences, improve their confidence in using the Invisalign System and iTero intraoral scanners to treat patients more oftenpatients and provide redundancy should other facilities be temporarily or permanently unavailable. Our ability to obtain regulatory clearance and certifications for, move into, plan, construct and equip additional order acquisition, treatment planning and manufacturing facilities is subject to significant risk and uncertainty, including risks inherent in the establishment of a facility, such asrelated to establishing facilities, hiring and retaining employees and delays and cost overruns, as a result of a number of factors, any of which may be out of our control and may negatively impact our gross margin. In addition, theseany facilities may be located in higher cost regions compared to Mexico, China and Costa Rica which may negatively impact our gross margin. If the transition into additional facilities is significantly delayed, if a facility is required to temporarily or permanently, partially or fully shut down, or demand for our products exceedsoutpaces our current expectations,ability to hire qualified personnel and effectively implement systems and infrastructure, we may be unable to fulfill orders timely, or at all, which may negatively impact our financial results, reputation and overall business.

In addition, because we cannot immediately adapt ouradapting production capacity and related cost structures to changing market conditions takes time, our facilityfacilities capacity may at times exceed or fall short of our production requirements. For instance, as a result of the COVID-19 pandemic sales in the final weeks of the first quarter of 2020 declined substantially and operations at our manufacturing facilities declined shortly thereafter. Thereafter, as dental practices reopened we experienced a rapid increase in demand. If product demand decreases remains lower or we fail toincreases more than forecast, demand accurately or if we are required to implement additional protective measures to safeguard employees in manufacturing facilities and offices, we could be required to write off inventory or record excess capacity charges, productivity could decline, or we may be required to purchase or lease additional or larger facilities and additional equipment, or we may be unable to fulfill customer demand in the time frames and with the quantities required, any of which may take time to accomplish, and may lower our gross margin.margin, inhibit sales or harm our reputation. Additionally, if we are required to implement new or modify existing health and safety protocols to safeguard our employees, customers or their patients, productivity could decline. Production of our clear aligners and intraoral scanners may also be limited by capacity constraints due to a variety of factors, including our dependency on third party vendors for key materials and components in addition to 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.

Our products and information technology systems are critical to our business. Issues with product development or enhancements, IT system integration, implementation, updates and upgrades along with security and data protection risks have previously and could again in the future disrupt our operations, which could have a material adverse impact on our business and operating results.
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We rely on the efficient, uninterrupted and secure operation of our own complex information technology systems ("IT systems") and are dependent on key software of third parties embedded in our products and IT systems as well as third party hosted IT systems to support our operations. All software and IT systems are vulnerable to damage, attack or interruption from a variety of sources. As our business has grown in size and complexity, including through the integration of acquired businesses, which to date have been smaller organizations with less-mature or less sophisticated systems, securities practices or training, the growth has placed, and will continue to place, significant demands on our operations and such systems and have increased the risk of security incidents. To effectively manage our existing operations and continue to grow, our IT systems and applications require an ongoing commitment of significant resources to maintain, protect, enhance and 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. Expanded remote working and increased usage of online and hosted technology platforms by us, our customers and suppliers as a means to mitigate the spread of COVID-19 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 and IT systems which entails certain risks, including 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, development of new releases and enhancements require significant expenditures and allocation of valuable employee resources. Delays in integration or disruptions to our business from implementation of these new or upgraded systems could have a material adverse impact on our financial condition and operating results.

Additionally, we continuously upgrade and issue new releases of our products and customer facing software applications, such as our iTero intraoral scanners, exocad CAD/CAM solutions, my iTero, our ClinCheck software, MyAligntech and the Invisalign Doctor Site as well as our internal software applications upon which customer facing, manufacturing and treatment planning operations are dependent. Software applications and products containing software frequently contain errors or defects, especially when first introduced or when new versions are released. The discovery of a defect, error or security vulnerability in our products, software applications or IT systems, incompatibility with customers’ computer operating systems and hardware configurations with a new release or upgraded version or the failure of our products or primary IT systems may cause adverse consequences, including: delay or loss of revenues, 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 or increased service costs, any of which could have a material adverse effect on our business, financial condition or results of operations.

A significant portion of our clear aligner production is dependent on digital scans from our 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, or a system outage for any reason have harmed our operations previously and in the future could materially adversely effect our ability to accept scans, manufacture clear aligners or otherwise service our customers which may, amongst other things, harm our sales, damage our reputation, or result in litigation.

If the information we rely on to run our businesses is inaccurate or unreliable, if we fail to properly maintain, secure or restore our IT systems, if the integrity of our products or IT systems is compromised or questioned or data is lost, 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, and fail to produce timely, accurate or complete reports. We may also be required to respond to regulatory inquiries or actions, forced to defend against litigation or pay damages, penalties or fines, experience increases in operating and administrative expenses, find it necessary to recall or repair products, rebuild networks or systems, lose existing customers, experience difficulties attracting new customers or implementing our growth strategies, or suffer other adverse consequences. In addition, experienced computer programmers and hackers may be able to penetrate the security features of our products, IT systems or our cloud-based software servers hosted by third parties and misappropriate, destroy or damage our confidential information or that of third parties, expose health, financial data, or other personal information of our customers and their patients, 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 or present risks in design, development, manufacture or distribution, including “bugs,” security vulnerabilities, and other problems that can unexpectedly interfere with the operation of the system or compromise or exploit the safety and security of our products, networks or data. The costs to eliminate, mitigate or recover from security problems, viruses and bugs could be significant 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 adverse impact on our operations, net revenues and operating results.
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There can be no assurance that our process of improving existing or developing new products or IT systems, integrating new IT systems, protecting confidential patient health information, and improving service levels will not be delayed or that additional product or IT systems issues will not arise in the future. Failure to adequately protect and maintain the integrity of our products and IT systems and data may result in a material adverse effect on our financial position, results of operations and cash flows.

If we are unable to protect our customer or patient information or if we are unable to comply with applicable privacy, security and data protection laws, our operations may be severely adversely impacted, patient care could suffer, we could be liable for related damages, and our business, operations and reputation could be harmed.

We retain confidential customer financial as well as patient health information in addition to our own proprietary information and data essential to our business operations. Therefore, it is critical that the facilities and infrastructure on which we depend to run our business and the products we develop remain secure and are also perceived by the marketplace and our customers to be secure. Despite the implementation of security features in our products and security measures in our IT systems, our products as well as the infrastructure and IT systems on which we depend are vulnerable to physical break-ins, computer viruses, programming errors or other technical malfunctions, hacking or phishing attacks by third parties, malware and ransomware, employee error or malfeasance or similar disruptive problems. For example, we have experienced cybersecurity incidents and may again in the future. Further, the frequency of third party cyber attacks has increased since the onset of the COVID-19 pandemic. Significant service disruptions, breaches in our infrastructure and IT systems or other cybersecurity incidents could expose us to litigation or regulatory investigations and could impair our reputation and competitive position. Affected parties could initiate legal or regulatory action against us, which could 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 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, consumers 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 accurate and complete information in a timely manner. We have 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 and claims arising from such incidents may not be covered or may exceed the amount of any coverage.

We are also subject to federal, state and foreign laws and regulations, including ones relating to privacy, data security and protection, content regulation, and consumer protection among others. We are subject to various national and regional data localization or data residency laws which generally require that certain types of data collected within a country be stored and processed only within that country or approved countries and other countries are considering enacting similar data localization or data residency laws. We have and likely will again in 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. We are also subject to data export restrictions and 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, we must comply with numerous data privacy and data security requirements that span from individual state and national laws in the U.S. and China to multinational requirements in the EU. For instance, China has enacted new, complex and highly restrictive cybersecurity, data localization, and cross border data transfer laws. In the EU, we must comply with the General Data Protection Regulation which serves as a harmonization of EU data-privacy laws, and in the U.S. we must comply with data privacy and data security provisions of the U.S. Health Insurance Portability and Accountability Act (“HIPAA”) regulations. Moreover, the number of local and national governments enacting data privacy laws continues to increase and we expect this trend to continue. Maintaining compliance 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 privacy and data security requirements.

If we fail to sustain or increase profitability or revenue growth in future periods,while controlling expenses, 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 our business isand the markets we target are evolving, it is difficult to predict our future operating
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results or levels of growth or declines, and we have not in the past and may be unable in the future to sustain or regain our historical growth rates which may cause our profitability to decline.

Our operating results have fluctuated in the past and maywill continue to fluctuate in the future, making it difficult to predictwhich makes predicting the timing and amount of our revenues, costs and expenditures.expenditures difficult.

Our operating results have fluctuated in the past and we expect our future quarterly and annual operating results have and will continue to fluctuate for a variety of reasons, particularlyincluding as we focus on adjusting to the impacts for COVID-19 and, under ordinary circumstances, increasinga result of changing doctor and consumer demand for our products.product demand. Some of the factors that have historically and in the future could cause our operating results to fluctuate include:

limited visibility into and difficulty predicting from quarter to quarter, the level of activity in our customers’ practices;
changes in geographic, channel, or product mix;
the level of confidence of doctors in our products and changes in the rates at which they recommend or utilize our products for their patients;
weakness in consumer spending and confidence as a result of high unemployment or a slowdown in the global, U.S.domestic or otherinternational economies;
higher manufacturing, delivery and inventory costs;
competition in general and competitive developments in our target markets;
new programs or business models, new product or services introductions or changes or modifications to existing products and services offerings, including any impacts related to the market;timing of orders, product mix or market cannibalization;
changes in relationships with our dental supportservice organizations and distributors, including timing of orders;
changes in the timing of when revenues are recognized,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 offerings orpricing, bundling and promotions, 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, those estimates based on such matters as our predicted usage of additional aligners;
the creditworthiness, liquidity and solvency of our customers and their ability to timely make payments when due;
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 the U.S., China and Europe as well as the number of doctors in their offices and their availability to take appointments;
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success of or changes to our marketing programs from quarter to quarter;
timing and fluctuation of spending around marketing and brand awareness campaigns and industry trade shows;
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, pandemics or general economic conditions impacting the solvency of vendors in our supply chain beyond our control;chain;
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 withsuch things as the establishment of treatment planning and fabrication facilities, in international locations;
costs and expenditures in connection with the hiring and deployment of direct sales force personnel;personnel, and litigation;
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 epidemics and pandemics such as COVID-19, any of which results in changes in consumer spending habits, limiting or restricting customerpatient visits to orthodontists or general practitioners, 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; and
material impairments in the value of our privately held companies;goodwill and
timing of industry tradeshows. long-lived assets.

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

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

We are dependent on commercial freight carriers, primarily UPS, 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. For instance, domestically and in certain international locations carriers are experiencing significant demand increases as a result of more online orders from consumers sheltering in place because of COVID-19. Alternatively, carriers are also experiencing a greater number of closed businesses making it difficult to deliver our products to our customers. If we cannot deliver our products on time and cost effectively, our customers may choose competitive offerings or create their own alignersalternative products causing our net revenues and gross margins to decline, possibly materially. In a risingIf fuel cost environment,costs increase, so do our freight costs will increase.costs. 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 unablefail to accurately predict our volume growth and fail to hire a sufficient number oftoo many or too few 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 of which could adversely affect our results of operations.

Treatment planning is a key step leading to our manufacturing process which relies on sophisticated computer software. This requires new technicians to undergo a relatively long training process, often up to 120 days or longer. As a result, if we are unable to accurately predict our volume growth, we may have an insufficient number of trained technicians to deliver ourensure products are manufactured and delivered within the time frameframes our customers expect. Such a delaydelays 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 too many technicians in anticipation of volume growth that does not materialize, materializes at a rate we do not anticipate,slower than anticipated, or if volumes decline, our costs and expenditures may outpace our revenue growth, harming our gross margins, operating expenses and financial results.
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Our information technology systems are critical to our business. System integration and implementation issues and system security risks could disrupt our operations, which could have a material adverse impact on our business and operating results.

We rely on the efficient and uninterrupted operation of complex information technology systems ("IT systems"). All IT systems are vulnerable to damage 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, our IT systems and applications require an ongoing commitment of significant resources to maintain, protect and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving industry and regulatory standards and changing customer preferences. Expanded remote working and increased customer usage of online technology platforms by us, our customers and suppliers to facilitate efforts to mitigate the spread of COVID-19 through social distancing have increased the demands on our IT systems and personnel. Moreover, we are continuing to transform certain business processes, extend established processes to new subsidiaries and/or implement additional functionality in our enterprise resource planning (“ERP”) software system which entails certain risks, including difficulties with changes in business processes that could disrupt our operations, such as our ability to track orders and timely ship products, manage our supply chain and aggregate financial and operational data.

System upgrades and enhancements require significant expenditures and allocation of valuable employee resources. Delays in integration or disruptions to our business from implementation of these new or upgraded systems could have a material adverse impact on our financial condition and operating results.

Additionally, we continuously upgrade our customer facing software applications, specifically the ClinCheck software, MyAligntech and the Invisalign Doctor Site. Software applications frequently contain errors or defects, especially when first introduced or when new versions are released. The discovery of a defect or error in our software applications or IT systems, incompatibility with customers’ computer operating systems and hardware configurations with a new release or upgraded version or the failure of our primary IT systems may result in various consequences, including, among others: delay or loss of revenues or delay in market acceptance, 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.

If the information we rely on to run our businesses were to be found to be inaccurate or unreliable, if we fail to properly maintain our IT systems and data integrity, 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 implementing our growth strategies, or suffer other adverse consequences. In addition, experienced computer programmers and hackers 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 bugs could be significant, and the efforts to address these problems could result in interruptions that may have a material adverse impact on our operations, net revenues and operating results.

There can be no assurance that our process of improving existing IT systems, developing new IT systems to support our expanding operations, integrating new IT systems, protecting confidential patient health information, and improving service levels will not be delayed or that additional IT systems issues will not arise in the future. Failure to adequately protect and maintain the integrity of our IT systems and data may result in a material adverse effect on our financial position, results of operations and cash flows.

If the security of our customer and patient information is compromised or we are unable to comply with data protection laws, patient care could suffer, and we could be liable for related damages, and our reputation could be impaired.

We retain confidential customer financial as well as patient health information in our processing centers. Therefore, it is critical that our facilities and infrastructure remain secure and are also perceived by the marketplace and our customers to be secure. Despite the implementation of security measures, we have experienced breaches in the past and our infrastructure may be vulnerable to physical break-ins, computer viruses, programming errors or other technical malfunctions, hacking or phishing attacks by third parties, employee error or malfeasance or similar disruptive problems. For example, some companies have experienced an increase in phishing and social engineering attacks from third parties in connection with the COVID-19 pandemic. If we fail to meet our customer and patients’ expectations regarding the security of their information, we could be liable for damages and our reputation and competitive position could be impaired. Affected parties could initiate legal or
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regulatory action against us, which could cause us to incur significant expense and liability or result in orders forcing us to modify our business practices. Concerns over our privacy practices could adversely affect others’ perception of us and deter customers, advertisers and partners from using our products. In addition, patient care could suffer, and we could be liable if our IT systems fail to deliver correct information in a timely manner. We have cybersecurity insurance 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 and claims arising from such incidents may not be covered or may exceed the amount of any coverage.

We are also subject to federal, state and foreign laws and regulations, including ones relating to privacy, data protection, content regulation, and consumer protection. We may be or become subject to data localization or data residency laws 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 are considering enacting, data localization or data residency laws. If countries in which we have customers adopt data localization or data residency laws, we could 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. We may also be subject to data export restrictions, or 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, we must comply with numerous data protection requirements that span from individual state and national laws in the U.S. to multinational requirements in the EU. In the EU, we must comply with the General Data Protection Regulation which serves as a harmonization of EU data-privacy laws. We believe we have designed our product and service offerings to be compliant with the requirements of applicable data protection laws and regulations. Maintaining compliance 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.

In orderour marketing activities to deepen our market penetration and raise awareness of our brand and products, we may increase the amount we spend on marketing activities, which may not ultimately prove successful or anmay become less effective use of our resources.or more costly to maintain in the long term.

To increase awareness of our products and services domestically and internationally, we may increase the amount we spend 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 teams, social media influencers and other strategic partners. We attempt to structure our advertising campaigns in ways we believe most likely to increase brand awareness, adoption and adoption;goodwill; 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, or generate the goodwill and positive reputational goals we intend. Moreover, should any of these entities or individuals do, say, publish or lend support to events or causes which may be perceived by all or any portion of society negatively, our sponsorships or support of these entities or individuals may be called into question, boycotts of our products announced, and our reputation may be harmed, any of which could have an adverse effect on our gross margin and business overall. In addition, various countries restrict direct to consumer advertising of our products and we could run afoul of restrictions and be ordered to stop certain marketing activities.

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 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 recently released iOS 14 that includes significant data privacy changes that may limit our ability to interpret, target and measure ads effectively.

Our success depends in part on our proprietary technology, and if we are unablefail to successfully obtain or enforce our intellectual property rights, our competitive position may be harmed. Litigating claims of this type are 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 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.

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 IP and our competitive position; however, our currently pending or future patent filings may not result in the issuance of patents. Additionally, any 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 foreign patents may be more limited than that provided under U.S. patents and IP laws. CertainMoreover, our
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foreign patent portfolio is less extensive than our key patents began to expire in 2017, which have resulted in increased competition and less expensive competitive products.U.S. portfolio. We also rely on protection of our copyrights, trademarks, trade secrets, know-how and proprietary information. We generally enter into confidentiality agreements with our employees, consultants and our collaborative partners upon commencement of a relationship with us; however, these agreements may not provide meaningful protection against the unauthorized use or disclosure of our trade secrets or other confidential information, and adequate remedies may not exist if unauthorized use or disclosure were to occur. 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 rights might allow competitors to copy
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our technology, which could adversely affect our pricing and market share. In addition, in an effort to protect our IP we are currently haveinvolved in litigation and expect to be in the past been, and may in the future be involved in litigation.future. The potential effects on our business operations resulting from litigation, whether or not ultimately determined in our favor or settled by us, are costly and divert the efforts and attention of our management and technical personnel from normal business operations.

Litigation, interferences, oppositions, re-exams, inter partes reviews, post grant reviews or other proceedings are, have been necessary and maylikely will be needed in the future be necessary in some instances to determine the validity and scope of certain of our IP rights and in other instancesthe IP rights claimed by third parties 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 challengesAsserting or other similardefending these types of proceedings arecan be unpredictable, and may be protracted, time consuming, expensive and distracting to management. The outcome of such proceedings could adversely affect the validity and scope of our patent or other proprietary rights, hinder our ability to manufacture and market our products, require us to seek a license for the infringed product or technology 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.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 assert or attempt to enforce our patent or other intellectual property rights constitute unfair competition or violations of 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. Any of these litigation efforts or adverse litigation results from our litigation could adversely affect our results of operations and stock price.

Obtaining approvals and complying with governmental regulations, enforced by the FDAparticularly those related to personal healthcare information, financial information and foreign regulatory authoritiesdata privacy, is expensive and time-consuming, and any failure to obtain or maintain approvals foror comply with regulations regarding our products or services or failure to comply with regulationsthe products and services of our suppliers or customers could materially harm our sales, result in substantial penalties and cause harm to our reputation.

Our products are consideredAs a supplier of medical devices and solutions, we and many of our customers and suppliers are subject to extensive and widely varyingfrequently changing regulations under numerous federal, state, local and foreign laws. Our healthcare provider customers and distributors are also subject to a wide variety of laws and regulations that 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. For instance, regulations affecting the security and privacy of patient healthcare information held by healthcare providers and their business associates such as HIPAA 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 U.S.revocation of endorsement of our products and internationally. Beforeservices by healthcare participants. 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, unfair or anti-competitive business practices or other violations of laws or regulations, which may result in costly investigations, fines, penalties, as well as material judgments, settlements or decrees. There can be no assurance that we will adequately address the business risks associated with the implementation and compliance with such laws or that we will be able to take advantage of any resulting business opportunities.

Furthermore, in general 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. InFor instance, 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.

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It takes significant time, effort and expense to obtain and maintain FDA clearances or 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 costsrequired may be significantly greater.significant and costly. The impact of COVID-19 on normal governmental operations may delay our efforts to obtain and maintain approvals, possibly significantly. 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 one or more 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 previously granted; and
criminal prosecution.

We and certain of our vendors 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 satisfactorily correct an adverse inspection finding or to comply with applicable manufacturing regulations could result in enforcement action,actions, and we may be required to find alternative manufacturers, which could be a long and costly process. Any enforcement action by the FDA or foreign governments could have a material adverse effect on us.

53In addition, numerous foreign, state and federal healthcare-related laws regulate our business and the businesses of our customers, suppliers and service providers, covering areas such as:

Table
the storage, transmission and disclosure of Contentsmedical 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.

The sourcing and availability of metals that may be used in the manufacture of, or 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 manufacture 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, compliance with these laws and regulations will require time and effort by our personnel and others and we will incur additional costs.

If we or any vendors on whose products or services we rely for our products and services infringe the patents or IP 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 IP rights is common in the medical device, optical scanner, 3D printing and other technologies and industries on which our products and services are based. We have been sued for infringement of third party’s patents in the past and we are currently defending patent infringement suits and other legal claims. In addition, we periodically 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 IP 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 in any legal proceeding to which we may become a party could subject us to significant liabilities, exclusion orders or injunctions that may prevent or limit our rights to sell or import our products in one or more countries. An adverse determination of this nature could 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.
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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. 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 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. Moreover, we rely on a third-party manufacturer to supply key sub-assemblies for our iTero Element scanner. If these or other suppliers encounter financial, operating or other difficulties, are unable to hire or maintain personnel, cannot timely obtain supplies, are unable to maintain manufacturing standards or controls, fail to timely deliver materials, parts or components, or if our relationship or the terms by which we contract with any of them changes, we may be unable to quickly establish or qualify replacement sources of supply and could face 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, including our intraoral scanners, causing us to lose revenues and suffer damage to our customer relationships. 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 primarily rely on our direct sales force to sell our products, and any failure to train and maintain our key sales force personnel could harm our business.

Our ability to sell our products and generate revenues primarily depends upon the success of 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 of key personnel or groups of employees may harm our business. In order to provide more comprehensive sales and service coverage and pursue growth opportunities, we continue to increase the size of our sales force domestically and internationally. Moreover, as we focus on market penetration, we have segregated sales personnel to focus on specific markets such as orthodontists and GPs. 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. If we are unable to expand our sales force, retain our key 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 prove unsuccessful or not cost-effective, our net revenues and our ability to maintain market share could be materially 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 that may be harmful to our sales and operations.

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 any of these relationships are terminated and alternative distributors are not 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 growth and expansion 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 competition, bribery and corruption, and medical device and services 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. It may be difficult, expensive, and time-consuming for us to re-establish market access or regulatory compliance in such cases.

Our business exposes us to potential liability for the quality and safety of our products and services, how we 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
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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 or unsuitable. Even if our products are safe, if 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 clearances rescinded by administrative agencies or we may be required to defend ourselves in litigation. Although we intend to continue to 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 not be sufficient against potential liabilities. Any claim for product liability, sales, advertising and business practices, regardless of its merit or eventual outcome, could result in significant legal defense costs and damage our reputation, increase our expenses and diverting management’s attention away from the operation of our business.

We are subject to risks associated with our strategic investments. Impairments in the value of our investments could negatively impact our financial results.

We have and expect to continue to make investments in research and technology that we deem promising, primarily through privately held companies, for strategic reasons and to support key business initiatives, and we may not realize a return on our strategic investments. Of the companies in which we invest, they may generate net losses and the market for their products, services or technologies may be slow to develop, if at all. Furthermore, valuations of privately held companies are inherently complex due to the lack of readily available market data. If we determine that our investments have declined in value, we may be required to record impairments which could be material and could have an adverse impact on our financial results.

General Risk Factors

We rely on highly skilled personnel and, if we fail to attract, motivate or retain personnel, or if our growth harms our corporate culture, it may be more difficult to grow effectively and pursue our strategic priorities.

To be successful, we must effectively manage our growth which depends on our ability to identify, hire, develop, motivate, and retain personnel throughout our organization. We are highly dependent on the talent and effort of highly skilled employees, including orthodontists and production technicians in our treatment planning facilities and employees in our clinical engineering, technology development, manufacturing, sales, and management teams. The loss of the services provided by these employees may significantly delay or prevent the achievement of our development and business objectives and could harm our business.

Moreover, competition for qualified employees in our industry is intense, and our employees are targeted by other employers. Our compensation and benefit arrangements, such as our equity award programs and telecommuting policies, may not always be successful in attracting new employees and retaining and motivating our existing employees. Furthermore, other internal and external factors can impact our ability to hire and retain talent, including insufficient advancement or career opportunities and restrictive immigration policy and regulatory changes.

Additionally, are committed to a corporate culture that focuses on values emphasizing agility, customer and accountability. We believe this culture fosters an environment of integrity, innovation, creativity, and teamwork but we have also experienced in the past and expect 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 we relax our standards in order to meet the demands of our growth or if our growth is not managed effectively, our corporate culture, ability to achieve our strategic objectives, and our compliance with obligations under our internal controls and other requirements may be harmed.

Business disruptions could seriously harm our financial condition.

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. For instance, the COVID-19 pandemic and subsequent recovery materially impacted our sales and business operations in 2020, the operations of our customers and the global economy overall. 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 teams in Costa Rica and
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other global locations create ClinCheck treatment plans using sophisticated computer software. In addition, certain of our customer facing operations are located in Costa Rica. Our aligner molds and finished aligners are fabricated in Mexico and China. Both locations in Costa Rica and Mexico as well as others 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. Moreover, a significant 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 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.

We are required to annually assess our internal control over financial reporting and any adverse results from such assessment may result in a loss of investor confidence in our financial reports and have an adverse 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 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, 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 employeesexposed to fluctuations 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 IP 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 IP 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 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 IP 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.

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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,currency exchange rates, 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. 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 timely deliver our products and our business may be harmed. Furthermore, any difficulties encountered by this manufacturer with respect to obtaining supplies, 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 key sales force personnel 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 of key personnel may harm our business. In order to provide more comprehensive sales and service coverage, we have increased 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. 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. As a result, if we are unable to retain our key 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 prove unsuccessful or not 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 federal, state, local and foreign laws administered by various governmental entities, 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
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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 foreign, 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 sufficient 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. For instance, the COVID-19 pandemic has materially harmed our sales and business operations, the operations of our customers and the global economy overall. 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, adverselynegatively 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. 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.

ChangesAlthough the U.S. dollar is our reporting currency, a growing portion of our net revenues and net income are generated in or interpretationsforeign currencies. Net revenues and net income generated by subsidiaries operating outside of accounting rulesthe U.S. are translated into U.S. dollars using constantly fluctuating, often substantially, exchange rates. As a result, negative movements in exchange rates against the U.S. dollar have and regulations, could resultmay increasingly adversely affect our net revenues and net income in unfavorable accounting charges.

We prepare our consolidated financial statementsstatements. We enter into currency forward contract transactions in conformity with U.S. GAAP. These principles are subjectan effort to interpretation by the SECcover 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, various bodies formed to interpret and create appropriate accounting policies. A change inunder certain circumstances, these policies or in the way these policies are interpreted by us or regulators cantransactions could have a significantan adverse effect on our reported results and may even retroactively affect previously reported transactions.financial condition.

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If we fail to manage our exposure to global financial and securities market risk 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 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 investmentsan investment exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we will beare 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, such as what we are currently experiencing in connection with the COVID-19 pandemic, it becomesis necessary to assess the
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value of our investments more frequently and we might incur significant 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 butand assessing these assumptions and predicting and forecasting future events can be materially more difficult in rapidly changing and unprecedented economic circumstances such as those we are experiencing with the COVID-19 pandemic.difficult. Large acquisitions, such as our recent acquisition of exocad in 2020, require ongoingperiodic fair value assessments of goodwill and purchased assets to determine if they have become impaired. Consequently, 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 long-lived asset group areis 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 which has been time-consuming and costly, may be disruptive to our business, and may not be more efficient or effective in the future. 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 due to transition of 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.

Various internal and external factors may have favorable or unfavorable effects on our future effective tax rate. These factors include, but are not limited to, changes in global economic environment, changes in legal entity structure and/or activities performed within our entities, 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 effective tax rate varied significantly in ourthe first quarter of fiscal 2020 due to the relocation of our EMEA regional headquarters from the Netherlands to Switzerland effective January 1, 2020.Switzerland. Our effective tax rate is also dependent in part on forecasts of full year results and couldwhich can vary materially with the impact of the COVID-19 outbreak to the global economic environment.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.

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ChangesNew tax laws, or changes in existing tax laws or tax rulings or the way they are applied to our business could negatively impact our income tax provision and net income.income or subject us to new or greater tax burdens that may harm our sales or results of operations.

As a U.S. multinational corporation, we are subject to changing tax laws both within and outside of the U.S. Changes in tax laws or tax rulings, or changes in interpretations of existing tax laws, could affect our income tax provision 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, the Organization for Economic Cooperation and Development (“OECD”) has been working on a “Base Erosion and Profit Shifting Project,” which is focused on a number of issues, including the shifting of profits between affiliated entities in different tax jurisdictions. The OECD has issued and is expected to continue to issue, guidelines and proposals that may change various aspects of the existing framework under which our tax obligations are determined 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 risksvarying interpretations 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. The positions we take regarding taxes as well as the amounts we collect or remit may be challenged and we may be liable for failing to collect or remit all or any portion of taxes deemed owed or the taxes could exceed our estimates. We may also be subject to audits in U.S. states, local and foreign jurisdictions for which we have not accrued tax liabilities. 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. 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 our strategic investments. Impairmentscomplying with the various tax requirements in the value of our investments and unsecured promissory note could negatively impact our financial results.numerous markets in which we conduct or will conduct business.

We have invested in privately held companies for strategic reasonsthe past and to support key business initiatives, and we may not realize a return on our strategic investments. Many of such companies generate net losses andagain in the market for their products, services or technologies 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 our unsecured promissory note with SmileDirectClub is determined to be uncollectible, which may be more likely as a result of the COVID-19 pandemic, particularly if its impact to global and domestic economies is sustained and widespread or any recovery is slow, we may be required to record impairments which could be material and could have an adverse impact on our financial results.

We mayfuture acquire other businesses, products or technologies in the future which could require significant management attention, disrupt our business, dilute shareholderstockholder value and adversely affect our results of operations.

In order to remain competitive or achieve long-term business objectives,
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Periodically, we may acquire, or make investments in, complementary companies, products or technologies.technologies like our acquisition of exocad in 2020. Alternatively, we may not be ableunable to find suitable acquisition targets in the future, and we may not be able to complete acquisitions on favorable terms, if at all. If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals or desired synergies, and any acquisitions we complete could be viewed negatively by our customers, securities analysts and investors. In addition, ifAdditionally, as an organization we do not have a history of significant acquisitions or integrating their operations and cultures with our own. If we fail to successfully integrate any acquisitions or the technologies acquired, our revenue and results of operations could be adversely affected or we may inherit or fail to uncover material issues of the acquired company or assets, including litigation or ongoing investigations, accounting irregularities or improprieties, failure to comply with regulations, governmental orders or decrees, and IT security and privacy compliance issues when we integrate acquired products and systems.issues. Any integration process may require significant time and resources and we may not successfully evaluate or utilize the acquired technology, or we may fail to retain key personnel, or accurately forecast the financial impact of an acquired business, including accounting charges.business. We may have to pay cash, incur debt or issue equity securities to pay for anyan acquisition, any of which could adversely affect 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 shareholders.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.

Moreover, opposition to one of more acquisitions could lead to negative ratings by analysts or investors, give rise to objections by one or more stockholders or result in shareholderstockholder activism, any of which could harm our stock price. Acquisitions can also lead to large non-cash charges that can have an adverse effect on our results of operations as a result of write-offs for items such as future impairments of intangible assets and goodwill or the recording of stock-based compensation.

Risks Related to our Common Stock

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

The market price of our common stock could beis subject to wide price fluctuations in response to various factors, many of which are beyond our control. The factors include:

the impact on global and regional economies as a result of the COVID-19 pandemic;
quarterly variations in our results of operations and liquidity or changes in our forecasts and guidance;
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 concerningregarding estimates of our business andnet revenues, operating results of operations;or other performance indicators;
announcements by us or our competitors or new market entrants;
entrants, including strategic actions, by us or our competitors, such as management changes, and material transactions or acquisitions;
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Tabletechnical 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 Contentsretail 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 of our common stock, credit agreements and debt issuances;
announcements of technological innovations, new, additional or newrevised programs, business models, products or product offerings by us, our customers or competitors;
key decisions in pending litigationlitigation;
sales of stock by us, our officers or directors; and
general economic market conditions.

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 haveare often been unrelated to or disproportionate to the operating performance of those companies. These broad market and industry factors may include market expectations of, or actual changes in, monetary policies that have the goal of easing or tightening interest rates such as the federal funds rate in the U.S. and austerity measures of governments intended to control budget deficits. Historically, our stock has fluctuated materially based on broad economic and industry factors unrelated to our actual performance and future changes in monetary policies, austerity, and other market factors may seriously harm the market price of our common stock, regardless of our operating performance. Historically, class action litigation is often brought against an issuing company following periods of volatility in the market price of its securities and we have not been excepted from such litigation.

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

We have a history of recurring stock repurchase programs intended to return capital to our investors. Although repurchases were suspended in 2020 primarily as a result of uncertainties regarding the pandemic, we ended the suspension in the second quarter of 2021 with two accelerated stock repurchase programs in the aggregate amount of $200 million which also
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included the announcement of a $1 billion stock repurchase authorization by our Board of Directors. Any authorizationfurther authorizations or continuance of our shareexisting stock repurchase programs is contingent on a variety of factors, including our financial condition, results of operations, business requirements, and our boardBoard of directors'Directors' continuing determination that sharestock 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 repurchaserepurchasing 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.

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

A large 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 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 publicstock by creating the perception of difficulties or problems with our business andthat may depress our stock price.

Increased scrutiny of our environmental, social or governance responsibilities have and will likely continue to result in additional costs and risks, and may adversely impact our reputation, employee retention, and willingness of customers and suppliers to do business with us.

Investor advocacy groups, institutional investors, investment funds, proxy advisory services, stockholders, and customers are increasingly focused on environmental, social and governance ("ESG") practices of companies. Additionally, public interest and legislative pressure related to public companies’ ESG practices continues to grow. If our ESG practices fail to meet regulatory requirements or investor or other industry stakeholders' evolving expectations and standards for responsible corporate citizenship in areas 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 our operations, our brand, reputation and employee retention may be negatively impacted and customers and suppliers may be unwilling to do business with us. In addition, as we work to align our ESG practices with industry standards, we have expanded and, in the future, 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 expectations of stakeholders, our reputation, business, financial performance and growth may be adversely impacted.

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ITEM 2.        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities
There were no
None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table summarizes the stock repurchases duringrepurchase activity for the three months ended June 30, 2020. As of June 30, 2020,2021:

PeriodTotal Number of Shares RepurchasedAverage Price Paid per ShareTotal Number of Shares Repurchased as Part of Publicly Announced Programs
Approximate Dollar Value of Shares that May Yet Be Repurchased Under the Programs(1)
April 1, 2021 through April 30, 2021— $— — $100,000,000 
May 1, 2021 through May 31, 2021277,314 $576.96 277,314 $900,000,000 
June 1, 2021 through June 30, 2021— $— — $— 
Total277,314 277,314 

(1) Stock Repurchase Programs:

May 2018 Repurchase Program. In April 2021, we haveentered into an accelerated stock repurchase agreement ("ASR") to repurchase $100.0 million available for repurchase under the $600.0of our common stock, completing our May 2018 Repurchase Program. We paid $100.0 million repurchase program authorized byon May 3, 2021 and received an initial delivery of approximately 0.1 million shares based on current market price of $595.53, which were retired.

May 2021 Repurchase Program. In May 2021, we announced that our Board of Directors inhad authorized a plan to repurchase up to $1.0 billion of our common stock. In the same period, we entered into an ASR to repurchase $100.0 million of our common stock. We paid $100.0 million on May 2018 (Refer18, 2021 and received an initial delivery of approximately 0.1 million shares based on current market price of $559.52, which were retired. Subsequent to the second quarter, on July 30, 2021, we entered into an ASR to repurchase $75.0 million of our common stock. We paid $75.0 million on August 2, 2021 and received an initial delivery of approximately 0.1 million shares based on current market prices. The final number of shares to be repurchased will be based on our volume-weighted average stock price under the terms of the ASR, less an agreed upon discount.

See Note 12 “Common9 Common Stock Repurchase Programs” Programsof the Notes to Condensed Consolidated Financial Statements for details on our stockthe repurchase program).programs.

ITEM 3.        DEFAULTS UPON SENIOR SECURITIES

Not applicable.
 
ITEM 4.        MINE SAFETY DISCLOSURES

Not applicable.
 
ITEM 5.        OTHER INFORMATION

None
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ITEM 6.        EXHIBITS

(a) Exhibits:
Exhibit
Number
DescriptionFilingDate
Exhibit
Number
Filed 
herewith
*
*
*
*
*
*
101.INSInline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).*
101.SCHInline XBRL Taxonomy Extension Schema Document*
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document*
101.LABInline XBRL Taxonomy Extension Label Linkbase Document*
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document*
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)*

†     Furnished herewithThe certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the SEC and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 ALIGN TECHNOLOGY, INC.
July 31, 2020August 4, 2021By:/s/ JOSEPH M. HOGAN
Joseph M. Hogan
President and Chief Executive Officer
By:/s/ JOHN F. MORICI
John F. Morici
Chief Financial Officer and Senior Vice President, Global Finance

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