ALIGN TECHNOLOGY INC

Previous wording

Our revenues are susceptible to fluctuations caused by macroeconomic conditions, inflation, changes to currency exchange rates, rising 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. In 2023, we believe that sales of our products were primarily harmed by macroeconomic conditions that ultimately adversely impacted disposable income and consumer demand and this trend could continue in 2024. Additionally, for 2024, we 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.

Current wording

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 the first half of 2024, we believe sales of our products were impacted by macroeconomic conditions that adversely impacted disposable income and consumer demand and we believe this trend could continue in the second half 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.

Previous wording

Additionally, many of our international operations are denominated in currencies other than the U.S. dollar. In the first quarter of 2024, the U.S. dollar weakened against major currencies on a sequential basis, which favorably impacted our financial condition and results of operations for the quarter. However, on a year-over-year basis, the net impact from foreign exchange volatility was unfavorable to 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.

Current wording

Additionally, many of our international operations are denominated in currencies other than the U.S. dollar. In the second quarter of 2024, the U.S. dollar strengthened against major currencies, which negatively impacted our financial condition and results of operations for the quarter. On a year-over-year basis, the net impact from foreign exchange volatility was unfavorable to 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.

Previous wording

The recent conflict in the Middle East may further exacerbate general and regional macroeconomic instability, particularly if fighting is prolonged, it spreads to other locations, creates shipping and logistical challenges or cost increases, or leads to sanctions or boycotts. Our iTero business is headquartered in Israel and the timing and cost of shipping our products has been impacted. Additionally, we have employees and consultants in Israel that have been called for military service and they may be unavailable for an unknown period of time. The conflict may continue to spread to other areas which may further impact our business. We continue to monitor the potential for violence and military actions that may directly or indirectly impact our personnel, manufacturing, supply chain, and sales.

Current wording

The ongoing conflict in the Middle East may further exacerbate general and regional macroeconomic instability, particularly if fighting spreads to other locations, create shipping and logistical challenges or cost increases, or lead to sanctions or boycotts. Our iTero business is headquartered in Israel. In the second quarter of 2024, the timing and cost of shipping our products was not materially impacted and we have put measures in place to help reduce the risk of experiencing significant delays in the future. Additionally, we have employees and consultants in Israel that have been called for military service and they may be unavailable for an unknown period of time, but we are not currently being materially impacted. While, there have been export and import restrictions imposed against Israel, we are not currently being materially impacted by any trade sanctions. The conflict may continue to spread to other areas which may further impact our business. We continue to monitor the potential for violence and military actions that may directly or indirectly impact our personnel, manufacturing, supply chain, and sales.

Previous wording

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

Current wording

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.

Previous wording

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 cost impacts through pricing actions, implementing cost saving measures and slowing hiring. We also continue to innovate and introduce new and enhanced products that augment our doctor customer and patient experiences.

Current wording

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.

Previous wording

For instance, in 2023, there was significant adoption of the Invisalign Comprehensive 3in3 product and we anticipate continued adoption 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.

Current wording

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.

Previous wording

◦Clear Aligner case volume increased 2.4% year-over-year and Clear Aligner case volume increase for teenage patients of 5.8% year-over-year;

Current wording

◦Clear Aligner case volume increased 3.2% year-over-year and Clear Aligner case volume for teenage patients increased 8.0% year-over-year;

Previous wording

•Imaging Systems and CAD/CAM Services revenues of $180.2 million, an increase of 17.5% year-over-year;

Current wording

•Imaging Systems and CAD/CAM Services revenues of $196.8 million, an increase of 16.1% year-over-year;

Previous wording

•Income from operations of $154.1 million and operating margin of 15.5%;

Current wording

•Income from operations of $147.0 million and operating margin of 14.3%;

Previous wording

•Net income of $105.0 million with diluted net income per share of $1.39;

Current wording

•Net income of $96.6 million with diluted net income per share of $1.28;

Previous wording

•Cash, cash equivalents and marketable securities of $902.5 million as of March 31, 2024;

Current wording

•Cash, cash equivalents and marketable securities of $782.1 million as of June 30, 2024;

Previous wording

•Capital expenditures of $9.4 million, predominantly related to increases in our manufacturing capacity and facilities; and

Current wording

•Capital expenditures of $53.5 million, predominantly related to increases in our manufacturing capacity and facilities; and

Previous wording

•Number of employees was 21,670 as of March 31, 2024, a decrease of 5.9% year-over-year.

Current wording

•Number of employees was 21,805 as of June 30, 2024, a decrease of 4.8% year-over-year.

Previous wording

•As of March 31, 2024, approximately 17.6 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.

Current wording

•As of June 30, 2024, approximately 18.2 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.

Previous wording

•For the first quarter of 2024, total Invisalign cases submitted with a digital scanner in the Americas increased to 95.6%, up from 93.4%* in the first quarter of 2023 and international scans increased to 88.9%, up from 86.9%* in the first quarter of 2023. For the first quarter of 2024, 98.2% of Invisalign cases submitted by North American orthodontists were submitted digitally.

Current wording

•For the second quarter of 2024, total Invisalign cases submitted with a digital scanner in the Americas increased to 95.9%, up from 94.2%* in the second quarter of 2023 and international scans increased to 89.8%, up from 87.9%* in the second quarter of 2023. For the second quarter of 2024, 98.2% of Invisalign cases submitted by North American orthodontists were submitted digitally.

Previous wording

•The total utilization rate in the first quarter of 2024 increased to 7.2 cases per doctor compared to 7.1 cases per doctor in the first quarter of 2023. Utilization rates in North America and our International locations were as follows:

Current wording

•The total utilization rate in the second quarter of 2024 remained flat at 7.5 cases per doctor compared to the second quarter of 2023. Utilization rates in North America and our International locations were as follows:

Previous wording

▪North America: The utilization rate among our North American orthodontist customers decreased to 28.2 cases per doctor in the first quarter of 2024 compared to 28.7* cases per doctor in the first quarter of 2023 and the utilization rate among our North American GP customers remained flat at 4.9 cases per doctor in the first quarter of 2024 compared to the first quarter of 2023.

Current wording

▪North America: The utilization rate among our North American orthodontist customers decreased to 28.8 cases per doctor in the second quarter of 2024 compared to 29.2* cases per doctor in the second quarter of 2023 and the utilization rate among our North American GP customers increased to 5.3 cases per doctor in the second quarter of 2024 compared to 5.2 cases per doctor in the second quarter of 2023.

Previous wording

▪International: International doctor utilization rate was 6.3 cases per doctor in the first quarter of 2024 compared to 6.2 cases per doctor in the first quarter of 2023.

Current wording

▪International: International doctor utilization rate was 6.7 cases per doctor in the second quarter of 2024 compared to 6.6 cases per doctor in the second quarter of 2023.

Previous wording

▪We also offer in the U.S., Canada, and EMEA, 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.

Current wording

▪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.

Previous wording

Net revenues for our Clear Aligner and Systems and Services segments by region for the three months ended March 31, 2024 and 2023 are as follows (in millions):

Current wording

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

Previous wording

During the third quarter of 2023, we began including Touch Up case revenues in Americas and/or International net revenues that were previously included in Non-Case revenues and recast the three months ended March 31, 2023. Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.

Current wording

During the third quarter of 2023, we began including Touch Up case revenues in Americas and/or International net revenues that were previously included in Non-Case revenues and recast the three and six months ended June 30, 2023. Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.

Previous wording

Case volume data which represents Clear Aligner case shipments for the three months ended March 31, 2024 and 2023 is as follows (in thousands):

Current wording

Case volume data which represents Clear Aligner case shipments for thethree and six months ended June 30, 2024 and 2023 is as follows (in thousands):

Previous wording

During the third quarter of 2023, we began including Touch Up case revenues in Americas and/or International net revenues that were previously included in Non-Case revenues and recast the three months ended March 31, 2023. Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.

Current wording

During the third quarter of 2023, we began including Touch Up case revenues in Americas and/or International net revenues that were previously included in Non-Case revenues and recast the three and six months ended June 30, 2023. Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.

Previous wording

For the three months ended March 31, 2024, total net revenues increased by $54.3 million as compared to the same period in 2023, primarily due to an increase in Clear Aligner volume and increases in System and Services net revenues from non-system sales, increased service revenue, and higher scanner volume.

Current wording

For the three months ended June 30, 2024, total net revenues increased by $26.3 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") and non-system sales and Clear Aligner net revenues from an increase in volume partially offset by lower ASP.

Previous wording

For the three months ended March 31, 2024, Americas net revenues increased by $5.8 million as compared to the same period in 2023, primarily due to a 1.6% increase in ASP, resulting in an increase of net revenues of $5.9 million. Higher additional aligners increased net revenues by $27.2 million and price changes increased net revenues by $8.5 million. These increases were partially offset by a product mix shift to lower priced products which reduced net revenues by $22.3 million and higher promotional discounts which decreased net revenues by $9.8 million.

Current wording

For the three months ended June 30, 2024, Americas net revenues decreased by $9.3 million as compared to the same period in 2023, primarily due to a 2.6% decrease in ASP, resulting in a decrease of net revenues of $10.0 million. The decrease in ASP was primarily driven by a product mix shift to lower priced products which reduced net revenues by $25.3 million and higher promotional discounts which decreased net revenues by $19.1 million. These decreases were partially offset by lower net deferrals which increased net revenues by $29.5 million and price changes which increased net revenues by $5.1 million.

Previous wording

For the three months ended March 31, 2024, International net revenues increased by $16.4 million as compared to the same period in 2023, primarily due to a 5.3% increase in case volumes, resulting in increased net revenues by $18.7 million, partially offset by slightly lower ASP which decreased net revenues by $2.2 million. Lower ASP was largely due to higher promotional discounts which reduced net revenues by $19.9 million, a product mix shift to lower priced products reducing net revenues by $17.1 million, and unfavorable foreign exchange rates which decreased net revenues by $6.5 million. The decreases in ASP were partially offset by higher additional aligners and price changes which increased net revenues by $24.9 million and $13.9 million, respectively.

Current wording

For the three months ended June 30, 2024, International net revenues increased by $4.6 million as compared to the same period in 2023, primarily due to a 6.8% increase in case volumes, resulting in increased net revenues by $25.6 million, partially offset by slightly lower ASP which decreased net revenues by $20.9 million. Lower ASP was largely due to higher promotional discounts which reduced net revenues by $29.4 million, a product mix shift to lower priced products reduced net revenues by $15.1 million, and unfavorable foreign exchange rates decreased net revenues by $13.9 million. The decreases in ASP were partially offset by lower net deferrals and price changes which increased net revenues by $26.1 million and $11.8 million, respectively.

Previous wording

For the three months ended March 31, 2024, non-case net revenues increased by $5.2 million as compared to the same period in 2023 mainly due to increased volume of Vivera retainers which includes retention aligners ordered through our Doctor Subscription Program.

Current wording

For the three and six months ended June 30, 2024, non-case net revenues increased by $3.7 million and $8.9 million, respectively as compared to the same period in 2023 mainly due to increased volume of Vivera retainers which includes retention aligners ordered through our Doctor Subscription Program.

Previous wording

For the three months ended March 31, 2024, Systems and Services net revenues increased by $26.8 million as compared to the same period in 2023 primarily due to an increase in sales of upgrade scanner systems which increased net revenues by $9.5 million, higher scanner volume which increased net revenues by $7.4 million and services revenue which increased net revenues by $8.7 million. Additionally, Systems and Services net revenues increased due to higher scanner ASP which increased net revenues by $2.0 million.

Current wording

For the three months ended June 30, 2024, Systems and Services net revenues increased by $27.3 million as compared to the same period in 2023 primarily due to higher scanner ASP which increased net revenues by $11.7 million, an increase in sales of upgrade scanner systems which increased net revenues by $11.1 million, and higher services revenues which increased net revenues by $3.3 million.

Previous wording

For the three months ended March 31, 2024, our gross margin percentage decreased as compared to the same period in 2023 primarily due to increased manufacturing spend partially offset by higher net revenues.

Current wording

For the three months ended June 30, 2024, our gross margin percentage decreased as compared to the same period in 2023 primarily due to lower ASPs and increased manufacturing spend.

Previous wording

For the three months ended March 31, 2024, our gross margin percentage increased as compared to the same period in 2023 primarily due to higher net revenues and lower service and manufacturing costs.

Current wording

For the three and six months ended June 30, 2024, our gross margin percentage increased as compared to the same periods in 2023 primarily due to higher ASPs, partially offset by higher manufacturing variances.

Previous wording

For the three months ended March 31, 2024, selling, general and administrative expense increased compared to the same period in 2023 primarily due to higher employee costs, including higher salaries expense, fringe benefits and bonus payments.

Current wording

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

Previous wording

Research and development expense generally includes personnel-related costs, including payroll and stock-based compensation, 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.

Current wording

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.

Previous wording

For the three months ended March 31, 2024, research and development expense increased compared to the same period in 2023 primarily due to higher employee costs, including salaries expense, fringe benefits and stock-based compensation as we continue to focus on our investments in innovation and research, partially offset by lower outside service provider spend.

Current wording

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

Previous wording

For the three months ended March 31, 2024, our operating margin percentage remained relatively flat compared to the same period in 2023 primarilydue to a decrease in gross margin which was offset by operating leverage.

Current wording

For the three and six months ended June 30, 2024, our operating margin percentage decreased compared to the same periods in 2023 primarilydue to a decrease in gross margin which was partially offset by operating leverage.

Previous wording

For the three months ended March 31, 2024, our operating margin percentage increased compared to the same period in 2023 primarily due to higher gross margin.

Current wording

For the three andsix months ended June 30, 2024, our operating margin percentage increased compared to the same periods in 2023 primarily due to higher gross margin.

Previous wording

For the three months ended March 31, 2024, interest income increased compared to the same period in 2023 primarily due to higher interest rates partially offset by lower cash and cash equivalents.

Current wording

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

Previous wording

For the three months ended March 31, 2024, other income (expense), net increased compared to the same period in 2023 primarily due to a gain recorded on our equity investments, partially offset by the unfavorable impact of foreign exchange rates.

Current wording

For the six months ended June 30, 2024, other income (expense), net decreased compared to the same period in 2023 primarily due to the unfavorable impact of foreign exchange rates, partially offset by a gain recorded on our equity investments.

Previous wording

Our effective tax rate differs from the statutory federal income tax rate of 21% for both the three month periods ended March 31, 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.

Current wording

Our effective tax rate differs from the statutory federal income tax rate of 21% for both the three and six month periods ended June 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.

Previous wording

The decrease in our effective tax rate for the three months ended March 31, 2024 compared to the same period in 2023 is primarily attributable to the change in our jurisdictional mix of income and a decrease in U.S. taxes on foreign earnings.

Current wording

The decrease in our effective tax rate for the six months ended June 30, 2024 compared to the same period in 2023 is primarily attributable to the change in our jurisdictional mix of income and a decrease in U.S. taxes on foreign earnings, partially offset by lower tax deduction from stock-based compensation.

Previous wording

As of March 31, 2024 and December 31, 2023, approximately $685.0 million and $784.7 million, respectively, of cash, cash equivalents and marketable securities 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.

Current wording

As of June 30, 2024 and December 31, 2023, approximately $642.1 million and $784.7 million, respectively, of cash, cash equivalents and marketable securities 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.