Align Technology 10-Q 2024-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2024

or

For the transition period from to

Commission File Number: 000-32259

ALIGN TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)

410 North Scottsdale Road, Suite 1300

Tempe, Arizona 85288

(Address of principal executive offices, including zip code)

(602) 742-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 1, 2024, the number of shares outstanding of the registrant’s Common Stock, $0.0001 par value, was 74,653,060.

ALIGN TECHNOLOGY, INC.

TABLE OF CONTENTS

Invisalign, Align, the Invisalign logo, ClinCheck, Invisalign Assist, Invisalign Teen, Invisalign First, Invisalign Go, the Invisalign sonic logo, Vivera, SmartForce, SmartTrack, SmartStage, SmileView, iTero, iTero Element, iTero Lumina, Orthocad, exocad, Align Digital Platform, Invisalign Smile Architect, iTero exocad Connector and exocad Dental CAD, 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.

PART I—FINANCIAL INFORMATION

ALIGN TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

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

ALIGN TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

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

ALIGN TECHNOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

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Forward-Looking Statements

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements include, among other things, our expectations and intentions regarding our strategic objectives and the means to achieve them, our beliefs and expectations regarding macroeconomic conditions, including inflation, fluctuations in currency exchange rates, higher interest rates, market volatility, weakness in general economic conditions and recessions and the impact of efforts by central banks and federal, state and local governments to combat inflation and recession, our expectations and beliefs regarding customer and consumer purchasing behavior and changes in consumer spending habits, our expectations regarding product mix and product adoption, our expectations regarding competition and our ability to compete in our target markets, our expectations regarding the sales growth of our intraoral scanners, clear aligners and other products, our expectations regarding the impact of the military conflicts in the Middle East and Ukraine and our operations and assets in Israel and Russia, our marketing and efforts to build our brand awareness, our estimates regarding the size and opportunities of the markets we are targeting along with our expectations for growth in those markets, our beliefs regarding the impact of technological innovation in general, and in our solutions and products in particular, on target markets and patient care, our beliefs regarding digital dentistry and its potential to impact our business, our intentions regarding expanding our business, including its impact on our operational flexibility and responsiveness to customer demand, our expectations regarding our tax positions and the judgements we make related to our tax obligations, our beliefs regarding the importance of our manufacturing operations on our success, our beliefs regarding the need for and benefits of our technological development on Invisalign treatment, the areas of development in which we focus our efforts, and the advantages of our intellectual property portfolio, our beliefs regarding our business strategy and growth drivers, our expectations regarding the utilization rates for our products, including the impact of marketing on those rates and causes for periodic fluctuations of the rates, our expectations regarding the existence and impact of seasonality, our expectations regarding the productivity impact sales representatives will have on our sales and the impact of specialization of those representatives in sales channels, our expectations regarding the continued expansion of our international markets and their growth, our expectations regarding staying in compliance with laws and regulations currently applicable to, or which may become applicable to, our business both in the United States and internationally, our beliefs regarding our culture and commitment and its impact on our financial and operational performance and its importance to our future success, our expectations for future investments in and benefits from sales and marketing activities, our preparedness and our customers’ preparedness to react to changing circumstances and demand, our expectations for our expenses and capital obligations and expenditures in particular, our intentions to control spending and for investments, our intentions regarding the investment of our international earnings from operations, our belief regarding the sufficiency of our cash and investment balances and borrowing capacity, our judgments regarding the estimates used in our revenue recognition and assessment of goodwill and intangible assets, our predicted level of operating expenses and gross margins and other factors beyond our control, as well as other statements regarding our future operations, financial condition and prospects and business strategies. These statements may contain words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” or other words indicating future results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in particular, the risks discussed below in Part II, Item 1A “Risk Factors.” We undertake no obligation to revise or update these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

The following discussion and analysis of our financial condition and results of operations should be read together with our Condensed Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission (the “SEC”).

Executive Overview of Results

Trends and Uncertainties

Our business strategic priorities focus on four principal pillars for growth: (i) international expansion; (ii) general dental practitioners (“GP”) treatment; (iii) patient demand; and (iv) orthodontic utilization. Our growth strategy depends on our ability to facilitate the digital transformation of dentistry happening around the world, our continuous focus on innovation, and expansion to meet and exceed evolving customer expectations as the array of products and services available to them increases. Below is a discussion of the significant trends and uncertainties that could impact our operations:

Macroeconomic Challenges and Military Conflicts in Ukraine and the Middle East

Our revenues are susceptible to fluctuations caused by macroeconomic conditions, inflation, changes to currency exchange rates, higher interest rates, actual and threatened wars and military actions, threats of or actual recessions, supply chain challenges, market volatility, and other factors, each of which impacts customer confidence, consumer sentiment and demand. Many of these same factors also impact our costs and those of our suppliers through higher raw material prices, transportation costs, labor costs, supply and distribution operations. During 2024, we believe sales of our products have been impacted by macroeconomic conditions that adversely impacted disposable income and consumer demand and we believe this trend will continue for the remainder of 2024. We also expect the military conflict between Russia and Ukraine to continue to create market uncertainties and dampen consumer sentiment and demand, particularly in Europe. The impact of declining demand may vary by time and region, making operational results uncertain and difficult to predict.

Additionally, many of our international operations are denominated in currencies other than the U.S. dollar. In the third quarter of 2024, on a sequential basis, there was no significant impact from foreign exchange on our financial condition. However, the U.S. dollar remained strong against major currencies on a year-over-year basis, which negatively impacted our financial condition and results of operations for the quarter. Foreign exchange volatility and the subsequent strengthening or weakening of the U.S dollar against other currencies remains uncertain and unpredictable.

The ongoing conflict in the Middle East may further exacerbate general and regional macroeconomic instability, particularly if fighting continues to spread to other locations, create shipping and logistical challenges or cost increases, lead to sanctions or boycotts, or otherwise may materially impact our operations. For instance, our iTero business is headquartered in Israel. To date in 2024, the timing and cost of shipping our products has not been materially impacted and we have put measures in place to help reduce the risk of experiencing significant delays in the future. Additionally, although our operations have not thus far been materially impacted by employee absences, we have employees and consultants in Israel that have been called for military service and may be unavailable for an unknown period of time. Furthermore, while there have been export and import restrictions imposed against Israel, we have not been materially impacted by any trade sanctions yet. We continue to monitor the potential for violence and military actions that may directly or indirectly impact our personnel, manufacturing, supply chain, and sales.

Changing Product Preferences

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

We strive to manage the challenges from the trends and uncertainties, including the macroeconomic conditions, military conflicts and the evolution of our target markets, by focusing on improving our operations, building flexibility and efficiencies in our processes, adjusting our business models to changing circumstances and offering products that meet market demand. Specifically, we are managing financial impacts through strategic product innovations, introductions and pricing actions, implementing cost saving measures and evaluating hiring needs.

As an example, there was significant adoption of the Invisalign Comprehensive 3in3 product after it was introduced in 2023 that has continued in 2024. The 3in3 configuration offers doctors Invisalign Comprehensive treatment with a three-year treatment expiration date and three additional clear aligners included prior to the treatment expiration date. The 3in3 product allows us to recognize more revenue up front but is offered at a lower price as compared to our traditional Invisalign comprehensive product that has a five-year treatment expiration date with unlimited additional clear aligners prior to the treatment end date.

Further discussion of the impact of these challenges on our business may be found in Part II, Item 1A “Risk Factors.”

Key Financial and Operating Metrics

We measure our performance against these strategic priorities by the achievement of key financial and operating metrics.

For the three months ended September 30, 2024, our business operations reflect the following:

• Revenues of $977.9 million, an increase of 1.8% year-over-year;

• Clear Aligner revenues of $786.8 million, a decrease of 1.0% year-over-year;

◦Americas Clear Aligner revenues of $349.2 million, a decrease of 4.7% year-over-year;

◦International Clear Aligner revenues of $361.5 million, an increase of 1.8% year-over-year;

◦Clear Aligner case volume increased 2.5% year-over-year and Clear Aligner case volume for teenage patients increased 6.7% year-over-year;

• Imaging Systems and computer-aided design and computer-aided manufacturing (“CAD/CAM”) Services revenues of $191.0 million, an increase of 15.6% year-over-year;

• Income from operations of $162.3 million and operating margin of 16.6%;

• Effective tax rate of 30.1%;

• Net income of $116.0 million with diluted net income per share of $1.55;

• Cash and cash equivalents of $1,041.9 million as of September 30, 2024;

• Cash provided by operating activities of $263.7 million;

• Capital expenditures of $29.8 million, primarily related to investments in our manufacturing capacity and facilities; and

• Number of employees was 21,690 as of September 30, 2024, a decrease of 4.4% year-over-year.

Other Statistical Data and Trends

• As of September 30, 2024, approximately 18.9 million people worldwide have been treated with our Invisalign system. Management measures these results by comparing to the millions of people who can benefit from straighter teeth and uses this data to target opportunities to expand the market for orthodontics by educating consumers about the benefits of straighter teeth using the Invisalign system.

• For the third quarter of 2024, total Invisalign cases submitted with a digital scanner in the Americas increased to 96.1%, up from 94.6% in the third quarter of 2023 and international scans increased to 89.3%, up from 87.6% in the third quarter of 2023. For the third quarter of 2024, 98.2% of Invisalign cases submitted by North American orthodontists were submitted digitally.

• The total utilization rate in the third quarter of 2024 remained flat at 7.1 cases per doctor compared to the third quarter of 2023. Utilization rates in North America and our International locations were as follows:

▪North America: The utilization rate among our North American orthodontist customers decreased to 28.3 cases per doctor in the third quarter of 2024 compared to 28.8 cases per doctor in the third quarter of 2023 and the utilization rate among our North American GP customers increased to 5.0 cases per doctor in the third quarter of 2024 compared to 4.9 cases per doctor in the third quarter of 2023.

▪International: International doctor utilization rate was 6.2 cases per doctor in the third quarter of 2024 compared to 6.1 cases per doctor in the third quarter of 2023.

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

Results of Operations

Net Revenues by Reportable Segment

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

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

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

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

▪In the U.S., Canada, and EMEA, we also offer a Doctor Subscription Program which is our monthly subscription-based clear aligner program. The program allows doctors the flexibility to order retainers and low-stage “touch-up” clear aligners within their subscribed tier and is designed for a segment of experienced Invisalign trained doctors who are currently not regularly using our retainers or low-stage aligners. The low-stage aligners, the Touch up product, are included as a Non-Comprehensive Product.

▪Non-Case products include, but are not limited to, retention products including retention aligners ordered through the Doctor Subscription Program, Invisalign training, adjusting tools used by dental professionals during the course of treatment and Invisalign Accessory Products that are complementary to our doctor-prescribed principal products such as aligner cases (clamshells), teeth whitening products, cleaning solutions (crystals, foam and other material) and other oral health products available in certain commerce channels in select markets.

▪Our Systems and Services segment consists of sales related to our iTero intraoral scanning systems, which includes a single hardware platform and restorative or orthodontic software options, upgrades and leases of scanner systems, sales of pre-owned scanner systems, subscription software, disposables, pay per scan services, as well as exocad’s CAD/CAM software solutions that integrate workflows to dental labs and dental practices.

Net revenues for our Clear Aligner and Systems and Services segments by region for the three and nine months ended September 30, 2024 and 2023 are as follows (in millions):

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

Case volume data which represents Clear Aligner case shipments for the three and nine months ended September 30, 2024 and 2023 is as follows (in thousands):

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

For the three months ended September 30, 2024, total net revenues increased by $18 million as compared to the same period in 2023, primarily due to an increase in Systems and Services net revenue from higher scanner average selling price ("ASP"), increase in non-system sales, and Clear Aligner net revenues from an increase in volume partially offset lower Clear Aligner ASP.

For the nine months ended September 30, 2024, total net revenues increased by $98 million as compared to the same period in 2023, primarily due to an increase in Systems and Services net revenues from higher scanner ASP, increase in non-system sales and services revenue and Clear Aligner net revenues from an increase in volume, partially offset by lower Clear Aligner ASP.

Clear Aligner - Americas

For the three months ended September 30, 2024, Americas net revenues decreased by $17 million as compared to the same period in 2023, primarily due to a 3.9% decrease in ASP, resulting in a decrease of net revenues of $14 million. The decrease in ASP was driven by unfavorable foreign exchange rates that decreased net revenues by $6 million, a mix shift to lower priced products and countries which reduced net revenues by $23 million and higher promotional discounts which decreased net revenues by $14 million. These decreases were partially offset by lower net deferrals which increased net revenues by $23 million and price changes which increased net revenues by $6 million.

For the nine months ended September 30, 2024, Americas net revenues decreased by $21 million as compared to the same period in 2023, primarily due to a 1.6% decrease in ASP, resulting in a decrease of net revenues of $18 million. The decrease in ASP was primarily driven by a mix shift to lower priced products and countries which reduced net revenues by $71 million and higher promotional discounts which decreased net revenues by $49 million. These decreases were partially offset by lower net deferrals which increased net revenues by $86 million and price changes which increased net revenues by $16 million.

Clear Aligner - International

For the three months ended September 30, 2024, International net revenues increased by $6 million as compared to the same period in 2023, primarily due to a 6.3% increase in case volumes, resulting in increased net revenues by $22 million. This increase was partially offset by a decrease of 4.3% in ASP which decreased net revenues by $16 million. Lower ASP was due to unfavorable foreign exchange rates that decreased net revenues by $5 million and a price reduction we took in the United Kingdom (“UK”) to offset VAT on our sales into the UK, which decreased net revenues by $8 million. ASP was also negatively impacted by a mix shift to lower priced products and countries, which reduced net revenues by $15 million and

higher promotional discounts which reduced net revenues by $31 million. The decreases in ASP were partially offset by lower net deferrals and price changes which increased net revenues by $26 million and $15 million, respectively.

For the nine months ended September 30, 2024, International net revenues increased by $27 million as compared to the same period in 2023, primarily due to a 6.1% increase in case volumes, resulting in increased net revenues by $67 million. This increase was partially offset by a decrease of 3.4% in ASP which decreased net revenues by $39 million. Lower ASP was due to unfavorable foreign exchange rates that decreased net revenues by $25 million, a price reduction we took in the UK to offset VAT on our sales into the UK, which decreased net revenues by $23 million, a mix shift to lower priced products and countries which reduced net revenues by $47 million and higher promotional discounts which reduced net revenues by $83 million. The decreases in ASP were partially offset by lower net deferrals and price changes which increased net revenues by $80 million and $55 million, respectively.

Clear Aligner - Non-Case

For the three and nine months ended September 30, 2024, non-case net revenues increased by $3 million and $12 million, respectively as compared to the same period in 2023 primarily due to increased volume of Vivera retainers which includes retention aligners ordered through our Doctor Subscription Program.

Systems and Services

For the three months ended September 30, 2024, Systems and Services net revenues increased by $26 million as compared to the same period in 2023 primarily due to higher scanner ASP which increased net revenues by $20 million, an increase in sales of upgrade scanner systems which increased net revenues by $7 million, and higher services revenues which increased net revenues by $7 million. These increases were partially offset by lower volume and unfavorable foreign exchange rates which decreased net revenues by $10 million and $3 million, respectively.

For the nine months ended September 30, 2024, Systems and Services net revenues increased by $80 million as compared to the same period in 2023 primarily due to higher scanner ASP which increased net revenues by $38 million, an increase in sales of upgrade scanner systems which increased net revenues by $30 million, and higher services revenue which increased net revenues by $18 million. Additionally, CAD/CAM software revenues increased net revenues by $6 million. These increases were partially offset by lower volume and unfavorable foreign exchange rates which decreased net revenues by $3 million and $7 million, respectively.

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

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

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

Clear Aligner

For the three and nine months ended September 30, 2024, our gross margin percentage decreased as compared to the same periods in 2023 primarily due to lower ASPs.

Systems and Services

For the three months ended September 30, 2024, our gross margin percentage increased as compared to the same period in 2023 primarily due to higher ASPs, partially offset by higher service and freight costs.

For the nine months ended September 30, 2024, our gross margin percentage increased as compared to the same period in 2023 primarily due to higher ASPs, partially offset by lower service revenue mix.

Selling, general and administrative (in millions):

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

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

For the three months ended September 30, 2024, selling, general and administrative expense increased compared to the same period in 2023 primarily due to higher employee costs, including higher salary, fringe benefits, stock-based compensation and bonus.

For the nine months ended September 30, 2024, selling, general and administrative expense increased compared to the same period in 2023 primarily due to higher employee costs, including higher salary, fringe benefits, stock-based compensation and bonus partially offset by lower marketing expense.

Research and development (in millions):

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

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

For the three months ended September 30, 2024, research and development expense decreased compared to the same period in 2023 primarily due to capitalization of labor costs related to internal use software, partially offset by higher employee costs.

For the nine months ended September 30, 2024, research and development expense increased compared to the same period in 2023 primarily due to higher employee costs, including salaries, fringe benefits, stock-based compensation, net of capitalized labor costs related to internal use software, and bonus, partially offset by lower outside services expense.

Legal settlement loss (in millions):

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

For the three and nine months ended September 30, 2024, we recorded losses of $0.1 million and $31 million, respectively, due to legal settlements. Refer to Note 7 “Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements for more information.

Income from operations (in millions):

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

1 Refer to Note 14 “Segments and Geographical Information” of the Notes to Condensed Consolidated Financial Statements for details on unallocated corporate expenses and the reconciliation to Condensed Consolidated Income from Operations.

For the three months ended September 30, 2024, our operating margin percentage decreased compared to the same periods in 2023 primarily due to increased employee costs.

For the nine months ended September 30, 2024, our operating margin percentage decreased compared to the same periods in 2023 primarily due to increased employee costs and legal settlement losses. Refer to Note 7 “Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements for more information.

Clear Aligner

For the three and nine months ended September 30, 2024, our operating margin percentage decreased compared to the same periods in 2023 primarily due to a decrease in gross margin and increased employee costs.

Systems and Services

For the three and nine months ended September 30, 2024, our operating margin percentage increased compared to the same periods in 2023 primarily due to higher gross margin, partially offset by increased employee costs.

Interest income (in millions):

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

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

For the three months ended September 30, 2024, interest income decreased compared to the same period in 2023 primarily due to lower cash and cash equivalents and lower interest rates.

For the nine months ended September 30, 2024, interest income decreased compared to the same period in 2023 primarily due to lower cash and cash equivalents.

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

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

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

For the three months ended September 30, 2024, other income (expense), net increased compared to the same period in 2023 primarily due to the favorable impact of foreign exchange rates and losses on equity investments.

For the nine months ended September 30, 2024, other income (expense), net increased compared to the same period in 2023 primarily due to a gain recorded on our equity investments and the favorable impact of foreign exchange rates.

Provision for income taxes (in millions):

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

Our effective tax rate differs from the statutory federal income tax rate of 21% for both the three and nine month periods ended September 30, 2024 and 2023 primarily due to the recognition of additional tax expense resulting from U.S. taxes on foreign earnings, foreign income taxed at different rates, state income taxes, and non-deductible expense in the U.S.

The increases in our effective tax rate for the three and nine months ended September 30, 2024 compared to the same periods in 2023 are primarily attributable to the change in our jurisdictional mix of income, recognizing a one-time tax benefit related to the application of tax guidance issued during the three months ended September 30, 2023, partially offset by a decrease in U.S. taxes on foreign earnings and remeasurement of Switzerland deferred tax asset due to Swiss tax rate change.

Liquidity and Capital Resources

Liquidity and Trends

As of September 30, 2024 and December 31, 2023, we had the following cash and cash equivalents and short-term and long-term marketable securities (in thousands):

As of September 30, 2024 and December 31, 2023, approximately $756.5 million and $784.7 million, respectively, of cash, cash equivalents were held by our foreign subsidiaries. We continue to evaluate opportunities to repatriate our foreign earnings if or when needed. We do not expect to incur significant additional costs upon repatriation of these foreign earnings. We generate sufficient domestic operating cash flow and have access to external funding under our $300.0 million revolving line of credit. We believe that our current cash balances and the borrowing capacity under our credit facility, if necessary, will be sufficient to fund our business for at least the next 12 months.

Our material cash requirements are as follows:

• Our purchase commitments consist primarily of open purchase orders for goods and services, including manufacturing inventory, supplies and services, sales and marketing, research and development services and technological services, issued in the normal course of business. There have been no material changes to our purchase commitments for goods and services during the nine months ended September 30, 2024 as compared to the year ended December 31, 2023.

• There have been no material changes to our future operating lease payments during the nine months ended September 30, 2024 as compared to the year ended December 31, 2023.

• For 2024, we expect our investments in capital expenditures to be above $100.0 million. Capital expenditures primarily relate to building construction and improvements as well as manufacturing capacity in support of our continued expansion. Despite the challenging market conditions, we intend to expand our investments in research and development, manufacturing, treatment planning, sales and marketing operations to meet actual and anticipated local and regional demands.

• In January 2023, our Board of Directors authorized a plan to repurchase up to $1.0 billion of our common stock, $500.0 million of which had been utilized as of September 30, 2024. We continually evaluate opportunities to repurchase shares of our common stock depending on various factors including our share price and current liquidity requirements. Refer to Note 10 “Common Stock Repurchase Program” of the Notes to Condensed Consolidated Financial Statements for details on our stock repurchase programs.

On October 25, 2024, we announced a plan to repurchase $275.0 million of our common stock through open market repurchases beginning in the fourth quarter of 2024 and continuing through the first quarter of 2025. Refer to Note 16 “Subsequent Event” of the Notes to Condensed Consolidated Financial Statements for details on this common stock repurchase.

• As of September 30, 2024, we had no material off-balance sheet arrangements that have or are reasonably likely to have, a current or future material impact on our liquidity or capital resources.

• As of September 30, 2024, we agreed, in principle, to settle certain legal matters for a total of $31.2 million. We expect to seek final court or administrative approvals, as applicable, in the second half of fiscal year 2024. Settlement payments will be made in accordance with the terms and conditions as set forth in the settlement agreements and/or court approvals. Refer to Note 7 “Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements for more information.

*•*On October 23, 2024, we announced a restructuring plan to reduce costs by adjusting headcount for the existing business environment. We expect to incur between approximately $25.0 million and $30.0 million of restructuring charges, primarily related to severance and other one-time post-employment benefits.

Sources and Uses of Cash

The following table summarizes our condensed consolidated cash flows for the nine months ended September 30, 2024 and 2023 (in thousands):

Operating Activities

For the nine months ended September 30, 2024, cash flows from operations of $452.2 million resulted primarily from our net income of approximately $317.6 million as well as the following:

Significant adjustments to net income

• Deferred taxes of $17.5 million related to a decrease in long term deferred tax position;

• Depreciation and amortization of $106.9 million related to our investments in property, plant and equipment and intangible assets;

• Stock-based compensation of $134.9 million related to equity awards granted to employees and directors;

• Non-cash operating lease costs of $28.6 million related to operating lease cost; and

• Other non-cash operating activities of $6.9 million primarily related to an increase in our bad debt allowance and accounts receivable factoring.

Significant changes in working capital

• Net outflow of $135.2 million in accounts receivable due to timing of collections and increased revenues; and

• Net inflow of $47.6 million in accrued and other long-term liabilities primarily due to timing of payments.

• Net outflow of $60.2 million in deferred revenue.

Investing Activities

Net cash used in investing activities was $201.0 million for the nine months ended September 30, 2024 and primarily consisted of a $77.1 million outflow for the Cubicure Acquisition, an outflow of $75.0 million for our investment in Heartland and purchases of property, plant and equipment in the amount of $92.6 million. Partially offsetting the cash outflows, is $43.9 million in proceeds from marketable securities.

Financing Activities

Net cash used in financing activities was $152.7 million for the nine months ended September 30, 2024 and primarily consisted of an outflow of $150.0 million for share repurchases and payroll taxes paid for equity awards through share withholdings of $28.0 million which were partially offset by $25.3 million of proceeds from the issuance of common stock under our employee stock purchase plan.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based upon our Condensed Consolidated Financial Statements which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of financial statements requires management to make estimates and judgments that affect the reported

amounts of assets and liabilities, revenues and expenses and disclosures at the date of the financial statements. We evaluate our estimates on an ongoing basis, including those related to revenue recognition, goodwill and finite-lived acquired intangible assets, income taxes and legal proceedings and litigation. We use authoritative pronouncements, historical experience and other assumptions as the basis for making estimates. Actual results could differ from those estimates.

Revenue Recognition

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

Determining the standalone selling price (“SSP”) in order to allocate consideration from the contract to the individual performance obligations is the result of various factors, such as historical prices, changing trends and market conditions, costs, and gross margins. While changes in the allocation of the SSP between performance obligations will not affect the amount of total revenues recognized for a particular contract, any material changes could impact the timing of revenue recognition, which would have a material effect on our financial position and result of operations. This is because the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation.

We allocate consideration for each clear aligner treatment plan based on each unit’s SSP. Management considers a variety of factors such as same or similar product historical sales, costs, and gross margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. In addition to historical data, we take into consideration changing trends and market conditions. For treatment plans with multiple options, we also consider usage rates, which is the number of times a customer is expected to order more aligners after the initial shipment. Our process for estimating usage rates requires significant judgment and evaluation of inputs, including historical usage data by region, country and channel.

We estimate the SSP of each element in a scanner system and services sale taking into consideration same or similar product historical prices as well as our discounting strategies. For CAD/CAM services, we estimate the SSP of each element, including the initial software license and maintenance and support, using data such as historical prices.

Recent Accounting Pronouncements

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

In the normal course of business, we are exposed to interest rate, foreign currency exchange and inflation risks that could impact our financial position and results of operations. In addition, we are subject to the broad market risk that is created by the global market disruptions and uncertainties resulting from macroeconomic challenges, geopolitical events, trade and other international disputes, including various military conflicts and consumer confidence. Further discussion on these risks may be found in Part II, Item 1A “Risk Factors.”

Interest Rate Risk

Changes in interest rates could impact our anticipated interest income on our cash equivalents and investments in marketable securities. Our investments are fixed-rate short-term and long-term securities. Fair market value of fixed-rate securities may be adversely impacted due to a rise in interest rates. As a result, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates. As of September 30, 2024, we had no available-for-sale marketable securities.

We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. As of September 30, 2024, we are not subject to risks from immediate interest rate increases on our unsecured revolving line of credit facility.

Currency Rate Risk

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

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

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

Inflation Risk

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

Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of September 30, 2024, 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 SEC rules and forms.

Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The information required by this item is incorporated herein by reference to the information set forth in Note 7 “Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q*.*

Under the heading "2019 Shareholder Derivative Lawsuit," in Note 7 “Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements, we describe that in the first quarter of 2024, the parties to those derivative lawsuit actions entered into a settlement agreement. On August 2, 2024, the U.S. District Court for the Northern District of California granted preliminary approval of the settlement. A notice approved by the court regarding the final settlement approval hearing and describing the terms of the settlement, as well as a copy of the stipulation of settlement itself, is available on the Company’s website at https://investor.aligntech.com/derivativesettlement.

The following discusses some of the risks and uncertainties that may affect our business, results of operations, financial condition and the price of our common stock. You should carefully review this section, as well as our condensed consolidated financial statements and notes thereto and other information appearing in this Quarterly Report on Form 10-Q, for important information regarding these and other risks that may affect us. The order we have chosen to list the risks below or the sections in which we have identified them should not be interpreted to mean we deem any risks to be more or less important or likely to occur or, if any do occur, that their impact may be any less significant than any others. These risk factors should be considered in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q because they could cause our actual results and conditions to differ materially from those statements. Before you invest in Align, you should know that investing involves risks, including those described below. The risks below are not the only risks we face. If any of the risks actually occur, our business, financial condition and results of operations could be negatively affected, the trading price of our common stock could decline, and you may lose all or part of your investment.

Macroeconomic and External Risks

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

Macroeconomic conditions impact consumer confidence and discretionary spending, which can adversely affect demand for our products. Consumer spending habits are affected by, among other things, inflation, fluctuations in foreign currency exchange rates, consumer confidence and demand, general economic weakness, actual or potential recessions, pandemics, wars and military actions, employment levels, wages, debt obligations, discretionary income, interest rates, volatility in capital, and perceptions of current and future economic conditions. Macroeconomic conditions can, among other things, reduce or shift spending away from elective procedures, drive patients to pursue less costly orthodontic treatments, decrease the number of orthodontic case starts, reduce patient traffic in dentists’ offices, or reduce demand for dental services generally. Further, decreased demand for dental services can cause dentists and labs to postpone investments in capital equipment, such as intraoral scanners and CAD/CAM equipment and software. The declines in, or uncertain economic outlooks for, the U.S., Chinese, European, and certain other international economies have and may continue to adversely affect consumer and dental practice spending. Increases in the cost of fuel and energy, food, and other essential items as well as higher interest rates have and may continue to reduce consumers’ disposable income, which could cause a decrease in discretionary spending for products like ours.

Inflation has and may continue to adversely impact spending and trade activities, and may unpredictably impact global and regional economies. Further, we cannot predict the impact of efforts by central banks and federal, state, and local governments to combat inflation, which could result in an economic recession or adversely impact consumer spending for a prolonged period of time. Higher inflation has and may continue to increase domestic and international shipping costs, raw material prices, and labor rates, causing an adverse impact on the costs of producing, procuring, and shipping our products. Our ability to recover these cost increases through price increases may continue to lag, resulting in downward pressure on our operating results. Attempts to offset cost increases with price increases may reduce sales, increase customer dissatisfaction, or otherwise harm our reputation. Any of these events could materially affect our business, financial condition, or results of operations.

We have significant international operations and sales and are therefore exposed to fluctuations in foreign currencies that have and may continue to adversely impact our business, financial condition, or results of operations. Although the U.S. dollar is our reporting currency, a large portion of our net revenues, expenses, and net income are generated in foreign currencies. While we utilize forward contracts to moderate the impact of exchange rate fluctuations on certain assets and liabilities, our hedging strategies may not be successful, and currency exchange rate fluctuations have and may continue to materially adversely affect our operating results and cash flows. In addition, our foreign currency exposure on assets, liabilities, and cash flows that we do not hedge have and could in the future materially impact our financial results in periods when the U.S. dollar significantly fluctuates in relation to foreign currencies.

Our business could be impacted by geopolitical events, trade and other international disputes, war and terrorism, or major public health crises**.**

Geopolitical events, trade and other international disputes, war and terrorism, or major public health crises have and could in the future harm or disrupt international commerce and the global economy, and could materially affect our business with our customers and consumers, suppliers, contract manufacturers, distributors, and other business partners. Such events have and could result in, among other things, supply chain and trade disruptions, tariffs, trade sanctions, customs inquiries or restrictions, boycotts, reduced consumer spending, government shut downs, cyberattacks, energy shortages or power outages, energy rationing that adversely impacts our manufacturing facilities, rising fuel or rising costs of producing, procuring, and shipping our products, constraints, volatility, or disruption in the financial markets, deaths or injuries to our employees, restrictions and shortages of food, water, shelter, and medical supplies, telecommunications failures, and protests that may impact delivery of our products to customers or destruction of property.

Tariffs, such as those on Chinese goods, and retaliatory trade measures in response may increase the cost of our products and the components and raw materials used to make them. Increased costs could adversely impact our gross margin and reduce demand for our products. Foreign countries may also adopt or rescind other measures, such as controls on the import or export of goods, technology, or data, including personal data, that could adversely impact our operations and supply chains or limit our ability to offer products and services. These measures could require us to take various actions, including changing suppliers or restructuring business relationships. Complying with new or revised trade restrictions may be expensive, time-consuming, and disruptive to our operations. Such restrictions may be announced with little or no advance notice and we may be unable to effectively mitigate any adverse impacts in a timely manner.

Geopolitical events, trade and other international disputes, war, terrorism, or major public health crises involving key commercial, development, or manufacturing markets such as China, Mexico, Israel, Poland, or other countries or regions have and may continue to materially impact our international operations. The impact to us, our employees, and our customers and consumers would be uncertain, particularly if emergency circumstances, armed conflicts, an escalation in political instability or violence, or viral outbreaks disrupt our product development, data or information exchange, payroll or banking operations, or our product or materia

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During the fiscal quarter ended September 30, 2024, no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (each as defined in Item 408 of Regulation S-K ).

(a) Exhibits:

† Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.