Align Technology (ALGN) 10-K risk factor changes: FY2017 vs FY2016

If orthodontists and GPs experience a reduction in consumer demand for orthodontic services, if consumers prove unwilling to adopt Invisalign as rapidly as we anticipate or in the volume that we anticipate, if orthodontists or GPs choose to use a competitive product rather than Invisalign or if the average selling price of our product [removed: declines,] [added: declines for any reason, including as a result of a shift in product mix towards lower priced products,] our operating results would be harmed.

[added: Currently, our products compete directly against products manufactured and distributed by various companies, both within and outside the U.S.] In addition, as a result of the expiration of certain key patents owned by us, [removed: commencing] [added: which began] in 2017, we expect that [removed: these] existing competitors [added: such] as [added: Danaher Corporation, Dentsply Sirona Inc., Straumann AG, 3M, 3Shape and Angel Align as] well as new entrants into the clear aligner market [added: such as start-ups] will begin offering an orthodontic system more similar to ours in the near future.

Furthermore, we also face competition [removed: for] [added: from] companies that now offer clear aligner therapy directly to the consumer eliminating the need for the consumer to visit a dental office.

Our key production steps are performed in operations located outside of the U.S. [removed: At our facility in] [added: In] San Jose, Costa Rica, technicians use a sophisticated, internally developed computer-modeling program to prepare digital treatment plans, which are then transmitted electronically to Juarez, Mexico.

Our order acquisition, aligner fabrication and shipping operations are conducted in Juarez, [removed: Mexico] [added: Mexico,] and [removed: starting in July 2016,] we [removed: transitioned] [added: also have] order acquisition for [added: the] EMEA region [removed: to our facility] in Amsterdam, the Netherlands.

We also have customer-care, accounts receivable, [removed: credit and collections,] customer event registration and accounts payable organizations located [removed: at our facility] in San Jose, Costa Rica.

In addition, we have operations in Israel where the design and wand [removed: assembly] [added: are assembled] and our intraoral scanner [removed: are] [added: is] manufactured.

| • | difficulties in managing international operations, including any travel restrictions to or from our [removed: facilities located in Russia, Israel and other countries;] [added: facilities;] |

| • | the engagement of activities by our employees, contractors, partners and agents, especially in countries with developing economies, that are prohibited by international and local trade and labor laws and other laws prohibiting corrupt payments to government officials, including the Foreign Corrupt Practices Act, the [removed: UK] [added: United Kingdom ("UK")] Bribery Act of 2010 and export control laws, in spite of our policies and procedures designed to ensure compliance with these laws; |

Outside of North America, we currently sell our products in [added: certain countries within] Europe, Asia Pacific, Latin America and the Middle East and may expand into other countries from time to time.

A general slowdown in the U.S. economy and certain international economies or an uncertain economic outlook would adversely affect consumer spending habits which may, among other things, result in a decrease in the number of overall orthodontic case starts, reduced patient traffic in dentists’ offices, reduction in consumer spending on [added: elective or] higher value procedures or a reduction in the demand for dental services generally, each of which would have a material adverse effect on our sales and operating results.

We provide [removed: volume based] [added: volume-based] discount programs to our doctors.

If we [added: change the volume-based discount accounting that affects our average selling prices; if we] introduce any price reductions or consumer rebate programs; if we expand our discount programs in the future or participation in these programs increases; or if our product mix shifts to lower priced products or products that have a higher percentage of deferred revenue, our average selling prices would be adversely affected and our net revenues, gross profit, gross margin and net income may be reduced.

Net revenues and net income generated by subsidiaries operating outside of the U.S. are translated into U.S. dollars [added: using exchange rates effective during the respective period and are affected by changes in exchange rates.]

[removed: In the near term, we intend to establish] [added: We are establishing] additional order [removed: acquisition and] [added: acquisition,] treatment planning [added: and manufacturing] facilities closer to our international customers in order to improve our operational efficiency and provide doctors with a better experience to further improve their confidence in using Invisalign to treat more patients, more often.

If the transition into [removed: this] [added: these] additional [removed: facility] [added: facilities] is significantly delayed or demand for our product exceeds our current expectations, we may not be able to fulfill orders timely, which may negatively impact our financial results and overall business.

[removed: Production of our intraoral scanners may also be limited by capacity] constraints due to a variety of factors, including our dependency on third party vendors for key components in addition to limited production yields.

| • | limited visibility into and difficulty predicting [added: from quarter to quarter,] the level of activity in our customers’ practices [removed: from quarter to quarter;] [added: including limited visibility into the number of aligners purchased by SmileDirectClub, LLC ("SDC") under the supply agreement;] |

| • | weakness in consumer spending as a result of [removed: the] [added: a] slowdown in the [added: global,] U.S. [removed: economy and global] [added: or other] economies; |

| • | disruptions to our business as a result of our agreement to manufacture clear aligners for [removed: SmileDirectClub, LLC ("SDC"), including,] [added: SDC, including] market acceptance of the SDC business model and product, possible adverse customer reaction and negative publicity about us and our products; |

Since it [added: typically] takes approximately 12 to 24 months to treat a patient, our customers may be unwilling to rapidly adopt our new products until they successfully complete at least one case or until more historical clinical results are available.

If we cannot deliver our products in an efficient and timely manner, our customers may reduce their orders from us and our net revenues and [removed: operating profits] [added: gross margin] could materially decline.

As a result, if we are unable to accurately predict our volume growth, we may not have a sufficient number of trained technicians to deliver our products within the [removed: timeframe] [added: time frame] our customers expect.

Our digital dental modeling is [added: primarily] processed in our facility located in San Jose, Costa Rica.

[removed: 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 a significant delay in receiving their completed aligners and a decrease in service levels for a period of time.

In addition, our corporate headquarters [removed: facility] in California is located in the San Francisco Bay Area.

Because of the confidential health information we store and transmit, security breaches could expose us to a risk of regulatory action, litigation, [added: possible liability and loss.]

[removed: Our] [added: We have experienced such breaches in the past and our] security measures may be inadequate to prevent security breaches, and our business operations and profitability would be adversely affected by, among other things, loss of customers and potential criminal and civil sanctions if they are not prevented.

Therefore, it is critical that our facilities and infrastructure remain secure and [removed: that our facilities and infrastructure] are [added: also] perceived by the marketplace and our customers to be secure.

Despite the implementation of security measures, [added: we have experienced such breaches in the past and] our infrastructure may be vulnerable to physical break-ins, computer viruses, programming [removed: errors,] [added: errors or other technical malfunctions, hacking or phishing] attacks by third [removed: parties] [added: parties, employee error] or [added: malfeasance or] similar disruptive problems.

If we fail to meet our [removed: clients’] [added: customer and patient’s] expectations regarding the security of healthcare information, we could be liable for damages and our reputation [added: and competition position] could be impaired.

As of December 31, [removed: 2016,] [added: 2017,] we had [removed: issued 425] [added: 420 active] U.S. patents, [removed: 370] [added: 456 active] foreign [removed: issued] patents, and [removed: 386] [added: 416] pending global patent applications.

Litigation, interferences, oppositions, [added: re-exams,] inter partes [added: reviews, post grant] reviews or other proceedings are, have been and may in the future be necessary in some instances to determine the validity and scope of certain of our proprietary rights, and in other instances 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, [added: re-exams,] inter partes reviews, [added: post grant reviews,] administrative challenges or other similar types of proceedings are unpredictable and may be protracted, expensive and distracting to management.

While we believe our internal control over financial reporting is currently effective, the effectiveness of our internal controls in future periods is subject to the risk that our controls may become inadequate because of changes in conditions including our transition [removed: to a new] [added: of further business operations into our] ERP software system, and, as a result, the degree of compliance of our internal control over financial reporting with the existing policies or procedures may become ineffective.

Conversely, in order to secure supplies for production of products, we sometimes enter into non-cancelable [added: minimum] purchase commitments with vendors, which could impact our ability to adjust our inventory to reflect declining market demands.

For example, [removed: the implementation of] these disclosure requirements may decrease the number of suppliers capable of supplying our needs for certain metals, thereby negatively affecting our ability to obtain products in sufficient quantities or at competitive prices.

In response to perceived increases in health care [removed: costs in recent years,] [added: costs,] Congress passed health care reform legislation that was signed into law in March 2010.

Impairments in the value of our investments [added: and receivables] could negatively impact our financial results.

If we determine that our investments [added: and receivables] in SDC or other privately held companies have experienced a decline in value, we may be required to record impairments, which could be material and could have an adverse impact on our financial results.

In 2017, we opened new treatment planning facilities in Chengdu, China and Cologne, Germany to support our customers within these regions.

We will continue to establish additional order acquisition and treatment planning facilities closer to our international customers in order to improve our operational efficiency.

Production of our intraoral scanners may also be limited by capacity

| • | changes in accounting standards, policies and estimates including changes made by our equity investee; and |

If there is a major earthquake or any other natural

Affected parties could initiate legal or 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.

We are also subject to several federal, state and foreign laws and regulations, including ones relating to privacy, data protection, content regulation, and consumer protection.

These laws and regulations are constantly evolving and may be interpreted, applied, created or amended in a manner that could adversely affect our business.

Certain of our key patents began to expire in 2017, which may result in increased competition or less expensive alternatives to our products.

With the adoption of the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, we also anticipate our first quarter effective tax rate to vary significantly due to the timing of when majority of our equity compensation vests each year.

Other quarters can also be impacted depending on the timing of equity vests.

On December 22, 2017, the U.S. enacted significant tax reform, and certain provisions of the new law may adversely affect us.

In addition, governmental tax authorities are increasingly scrutinizing the tax positions of companies.

Currently, our products compete directly against products manufactured and distributed by various companies, both within and outside the U.S. Many of these manufacturers, including Danaher Corporation, Sirona Dental Systems, Inc., Dentsply International, Inc. and 3M, have substantially greater financial resources and manufacturing and marketing experience than we do.

| | |

| --- | --- |

| • | increased income taxes, and other restrictions and limitations, if we were to decide to repatriate any of our foreign cash balances back to the U.S.; |

In addition, President Donald Trump and his administration have made recent statements regarding the possibility of changing the way in which the international operations of U.S. companies are taxed, including through the implementation of a border tax, tariff or increase in custom duties on products manufactured in countries outside of the U.S., such as Mexico, and imported into the U.S. In the event such taxes, tariffs, increased custom duties or other measures are implemented, they could have a materially adverse effect on our business and or operating results, and we may have to consider relocating some of our international operations.

| • | although it is our intention to indefinitely reinvest earnings outside the U.S., restrictions on the transfer of funds held by our foreign subsidiaries, including with respect to restrictions on our ability to repatriate foreign cash to the U.S at favorable tax rates; |

In July 2015, we launched a new product policy called "Additional Aligners at No Charge" that addresses one of our customer's top complaints.

With this product policy change, we no longer distinguish between mid-course correction and case refinements and allow doctors to order additional aligners to address either treatment need at no charge, subject to certain requirements.

Based on this product policy, beginning in the third quarter of 2015, we deferred more revenue as a result of providing free additional aligners for eligible treatments.

Additionally, as we grandfathered over 1 million open cases, we will recognize lower revenues as additional aligners are shipped for at least the following two years until these cases complete.

using exchange rates effective during the respective period and are affected by changes in exchange rates.

| • | changes in accounting rules; and |

Additionally, this implementation may not achieve the anticipated benefits and may divert management's attention from other operational activities, negatively affect employee morale, or have other unintended consequences.

possible liability and loss.

Our accounting

The incentive tax rates will expire in various years beginning in 2017.

We intend to seek a renewal of these income tax incentives before they expire.

The benefit of the tax holiday on diluted net income per share was $0.23 in the year ended December 31, 2016 and $0.40 in each of the year ended December 31, 2015 and 2014.

Our subsidiary in Israel is under audit by the local tax authorities for calendar years 2006 through 2013.

In addition, the current U.S. administration and key members of Congress have made public statements indicating that tax reform is a priority.

Certain changes to U.S. tax laws, including limitations on the ability to defer U.S. taxation on earnings outside of the United States until those earnings are repatriated to the United States, could affect the tax treatment of our foreign earnings.

We intend to achieve this by continued focus and execution of our strategic growth drivers set forth in the Business Strategy section in [removed: our] [added: this] Annual Report on Form 10-K.

The successful execution of our business strategy in [removed: 2017] [added: 2018] and beyond may be affected by a number of other factors including:

[removed: ][added: ]

| ◦ | Total utilization in the fourth quarter of [removed: 2016] [added: 2017] increased to [removed: 5.2] [added: 5.7] cases per doctor compared to [removed: 4.9] [added: 5.2] in the fourth quarter of [removed: 2015.] [added: 2016.] |

| ▪ | North America: Utilization among our North American orthodontist customers reached an all time high [removed: of 11.3 cases per doctor] in the fourth quarter of [removed: 2016 compared] [added: 2017 at 14.0 cases per doctor. Compared] to [removed: 9.9] [added: 11.3 cases per doctor utilized] in the fourth quarter of [removed: 2015. The] [added: 2016, the] increase in North America orthodontist utilization [added: in the fourth quarter of 2017] reflects improvements in product and technology which continues to strengthen our doctors’ clinical confidence [removed: in the use of Invisalign] such that they now utilize Invisalign more often and on more complex cases, including their teenage patients. |

| ▪ | International: International doctor utilization of [removed: 5.0] [added: 5.2] cases per doctor in the fourth quarter of [removed: 2016 was flat] [added: 2017] compared [removed: with] [added: to 5.0 in] the fourth quarter of [removed: 2015.] [added: 2016.] The International utilization reflects growth in both the [removed: Europe, Middle East and Africa ("EMEA")] [added: EMEA] and [removed: Asia Pacific ("APAC")] [added: APAC] regions due to increasing adoption of the product [removed: and] [added: due in part to] its ability to treat more complex [removed: cases; however, utilization remained flat primarily due to the expansion of our customer base, particularly in APAC.] [added: cases.] |

We expect that over the long-term our utilization rates will gradually improve as a result of advancements in product and technology, which continue to strengthen our doctors’ clinical confidence in the use of [removed: Invisalign; however, we expect that our utilization rates may fluctuate from period to period due to a variety of factors, including seasonal trends in our business along with adoption rates of new products and features.][added: Invisalign.]

| • | Number of New Invisalign Doctors Trained. We continue to expand our Invisalign customer base through the training of new doctors. In [removed: 2016,] [added: 2017,] Invisalign growth was driven primarily by increased utilization across all regions as well as by the continued expansion of our customer base as we trained a total of [removed: 11,680] [added: 16,500] new Invisalign doctors, of which [removed: 60%] [added: 67%] were trained internationally. |

| • | International Invisalign Growth. We will continue to focus our efforts towards increasing Invisalign adoption by dental professionals in our direct international markets. On a year over year basis, international Invisalign volume increased [removed: 32.4%] [added: 52.3%] driven primarily by strong performance in our APAC and [removed: in Europe] [added: EMEA] regions. [added: We believe that the introduction of Invisalign Teen treatment with mandibular advancement is helping to raise visibility for Invisalign treatment of teenagers and contributed to some of the growth in the APAC market.] In [removed: 2017,] [added: 2018,] we are continuing to expand in our existing markets through targeted investments in sales coverage and professional marketing and education programs, along with consumer marketing in selected country markets. We expect international Invisalign [added: clear aligner] revenues to continue to grow at a faster rate than North America for the foreseeable future due to our continued investment in international market expansion, the size of the market opportunity, and our relatively low market penetration [removed: in this region] [added: of these regions] (Refer to Item 1A Risk Factors \- “We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.” for information on related risk factors). |

| • | Establish Regional Order [removed: Acquisition and] [added: Acquisition,] Treatment Planning [removed: Facilities:] [added: and Manufacturing Operations.] We [removed: intend] [added: will continue] to establish [added: and expand] additional order [removed: acquisition and] [added: acquisition,] treatment planning [removed: facilities] [added: and manufacturing operations] closer to our international customers in order to improve our operational efficiency and [added: to] provide doctors [removed: with a great experience to further improve their] confidence in using Invisalign [added: clear aligners] to treat more patients and more [removed: often (Refer to Item 1A Risk Factors - “As we continue to grow, we are subject to growth related risks, including risks related to excess or constrained capacity at our existing facilities.” for information on related risk factors).] [added: often:] |

| • | Operating Expenses. We expect operating expenses to increase in [removed: 2017] [added: 2018] due in part to: |

| ◦ | [removed: investments] [added: Investments] in international expansion in new country [removed: markets particularly in the APAC region;] [added: markets;] |

| ◦ | [removed: increases] [added: Increases] in [removed: sales] [added: sales, marketing] and customer support resources; [added: and] |

We believe that these investments will position us to increase our [removed: revenue] [added: revenues] and continue to grow our market share.

| ◦ | April [removed: 2014] [added: 2016] Repurchase Program. In [removed: 2016,] [added: 2017,] we [removed: repurchased] [added: repurchased,] $50.0 million of our common stock through an accelerated stock repurchase agreement and [removed: $46.2] [added: $50.0] million [removed: of stock repurchase in] [added: on] the open market. |

| ◦ | Remaining Available Repurchases. As of December 31, [removed: 2016,] [added: 2017,] we have [removed: $3.8] [added: $200.0] million remaining under the April [removed: 2014] [added: 2016] Repurchase [removed: Program and $300.0] [added: Program. In February 2018, we repurchased approximately 0.4] million [removed: under] [added: shares on] the [removed: April 2016 Repurchase Plan] [added: open market for an aggregate purchase price of $100 million, at an average share price of $252.24] (Refer to Note 10 "Common Stock Repurchase Program" of the Notes to Consolidated Financial Statements for details on stock repurchase program). |

Net Revenues by Reportable Segment Comparison for Year Ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014:][added: 2015:]

| [removed: •] [added: ◦] | [removed: Our Clear Aligner segment consists of] [added: Non-Comprehensive Products include] our Invisalign [removed: system which includes] [added: Express,] Invisalign [removed: Full, Teen and Assist ("Comprehensive Products"), Express/Lite ("Non-Comprehensive Products"), Vivera retainers, along with our training] [added: Lite, Invisalign i7] and [removed: ancillary] [added: Invisalign Go] products [removed: for treating malocclusion ("Non-Case"). Clear Aligner segment also include] [added: in addition to revenues from] the sale of aligners to [removed: SDC] [added: SmileDirectClub (“SDC”)] under our supply [removed: agreement which commenced in the fourth quarter of 2016.] [added: agreement. Revenue from] SDC [removed: revenue] is recorded after eliminating outstanding intercompany transactions. |

Net revenues for our Clear Aligner segment and Scanner segment by region for the year ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014] [added: 2015] are as follows (in millions):

| Net Revenues | December 31, [removed: 2016] [added: 2017] | | | | December 31, [removed: 2015] [added: 2016] | | | | Change | | | | | | | December 31, [removed: 2015] [added: 2016] | | | | December 31, [removed: 2014] [added: 2015] | | | | Change | | | | | |

| North America | $ | [removed: 568.7] [added: 744.6] | | | $ | [removed: 498.7] [added: 568.7] | | | $ | [removed: 70.0] [added: 175.9] | | | [removed: 14.0] [added: 30.9] | % | | $ | [removed: 498.7] [added: 568.7] | | | $ | [removed: 446.6] [added: 498.7] | | | $ | [removed: 52.1] [added: 70.0] | | | [removed: 11.7] [added: 14.0] | % |

| International | [removed: 326.6] [added: 483.0] | | | | [removed: 250.1] [added: 326.6] | | | | [removed: 76.5] [added: 156.4] | | | | [removed: 30.6] [added: 47.9] | % | | [removed: 250.1] [added: 326.6] | | | | [removed: 219.7] [added: 250.1] | | | | [removed: 30.4] [added: 76.5] | | | | [removed: 13.8] [added: 30.6] | % |

| Non-Case | [removed: 63.0] [added: 81.7] | | | | [removed: 51.4] [added: 63.0] | | | | [removed: 11.6] [added: 18.7] | | | | [removed: 22.6] [added: 29.7] | % | | [removed: 51.4] [added: 63.0] | | | | [removed: 46.2] [added: 51.4] | | | | [removed: 5.2] [added: 11.6] | | | | [removed: 11.3] [added: 22.6] | % |

| Total Clear Aligner net revenues | $ | [removed: 958.3] [added: 1,309.3] | | | $ | [removed: 800.2] [added: 958.3] | | | $ | [removed: 158.1] [added: 351.0] | | | [removed: 19.8] [added: 36.6] | % | | $ | [removed: 800.2] [added: 958.3] | | | $ | [removed: 712.5] [added: 800.2] | | | $ | [removed: 87.7] [added: 158.1] | | | [removed: 12.3] [added: 19.8] | % |

| Scanner net revenues | [removed: $] [added: 164.1] | [removed: 121.5] | | | [removed: $] [added: 121.5] | [removed: 45.3] | | | [removed: $] [added: 42.6] | [removed: 76.2] | | | [removed: 168.2] [added: 35.1] | % | | [removed: $] [added: 121.5] | [removed: 45.3] | | | [removed: $] [added: 45.3] | [removed: 49.1] | | | [removed: $] [added: 76.2] | [removed: (3.8] | [removed: )] | | [removed: (7.7] [added: 168.2] | [removed: )%] [added: %] |

| Total net revenues | $ | [removed: 1,079.8] [added: 1,473.4] | | | $ | [removed: 845.5] [added: 1,079.8] | | | $ | [removed: 234.3] [added: 393.6] | | | [removed: 27.7] [added: 36.5] | % | | $ | [removed: 845.5] [added: 1,079.8] | | | $ | [removed: 761.6] [added: 845.5] | | | $ | [removed: 83.9] [added: 234.3] | | | [removed: 11.0] [added: 27.7] | % |

Case volume data which represents Clear Aligner case shipments by region, for the year ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014] [added: 2015] is as follows (in millions):

| Region | December 31, [removed: 2016] [added: 2017] | | | December 31, [removed: 2015] [added: 2016] | | | Change | | | | | | December 31, [removed: 2015] [added: 2016] | | | December 31, [removed: 2014] [added: 2015] | | | Change | | | | |

| North America | [removed: 464.5] [added: 621.9] | | | [removed: 398.4] [added: 464.5] | | | [removed: 66.1] [added: 157.4] | | | [removed: 16.6] [added: 33.9] | % | | [removed: 398.4] [added: 464.5] | | | [removed: 338.5] [added: 398.4] | | | [removed: 59.9] [added: 66.1] | | | [removed: 17.7] [added: 16.6] | % |

| International | [removed: 244.7] [added: 354.5] | | | [removed: 184.8] [added: 244.7] | | | [removed: 59.9] [added: 109.8] | | | [removed: 32.4] [added: 44.9] | % | | [removed: 184.8] [added: 244.7] | | | [removed: 139.5] [added: 184.8] | | | [removed: 45.3] [added: 59.9] | | | [removed: 32.5] [added: 32.4] | % |

| Total case volume | [removed: 709.2] [added: 976.4] | | | [removed: 583.2] [added: 709.2] | | | [removed: 126.0] [added: 267.2] | | | [removed: 21.6] [added: 37.7] | % | | [removed: 583.2] [added: 709.2] | | | [removed: 478.0] [added: 583.2] | | | [removed: 105.2] [added: 126.0] | | | [removed: 22.0] [added: 21.6] | % |

Scanner net revenues increased by $76.2 million in 2016 compared to 2015 primarily as a result of an increase in the number of scanners recognized as we began shipping our next generation iTero Element scanner in September 2015, [added: which contributed $43.3 million in net revenues] and, to a lesser extent, an increase in ASP.

Fiscal Year [removed: 2015] [added: 2017] compared to Fiscal Year [removed: 2014][added: 2016]

Total net revenues increased by [removed: $83.9] [added: $393.6] million in [removed: 2015] [added: 2017 as] compared to [removed: 2014] [added: 2016] primarily as a result of case volume growth across all regions and products as well as increased non-case revenue.

North America net revenues increased by [removed: $52.1] [added: $175.9] million in [removed: 2015] [added: 2017] compared to [removed: 2014] [added: 2016] primarily due to case volume growth across all channels and [added: most] products which increased net revenues by [removed: approximately $79.0] [added: $192.6] million.

These increases were offset in part by [removed: lower ASP,] [added: a decrease in scanner ASP] which [removed: decreased] [added: reduced] net revenues by [removed: $26.9] [added: $3.3] million.

This [added: increase] was [removed: partially] offset [added: in part] by lower [removed: ASP] [added: average selling price ("ASP")] which decreased net revenues by [removed: approximately $41.1] [added: $16.7] million.

Non-case net revenues, consisting of training fees and ancillary product revenues, increased by [removed: $5.2] [added: $18.7] million in [removed: 2015 as] [added: 2017] compared to [removed: 2014] [added: 2016] primarily due to increased Vivera volume [removed: both] in [added: both] North America and International.

| | December 31, [removed: 2016] [added: 2017] | | | | December 31, [removed: 2015] [added: 2016] | | | | Change | | | | December 31, [removed: 2015] [added: 2016] | | | | December 31, [removed: 2014] [added: 2015] | | | | Change | | |

| Cost of net revenues | $ | [removed: 210.8] [added: 289.7] | | | $ | [removed: 172.0] [added: 210.8] | | | $ | [removed: 38.8] [added: 78.9] | | | $ | [removed: 172.0] [added: 210.8] | | | $ | [removed: 149.7] [added: 172.0] | | | $ | [removed: 22.3] [added: 38.8] | |

| • | New Products, Feature Enhancements and Technology Innovation. Product innovation drives greater treatment predictability and clinical applicability and ease of use for our customers which supports adoption of Invisalign treatment in their practices. Our focus is to develop solutions and features to treat a wide range of cases from simple to complex. Most recently, in March 2017, we announced Invisalign Teen with mandibular advancement, the first clear aligner solution for Class II correction in growing tween and teen patients. This new offering combines the benefits of the most advanced clear aligner system in the world with features for moving the lower jaw forward while simultaneously aligning the teeth. Invisalign Teen with mandibular advancement is now available in Canada, and select Europe, Middle East and Africa ("EMEA"), Asia Pacific ("APAC") and Latin America ("LATAM") countries. Invisalign Teen with mandibular advancement is pending 510(k) clearance and is not yet available in the United States ("U.S."). We believe that over the long-term, clinical solutions and treatment tools will increase adoption of Invisalign and increase sales of our intraoral scanners; however, it is difficult to predict the rate of adoption which may vary by region and channel. |

In addition, since the teenage market makes up 75% of the 10 million total orthodontic case starts each year and as we continue to drive adoption of teenage patients through sales and marketing programs, we expect our utilization rate to improve.

In 2017, 25.5% of our volume was from teenagers starting treatment with Invisalign, an increase of 40.4% from 2016.

Our utilization rates, however, may fluctuate from period to period due to a variety of factors, including seasonal trends in our business along with adoption rates of new products and features.

| ◦ | In June 2017, we opened a new treatment planning facility in Chengdu, China which services and supports our customers within China. It also serves as a clinical education and training center for all of our customers across Asia Pacific. |

| ◦ | In August 2017, we opened a treatment planning facility in Cologne, Germany to support our customers located in Europe. |

| ◦ | In 2017, we purchased two buildings in Costa Rica for a total purchase price of approximately $51.7 million in order to support our expanding treatment planning and customer service needs. |

| ◦ | In November 2017, we entered into an Investment Agreement with the People’s Republic of China in which we have committed to invest a minimum of $46.0 million in Ziyang, China over five years to establish manufacturing operations. |

Refer to Item 1A Risk Factors - “As we continue to grow, we are subject to growth related risks, including risks related to excess or constrained capacity at our existing facilities” for information on related risk factors and Refer to Note 9 "Commitments and Contingencies" of the Notes of Consolidated Financial Statements for more information on the Costa Rica purchase agreements and the China investment agreement.

| ◦ | Product and technology innovation to enhance product efficiency and operational productivity. |

| • | Stock Repurchases: April 2016 Repurchase Program. In 2017, we repurchased $50.0 million of our common stock through an accelerated stock repurchase agreement and repurchased $50.0 million on the open market. As of December 31, 2017, we had $200.0 million remaining under the April 2016 Repurchase Program. In February 2018, we repurchased $100.0 million of our common stock on the open market (Refer to Note 11 "Common Stock Repurchase Program" of the Notes to Consolidated Financial Statements for details on stock repurchase program). |

| • | U.S. Tax Cuts and Jobs Act. The U.S. Tax Cuts and Jobs Act (the “TCJA”) was enacted into law on December 22, 2017 and impacted our effective tax rate for the year ended December 31, 2017. The TCJA made significant changes to the Internal Revenue Code, including, but not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. We have estimated the impact of the TCJA and recorded a provisional amount of $84.3 million additional income tax expense in the fourth quarter of 2017. This provisional amount includes income tax expenses related to the remeasurement of certain deferred tax assets and liabilities of $10.4 million, and the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings in the amount of $73.9 million. Additional work is necessary for a more detailed analysis of our deferred tax assets and liabilities and our historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to tax expense in 2018 when the analysis is complete. |

| • | SmileDirectClub. In February 2018, we received a communication on behalf of SDC Financial LLC, SmileDirectClub LLC, and the Members of SDC Financial LLC other than Align (collectively, the "SDC Entities") alleging that the launch and operation of our Invisalign store pilot program constitutes a breach of non-compete provisions applicable to the members of SDC Financial LLC, including Align. As a result of this alleged breach, SDC Financial LLC has notified Align that its members (other than Align) seek to exercise a right to repurchase all of Align’s SDC Financial LLC membership interests for a purchase price equal to the current capital account balance of Align. The SDC Entities also allege that Align has breached confidentiality provisions applicable to the SDC Financial LLC members and demands that Align cease all activities related to the Invisalign store pilot project, close existing Invisalign stores and cease using SDC’s confidential information. Align disputes the allegations that it has breached its obligations to the SDC Entities, including the allegation that the SDC Entities are entitled to exercise a repurchase right. Pursuant to the parties’ agreement, the dispute will be arbitrated if it is not resolved through negotiations. We are currently evaluating the potential impact that this could have on our consolidated financial statements. |

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

| ◦ | Comprehensive Products include our Invisalign Full, Teen and Assist products. |

| ◦ | Non-Case includes our Vivera retainers along with our training and ancillary products for treating malocclusion. |

The ASP decline is a result of a shift in product mix towards Non-Comprehensive Products, primarily driven by increased SDC revenues which carry a lower ASP and higher Invisalign promotional discounts, which collectively reduced revenues by $58.4 million.

These factors contributing to the decline in ASP were offset in part by price increases on our Comprehensive Products effective on April 1, 2017 which contributed $28.4 million to net revenues as well as an increase in additional aligner revenue which contributed $10.8 million to net revenues, among other factors.

International net revenues increased by $156.4 million in 2017 compared to 2016 primarily driven by case volume growth across all channels and products which increased net revenues by $146.7 million and, to a lesser extent, higher ASP which contributed approximately $9.7 million to the increase in net revenues.

The increase in ASP was primarily due to price increases in our Comprehensive Products effective on July 1, 2017, as well as the impact from acquiring certain distributors as we now recognize direct sales at full ASP rather than the discounted ASP, which collectively contributed $24.7 million to net revenues.

The factors contributing to an increase in ASP were offset in part by higher promotional discounts which decreased net revenues by $12.6 million as well as an increase in net revenue deferrals of $3.6 million, among other factors.

Scanner net revenues increased by $42.6 million in 2017 compared to 2016 primarily as a result of an increase in the number of scanners recognized which increased net revenues by $29.7 million as well as higher CAD/CAM services resulting from a larger installed base of scanners which contributed $16.2 million to net revenues.

which contributed $23.7 million to net revenues.

Fiscal Year 2017 compared to Fiscal Year 2016

The gross margin percentage increased in 2017 compared to 2016 primarily due to a favorable product mix shift to our lower cost iTero Element scanner.

This was partially offset by a lower ASP.

We also incurred higher expenses from advertising and marketing of $34.2 million, equipment and maintenance costs of $21.9 million, and outside services costs of $20.3 million.

| | December 31, 2017 | | | | December 31, 2016 | | | | Change | | | | December 31, 2016 | | | | December 31, 2015 | | | | Change | | |

Research and development expense increased in 2017 compared to 2016 primarily due to higher compensation costs as a result of increased headcount resulting in higher salaries expense, incentive bonuses and fringe benefits.

| | December 31, 2017 | | | | December 31, 2016 | | | | Change | | | | December 31, 2016 | | | | December 31, 2015 | | | | Change | | |

Fiscal Year 2017 compared to Fiscal Year 2016

Operating margin percentage increased slightly in 2017 compared to 2016 as we leveraged our operating expenses on higher Clear Aligner revenues.

Operating margin percentage decreased in 2017 compared to 2016 due to higher operating expenses and, to a lesser extent, lower ASP.

| | December 31, 2017 | | | | December 31, 2016 | | | | Change | | | | December 31, 2016 | | | | December 31, 2015 | | | | Change | | |

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| | December 31, 2017 | | | | December 31, 2016 | | | | Change | | | | December 31, 2016 | | | | December 31, 2015 | | | Change | | |

Changes and percentages are based on actual values.

Certain tables may not sum or recalculate due to rounding.

| • | New Products, Feature Enhancements and Technology Innovation. Product innovation drives greater treatment predictability and clinical applicability and ease of use for our customers which supports adoption of Invisalign in their practices. Increasing applicability and treating more complex cases requires that we move away from individual features to more comprehensive solutions so that Invisalign providers can more predictably treat the whole case, such as with our Invisalign "G-Series" of product innovations, including our most recent October 2016 release of Invisalign G7. Invisalign G7 delivers better upper lateral control, improved root control and features to address prevention of posterior open bites. Concurrently, we also announced ClinCheck Pro 5.0, which has new features designed to deliver an improved and user friendly experience and increased control to Invisalign providers. Since the iTero Element began shipping in September 2015, the use of iTero scanners for Invisalign case submissions in place of Polyvinyl-siloxane ("PVS") impressions has gradually increased to a record 51.3% of cases from North America and 24.9% of cases from international doctors as of the fourth quarter of 2016. We believe that over the long-term, clinical solutions and treatment tools will increase adoption of Invisalign and increase sales of our intraoral scanners; however, it is difficult to predict the rate of adoption which may vary by region and channel. |

| ◦ | increases in expenses related to the purchase of our new corporate headquarters in San Jose, California; and |

| ◦ | product and technology innovation to address such things as treatment times, indications unique to teens and predictability. |

| • | Stock Repurchases: |

| ◦ | April 2016 Repurchase Program. On April 28, 2016, we announced that our Board of Directors had authorized a plan to repurchase up to $300.0 million of our stock. |

| • | SmileDirectClub. On July 25, 2016, we entered into a supply agreement with SmileDirectClub, LLC ("SDC") to manufacture clear aligners for SDC's doctor-led, at-home program for simple teeth straightening. In October 2016, we became SDC's exclusive third-party supplier and commercial supplying aligners for its minor tooth movement aligner program. As part of the transaction, we acquired a 17% equity interest in SDC for $46.7 million. We also provided a revolving line of credit to SDC of up to $15.0 million to fund their working capital and general corporate needs (Refer to Note 4 "Equity Method Investments" of the Notes to Consolidated Financial Statements for details on accounting treatment). |

We expect the supply agreement to be incremental to revenue growth in 2017.

| • | New Corporate Headquarters Office Purchase Agreement. On December 19, 2016, we entered into a Purchase and Sale Agreement (the "Purchase Agreement") with LBA RIV-COMPANY XXX, LLC ("Seller") to purchase the real property located in San Jose, California (the "Property") for the purchase price of $44.1 million. We closed the Purchase Agreement on January 26, 2017 (Refer to Note 8 "Commitments and Contingencies" of the Notes of Consolidated Financial Statements for more information on the Purchase Agreement). |

The decrease in ASP was primarily as a result of higher net revenue deferrals of $16.0 million, which includes the impact of our new additional aligner product policy launched in July 2015 of $8.9 million and the impact of higher promotional discounts in 2015 as compared to 2014 of $11.7 million.

These decreases in ASP were offset in part by the price increase, effective April 1, 2015 on our Comprehensive Products.

International net revenues increased by $30.4 million in 2015 compared to 2014 primarily driven by case volume growth across all products of $71.5 million.

The decrease in ASP was primarily as a result of the unfavorable impact from changes in foreign exchange rates primarily due to the weakening of the Euro compared to the U.S. dollar in 2015 compared to 2014 of $34.5 million, and, to a lesser extent, higher net revenue deferrals of $7.8 million which includes the impact of our new additional aligner product policy launched in July 2015 of $4.7 million, as well as higher promotional discounts of $6.3 million in 2015 compared to 2014.

These decreases were partially offset by an increase in ASP as we transitioned to direct sales in certain APAC countries and EMEA regions, as well as the price increase on our Comprehensive Products effective July 1, 2015.

Scanner net revenues decreased by $3.8 million in 2015 compared to 2014 primarily due to a decrease in scanner revenue, offset in part by a slight increase in services revenue.

In March 2015, we announced our next generation scanner and began shipping the iTero Element scanner in September 2015.

Scanner revenues declined in 2015 primarily due to fewer scanners recognized and permanent price reductions on our previous generation scanner.

The increase in services revenue was primarily due to an increase in the volume of CAD/CAM services resulting from a larger installed base of scanners.

The gross margin percentage decreased in 2015 compared to 2014 due to lower ASP from permanent price reductions on our previous generation scanner, higher manufacturing costs from lower production volumes and higher inventory reserves.

In addition, consulting costs increased by $9.7 million primarily due to our enterprise resource planning ("ERP") project.

Partially offsetting these increases was the MDET refund of $6.8 million received in the first quarter of 2015.

Research and development expense increased in 2015 compared to 2014 primarily as a result of our investment in obstructive sleep apnea which was terminated in the third quarter of 2015.

Operating margin percentage declined in 2015 compared to 2014 due to higher compensation costs as a result of increased headcount, higher research and development expenses due to our investment in obstructive sleep apnea and lower ASP.

Operating margin percentage decreased in 2015 compared to 2014 due to lower ASP, higher manufacturing costs, higher inventory reserves and increased compensation related costs.

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The decrease in the effective rate for the year ended December 31, 2015 compared to 2014 is mainly due to a $1.8 million tax adjustment recorded in 2014 which related to prior periods.

Our total gross unrecognized tax benefits, excluding interest and penalties, was $46.4 million and $39.4 million as of December 31, 2016 and 2015, respectively, all of which would impact our effective tax rate if recognized.

We have elected to recognize interest and penalties related to unrecognized tax benefits as a component of income taxes.

For the year ended December 31, 2016 and 2015, interest and penalties included in tax expense was $1.4 million and $0.7 million, respectively.

Our total interest and penalties accrued as of December 31, 2016 was $2.1 million.

We do not expect any significant changes to the amount of unrecognized tax benefit within the next twelve months.

We file U.S. federal, U.S. state, and non-U.S. income tax returns.

Our major tax jurisdictions are U.S. federal and the State of California.

For U.S. federal and state tax returns, we are no longer subject to tax examinations for years before 2000.

With few exceptions, we are no longer subject to examination by foreign tax authorities for years before 2007.

Our subsidiary in Israel is under audit by the local tax authorities for calendar years 2006 through 2013.

positive evidence to release the valuation allowance against our Israel operating loss carryforwards of $31.4 million, which resulted in an income tax benefit in this period of the same amount.

As of December 31, 2016, our remaining valuation allowance was not material.

The incentive tax rates will expire in various years beginning in 2017.

We intend to seek a renewal of these income tax incentives before they expire.

As of December 31, [removed: 2016,] [added: 2017,] we had approximately [removed: $310.8] [added: $312.0] million invested in available-for-sale marketable securities.

We do not have interest bearing liabilities as of December 31, [removed: 2016,] [added: 2017,] and, therefore, we are not subject to risks from immediate interest rate increases.

As a result of our international business activities, including the impact of [added: the change in] our new international corporate structure in 2016, 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.

For the year ended December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] we had foreign currency net [removed: losses] [added: gains (losses)] of [removed: $8.0] [added: $9.0] million and [removed: $4.0] [added: $(8.0)] million, respectively.

[removed: In September 2015, we started to] [added: We may] 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.

As of December 31, [removed: 2016,] [added: 2017,] we did not have any outstanding foreign exchange forward contracts.

Our headquarters is located at [removed: 2560] [added: 2820] Orchard Parkway, San Jose, California [removed: 95131,] [added: 95134,] and our telephone number is 408-470-1000.

For the year ended December 31, [removed: 2016,] [added: 2017,] Clear Aligner [added: net] revenues represent approximately 89% of worldwide [removed: revenue,] [added: net revenues,] while Scanner represent the remaining 11% of worldwide [added: net] revenues.

We [removed: distribute] [added: sell] the vast majority of our products directly to our customers: orthodontists and general practitioner dentists ("GPs"), as well as to restorative [added: and aesthetic] dentists, including prosthodontists, periodontists, and oral surgeons.

The Invisalign System is [removed: primarily] sold [added: primarily] through a direct sales force in [removed: the United States ("U.S."), Canada, Europe, certain] [added: North America,] Asia Pacific [removed: countries, Latin America and] [added: ("APAC"), Europe,] Middle East and Africa [removed: including Australia, New Zealand, China] [added: (EMEA)] and [removed: Japan.][added: Latin America.]

Our iTero scanner is used by dental professionals and/or labs and [removed: services] [added: service providers] for restorative and orthodontic digital procedures as well as Invisalign [removed: digital impression] [added: case] submission.

We received [removed: 501(k)] [added: 510(k)] clearance from the FDA to market iTero software for expanded indications in 2013.

Scanners and CAD/CAM Services are primarily sold through our direct sales force [added: and a few distributors] in North America, Europe and certain Asia Pacific [removed: countries including Taiwan, Singapore, Korea, Australia, New Zealand,] [added: countries,] and through distribution partners in Thailand, Scandinavia and Russia.

| Percentage of Net Revenues by Product | [removed: 2016] [added: 2017] | | [removed: 2015] [added: 2016] | | [removed: 2014] [added: 2015] | |

| Comprehensive Products | [removed: 72] [added: 69] | % | [removed: 78] [added: 72] | % | [removed: 77] [added: 78] | % |

| Non-Comprehensive Products | [removed: 11] [added: 14] | | 11 | | 11 | |

| Total Clear Aligner Segment | 89 | | [removed: 95] [added: 89] | | [removed: 94] [added: 95] | |

| Scanners [removed: and Services] Segment | 11 | | [removed: 5] [added: 11] | | [removed: 6] [added: 5] | |

Annually, approximately 10 million people in major developed countries elect treatment by orthodontists [removed: worldwide, of which approximately 50% or 5 million have mild to moderate malocclusion and are applicable to Invisalign treatment - our served market.][added: worldwide.]

[removed: In the U.S., orthodontists and GPs treat malocclusion primarily] [added: Most orthodontic patients are treated] with [added: the use of traditional methods such as] metal arch wires and brackets, referred to as braces, and [removed: they] may [removed: augment braces] [added: be augmented] with elastics, metal expanders, headgear or functional appliances, and other ancillary devices as needed.

Upon completion of the treatment, the dental professional may, at his or her discretion, have the patient use a [removed: retainer.][added: retainer appliance.]

The Invisalign System is a proprietary method for treating malocclusion based on a series of doctor-prescribed, custom manufactured, clear plastic, removable [removed: orthodontic] aligners.

The Invisalign-trained dental professional prepares and sends us a patient’s treatment data package which consists of a prescription form, a [removed: polyvinyl-siloxane,] [added: polyvinyl-siloxane] (or "PVS") impression of the relevant dental arches, photographs of the patient and, at the dental professional’s election, x-rays of the patient’s dentition.

[removed: We transform this initial digital model into] [added: Using propriety software which we do not sell, we generate] a proposed custom, three-dimensional treatment plan, called a ClinCheck treatment plan.

[added: The ClinCheck treatment plan simulates] appropriate tooth movement [removed: broken down into a series of increments] [added: in stages] and details timing and placement of any [added: features or] attachments that will be used during treatment.

From these molds, aligners are fabricated by pressure-forming polymeric sheets over each [removed: mold.]

Aligners are generally worn for [removed: consecutive two-week periods or less] [added: a period of time] which correspond to the [added: stages of the] approved ClinCheck treatment plan.

At the treating doctor’s discretion, we recommend changing from two-week aligner wear to one-week aligner wear for Invisalign treatments with Invisalign Full, Invisalign [removed: Teen] [added: Teen, Invisalign Assist, Invisalign Lite,] and Invisalign [removed: Assist] [added: Go] products, thereby reducing treatment time by up to 50%.

Should the dental professional determine that the treatment is not tracking for various reasons, such as patient compliance, certain teeth [added: movement] not tracking to plan, or they need to extend the treatment a few stages further to achieve their treatment goals, the dental professional can request additional aligners at no charge at any point during the treatment, subject to certain requirements.

Comprehensive [removed: Products:][added: Products - Invisalign Treatment Options:]

Used for a wide range of malocclusion, the Invisalign Full [added: and Invisalign Teen] treatment [removed: consists] [added: plans each consist] of the number of aligners necessary to achieve the doctor’s treatment goals.

[added: Aligners for] Invisalign Full [removed: treatment aligners] [added: and Invisalign Teen treatments (other than the replacement aligners)] are manufactured and then delivered to the dental professionals in a single shipment.

[removed: Invisalign Full is] [added: Both treatment options are] sold in the U.S., Canada and our international [removed: regions.][added: countries.]

Invisalign [added: Full and Invisalign] Teen.

Non-Comprehensive [removed: Products:][added: Products - Invisalign Treatment Options:]

Invisalign Express [removed: (10 and 5)] [added: 10, Invisalign Express 5, Invisalign i7] and Invisalign [removed: Lite/i7.][added: Lite.]

[removed: Invisalign Express treatments, Invisalign Lite treatment and Invisalign i7 treatment are lower-cost] [added: Lower-cost] solutions [added: are used] for less complex orthodontic cases, non-comprehensive treatment relapse cases, or straightening prior to restorative or cosmetic treatments such as veneers.

Invisalign [removed: Lite] [added: Express 10, Invisalign Express 5] and Invisalign [removed: i7, sold in our international regions,] [added: i7] use up to [removed: 14] [added: 10 sets, 5 sets] and 7 sets of aligners, respectively.

A simplified and streamlined solution designed for [removed: GP dentists] [added: GPs] to more easily identify and treat patients with mild malocclusion.

[removed: Align manufactures] [added: We manufacture] the aligners per SDC’s specifications for minor tooth movement using [removed: EX-30 aligner material.][added: EX-30.]

We have consistently introduced enhanced features across the Invisalign System over the past several [removed: years, such as Invisalign G3 (launched in October 2010), Invisalign G4 (launched in November 2011), Invisalign G5 (launched in February 2014) and Invisalign G6 (launched in March 2015).][added: years to improve treatment outcomes or address broader clinical indications.]

SmartTrack is a [removed: proprietary,] [added: patented,] custom-engineered Invisalign clear aligner material that delivers gentle, more constant force considered ideal for orthodontic tooth movements.

Conventional aligner materials relax and lose a substantial percent of energy in the initial days of aligner wear, but SmartTrack maintains more constant force over the period of time the patient wears the [added: aligners.]

[added: Additional] aligners.

The iTero [added: Element] scanner [added: (launched in September 2015)] is available as a single hardware platform with software options for restorative or orthodontic procedures.

In addition, the Invisalign Outcome Simulator and [removed: features] [added: Invisalign Assessment tool] are exclusive to the iTero scanner.

Align Technology, Inc (“We”, “Our”, “Align”) is a global medical device company engaged in the design, manufacture and marketing of Invisalign® clear aligners and iTero® intraoral scanners and services for orthodontics, restorative and aesthetic dentistry.

Align’s products are intended primarily for the treatment of malocclusion or the misalignment of teeth and are designed to help dental professionals achieve the clinical outcomes that they expect.

Our European headquarters is located in Amsterdam, the Netherlands and our Asia Pacific headquarters is located in Singapore.

Our Clear Aligner operating segment includes revenues from non-Invisalign aligners supplied to SmileDirectClub, LLC ("SDC").

Refer to "Supply Agreement with SmileDirectClub, LLC" section.

To date, over 5.2 million people worldwide have been treated with our Invisalign System.

Of the 10 million annual orthodontic cases started, approximately 60% or 6 million are applicable to Invisalign treatment - our served market.

In addition, approximately 300 million people with malocclusion could benefit from straightening their teeth, but are unlikely to seek treatment through a doctor’s office.

This represents an incremental opportunity for us as we expand the market for orthodontics by educating more consumers about the benefits of straighter teeth using Invisalign clear aligners and connect them with an Invisalign doctor of their choice.

See "Third Party Scanners and Digital scans for Invisalign treatment submission." More than 50% of Invisalign case submissions are submitted via digital scan instead of a physical PVS impression.

mold.

Invisalign Lite use up to 14 sets of aligners.

Non-comprehensive products are available in select country markets and delivered to the dental professionals in a single shipment.

Invisalign Go is available in core European markets and in certain markets in North America and Asia Pacific.

Non-Comprehensive Products - Non-Invisalign Aligners Supplied to SmileDirectClub, LLC:

Align does

not market or sell SDC products and ships supply of aligners directly to SDC when requested.

Refer to "Supply Agreement with SmileDirectClub, LLC" section.

Feature enhancements are marketed primarily under an Invisalign “G” series and have included Invisalign G3 (launched in October 2010), Invisalign G4 (launched in November 2011), Invisalign G5 (launched in February 2014), Invisalign G6 (launched in March 2015), and Invisalign G7 (launched in October 2016).

Invisalign Teen with mandibular advancement (launched in March 2017) is the first clear aligner solution for Class II correction in growing tween and teen patients.

This new offering combines the benefits of our clear aligner system with features for moving the lower jaw forward while simultaneously aligning the teeth.

Invisalign with mandibular advancement offers a simpler, more efficient and patient-friendly treatment option than functional appliances and without the need for elastics typically used to treat teen Class II patients.

Invisalign Teen with mandibular advancement is available is most country markets; however, it is pending 510(k) clearance in the U.S. and is not yet available for use.

Prior to the launch of iTero Element, we sold the iTero 2.9 scanner.

Software designed for GPs, prosthodontists, periodontists, and oral surgeons which includes restorative workflows providing them with the ability to send digital impressions to the lab of choice and communicate seamlessly with external treatment planning, custom implant abutment, chairside milling, and laboratory CAD/CAM systems.

Information regarding legal proceedings associated with the scanner may be found in Item 3 of this Annual Report on Form 10-K under the heading “Legal Proceedings.”

iTero Applications and Tools

Invisalign 3D Assessment tool.

TimeLapse.

TimeLapse technology allows doctors or practitioners to compare a patient’s historic 3D scans to the present-day scan, enabling clinicians to identify and measure orthodontic movement, tooth wear, and gingival recession.

This highlights areas of diagnostic interest to dental professionals and helps foster a proactive conversation with the patient regarding potential restorative or orthodontic solutions.

Our goal is to give patients of all ages access to the smiles they want and deserve.

Our smile-changing technology and innovations are designed to meet the demands of today’s patients with treatment options that are convenient, comfortable, affordable, while helping to improve overall oral health.

We strive to help our doctors move their practices forward by connecting them with new patients, providing digital solutions to help increase practice efficiency and helping them deliver the best possible treatment outcomes and experiences to millions of people around the world.

| 2. | Orthodontist Utilization. We continue to innovate and increase the product applicability and predictability to address a wide range of cases, from simple to complex, thereby enabling providers to confidently treat teenagers and adults with the Invisalign System. Over the last several years, we launched clinical innovations such as Invisalign G6 and Invisalign G7. In March 2017, we launched Invisalign with mandibular advancement, the first clear aligner solution for Class II correction in growing tween and teen patients. This new offering combines the benefits of the most advanced clear aligner system in the world with features for moving the lower jaw forward while simultaneously aligning the teeth. Approximately 30% to 45% of teen cases need Class II correction. Invisalign with mandibular advancement was launched in Canada, EMEA and APAC. It is pending 510(k) approval in the U.S. and therefore not currently available in the U.S. We also continue to make improvements to our Invisalign treatment software, ClinCheck Pro, designed to deliver an exceptional user experience and increase treatment control to help our doctors achieve their treatment goals. |

| 3. | GP Dentist Treat & Refer. We want to enable GPs, who have access to a large patient base, to more easily identify Invisalign cases they can treat, monitor patient progress or, if needed, help refer cases to an orthodontist while providing high-quality restorative, orthodontic, and dental hygiene care. The iTero scanner is an important component to that customer experience and is central to a digital approach as well as overall customer utilization of Invisalign treatment. The iTero scanner is optimized for Invisalign treatment with the Invisalign Outcome Simulator and Progress Assessment tool. In June 2017, we launched TimeLapse technology that allows doctors or practitioners to compare a patient’s 3D historic scans to the present-day scan, enabling clinicians to identify and measure orthodontic movement, tooth wear, and gingival recession. This highlights areas of diagnostic interest to dental professionals and helps foster a proactive conversation with the patient regarding potential restorative or orthodontic solutions. We also signed a distribution agreement with Patterson Dental for the iTero Element intraoral scanning system in the U.S. and Canada effective September 2017. Lastly, as part of expanding restorative workflows for iTero, in Q4 2017, we signed a distribution agreement with Glidewell Dental for the iTero Element scanner in North America with glidewell.ioTM In-Office Solution, a chairside restorative ecosystem designed to simplify the process of prescribing and delivering laboratory-quality dental restorations. |

| 4. | Patient Demand & Conversion. Our goal is to make Invisalign a highly recognized name brand worldwide by creating awareness for Invisalign treatment among consumers, motivating potential patients to seek Invisalign treatment and reaching more consumers. We accomplish this objective through an integrated consumer marketing strategy that includes television, media, social networking and event marketing as well as educating patients on treatment options and directing them to high volume Invisalign providers. In January 2017, we launched a new Smile Concierge program with the objective to help more U.S. consumers start Invisalign treatment and improve their overall experience by shortening their research cycles and utilizing consumer insights to help our doctors better engage with consumers. Our Smile Concierge program educates consumers on the benefits of Invisalign treatment, answers their questions, and helps them schedule an appointment with an Invisalign provider. In addition, as an extension of our direct-to-consumer channel and building on the Smile Concierge program, we opened our first Invisalign store pilot program in November 2017 aimed at connecting potential patients directly to doctors for Invisalign treatment by educating consumers on how Invisalign works, showing them a scan-driven simulation of how they might look with straighter teeth, and offering to connect interested consumers with an Invisalign doctor of their choice should they decide to pursue treatment (Refer to Note 4 "Equity Method Investments" of the Notes to Consolidated Financial Statements for a communication received from SDC on Invisalign store pilot program). |

While we are SDC's only third-party supplier, SDC also manufactures some of their own aligners.

Align does not market or sell SDC products.

Certain of our issued U.S. patents expired in 2017.

Align Technology, Inc (“We”, “Our”, “Align”) designs, manufactures and markets a system of clear aligner therapy, intraoral scanners and CAD/CAM (computer-aided design and computer-aided manufacturing) digital services used in dentistry, orthodontics, and dental records storage.

Our international headquarters is located in Amsterdam, the Netherlands.

We also supply clear aligners to SmileDirectClub, LLC ("SDC") who sells them directly to consumers, with a doctor’s approved prescription.

We use a distributor model for the sale of our products in non-core country markets in the Asia Pacific ("APAC"), Europe, Middle East and Africa ("EMEA"), and Latin America regions.

In addition, approximately 100 million people with malocclusion want to straighten their teeth; however, they will not seek orthodontic treatment in a doctor's office and would instead elect to receive clear aligner treatment in the convenience of their own home - referred to as the doctor-directed at home market.

Available options for improving treatment aesthetics include the use of ceramic, tooth-colored brackets or bonding brackets on the inside, or lingual surface, of the patient’s teeth.

The average treatment takes approximately 12 to 24 months to complete and requires several hours of direct dental professional involvement, known in the industry as “chair time,” including the initial diagnosis, creation of an appropriate treatment plan and bonding of the brackets to the patient’s teeth, and attachment of arch wires to the brackets.

Subsequent visits involve tightening or otherwise adjusting the braces approximately every six weeks until the final visit when the dental professional removes each bracket and residual bonding agent from the patient’s teeth.

GPs, may also combine orthodontic treatment with restorative treatment.

Many times the dental professional may need to move certain teeth or roots out of the way to create more space for implant placement, or move teeth to create space for restorations of missing teeth.

In addition, GPs may need to move or adjust teeth or spaces to be able to place better restorations.

The orthodontic portion of treatment generally comes before the restorative portion.

See "Third Party Scanners."

Upon receipt, we use the treatment data package to construct digital models of the patient’s dentition.

In cases where a PVS impression has been submitted, we use computed tomography, known as CT scanning to develop a digital, three-dimensional computer model of the patient’s current dentition.

In cases where the dental professional submits a digital scan, this step in the process is eliminated.

The ClinCheck treatment plan simulates

Treatment progress and request for additional aligners.

Invisalign Full.

This product is predominantly marketed to orthodontists who treat the vast majority of malocclusion in teenage patients.

Invisalign Teen treatment aligners (other than the replacement aligners) are manufactured and then delivered to the dental professionals in a single shipment.

Invisalign Teen is sold in the U.S., Canada and our international regions.

Invisalign Express 10 and Invisalign Express 5, which are sold in the U.S. and Canada, use up to 10 and 5 sets of aligners, respectively, and are also available as a single arch option.

For Invisalign Express/Lite/i7, aligners are manufactured and then delivered to the dental professionals in a single shipment.

Invisalign Go was launched in core European markets in the fourth quarter of 2016 and is expected to launch in North America in the first quarter of 2017.

In October 2016, we launched Invisalign G7, a set of features designed to deliver greater control of tooth movements and improved treatment outcomes.

Invisalign G5 innovations for deep bite is engineered to improve clinical outcomes in deep bite treatment with Invisalign treatment.

Comprehensive features dedicated to deep bite treatment include new SmartForce® features that are designed to level the curve of spee by improving control of anterior intrusion and premolar extrusion for more predictable deep bite treatments, and precision bite ramps that are designed to disocclude the posterior teeth for improved efficiency in deep bite treatments.

Invisalign G6 clinical innovations for first premolar extraction is engineered to improve clinical outcomes for orthodontic treatment of severe crowding and bimaxillary protrusion.

Feature enhancements include new SmartStage programmed tooth movements that optimize the progression of tooth movements and provide aligner activation, engineered to eliminate unwanted tipping and unwanted anterior extrusion during retraction and new SmartForce features that are designed to deliver the force systems necessary to achieve predictable tooth movements.

Invisalign G7 builds on earlier Invisalign G-series releases with new features to fine-tune certain tooth movements and deliver treatment outcome quality that Invisalign providers expect, particularly with teenage patients.

Powered by Invisalign SmartStage technology that optimizes the staging and sequence of tooth movements and aligner activation for greater predictability, Invisalign G7 delivers better upper lateral control, improved root control, and features to address prevention of posterior open bites.

In March 2015, we announced our next generation iTero Element Intraoral Scanner which features a more compact footprint, enhanced wand and multi-touch display and is engineered to enable faster scan speeds for more efficient, real-time clinical evaluation.

We began shipping the iTero Element Intraoral Scanner in September 2015.

Software designed for GPs, prosthodontists, periodontists, and oral surgeons which includes features for restorative procedures commonly performed in their practices such as veneers, inlays, onlays, crowns, bridges and implants.

The iTero restorative software provides the ability to scan quadrants and full arches, and allows simple powder-free capture of digital impressions for single-unit cases as well as more complex restorative and implant treatment plans.

The iTero software also contains Invisalign interoperability to support clear aligner orthodontic treatment.

The iTero orthodontic software digitally captures the contours of the dentition and the gingival structures, providing an accurate, powder-free digital orthodontic scan in just minutes.

This digital impression procedure ensures a more comfortable patient experience and produces a precise scan that can be seamlessly integrated with Invisalign treatment, OrthoCAD iCast, and OrthoCAD iRecord which allows a doctor to utilize sophisticated measurement and treatment planning tools.

Chair Side Applications

In [removed: addition, in] the 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 [removed: 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 [removed: flows.][added: flows (Refer to Note 8 "Legal Proceedings" of the Notes to Consolidated Financial Statements for details on legal proceedings).]

Patent Infringement Lawsuit

On November 14, 2017, Align filed six patent infringement lawsuits asserting 26 patents against 3Shape A/S, 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.

Align filed two Section 337 complaints with the U.S. International Trade Commission (ITC) alleging that 3Shape violates U.S. trade laws by selling for importation and importing its infringing Trios intraoral scanning system and Dental System software.

Align's ITC complaints seek cease and desist orders and exclusion orders prohibiting the importation of 3Shape's Trios scanning system and Dental System software products into the U.S. Align also filed four separate complaints in the United States District Court for the District of Delaware alleging patent infringement by 3Shape's Trios intraoral scanning system and Dental System software.

All of these district court complaints seek monetary damages and injunctive relief against further infringement.

on us because of defense costs, diversion of management resources, and other factors.

Securities Class Action Lawsuit

On November 28, 2012, plaintiff City of Dearborn Heights Act 345 Police & Fire Retirement System filed a lawsuit against Align, Thomas M.

Prescott (“Mr. Prescott”), Align’s former President and Chief Executive Officer, and Kenneth B.

Arola (“Mr. Arola”), Align’s former Vice President, Finance and Chief Financial Officer, in the United States District Court for the Northern District of California on behalf of a purported class of purchasers of our common stock (the “Securities Action”).

On July 11, 2013, an amended complaint was filed, which named the same defendants, on behalf of a purported class of purchasers of our common stock between January 31, 2012 and October 17, 2012.

The amended complaint alleged that Align, Mr. Prescott and Mr. Arola violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and that Mr. Prescott and Mr. Arola violated Section 20(a) of the Securities Exchange Act of 1934.

Specifically, the amended complaint alleged that during the purported class period defendants failed to take an appropriate goodwill impairment charge related to the April 29, 2011 acquisition of Cadent Holdings, Inc. in the fourth quarter of 2011, the first quarter of 2012 or the second quarter of 2012, which rendered our financial statements and projections of future earnings materially false and misleading and in violation of U.S. GAAP.

The amended complaint sought monetary damages in an unspecified amount, costs and attorneys’ fees.

On December 9, 2013, the court granted defendants’ motion to dismiss with leave for plaintiff to file a second amended complaint.

Plaintiff filed a second amended complaint on January 8, 2014 on behalf of the same purported class.

The second amended complaint states the same claims as the amended complaint.

On August 22, 2014, the court granted our motion to dismiss without leave to amend.

On September 22, 2014, Plaintiff filed a notice of appeal to the Ninth Circuit Court of Appeals.

Briefing for the appeal was completed in May 2015 and the Ninth Circuit held oral arguments in October 2016.

Align intends to vigorously defend itself against these allegations.

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

Shareholder Derivative Lawsuit

On February 1, 2013, plaintiff Gary Udis filed a shareholder derivative lawsuit against several of Align’s current and former officers and directors in the Superior Court of California, County of Santa Clara.

The complaint alleges that our reported income and earnings were materially overstated because of a failure to timely write down goodwill related to the April 29, 2011 acquisition of Cadent Holdings, Inc., and that defendants made allegedly false statements concerning our forecasts.

The complaint asserts various state law causes of action, including claims of breach of fiduciary duty, unjust enrichment, and insider trading, among others.

The complaint seeks unspecified damages on behalf of Align, which is named solely as nominal defendant against whom no recovery is sought.

The complaint also seeks an order directing Align to reform and improve its corporate governance and internal procedures, and seeks restitution in an unspecified amount, costs, and attorneys’ fees.

On July 8, 2013, an Order was entered staying this derivative lawsuit until an initial ruling on our first motion to dismiss the Securities Action.

On January 15, 2014, an Order was entered staying this derivative lawsuit until an initial ruling on our second motion to dismiss the Securities Action.

On October 14, 2014, an Order was entered staying this derivative lawsuit until a ruling by the Ninth Circuit in the Securities Action discussed above.

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

For the fiscal year ended December 31, [removed: 2016][added: 2017]

[removed: 2560] [added: 2820] Orchard Parkway

San Jose, California [removed: 95131][added: 95134]

| Common Stock, $0.0001 par value [removed: (Including associated Preferred Stock Purchase Rights)] | | The NASDAQ Stock Market LLC (NASDAQ Global Market) |

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was [removed: $4,608,283,946] [added: $9,773,962,344] as of June 30, [removed: 2016] [added: 2017] based on the closing sale price of the registrant’s common stock on the NASDAQ Global Market on such date.

On February [removed: 21, 2017, 80,276,127] [added: 23, 2018, 80,135,229] shares of the registrant’s common stock were outstanding.

Portions of the registrant’s definitive Proxy Statement relating to its [removed: 2017] [added: 2018] Annual Stockholders’ Meeting to be filed pursuant to Regulation 14A within 120 days after the registrant’s fiscal year end of December 31, [removed: 2016] [added: 2017] are incorporated by reference into Part III of this Annual Report on Form 10-K.

For the Year Ended December 31, [removed: 2016][added: 2017]

| Item 1. | Business | [removed: [3](#s12F3549FC7F4997EC91D74C66D591F03)] [added: [3](#s7DEFB8BEEA575257993681753D1E9CCB)] |

| | Executive Officers of the Registrant | [removed: [13](#s20BEF6F07C99A75654A174C678DAA1A2)] [added: [13](#s8EC6680E6E1E53C7843281A931E0948D)] |

| Item 1A. | Risk Factors | [removed: [15](#s1C59B060A6D23678F00274C679014F3B)] [added: [15](#s5F8C8545B3AA56A28255921442B522A8)] |

| Item 1B. | Unresolved Staff Comments | [removed: [29](#sD482E588F7D3FCED921874C6795260F7)] [added: [29](#s3C796F35C61959FF9D43655ADA5A901D)] |

| Item 2. | Properties | [removed: [29](#s243ADF7995E4EC7DDC1274C6795A5E99)] [added: [29](#s050CCB38937A50A9BCC5712645DC1D77)] |

| Item 3. | Legal Proceedings | [removed: [30](#s6B37E4BC15DE9DACD5AC74C6797715DD)] [added: [29](#sF0A716C9C57350EFA9D69076338F510F)] |

| Item 4. | Mine Safety Disclosures | [removed: [30](#sDB95D42F561459637F9D74C679A99765)] [added: [30](#s40B4B949DF545D54B9D69193FB1A6B67)] |

| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | [removed: [31](#s5E9E753CC3AD264CE81A74C66EF48497)] [added: [31](#sD2B7A179F122524994F8202F4612B75D)] |

| Item 6. | Selected Consolidated Financial Data | [removed: [33](#s75D6D68D61B7FCB5590774C66C5804AE)] [added: [33](#s1EC71440025A5E1699FE651F763C99F1)] |

| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | [removed: [35](#sFF62B823FC8F1F5B27FA74C67A4F6F9A)] [added: [35](#s70BCE7F2B1725FAFBBE1F8308651BB52)] |

| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | [removed: [52](#sB0F50A933666333EBC4E74C67C4255E6)] [added: [52](#s54466512DEDA5BA2BB89DA8D0DB200F5)] |

| Item 8. | Consolidated Financial Statements and Supplementary Data | [removed: [53](#sD3CA324ACB4345E731D974C66D362466)] [added: [53](#s1E6B1FAED1ED5CF8AFDD15761D9DE90E)] |

| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | [removed: [91](#s2CD21330125BE4562F1974C6815827CE)] [added: [94](#s130B8D725C455D3EA687CC8072ABD385)] |

| Item 9A. | Controls and Procedures | [removed: [91](#sE4D0398DBBABFAE9E5F274C6817832DD)] [added: [94](#s34E4124172F15FB7A1C0A78411105B28)] |

| Item 9B. | Other Information | [removed: [91](#sFBF73A247BA89A330A6074C6819914FF)] [added: [94](#sED3C20E9AEA35C978BE5F5D7A12B1ECE)] |

| [PART [removed: III](#s7E575625D61047C8680774C681CCB37A)] [added: III](#s1CA2C7A1CE785321B69A3016BCF25967)] | | [removed: [92](#s7E575625D61047C8680774C681CCB37A)] [added: [95](#s1CA2C7A1CE785321B69A3016BCF25967)] |

| Item 10. | Directors, Executive Officers and Corporate Governance | [removed: [92](#s92A1D4C74ECB6AF922BB74C681EDE942)] [added: [95](#s143CB7942ED05C8A8CFF19C7968CA122)] |

| Item 11. | Executive Compensation | [removed: [92](#sF28F0568BAD1ADB03D8574C68220831F)] [added: [95](#s287A139AB0E65FC890D2F39D1AB605E0)] |

| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | [removed: [92](#s75A5A838782E209F416774C66DC5DCA7)] [added: [96](#sC7A20D3DF0BB521F8CECBF3CA8BA06B2)] |

| Item 13. | Certain Relationships and Related Transactions and Director Independence | [removed: [93](#s7D1F54E720B390F3CECC74C682746EE1)] [added: [96](#s1403558C40D159C88E43CFD20E297ED3)] |

| Item 14. | Principal Accounting Fees and Services | [removed: [93](#sE320E8BB007FE174C5C574C682937A59)] [added: [96](#sFF327D48FDF9580E8D4153DB0263C4E4)] |

| Item 15. | Exhibits, Financial Statement Schedules | [removed: [94](#s65134CE97F6F0DC1555774C668F431B7)] [added: [97](#sDD542E86A2595E86B5531480A1B7CA5C)] |

Invisalign, Align, the Invisalign logo, ClinCheck, [added: Made to Move,] Invisalign Assist, Invisalign Teen, Invisalign Go, Vivera, SmartForce, SmartTrack, SmartStage, Power Ridge, iTero, iTero Element, Orthocad, iCast and iRecord, 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.

These statements include, among other things, our expectations regarding the anticipated impact of our new products and product enhancements will have on doctor utilization and our market share, our expectations regarding product mix and product adoption, our expectations regarding the existence and impact of seasonality, our expectations regarding the financial and strategic benefits of establishing regional order [removed: acquisition and] [added: acquisition,] treatment planning [added: and manufacturing] facilities, [added: as well as the anticipated timing of such facilities being operational,] our expectations regarding the continued expansion of our international markets, [added: impact of] the [added: U.S. Tax Cuts and Jobs Act, the] level of our operating expenses and gross [removed: margins, our expectation that the SmileDirectClub, LLC transaction will be incremental to revenue growth in 2017,] [added: margins] and other factors beyond our control, as well as other statements regarding our future operations, financial condition and prospects and business strategies.

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 [removed: Operations”,] [added: Operations,”] and in particular, the risks discussed below in Part I, Item 1A “Risk [removed: Factors”.][added: Factors.” We undertake no obligation to revise or update these forward-looking statements.]

10-K 1 algn-20171231x10k.htm 10-K

| | | Emerging growth company o |

| 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 7(a)(2)(B) of the Securities Act. | | |

| [PART I](#sFC0C745AA4065D448668FC8E0D833A16) | | [3](#sFC0C745AA4065D448668FC8E0D833A16) |

| [PART II](#s58030327FF6E5BB299FC05B9AAC55D1E) | | [31](#s58030327FF6E5BB299FC05B9AAC55D1E) |

| [PART IV](#sF2E1A678EDDE5EF6AB11DFA04B9F565D) | | [97](#sF2E1A678EDDE5EF6AB11DFA04B9F565D) |

| Item 16. | Form 10-K Summary | [101](#sde8fdfec7b374886a5871f5e64f3db50) |

| Signatures | | [102](#s9767FF544F405FE49176A53B5962F3E6) |

10-K 1 algn-20161231x10k.htm 10-K

| [PART I](#s667EBA96A88C522EACD474C6787D63FD) | | [3](#s667EBA96A88C522EACD474C6787D63FD) |

| [PART II](#s1D69942EEFA448CB09E574C679CBC2FA) | | [31](#s1D69942EEFA448CB09E574C679CBC2FA) |

| [PART IV](#s15582FD539F8DEC42D7D74C682C5B822) | | [94](#s15582FD539F8DEC42D7D74C682C5B822) |

| Signatures | | [97](#s4E42F037A194F3742EE074C68318C239) |

We undertake no obligation to revise or update these forward-looking statements.

We occupy several leased and owned facilities with total office and manufacturing area of over [removed: 987,000] [added: 786,714] square feet.

At December 31, [removed: 2016,] [added: 2017,] the significant facilities were occupied as follows:

| San Jose, California [removed: (1)] | [removed: Lease] [added: Own] | Office for corporate headquarters, research & development and administrative personnel | [removed: August 2017] [added: N/A] |

| Juarez, Mexico | Own | Manufacturing and office [removed: facilities] for [removed: manufacturing and] administrative personnel | N/A |

| San Jose, Costa Rica | Lease | Office for administrative personnel, treatment personnel, and customer care | [removed: October 2018] [added: June 2023] |

| Or Yehuda, Israel | Lease | Manufacturing and office for [removed: manufacturing, administrative personnel, and] research & development [added: and administrative personnel] | February 2022 |

| Raleigh, North Carolina | Lease | Office for research & development and administrative personnel | [removed: October] [added: November] 2024 |

| Ziyang, China | Lease | Manufacturing and office for administrative personnel | May 2021 |

(1) Refer to Note 8 "Commitments and Contingencies" of the Notes of Consolidated Financial Statements for information on our corporate headquarters office Purchase Agreement in December 2016.

| Year Ended December 31, [removed: 2015:] [added: 2017:] | | | | | | | |

On February [removed: 21, 2017,] [added: 23, 2018,] the closing price of our common stock on the NASDAQ Global Market was [removed: $101.86] [added: $265.07] per share.

As of February [removed: 21, 2017,] [added: 23, 2018,] there were approximately [removed: 96] [added: 86] holders of record of our common stock.

The graph below matches our cumulative 5-year total shareholder return on common stock with the cumulative total returns of the NASDAQ Composite index, [added: the S&P 500] and the S&P 1500 Composite Health Care Equipment & Supplies index.

The graph tracks the performance of a $100 investment in our common stock, in the peer group, and the index (with the reinvestment of all dividends) from December 31, [removed: 2011] [added: 2012] to December 31, [removed: 2016.][added: 2017.]

[removed: ][added: ]

Following is a summary of stock repurchases for the three months ended December 31, [removed: 2016:][added: 2017:]

| ◦ | April [removed: 2014] [added: 2016] Repurchase Program. In [removed: 2016,] [added: 2017,] we [removed: repurchased] [added: repurchased,] $50.0 million of our common stock through an accelerated stock repurchase agreement and [removed: $46.2] [added: $50.0] million [removed: of stock repurchase in] [added: on] the open market. |

| ◦ | Remaining Available Repurchases. As of December 31, [removed: 2016,] [added: 2017,] we have [removed: approximately $3.8] [added: $200.0] million remaining [removed: available] under the April [removed: 2014] [added: 2016] Repurchase [removed: Program and $300.0] [added: Program. In February 2018, we repurchased approximately 0.4] million [removed: under] [added: shares on] the [removed: April 2016 Repurchase Plan] [added: open market for an aggregate purchase price of $100 million, at an average share price of $252.24.] (Refer to Note 10 "Common Stock Repurchase Program" of the Notes to Consolidated Financial Statements for details on [removed: common] stock [removed: repurchase).] [added: repurchase program).] |

| Fourth quarter | $ | 266.41 | | | $ | 184.67 | |

| Third quarter | $ | 190.04 | | | $ | 148.95 | |

| Second quarter | $ | 154.85 | | | $ | 113.40 | |

| First quarter | $ | 115.20 | | | $ | 88.56 | |

| October 1, 2017 through October 31, 2017 | | — | | | $ | — | | | — | | | $ | 250,000,000 | |

| November 1, 2017 through November 30, 2017 | | 205,000 | | | $ | 243.40 | | | 205,000 | | | $ | 200,000,000 | |

| December 1, 2017 through December 31, 2017 | | — | | | $ | — | | | — | | | $ | 200,000,000 | |

| ◦ | April 2014 Repurchase Program. In 2017, we repurchased shares of our common stock on the open market for an aggregate purchase price of approximately $3.8 million, completing the April 2014 Repurchase Program. |

| Fourth quarter | $ | 68.48 | | | $ | 54.69 | |

| Third quarter | $ | 66.53 | | | $ | 52.01 | |

| Second quarter | $ | 64.99 | | | $ | 51.65 | |

| First quarter | $ | 64.75 | | | $ | 51.77 | |

| October 1, 2016 through October 31, 2016 | | 179,500 | | | $ | 89.28 | | | 179,500 | | | $ | 325,777,042 | |

| November 1, 2016 through November 30, 2016 | | 126,000 | | | $ | 92.36 | | | 126,000 | | | $ | 314,139,921 | |

| December 1, 2016 through December 31, 2016 | | 106,000 | | | $ | 97.92 | | | 106,000 | | | $ | 303,760,487 | |

| ◦ | April 2016 Repurchase Program. On April 28, 2016, we announced that our Board of Directors had authorized a plan to repurchase up to $300.0 million of our stock. |

The following tables set forth the selected consolidated financial data for each of the years in the five-year period ended December 31, [removed: 2016.][added: 2017.]

We have derived the statements of operations data for the year ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014] [added: 2015] and the balance sheet data as of December 31, [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] from the consolidated audited financial statements included elsewhere in this Annual Report on Form 10-K.

The statements of operations data for the year ended December 31, [removed: 2013] [added: 2014] and [removed: 2012] [added: 2013] and the balance sheet data as of December 31, [removed: 2014, 2013] [added: 2015, 2014] and [removed: 2012] [added: 2013] were derived from the consolidated audited financial statements that are not included in this Annual Report on Form 10-K.

| | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | |

| Net revenues | $ | [removed: 1,079,874] [added: 1,473,413] | | | $ | [removed: 845,486] [added: 1,079,874] | | | $ | [removed: 761,653] [added: 845,486] | | | $ | [removed: 660,206] [added: 761,653] | | | $ | [removed: 560,041] [added: 660,206] | |

| Gross profit (1) | $ | [removed: 815,294] [added: 1,116,947] | | | $ | [removed: 640,110] [added: 815,294] | | | $ | [removed: 578,443] [added: 640,110] | | | $ | [removed: 498,106] [added: 578,443] | | | $ | [removed: 416,388] [added: 498,106] | |

| Income from operations (2) | [removed: 248,921] [added: 353,611] | | | | [removed: 188,634] [added: 248,921] | | | | [removed: 193,576] [added: 188,634] | | | | [removed: 94,212] [added: 193,576] | | | | [removed: 85,592] [added: 94,212] | | |

| Interest and other income (expense), net | [removed: (6,355] [added: 11,188] | | [removed: )] | | [removed: (2,533] [added: (6,355] | | ) | | [removed: (3,207] [added: (2,533] | | ) | | [removed: (1,073] [added: (3,207] | | ) | | [removed: (1,296] [added: (1,073] | | ) |

| Net income before provision for income taxes and equity in losses of investee [removed: (2)] [added: (3)] | [removed: 242,566] [added: 364,799] | | | | [removed: 186,101] [added: 242,566] | | | | [removed: 190,369] [added: 186,101] | | | | [removed: 93,139] [added: 190,369] | | | | [removed: 84,296] [added: 93,139] | | |

| Provision for income taxes [removed: (3)] [added: (4)] | [removed: 51,200] [added: 130,162] | | | | [removed: 42,081] [added: 51,200] | | | | [removed: 44,537] [added: 42,081] | | | | [removed: 28,844] [added: 44,537] | | | | [removed: 25,605] [added: 28,844] | | |

| Equity in losses of investee, net of tax | [removed: 1,684] [added: 3,219] | | | | [removed: —] [added: 1,684] | | | | — | | | | — | | | | — | | |

| Net income | $ | [removed: 189,682] [added: 231,418] | | | $ | [removed: 144,020] [added: 189,682] | | | $ | [removed: 145,832] [added: 144,020] | | | $ | [removed: 64,295] [added: 145,832] | | | $ | [removed: 58,691] [added: 64,295] | |

| Basic | $ | [removed: 2.38] [added: 2.89] | | | $ | [removed: 1.80] [added: 2.38] | | | $ | [removed: 1.81] [added: 1.80] | | | $ | [removed: 0.80] [added: 1.81] | | | $ | [removed: 0.73] [added: 0.80] | |

| Diluted | $ | [removed: 2.33] [added: 2.83] | | | $ | [removed: 1.77] [added: 2.33] | | | $ | 1.77 | | | $ | [removed: 0.78] [added: 1.77] | | | $ | [removed: 0.71] [added: 0.78] | |

| Basic | [removed: 79,856] [added: 80,085] | | | | [removed: 79,998] [added: 79,856] | | | | [removed: 80,754] [added: 79,998] | | | | [removed: 80,551] [added: 80,754] | | | | [removed: 80,529] [added: 80,551] | | |

| Diluted | [removed: 81,484] [added: 81,832] | | | | [removed: 81,521] [added: 81,484] | | | | [removed: 82,283] [added: 81,521] | | | | [removed: 82,589] [added: 82,283] | | | | [removed: 83,040] [added: 82,589] | | |

| Working capital [removed: (4)] [added: (5)] | $ | [removed: 598,643] [added: 659,187] | | | $ | [removed: 460,338] [added: 598,643] | | | $ | [removed: 455,349] [added: 460,338] | | | $ | [removed: 369,338] [added: 455,349] | | | $ | [removed: 330,022] [added: 369,338] | |

| Total assets | [removed: 1,396,151] [added: 1,777,856] | | | | [removed: 1,158,633] [added: 1,396,151] | | | | [removed: 987,997] [added: 1,158,633] | | | | [removed: 832,147] [added: 987,997] | | | | [removed: 756,312] [added: 832,147] | | |

| Total long-term liabilities | [removed: 46,427] [added: 129,670] | | | | [removed: 39,035] [added: 46,427] | | | | [removed: 33,415] [added: 39,035] | | | | [removed: 22,839] [added: 33,415] | | | | [removed: 19,224] [added: 22,839] | | |

| Stockholders’ equity | $ | [removed: 995,389] [added: 1,150,370] | | | $ | [removed: 847,926] [added: 995,389] | | | $ | [removed: 752,771] [added: 847,926] | | | $ | [removed: 633,970] [added: 752,771] | | | $ | [removed: 581,317] [added: 633,970] | |

[removed: (2) Income from operations and net] [added: (3) Net] income before provision for income taxes and equity in losses of investee [removed: include:][added: includes:]

| [removed: (3)] [added: (4)] | Provision for income taxes includes: |

| • | $1.8 million out of period income tax adjustment in 2014 [removed: (Refer to Note 1 "Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements)] |

| [removed: (4)] [added: (5)] | Working capital is calculated as the difference between total current assets and total current [removed: liabilities.] [added: liabilities] |

| | 2017 | | | | 2016 | | | | 2015 | | | | 2014 | | | | 2013 | | |

(2) Income from operations includes:

| • | $40.7 million and $26.3 million of goodwill and long-lived asset impairment, respectively, in 2013 |

| • | $1.9 million, net of tax, out of period adjustment in 2013 |

| • | $0.2 million acquisition and integration related costs, $0.9 million amortization of intangible assets, and $0.5 million of exit costs in 2012 |

| • | $36.6 million of goodwill impairment, $1.3 million acquisition and integration related costs, $4.5 million of amortization of intangible assets, and $0.8 million of exit costs in 2012 |

| | [removed: 2016 | | | | | | | |] [added: 2017] | | | | [added: 2016] | | | | 2015 | | | [removed: | | | | | | | | | | | |]

| | December 31, [removed: 2016] [added: 2017] | | | | September 30, [removed: 2016] [added: 2017] | | | | June 30, [removed: 2016] [added: 2017] | | | | March 31, [removed: 2016] [added: 2017] | | | | December 31, [removed: 2015] [added: 2016] | | | | September 30, [removed: 2015] [added: 2016] | | | | June 30, [removed: 2015] [added: 2016] | | | | March 31, [removed: 2015] [added: 2016] | | |

| Gross profit | [removed: 220,249] [added: 317,917] | | | | [removed: 209,202] [added: 292,488] | | | | [removed: 205,216] [added: 270,917] | | | | [removed: 180,627] [added: 235,625] | | | | [removed: 172,810] [added: 220,249] | | | | [removed: 157,576] [added: 209,202] | | | | [removed: 158,634] [added: 205,216] | | | | [removed: 151,090] [added: 180,627] | | |

| Income from operations | [removed: 68,372] [added: 109,606] | | | | [removed: 62,079] [added: 98,763] | | | | [removed: 65,136] [added: 83,569] | | | | [removed: 53,334] [added: 61,673] | | | | [removed: 59,339] [added: 68,372] | | | | [removed: 38,046] [added: 62,079] | | | | [removed: 42,325] [added: 65,136] | | | | [removed: 48,924] [added: 53,334] | | |

| Net income | [removed: 47,621] [added: 10,264] | | | | [removed: 51,367] [added: 82,555] | | | | [removed: 50,148] [added: 69,179] | | | | [removed: 40,546] [added: 69,420] | | | | [removed: 48,877] [added: 47,621] | | | | [removed: 27,616] [added: 51,367] | | | | [removed: 31,350] [added: 50,148] | | | | [removed: 36,177] [added: 40,546] | | |

| Diluted | $ | [removed: 0.59] [added: 0.13] | | | $ | [removed: 0.63] [added: 1.01] | | | $ | [removed: 0.62] [added: 0.85] | | | $ | [removed: 0.50] [added: 0.85] | | | $ | [removed: 0.60] [added: 0.59] | | | $ | [removed: 0.34] [added: 0.63] | | | $ | [removed: 0.39] [added: 0.62] | | | $ | [removed: 0.44] [added: 0.50] | |

| Report of Management on Internal Control over Financial Reporting | [removed: [55](#s5823F517DCFC9FBF072874C67CB80E88)] [added: [55](#sCD5859AE6F515E54952C7115612FE0DD)] |

| Report of Independent Registered Public Accounting Firm | [removed: [56](#sD6C9DC66C6EB76748B3C74C67CE99D4C)] [added: [56](#sE917FAC971D657B7B1567780EE49EEBA)] |

| Notes to Consolidated Financial Statements | [removed: [62](#sFB3240C99560A3DAECAA74C67E05A8A5)] [added: [63](#s3862CBF9D46458F2A1C760BE4790981F)] |

Management assessed the effectiveness of our internal control over financial reporting as of December 31, [removed: 2016.][added: 2017.]

Based on [removed: its] [added: our] assessment, management has concluded that, as of December 31, [removed: 2016,] [added: 2017,] our internal control over financial reporting was effective based on criteria in Internal Control - Integrated Framework (2013) issued by the COSO.

The effectiveness of our internal control over financial reporting as of December 31, [removed: 2016] [added: 2017] has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.

To the [removed: Stockholders and] Board of Directors [added: and Stockholders] of Align Technology, [removed: Inc.:][added: Inc.]

In our opinion, the consolidated financial statements [removed: listed in the index appearing under Item 15(a) (1)] [added: referred to above] present fairly, in all material respects, the financial position of [removed: Align Technology, Inc. and its subsidiaries at] [added: the Company as of] December 31, [removed: 2016] [added: 2017] and December 31, [removed: 2015,] [added: 2016,] and the results of their operations and their cash flows for each of the three years in the period ended December 31, [removed: 2016] [added: 2017] in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on criteria established in Internal [removed: Control—Integrated] [added: Control - Integrated] Framework (2013) issued by the [removed: Committee of Sponsoring Organizations of the Treadway Commission (COSO).][added: COSO.]

The [removed: Company’s] [added: Company's] management is responsible for these [removed: financial statements and] [added: consolidated] financial [removed: statement schedule,] [added: statements,] for maintaining effective internal control over financial [removed: reporting] [added: reporting,] and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting.

Our responsibility is to express opinions on [removed: these financial statements, on] the [added: Company’s consolidated] financial [removed: statement schedule,] [added: statements] and on the [removed: Company’s] [added: Company's] internal control over financial reporting based on our [removed: integrated] audits.

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the [added: consolidated] financial statements are free of material [removed: misstatement] [added: misstatement, whether due to error or fraud,] and whether effective internal control over financial reporting was maintained in all material respects.

Our audits [removed: of the financial statements] [added: also] included [removed: examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing] [added: evaluating] the accounting principles used and significant estimates made by management, [removed: and] [added: as well as] evaluating the overall [added: presentation of the consolidated] financial [removed: statement presentation.][added: statements.]

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

| | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Net revenues | $ | [removed: 1,079,874] [added: 1,473,413] | | | $ | [removed: 845,486] [added: 1,079,874] | | | $ | [removed: 761,653] [added: 845,486] | |

| Cost of net revenues | [removed: 264,580] [added: 356,466] | | | | [removed: 205,376] [added: 264,580] | | | | [removed: 183,210] [added: 205,376] | | |

| Gross profit | [removed: 815,294] [added: 1,116,947] | | | | [removed: 640,110] [added: 815,294] | | | | [removed: 578,443] [added: 640,110] | | |

| Selling, general and administrative | [removed: 490,653] [added: 665,777] | | | | [removed: 390,239] [added: 490,653] | | | | [removed: 332,068] [added: 390,239] | | |

| Research and development | [removed: 75,720] [added: 97,559] | | | | [removed: 61,237] [added: 75,720] | | | | [removed: 52,799] [added: 61,237] | | |

| Total operating expenses | [removed: 566,373] [added: 763,336] | | | | [removed: 451,476] [added: 566,373] | | | | [removed: 384,867] [added: 451,476] | | |

| Income from operations | [removed: 248,921] [added: 353,611] | | | | [removed: 188,634] [added: 248,921] | | | | [removed: 193,576] [added: 188,634] | | |

| Interest and other income (expense), net | [removed: (6,355] [added: 11,188] | | [removed: )] | | [removed: (2,533] [added: (6,355] | | ) | | [removed: (3,207] [added: (2,533] | | ) |

| Net income before provision for income taxes and equity in losses of investee | [removed: 242,566] [added: 364,799] | | | | [removed: 186,101] [added: 242,566] | | | | [removed: 190,369] [added: 186,101] | | |

| Provision for income taxes | [removed: 51,200] [added: 130,162] | | | | [removed: 42,081] [added: 51,200] | | | | [removed: 44,537] [added: 42,081] | | |

| Equity in losses of investee, net of tax | [removed: 1,684] [added: 3,219] | | | | [removed: —] [added: 1,684] | | | | — | | |

| Net income | $ | [removed: 189,682] [added: 231,418] | | | $ | [removed: 144,020] [added: 189,682] | | | $ | [removed: 145,832] [added: 144,020] | |

| Basic | $ | [removed: 2.38] [added: 2.89] | | | $ | [removed: 1.80] [added: 2.38] | | | $ | [removed: 1.81] [added: 1.80] | |

| Diluted | $ | [removed: 2.33] [added: 2.83] | | | $ | [removed: 1.77] [added: 2.33] | | | $ | 1.77 | |

| Basic | [removed: 79,856] [added: 80,085] | | | | [removed: 79,998] [added: 79,856] | | | | [removed: 80,754] [added: 79,998] | | |

| Diluted | [removed: 81,484] [added: 81,832] | | | | [removed: 81,521] [added: 81,484] | | | | [removed: 82,283] [added: 81,521] | | |

The accompanying notes are an integral part of these consolidated financial [removed: statements.][added: state ments.]

| Net change in foreign currency translation adjustment | [removed: (670] [added: 1,741] | | [removed: )] | | [removed: (154] [added: (670] | | ) | | [removed: (196] [added: (154] | | ) |

| | 2017 | | | | | | | | | | | | | | | | 2016 | | | | | | | | | | | | | | |

| Net revenues | $ | 421,323 | | | $ | 385,267 | | | $ | 356,482 | | | $ | 310,341 | | | $ | 293,203 | | | $ | 278,589 | | | $ | 269,362 | | | $ | 238,720 | |

| Basic | $ | 0.13 | | | $ | 1.03 | | | $ | 0.86 | | | $ | 0.87 | | | $ | 0.60 | | | $ | 0.64 | | | $ | 0.63 | | | $ | 0.51 | |

| Basic | 80,080 | | | | 80,163 | | | | 80,188 | | | | 79,904 | | | | 79,667 | | | | 79,977 | | | | 79,951 | | | | 79,831 | | |

| Diluted | 81,863 | | | | 81,789 | | | | 81,631 | | | | 81,534 | | | | 81,248 | | | | 81,466 | | | | 81,281 | | | | 81,320 | | |

| Consolidated Statements of Operations for the year ended December 31, 2017, 2016 and 2015 | [58](#sABA721BDFFF555AFAE6D498D2B18119A) |

| Consolidated Statements of Comprehensive Income for the year ended December 31, 2017, 2016 and 2015 | [59](#s5C7E6294340D502EAC1FEC9B1FB0E026) |

| Consolidated Balance Sheets as of December 31, 2017 and 2016 | [60](#sC77C2B845DD05E17B2AE66FE028A7942) |

| Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2017, 2016 and 2015 | [61](#sC0BADEA77E935501A4C9E4C773A4125C) |

| Consolidated Statements of Cash Flows for the year ended December 31, 2017, 2016 and 2015 | [62](#sD1DCF33E663B5A708B6DB623CA864E5B) |

| February 28, 2018 |

| February 28, 2018 |

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Align Technology, Inc. and its subsidiaries (the “Company”) as of December 31, 2017 and December 31, 2016, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for certain elements of its employee share-based payments in 2017.

Basis for Opinions

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Definition and Limitations of Internal Control over Financial Reporting

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

February 28, 2018

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

| Net income | $ | 231,418 | | | $ | 189,682 | | | $ | 144,020 | |

| | 2017 | | | | 2016 | | |

| Cash and cash equivalents | $ | 449,511 | | | $ | 389,275 | |

| Cumulative effect adjustment from adoption of ASU 2016-16 | — | | | — | | | | — | | | | — | | | | (1,300 | | ) | | (1,300 | | ) |

| Net income | — | | | — | | | | — | | | | — | | | | 231,418 | | | | 231,418 | | |

| Common stock repurchased and retired | (586 | ) | | — | | | | (5,583 | | ) | | — | | | | (98,210 | | ) | | (103,793 | | ) |

| Balances at December 31, 2017 | 80,040 | | | $ | 8 | | | $ | 886,435 | | | $ | 571 | | | $ | 263,356 | | | $ | 1,150,370 | |

| Net income | $ | 231,418 | | | $ | 189,682 | | | $ | 144,020 | |

| Long-term income tax payable | 68,958 | | | | 7,622 | | | | 6,930 | | |

| Acquisition, net of cash acquired | (8,953 | | ) | | — | | | | — | | |

| Loan advances to equity investee | (36,000 | | ) | | — | | | | — | | |

| Loan repayment from equity investee | 6,000 | | | | — | | | | — | | |

Align Technology, Inc. (“We”, “Our”, or “Align”) was incorporated in April 1997 in Delaware.

Align is a global medical device company engaged in the design, manufacture and marketing of Invisalign® clear aligners and iTero® intraoral scanners and services for orthodontics and restorative and aesthetic dentistry.

Align’s products are intended primarily for the treatment of malocclusion or the misalignment of teeth and are designed to help dental professionals achieve the clinical outcomes that they expect.

| Net revenues | $ | 293,203 | | | $ | 278,589 | | | $ | 269,362 | | | $ | 238,720 | | | $ | 230,276 | | | $ | 207,636 | | | $ | 209,488 | | | $ | 198,086 | |

| Basic | $ | 0.60 | | | $ | 0.64 | | | $ | 0.63 | | | $ | 0.51 | | | $ | 0.61 | | | $ | 0.35 | | | $ | 0.39 | | | $ | 0.45 | |

| Basic | 79,667 | | | | 79,977 | | | | 79,951 | | | | 79,831 | | | | 79,481 | | | | 79,808 | | | | 80,257 | | | | 80,459 | | |

| Diluted | 81,248 | | | | 81,466 | | | | 81,281 | | | | 81,320 | | | | 81,051 | | | | 81,092 | | | | 81,394 | | | | 81,824 | | |

| Consolidated Statements of Operations | [57](#s1C935A505B5F2B34358174C66658AC43) |

| Consolidated Statements of Comprehensive Income | [58](#s03A6572F13689EF931FD74C66669F280) |

| Consolidated Balance Sheets | [59](#sB5EF733D7729801C4D4E74C6666FD30D) |

| Consolidated Statements of Stockholders’ Equity | [60](#s3A72CBC25F31EF6B65DE74C666854FAC) |

| Consolidated Statements of Cash Flows | [61](#s68E04735C4E0E9EFBCA074C666AE0C6B) |

| February 28, 2017 |

In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

February 28, 2017

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Balances at December 31, 2013 | 80,583 | | | $ | 8 | | | $ | 729,578 | | | $ | 294 | | | $ | (95,910 | ) | | $ | 633,970 | |

| Net income | — | | | — | | | | — | | | | — | | | | 145,832 | | | | 145,832 | | |

| Common stock repurchased and retired | (1,914 | ) | | — | | | | (17,804 | | ) | | — | | | | (80,429 | | ) | | (98,233 | | ) |

| Net tax benefits from stock-based awards | 15,888 | | | | 10,224 | | | | 21,393 | | |

| Cash and cash equivalents, beginning of year | 167,714 | | | | 199,871 | | | | 242,953 | | |

Align Technology, Inc. (“We”, “Our”, or “Align”) was incorporated in April 1997 in Delaware and focuses on designing, manufacturing and marketing innovative, technology-rich products to help dental professionals achieve the clinical results they expect and deliver effective, convenient cutting-edge dental treatment options to their patients.

Our international headquarters is located in Amsterdam, the Netherlands.

Out of Period Adjustment

In 2014, we recorded an out of period correction that resulted in an increase in the provision for income taxes of $1.8 million.

We do not believe the decrease to net income related to the out of period adjustment is material to the consolidated financial statements for the fiscal year ended December 31, 2014 or to any prior years' consolidated financial statements.

Our restricted cash balance as of December 31, 2015 was $3.5 million, of which $3.3 million was classified as a long-term asset and $0.2 million as a current asset.

We have interests in entities determined to be variable interest entity (“VIE”).

As of December 31, 2016 and 2015, there were no material amounts in accumulated other comprehensive income (loss), net related to the translation of our foreign subsidiaries’ financial statements.

We have certain credit risk under our Loan and Security Agreement ("Loan Agreement") with SmileDirectClub, LLC ("SDC").

We perform ongoing evaluation of credit worthiness of SDC.

If the fair value of equity investment is deemed to be other-than temporary impaired, we will be required to write down the value of our investments, which could adversely affect our results of operations and financial condition (Refer to Note 8 "Commitments and Contingencies" of the Notes of Consolidated Financial Statements for more information on our Loan Agreement with SDC).

In addition, we manufacture our clear aligners and distribute our intraoral scanners at our facilities in Juarez, Mexico, and we produce our handheld scanner wand in Or Yehuda, Israel.

If the carrying amount of the reporting

We accrue for warranty costs in cost of net revenues upon shipment of products.

As of December 31, 2016, U.S. income taxes and foreign withholding taxes associated with the repatriation of undistributed earnings of foreign subsidiaries on a cumulative total of $438.0 million was not provided as we intend to reinvest these earnings indefinitely in our foreign subsidiaries.

If these earnings were distributed in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, we would be subject to additional U.S. income taxes subject to an adjustment for foreign tax credit, and foreign withholding taxes.

Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practicable.

Accounting guidance for stock-based compensation prohibits recognition of a deferred income tax asset for excess tax benefits due to stock option exercises that have not yet been realized through a reduction in income taxes payable.

We follow the tax law ordering method to determine when excess tax benefits have been realized and consider only the direct impacts of awards when calculating the amount of windfalls or shortfalls.

We are required to adopt this standard starting in the first quarter of fiscal year 2018 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within the standard; or (ii) retrospective with the cumulative effect of initially applying the standard recognized at the date of initial application and providing certain additional disclosures as defined per the standard.

Our ability to adopt using the full retrospective method is dependent on the completion of our analysis of information necessary to restate prior period financial statements.

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 December 31, [removed: 2016] [added: 2017] 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 decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

There have been no changes in our internal control over financial reporting during the quarter ended December 31, [removed: 2016] [added: 2017] that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Certain information required by Part III is omitted from this Form 10-K because we intend to file a definitive Proxy Statement for our [removed: 2017] [added: 2018] Annual Meeting of Stockholders (the “Proxy Statement”) not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and certain information to be included therein is incorporated herein by reference.

The following table provides information as of December 31, [removed: 2016] [added: 2017] about our common stock that may be issued upon the exercise of options and [removed: rights] [added: awards] granted to employees, consultants or members of our Board of Directors under all existing equity compensation plans, including the [removed: 1997 Equity] [added: 2005] Incentive [removed: Plan,] [added: Plan and] the Employee Stock Purchase Plan ("ESPP"), [removed: the 2001 Stock Incentive Plan and the 2005 Incentive Plan,] each as amended, and certain individual [removed: arrangements.][added: arrangements (Refer to Note 10“Stockholders’ Equity” of the Notes to Consolidated Financial Statements for a description of our equity compensation plans).]

| 1 | Includes [removed: 1,788,372] [added: 1,340,759] restricted stock units and [removed: 520,350] [added: 428,100] market-performance based restricted stock units at target, which have an exercise price of zero. |

| 2 | Includes [removed: 936,867] [added: 735,301] shares available for issuance under our ESPP. We are unable to ascertain with specificity the number of securities to be issued upon exercise of outstanding rights or the weighted average exercise price of outstanding rights under the ESPP. |

| 3 | Excludes [removed: 494,333] [added: 507,775] of potentially issuable MSUs if performance targets are achieved at maximum payout. |

| Equity compensation plans approved by security holders | 1,843,573 | | 1 | $ | 11.36 | | | 7,620,549 | | 2, 3 |

| Total | 1,843,573 | | | $ | 11.36 | | | 7,620,549 | | |

Please see Note 9 “Stockholders’ Equity” in the Notes to consolidated financial statements for a description of equity compensation plans.

| Equity compensation plans approved by security holders | 2,531,027 | | 1 | $ | 14.90 | | | 9,454,960 | | 2, 3 |

| Total | 2,531,027 | | | $ | 14.90 | | | 9,454,960 | | |

| Report of Independent Registered Public Accounting Firm | [removed: [56](#sD6C9DC66C6EB76748B3C74C67CE99D4C)] [added: [56](#sE917FAC971D657B7B1567780EE49EEBA)] |

| Consolidated Statements of Operations for the year ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014] [added: 2015] | [removed: [57](#s1C935A505B5F2B34358174C66658AC43)] [added: [58](#sABA721BDFFF555AFAE6D498D2B18119A)] |

| Consolidated Statements of Comprehensive Income for the year ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014] [added: 2015] | [removed: [58](#s03A6572F13689EF931FD74C66669F280)] [added: [59](#s5C7E6294340D502EAC1FEC9B1FB0E026)] |

| Consolidated Balance Sheets as of December 31, [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] | [removed: [59](#sB5EF733D7729801C4D4E74C6666FD30D)] [added: [60](#sC77C2B845DD05E17B2AE66FE028A7942)] |