Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
A discussion regarding our financial condition and results of operations for fiscal 2024 compared to fiscal 2023 is presented under Results of Operations of this Form 10-K. Discussions regarding our financial condition and results of operations for fiscal 2023 compared to 2022 have been omitted from this Annual Report on Form 10-K, but can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 28, 2024, which is available without charge on the SEC’s website at www.sec.gov and on our investor relations website at investor.aligntech.com.
Executive Overview of Results
Trends and Uncertainties
Our 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.
We strive to deliver on each of our strategic growth drivers through a variety of interrelated enterprise-wide efforts including:
•Continuing penetration and adoption of Invisalign clear aligners, intraoral scanners and CAD/CAM solutions in international markets by investing in manufacturing operations, research and development, clinical treatment planning, sales and marketing and building our quality and regulatory capabilities in existing and emerging markets globally. For instance, we have fabrication facilities in three key regions as a part of our strategy to bring operational facilities closer to customers to serve them more quickly and respond to their needs more effectively as well as new treatment planning operations in targeted regional geographies. We have also diversified our research and development activities, which has created a longer term, more stable environment for consistent hiring, retention and innovation in a variety of high technology locations.
•Targeting growth opportunities with international orthodontists and GP customers, particularly with adopters of digital dentistry platforms by tailoring our sales and marketing strategies, manufacturing operations and resources around the unique needs of each customer channel. As we continue growing, we intend to opportunistically expand our research, development, manufacturing, treatment planning, and sales and marketing operations to meet local and regional demand thoughtfully and deliberately. Over the longer-term, we expect international revenues to grow faster than Americas' revenues as a result of growing international demand, our continued investment in international market expansion, the size of the market opportunities and our relatively low market penetration in these regions.
•Building confidence within the GP and orthodontic communities through training and education efforts to increase their adoption and utilization of digital dental practice transformation and clear aligner treatment. We continue to expand our clear aligner customer base by educating new doctors on the benefits of digital dentistry through the Invisalign System. We furthermore demonstrate to GPs and orthodontists how the iTero portfolio of intraoral scanners, products like Invisalign GoTM treatment, and CAD/CAM restorative services and workflows can increase revenues and profitability for their dental practices by enhancing patient experiences and creating operational practice efficiencies. DSOs represent a large and growing opportunity to help drive adoption of digital technology across the dental industry. We have well established relationships with many DSOs globally that recognize the benefits of digital workflows enabled by our portfolio of products and services that make up the AlignTM Digital Platform, including increased practice efficiency and profitability, as well as delivering a better patient experience from shorter cycle times and customer proximity. We have and may continue to financially invest in or explore collaborations with key ecosystem partners, including DSOs, whose missions and visions align with our own vision, strategy, business model and goals.
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•Investing in research and development that allows us to innovate, develop and bring to market products and solutions that deliver the ever-increasing clinical precision and predictability that doctors expect with the speed and convenience their patients require.
•Creating demand and enabling patient conversion with targeted investments in advertising and public relations through social media, influencers and other forms of digital communications to encourage treatment by Invisalign trained doctors. We believe that well-designed, targeted sales and marketing promotions that build on our strong brand awareness allow us to differentiate our products and solutions from traditional and emerging competitors. To increase awareness and educate young adults, parents and teens about the benefits of Invisalign treatment, in 2024, we continued to invest in and create campaigns across markets in media platforms such as TikTok, Instagram, YouTube, SnapChat, WeChat, and Douyin. We expect to make further investments to create additional demand for Invisalign System treatment driving more consumers to dental professionals for those treatments.
•Pursuing new product lines that complement our doctor-prescribed principal products currently available in certain e-commerce and retail channels in the United States. Similarly, in 2024, we continued our focus on our doctor subscription plan and grew our underpenetrated share of the retainer business through strategic marketing campaigns focused on driving adoption and increasing market share.
•Increasing global orthodontic utilization rates as doctors’ clinical confidence in the efficacy and predictability of the Invisalign System increases with advancements in products and technology and as patients and doctors demand treatments that emphasize convenience and safety through fewer visits and less invasive and quicker treatments. In addition, the teenage and younger market makes up about 70% of the approximately 22 million total annual global orthodontic case starts. We continue to emphasize the benefits of the Invisalign System for teenage and younger patient treatments through education, training and sales and marketing programs. In 2024, we had record shipments to teenage and younger patients. We expect utilization rates to continue to rise. However, our utilization rates will fluctuate from period to period due to a variety of factors, which may include seasonal trends in our business, consumer demand due to macroeconomic factors, and adoption rates for new products and features.
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 resulting from events and circumstances, including macroeconomic conditions, fluctuations in foreign currency exchange rates, inflation, higher interest rates, actual and threatened wars and military actions, threats or actual imposition of tariffs, customs duties and fees by nations and retaliatory actions, threats of or actual slowdowns or recessions, supply chain challenges, market volatility, employment levels, wages, debt obligations, discretionary income 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 were adversely impacted by macroeconomic conditions that negatively affected disposable income and consumer demand. We believe this trend will continue in 2025. 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.
Additionally, government actions in various countries relating to implemented or proposed tariffs, particularly the United States, China, Mexico, and Europe are expected to adversely impact our revenue and cost of goods sold if implemented. The degree of our exposure is dependent on, among other things, the type of goods subject to any tariffs enacted, the tariff rates imposed, the timing of the tariffs and any retaliatory measures enacted. The impact of declining demand may vary by time and region, making operational results uncertain and difficult to predict. We continue to closely monitor the foregoing issues, assess their potential impact on our operations and financial results, and implement plans to mitigate the impact of any adverse events.
Additionally, a material amount of our revenues are derived internationally and many of our international operations are denominated in currencies other than the U.S. dollar. In 2024, the U.S. dollar remained strong against major currencies, which negatively impacted our financial condition and results of operations for the year. Foreign exchange volatility and the subsequent strengthening or weakening of the U.S dollar against other currencies remains uncertain and unpredictable.
We continue to monitor the potential for violence and military actions that may directly or indirectly impact our personnel, manufacturing, supply chain, and sales. For instance, ongoing conflicts in the Middle East may further exacerbate general and regional macroeconomic instability, particularly if fighting intensifies, spreads to other locations, creates shipping and logistical challenges or cost increases, leads to sanctions or boycotts, or otherwise may materially impact our operations. For instance, our iTero business is headquartered in Israel and, although the sales, delivery times and cost of shipping our
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products have not been materially impacted and we have put measures in place to help reduce the future risks, it remains uncertain if there will be impacts on our sales, delivery times or cost of shipping our products. While there have been export and import restrictions imposed against products originating from and businesses operating in Israel, they have not materially impacted our sales or operations to date although we continue to monitor the risk.
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 continue to 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, tariffs and retaliatory measures, military conflicts and the evolution of our target markets, by focusing on improving our operations, further increasing 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 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 also allows us to recognize more revenue up front while doing so 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 I, Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors.”
Key Financial and Operating Metrics
We measure our performance against these strategic priorities by the achievement of key financial and operating metrics. For the year ended December 31, 2024, our business operations reflect the following:
◦Revenues of $3,999.0 million, an increase of 3.5% year-over-year;
◦Clear Aligner revenues of $3,230.1 million, an increase of 1.0% year-over-year;
▪Americas Clear Aligner case revenues of $1,426.3 million, a decrease of 2.5% year-over-year;
▪International Clear Aligner case revenuesof $1,500.5 million, an increase of 3.5% year-over-year;
▪Clear Aligner volume increase of 3.5% year-over-year and Clear Aligner volume increase for kids and teens of 7.7% year-over-year;
◦Imaging Systems and computer-aided design and computer-aided manufacturing (“CAD/CAM”) Services revenues of $768.9 million, an increase of 16.0% year-over-year;
◦Income from operations of $607.6 million and operating margin of 15.2%;
◦Effective tax rate of 30.8%;
◦Net income of $421.4 million with diluted net income per share of $5.62;
◦Cash and cash equivalents of $1,043.9 million as of December 31, 2024;
◦Cash provided by operating activities of $738.2 million;
◦Capital expenditures of $115.6 million, primarily related to investments in our manufacturing capacity and facilities; and
◦Number of employees of 20,945 as of December 31, 2024, a decrease of 3.1% year-over-year.
Other Statistical Data and Trends
•As of December 31, 2024, over 19 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.
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•The total number of Invisalign trained doctors cases were shipped to (doctor submitters) in 2024 was 130.4 thousand compared to 125.8 thousand in 2023, a 3.6% increase. GP and orthodontist doctor submitters increased by approximately 3% and 4%, respectively, in 2024 compared to 2023.
•Our total utilization rate in 2024 of 19.1 cases per doctor was flat compared to 2023 and slightly down from 19.3 cases per doctor in 2022. Our utilization rates have been impacted by the macroeconomic conditions and other factors as described in the “Trends and Uncertainties” section above. In general, we expect utilization rates to rise over time although they are likely to fluctuate from period to period.
•North America: The utilization rate among our North American orthodontist customers was 95.0 cases per doctor in 2024 compared to 94.5 cases per doctor in 2023 and 94.9 cases per doctor in 2022 and the utilization rate among our North American GP customers was 14.3 cases per doctor in 2024 compared to 14.0 cases per doctor in 2023 and 13.9 cases per doctor in 2022.
•International: International doctor utilization rate was 16.2 cases per doctor in 2024 compared to 16.3 cases per doctor in 2023 and 16.2 cases per doctor in 2022.
* 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 year; 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, Invisalign First and Invisalign Comprehensive 3in3.
•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.
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•In the United States, 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 revenues 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 year ended December 31, 2024, 2023 and 2022 are as follows (in millions):
Year Ended December 31, Year Ended December 31,
Clear Aligner revenues:
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Clear Aligner Case Volume
Case volume data which represents Clear Aligner case shipments for the year ended December 31, 2024, 2023 and 2022 is as follows (in thousands):
Year Ended December 31, Year Ended December 31,
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Total net revenues increased by $137 million in 2024 as compared to 2023, primarily due to an increase in Systems and Services net revenues from higher scanner ASP, increase in non-system sales and services revenue. Clear Aligner net revenues increased primarily from an increase in volume, partially offset by lower Clear Aligner ASP.
Clear Aligner - Americas
Americas net revenues decreased by $37 million in 2024 as compared to 2023, primarily due to a 3.0% decrease in ASP, resulting in a decrease of net revenues of $44 million. The decrease in ASP was primarily driven by a mix shift to lower priced products and countries which reduced net revenues by $88 million and higher promotional discounts which decreased net
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revenues by $66 million and unfavorable foreign exchange rates that decreased net revenues by $9 million. These decreases were partially offset by lower net deferrals which increased net revenues by $94 million and price changes which increased net revenues by $19 million. The decrease in ASP was partially offset by an increase in volume which increased net revenues by $7 million.
Clear Aligner - International
International net revenues increased by $51 million in 2024 as compared to 2023due to a 7.0% increase in volume, resulting in increased net revenues of $101 million. This increase was partially offset by a decrease of 3.3% in ASP which decreased net revenues by $50 million. Lower ASP was due to unfavorable foreign exchange rates that decreased net revenues by $21 million and a price reduction for sales in the United Kingdom (“UK”) to offset VAT we began charging in 2024, which decreased net revenues by $32 million, a mix shift to lower priced products and countries which reduced net revenues by $60 million and higher promotional discounts which reduced net revenues by $114 million. The decreases in ASP were partially offset by lower net deferrals and price changes which increased net revenues by $99 million and $72 million, respectively.
Clear Aligner - Non-Case
Non-case net revenues increased by $16 million in 2024 compared to 2023 mainly due to increased volume of Vivera retainers which includes retention aligners ordered through our Doctor Subscription Program.
Systems and Services
Systems and Services net revenues increased by $106 million in 2024 as compared to 2023 primarily due to higher scanner ASP which increased net revenues by $45 million, an increase in sales of upgrade scanner systems which increased net revenues by $38 million, higher services revenue which increased net revenues by $19 million and higher volume which increased net revenues by $4 million. Additionally, CAD/CAM software revenues increased net revenues by $7 million. These increases were partially offset by unfavorable foreign exchange rates which decreased net revenues by $7 million.
Cost of net revenues and gross profit (in millions):
Year Ended December 31, Year Ended December 31,
Clear Aligner
Systems and Services
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, depreciation on capital equipment and facilities used in the production process, amortization of acquired intangible assets and training costs.
Clear Aligner
The gross margin percentage decreased in 2024 as compared to 2023 primarily due to lower ASPs and higher restructuring expense.
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Systems and Services
The gross margin percentage increased in 2024 as compared to 2023 primarily due to higher ASPs and lower cost of net revenues leverage, partially offset by lower service revenue mix.
Selling, general and administrative (in millions):
Year Ended December 31, Year Ended December 31,
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, market research, marketing materials, clinical education, 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”).
Selling, general and administrative expense increased in 2024 compared to 2023 primarily due to higher employee costs, including salaries, fringe benefits, stock-based compensation and bonus partially offset by lower outside services expense.
Research and development (in millions):
Year Ended December 31, Year Ended December 31,
% of net revenues 9.1 % 9.0 % 9.0 % 8.2 %
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, 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.
Research and development expense increased in 2024 compared to 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.
Restructuring and other charges (in millions):
Year Ended December 31, Year Ended December 31,
% of net revenues 0.8 % 0.3 % 0.3 % 0.3 %
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Restructuring and other charges increased in 2024 compared to 2023 due to higher severance and other one-time post-employment benefits, driven by a more significant restructuring plan initiated in 2024. Refer to Note 17 “Restructuring and Other Charges” of the Notes to Consolidated Financial Statements for more information.
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Legal settlement loss (in millions):
Year Ended December 31, Year Ended December 31,
Legal settlement loss $ 31.0 $ — $ 31.0 $ — $ — $ —
% of net revenues 0.8 % — % — % — %
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Legal settlement loss incurred during 2024 was due to litigation and other settlements. Refer to Note 8“Legal Proceedings” of the Notes to Consolidated Financial Statements for more information.
Income from operations (in millions):
Year Ended December 31, Year Ended December 31,
Clear Aligner
Systems and Services
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
1Refer to Note 16 “Segments and Geographical Information” of the Notes to Consolidated Financial Statements for details on unallocated corporate expenses and the reconciliation to consolidated Income from operations.
Total operating margin percentage decreased in 2024 compared to 2023 primarily due to increased legal settlement losses, restructuring and other charges and employee costs. Refer toNote 8 “Legal Proceedings”of the Notes to Consolidated Financial Statements.
Clear Aligner
Operating margin percentage decreased in 2024 compared to 2023 primarily due to a decrease in gross margin and an increase in employee costs.
Systems and Services
Operating margin percentage increased in 2024 compared to 2023 primarily due to higher gross margin, partially offset by an increase in employee costs.
Interest income (in millions):
Year Ended December 31, Year Ended December 31,
% of net revenues 0.5 % 0.4 % 0.4 % 0.1 %
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Interest income generally includes interest earned on cash, cash equivalents and investment balances.
Interest income increased in 2024 compared to 2023 primarily due to primarily due to higher cash and cash equivalents.
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Other income (expense), net (in millions):
Year Ended December 31, Year Ended December 31,
% of net revenues (0.5) % (0.5) % (0.5) % (1.3) %
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
Other income (expense), net, generally includes foreign exchange gains and losses, gains and losses on foreign currency forward contracts, interest expense, gains and losses on equity investments and other miscellaneous charges.
Other income (expense), net increased in 2024 compared to 2023primarily due to gains recorded on our equity investments, offset by the unfavorable impact of foreign exchange rates.
Provision for income taxes (in millions):
Year Ended December 31, Year Ended December 31,
Changes and percentages are based on actual values. Certain tables may not sum or recalculate due to rounding.
The increase in our effective tax rate for the year ended December 31, 2024 compared to the same period in 2023 is primarily attributable to an increase in U.S. taxes on foreign earnings, partially offset by a change in our jurisdictional mix of income and release of unrecognized tax benefits due to a lapse of the statute of limitation.
Liquidity and Capital Resources
Liquidity and Trends
As of December 31, 2024 and 2023, we had the following cash and cash equivalents and short-term and long-term marketable securities (in thousands):
December 31,
Marketable securities, short-term — 35,304
Marketable securities, long-term — 8,022
As of December 31, 2024 and 2023, approximately $855 million and $785 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 $300 million under our 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 as of December 31, 2024 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. Our purchase commitments totaled $1,193 million. We anticipate a majority, an estimated $1,003 million, will be payable within the next 12 months. These purchase commitments exclude capital expenditures.
•We expect our investments in capital expenditures to be between $100 million and $150 million for the next 12 months. Capital expenditures primarily relate to building construction and improvements as well as additional manufacturing capacity. Despite the challenging market conditions, we intend to expand our investments in research
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and development, manufacturing, treatment planning, sales and marketing operations to meet actual and anticipated demand.
•We have future operating lease payments of $133 million, which includes $2.6 million for leases that have not yet commenced as of December 31, 2024. Refer to Note 4 “Leases” of the Notes to Consolidated Financial Statements for details on the lease payments.
•We have approximately $297 million, inclusive of approximately $72 million repurchased in January 2025, available for repurchases of our common stock under the stock repurchase program authorized by our Board of Directors in January 2023 (“January 2023 Repurchase Program”). Our stock repurchase program is subject to periodic evaluations to determine when and if repurchases are in the best interests of our stockholders, taking into account prevailing market conditions. Refer to Note 11 “Common Stock Repurchase Programs” of the Notes to Consolidated Financial Statements for details on our stock repurchase activity.
•In 2024, we agreed, in principle, to settle certain legal matters. As of December 31, 2024, a total of $27.5 million remained unpaid. Settlement payments will be made in accordance with the terms and conditions as set forth in the settlement agreement. Refer to Note 8“Legal Proceedings”of the Notes to Consolidated Financial Statements for more information.
•As of December 31, 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.
Sources and Uses of Cash
The following table summarizes our Consolidated Statements of Cash Flows for the year ended December 31, 2024, 2023 and 2022 (inthousands):
Year Ended December 31,
Net cash provided by (used in):
Operating Activities
For the year ended December 31, 2024, cash flows from operations of $738 million resulted primarily from our net income of approximately $421 million as well as the following:
Significant adjustments to net income
•Stock-based compensation of $174 million related to equity awards granted to employees and directors; and
•Depreciation and amortization of $145 million related to our investments in property, plant and equipment and intangible assets.
Significant changes in working capital
•Net inflow of $90 million from accrued and other long-term liabilities primarily due to timing of payments;
•Net inflow of $68 million from prepaid expenses and other assets primarily due to settlement of tax matter. Refer to Note 8“Legal Proceedings” of the Notes to Consolidated Financial Statements.
•Net outflow of $80 million from deferred revenues; and
•Net outflow of $153 million from accounts receivable due to timing of collections and increased revenues.
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For the year ended December 31, 2023, cash flows from operations of $786 million resulted primarily from our net income of approximately $445 million as well as the following:
Significant adjustments to net income
•Stock-based compensation of $154 million related to equity awards granted to employees and directors; and
•Depreciation and amortization of $142 million related to our investments in property, plant and equipment and intangible assets.
Significant changes in working capital
•Net inflow of $46 million from accrued and other long-term liabilities primarily due to higher incentive accruals for 2023, as well as timing of payments of other activities;
•Net inflow of $87 million from deferred revenues due to the deferral of revenue on shipments;
•Net inflow of $30 million from inventories primarily due to lower purchases of materials used in manufacturing; and
•Net outflow of $105 million, net from accounts receivable due to timing of collections and increased revenues.
Investing Activities
Net cash used in investing activities was $255 million for the year ended December 31, 2024 which primarily consisted of $116 million for purchases of property, plant and equipment, $77 million for the Cubicure acquisition and $106 million for investments in privately held companies, partially offset by sales and maturities of marketable securities of $44 million.
Net cash used in investing activities was $196 million for the year ended December 31, 2023 which primarily consisted of purchases of property, plant and equipment of $178 million which included a building acquisition for $25 million, an investment in equity of a privately held company of $77 million and purchases of marketable securities of $3 million, partially offset by sales and maturities of marketable securities of $61 million.
Financing Activities
Net cash used in financing activities was $356 million for the year ended December 31, 2024 which consisted of payments to repurchase shares of our common stock of $353 million and payroll taxes paid for equity awards through share withholdings of $28 million, which were partially offset by proceeds from the issuance of common stock for $25 million.
Net cash used in financing activities was $598 million for the year ended December 31, 2023 which consisted of payments to repurchase shares of our common stock of $602 million and payroll taxes paid for equity awards through share withholdings of $23 million, which were partially offset by proceeds from the issuance of common stock for $27 million of proceeds from the issuance of common stock.
Critical Accounting Estimates
Management’s discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and disclosures at the date of the financial statements. We evaluate our estimates on an on-going basis and use authoritative pronouncements, historical experience and other assumptions as the basis for making the estimates. Actual results could differ from those estimates.
We believe the following critical accounting estimates affect our more significant judgments used in the preparation of our consolidated financial statements. For further information on all of our significant accounting policies, see Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements.
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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. Sales contracts with multiple performance obligations require management to exercise judgment in allocating the transaction price, based on standalone selling prices, to each performance obligation and determining the timing of revenue recognition which directly impacts our unfulfilled performance obligations at period end.
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.
Unfulfilled Performance Obligations for Clear Aligners and Scanners
Our unfulfilled performance obligations, including deferred revenues and backlog, and the estimated revenues expected to be recognized in the future related to these performance obligations are $1,444.9 million and $1,578.3 million as of December 31, 2024 and 2023, respectively. This includes performance obligations from the Clear Aligner reportable segment, primarily the shipment of additional aligners, which are fulfilled over six months to five years. This also includes performance obligations from our Systems and Services reportable segment, primarily services and support, which are fulfilled over one to five years, and contracted deliveries of additional scanners. The estimate includes both product and service unfulfilled performance obligations and the time range reflects our best estimate of when we will transfer control to the customer and may change based on customer usage patterns, timing of shipments, readiness of customers' facilities for installation, and manufacturing availability.
Impairment of Goodwill and Finite-Lived Intangible Assets
Goodwill
We evaluate goodwill for impairment at least annually on November 30th or more frequently if indicators of impairment are identified between annual testing dates. Goodwill is tested for impairment between annual testing dates when events or circumstances indicate that the fair value of a reporting unit has been reduced below its carrying value. When an indicator of impairment is identified we perform a quantitative impairment assessment in which we determine the fair value of a reporting unit and compare it to the carrying value of the respective reporting unit. We generally determine the fair value of a reporting unit via a discounted cash flow (“DCF”) analysis and allocate our net assets to each reporting unit to determine carrying value. The use of a DCF model requires management to exercise significant judgement related to operating assumptions and estimates including, revenue growth rates, terminal growth rates, operating margins and discount rates, among others. Additionally, management exercises judgement when determining the methodology used to allocate net assets to each reporting unit. We will record an impairment charge when our quantitative impairment analysis indicates that the carrying value of a reporting unit exceeds its fair value.
Finite-Lived Intangible Assets
Finite-lived intangible assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset (asset group) may not be recoverable. When an impairment indicator is identified, we perform a recoverability test, in
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which the estimated, undiscounted future cash flows expected to result from the use and eventual disposition of the asset (asset group) are compared to the carrying value of the asset (asset group). When our recoverability test results in undiscounted cash flows that are greater than carrying value, no impairment is recorded. However, when our recoverability test results in undiscounted cash flows that are less than carrying value, we determine the fair value of the asset (asset group) and reduce the carrying amount of the asset (asset group), through an impairment charge, to its fair value. The process of identifying impairment indicators, preparing an undiscounted cash flow and determining the fair value of the asset (asset group) require management to exercise significant judgement related to various assumptions and estimates.
If we were to have impairments to goodwill or finite-lived intangible assets, it could adversely affect our operating results. During the year ended 2024 and 2023, we did not have any impairment charges related to our goodwill or finite-lived intangible assets.
Accounting for Income Taxes
We are subject to income taxes in the United States and numerous foreign jurisdictions. The evaluation of our uncertain tax positions involves significant judgment in the interpretation and application of U.S. GAAP and complex domestic and international tax laws related to the allocation of international taxation rights between countries. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis in accordance with U.S. GAAP. Realization of our deferred tax assets is dependent on our ability to generate future taxable income which is determined based on assumptions such as estimated growth rates in revenues, gross margins, future cash flows and discount rates in the jurisdictions in which we operate. The accuracy of these estimates could be affected by unforeseen events or actual results, and the sustainability of our future tax benefits is dependent upon the acceptance of these valuation estimates and assumptions by the taxing authorities. We may, in the future, be required to increase the valuation allowance to take into account additional deferred tax assets that we may be unable to realize.
Accounting for Legal Proceedings
Estimates of probable losses resulting from litigation are inherently difficult to make, particularly when the matters are in early procedural stages with incomplete facts and information. The final outcome of legal proceedings is dependent on many variables that are difficult to predict and, therefore, the ultimate cost to resolve such matters may be materially different than our current estimates. Consequently, new information or changes in judgments and estimates could have a material adverse effect on our business, financial condition, and results of operations or cash flows.
Recent Accounting Pronouncements
See Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on results of operations and financial condition, which is incorporated herein.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
In the normal course of business, we are exposed to interest rate, foreign currency exchange and inflation risks that could impact our financial position and results of operations. In addition, we are subject to the broad market risk that is created by the global market disruptions and uncertainties resulting from macroeconomic challenges, various military conflicts and consumer confidence. Further discussion on these risks may be found in Part I, Item 1A of this Annual Report on Form 10-K under the heading“Risk Factors.”
Interest Rate Risk
Changes in interest rates could impact our anticipated interest income earned on our cash and cash equivalents balance. As of December 31, 2024, we are not exposed to interest rate risk on our unsecured revolving line of credit. An immediate 10% change in interest rates would not have a material adverse impact on our future operating results and cash flows.
We have not historically used derivative financial instruments to manage our exposure to changes in interest rates.
Foreign Currency Exchange 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. There is no assurance that exchange rate fluctuations will not adversely impact our results of operations or financial condition in the future. We generally sell our products in the local
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currency of the respective countries. This provides some natural hedging because most of the subsidiaries’ operating expenses are also 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.
Although we will continue to monitor our exposure to currency fluctuations, and, where appropriate, 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. If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. There is no assurance that our results of operations and financial condition will not be adversely impacted by inflation in the future.
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Item 8.Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Management's Annual Report on Internal Control over Financial Reporting 55
Report of Independent Registered Public Accounting Firm (PCAOB ID 238) 56
Consolidated Balance Sheets as of December 31, 2024 and 2023 60
Notes to Consolidated Financial Statements 63
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MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Align is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed by, or under supervision of, our CEO and CFO, and effected by the board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Align;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Align are being made only in accordance with authorizations of management and directors of Align; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Align’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2024. In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Based on our assessment, management has concluded that, as of December 31, 2024, 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, 2024 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
/S/ JOSEPH M. HOGAN
Joseph M. Hogan
President and Chief Executive Officer
/S/ JOHN F. MORICI
John F. Morici
Chief Financial Officer and Executive Vice President, Global Finance
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Report of Independent Registered Public Accounting Firm
To theBoard of Directors and Stockholders of Align Technology, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Align Technology, Inc. and its subsidiaries (the "Company") as of December 31, 2024 and 2023, and the related consolidated statements of operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2024, including the related notes and schedule of Valuation and Qualifying Accounts and Reserves for each of the three years in the period ended December 31, 2024 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, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 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, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Determination of Standalone Selling Price of Distinct Performance Obligations in Clear Aligner Contracts
As described in Notes 1 and 16 to the consolidated financial statements, the Company recognized net revenues of $3.2 billion from its Clear Aligner segment for the year ended December 31, 2024. The Company enters into contracts (“treatment plans”) that involve multiple future performance obligations. Management identifies a performance obligation as distinct if both of the following criteria are met: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Management allocates revenues for each treatment plan based on each unit’s standalone selling price. Management considers a variety of factors such as same or similar product historical sales, costs, and gross margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. In addition to historical data, they take into consideration changing trends and market conditions. Management also considers usage rates, which is the number of times a customer is expected to order additional aligners. Management’s process for estimating usage rates requires significant judgment and evaluation of inputs, including historical usage data by region, country and channel.
The principal considerations for our determination that performing procedures relating to revenue recognition and the determination of standalone selling price of distinct performance obligations in Clear Aligner contracts is a critical audit matter are the significant judgment by management in determining the estimate of standalone selling price, which includes significant assumptions related to usage rates for each distinct performance obligation. This in turn led to significant auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s determination of the estimates of standalone selling price and usage rates for each distinct performance obligation.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to revenue recognition, including controls over the determination of standalone selling price for each distinct performance obligation in the Company’s Clear Aligner contracts. These procedures also included, among others, (i) testing management’s process for determining the estimate of standalone selling price, which included testing the completeness and accuracy of inputs used and evaluating the reasonableness of factors considered by management related to same or similar product historical sales and usage rates, and (ii) testing management’s process for estimating usage rates, which included evaluating the reasonableness of inputs evaluated by management related to historical usage data by region, country and channel.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 28, 2025
We have served as the Company’s auditor since 1997.
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ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended December 31,
Operating expenses:
Legal settlement loss 30,968 — —
Interest income and other income (expense), net:
Total interest income and other income (expense), net 1,331 (2,134) (43,538)
Net income per share:
Shares used in computing net income per share:
The accompanying notes are an integral part of these consolidated financial statements.
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ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Year Ended December 31,
Other comprehensive income (loss):
Change in unrealized gains (losses) on investments, net of tax 596 3,033 (3,130)
The accompanying notes are an integral part of these consolidated financial statements.
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ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31,
ASSETS
Current assets:
Marketable securities, short-term — 35,304
Marketable securities, long-term — 8,022
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Commitments and contingencies (Notes 8 and 9)
Stockholders’ equity:
Preferred stock, $0.0001 par value (5,000 shares authorized; none issued) — —
Accumulated other comprehensive income (loss), net 5,978 21,168
The accompanying notes are an integral part of these consolidated financial statements.
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ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Shares Amount
Net change in unrealized gains (losses) from investments — — — (3,130) — (3,130)
Net change in foreign currency translation adjustment — — — (11,480) — (11,480)
Net change in unrealized gains (losses) from investments — — — 3,033 — 3,033
Net change in foreign currency translation adjustment — — — 28,419 — 28,419
Net change in unrealized gains (losses) from investments — — — 596 — 596
Net change in foreign currency translation adjustment — — — (15,786) — (15,786)
The accompanying notes are an integral part of these consolidated financial statements.
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ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Impairments and fair value adjustments for equity investments (5,885) 4,990 —
Changes in assets and liabilities, net of effects of acquisitions:
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (77,075) — (12,304)
Purchase of marketable securities — (2,910) (28,002)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payroll taxes paid upon the vesting of equity awards (28,125) (22,575) (52,799)
The accompanying notes are an integral part of these consolidated financial statements.
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ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Business Description
Align Technology, Inc. (“we,” “us,” “our,” “Align” or the “Company”) is a global medical device company primarily engaged in the design, manufacture and marketing of Invisalign® clear aligners for the treatment of malocclusions, or the misalignment of teeth, by orthodontists and general dental practitioners (“GPs”), ViveraTM retainers for retention, iTeroTM intraoral scanners and services for dentistry, and exocadTM computer-aided design and computer-aided manufacturing (“CAD/CAM”) software for dental laboratories and dental practitioners. Our vision and strategy is to revolutionize orthodontic and restorative dentistry through digital treatment planning and implementation using the AlignTM Digital Platform, an integrated suite of proprietary technologies and services designed to deliver a seamless, end-to-end solution for patients, consumers, orthodontists, GPs and lab partners. We strive to achieve our vision and strategy through key objectives made possible with the proprietary technologies and services of the AlignTM Digital Platform to establish: clear aligners as the principal solution for the treatment of malocclusions with the Invisalign System as the treatment solution of choice by orthodontists, GPs and patients globally, our iTero intraoral scanners as the preferred scanning technology for digital dental scans and our exocad CAD/CAM software as the dental restorative solution of choice for dental labs. Our corporate headquarters is located in Tempe, Arizona and we have offices worldwide. Our Americas regional headquarters is located in Raleigh, North Carolina; our European, Middle East and Africa (“EMEA”) regional headquarters is located in Rotkreuz, Switzerland; and our Asia Pacific (“APAC”) regional headquarters is located in Singapore. We have two operating segments: (1) Clear Aligner and (2) Imaging Systems and CAD/CAM services (“Systems and Services”).
Basis of Presentation and Preparation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, (“GAAP”) and include the accounts of Align and our wholly-owned subsidiaries after elimination of intercompany transactions and balances.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition and deferred revenues, useful lives of intangible assets and property, plant and equipment, goodwill, income taxes, contingent liabilities, the fair values of financial instruments, stock-based compensation and the valuation of investments in privately held companies among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Fair Value of Financial Instruments
Fair value is an exit price, representing the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use the GAAP fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value:
Level 1 - Quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. We obtain fair values for our Level 2 investments. Our custody bank and asset managers independently use professional pricing services to gather pricing data which may include quoted market prices for identical or comparable financial instruments, or inputs other than quoted prices that are observable either directly or indirectly. We are ultimately responsible for these underlying estimates.
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Level 3 - Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.
Cash and Cash Equivalents
We consider cash on hand, demand deposits, time deposits, and all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash and cash equivalents. Cash and cash equivalents are held in various financial institutions in the U.S. and internationally.
Restricted Cash
Restricted cash primarily consists of funds reserved for legal requirements. Restricted cash balances are primarily included in other assets within our Consolidated Balance Sheets.
Marketable Securities
Our marketable securities balance consists of marketable debt securities which are classified as available-for-sale and are carried at fair value. Our fixed-income securities investment portfolio allows for investments with a maximum effective maturity of up to 40 months on any individual security. Marketable securities classified as current assets have maturities within one year from the balance sheet date. Unrealized gains or losses on such securities are included in accumulated other comprehensive income (loss), net (“AOCI”) in stockholders’ equity. Realized gains and losses from sales and maturities of marketable securities are reported in earnings and computed using the specific identification cost method.
All of our marketable securities are subject to a periodic impairment review. We evaluate if an allowance for credit loss is necessary by considering available information relevant to the collectability of the security and information about credit rating changes, past events, current conditions, and reasonable and supportable forecasts. Any allowance for credit loss is recorded as a charge to other income (expense), net, in our Consolidated Statements of Operations. If we have an intent to sell, or if it is more likely than not that we will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis, we will write down the security to its fair value and record the corresponding charge as a component of other income (expense), net in our Consolidated Statements of Operations.
As of December 31, 2024 we have no short term or long term marketable securities.
Variable Interest Entities
We evaluate whether an entity in which we have made an investment is considered a variable interest entity (“VIE”). If we determine we are the primary beneficiary of a VIE, we would consolidate the assets, liabilities, income and expense of the VIE into our consolidated financial statements. In determining if we are the primary beneficiary, we evaluate whether we have the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of activities that are significant to the VIE and an assessment of our ability to direct those activities. Our assessment of whether we are the primary beneficiary of a VIE requires management to exercise significant judgement and utilize assumptions. We have concluded that we are not the primary beneficiary of our VIE investments; therefore, we do not consolidate their results into our consolidated financial statements.
Investments in Privately Held Companies
Our investments in privately held companies in which we cannot exercise significant influence and do not own a majority equity interest or otherwise control are accounted for as investments in equity securities. We have elected to account for all investments in equity securities in accordance with the measurement alternative. Under the measurement alternative, we record the value of our investments at cost, minus impairment, if any. Additionally, we adjust the carrying value of our investments for observable transactions for identical or similar investments of the same issuer.
On April 24, 2023 and April 22, 2024, we entered into Subscription Agreements (the “Heartland Subscription Agreements”) with Heartland Dental Holding Corporation (“Heartland”). Pursuant to the Heartland Subscription Agreements we acquired less than a 5% equity interest in total, through the purchase of Class A Common Stock for $150 million ($75 million in each April 2023 and April 2024).
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On December 19, 2024, we entered into a Subscription Agreement (the “Smile Doctors Subscription Agreement”) with New SD Holding Company, L.P. (“SD Holding Company”). Pursuant to the Smile Doctors Subscription Agreement we acquired less than a 3% equity interest through the purchase of Class A Common Units for $30 million. SD Holding Company owns a controlling interest, through intermediary entities, in Smile Doctors, LLC.
We account for our investments in Heartland and SD Holding Company as investments in equity securities, utilizing the measurement alternative. Based on a review of the relevant facts and circumstances, primarily observable transactions for identical investments, we recorded a $6 million increase to the carrying value of our investment in Heartland for the year ended December 31, 2024. We did not record an adjustment for the year ended December 31, 2023.
Our investments in privately held companies in which we can exercise significant influence are accounted for as equity method investments. We have elected to account for our equity method investments under the fair value option.
The carrying value of our investments in equity securities and equity method investments are reported in our Consolidated Balance Sheets as other assets and any fair value adjustments or impairment, if any, are recorded in other income (expense), net in our Consolidated Statements of Operations.
Derivative Financial Instruments
We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations associated with certain assets and liabilities. These forward contracts are not designated as hedging instruments. The gains and losses on these forward contracts are intended to offset the gains and losses in the underlying foreign currency denominated monetary assets and liabilities being economically hedged. We do not enter into foreign currency forward contracts for trading or speculative purposes. The net gain or loss from the settlement of these foreign currency forward contracts is recorded in other income (expense), net in the Consolidated Statements of Operations.
Foreign Currency
For our international subsidiaries, we analyze on an annual basis or more often, if necessary, if a significant change in facts and circumstances indicate that the functional currency of the subsidiary has changed. For international subsidiaries where the local currency is the functional currency, adjustments from translating financial statements from the local currency to the U.S. dollar reporting currency are recorded to change in foreign currency translation adjustment, net of tax in our Consolidated Statements of Comprehensive Income. This foreign currency translation adjustment reflects the translation of the balance sheet at period end exchange rates, and the income statement at the transaction date or average exchange rate in effect during the period. Foreign currency remeasurement gains and losses that are derived from monetary assets and liabilities stated in a currency other than the international subsidiaries functional currency are included in other income (expense), net. For the year ended December 31, 2024, 2023 and 2022, we had foreign currency transaction losses of $21.0 million, $7.0 million and $43.8 million, respectively.
Certain Risks and Uncertainties
Our cash and investments are held primarily by five financial institutions. Financial instruments which potentially expose us to concentrations of credit risk consist primarily of cash equivalents and marketable securities. We invest excess cash primarily in money market funds, corporate bonds, asset-backed securities, municipal and U.S. government agency bonds and treasury bonds and periodically evaluate them for credit losses. Such credit losses have not been material to our financial statements.
We purchase certain inventory from sole suppliers. Additionally, we rely on a limited number of hardware manufacturers. The inability of any supplier or manufacturer to fulfill our supply requirements could materially and adversely impact our future operating results.
Accounts Receivable, net
Trade accounts receivable are recorded at the invoiced amount. Accounts receivable, net includes allowances for doubtful accounts for any potentially uncollectible amounts. We periodically assess the adequacy of the allowance for doubtful accounts by reviewing the accounts receivable on a collective basis and giving consideration to various factors including the aging of the receivables and a customers’ expected ability to pay. For specific customer accounts receivable balances, we consider known disputes and collection history. In determining the amount of the allowance for doubtful accounts, we also evaluate the creditworthiness of customers, current market conditions and forecasts of future economic conditions to make any adjustments.
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Actual write-offs have not materially differed from the estimated allowances. No individual customer accounted for 10% or more of our accounts receivable, net balance at December 31, 2024 or 2023 nor net revenues for the year ended December 31, 2024, 2023 or 2022.
For the year ended December 31, 2024 and 2023, we entered into factoring transactions on a non-recourse basis with financial institutions to sell certain of our non-U.S. accounts receivable. We account for these transactions as sales of financial assets and include the cash proceeds as a part of our cash flows from operations in the Consolidated Statements of Cash Flows. Total accounts receivable sold under factoring arrangements was $52.1 million and $51.2 million during the year ended December 31, 2024, and 2023, respectively. Factoring fees incurred on the sales of accounts receivable were recorded in other income (expense), net in our Consolidated Statements of Operations and were not material.
Inventories
Inventories are valued at the lower of cost or net realizable value, with cost computed using standard cost which approximates actual cost on a first-in-first-out basis. Excess and obsolete inventories are determined primarily based on future demand forecasts, and write-downs of excess and obsolete inventories are recorded as a component of cost of net revenues.
Property, Plant and Equipment, net
Property, plant and equipment, net are stated at historical cost less accumulated depreciation. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets. Construction in progress is related to the construction or development of property (including land) and equipment that are not ready for their intended use and have not yet been placed in service. Upon sale or retirement, the asset’s cost and related accumulated depreciation are removed from the balance sheet and any related gains or losses are reflected in income from operations. Maintenance and repairs are expensed as incurred. Refer to Note 3 “Balance Sheet Components" of the Notes of Consolidated Financial Statements for details on estimated useful lives.
Leases - Lessee
We determine if an arrangement is or contains a lease at inception. Leases with a term of 12 months or less are not recorded on the balance sheet. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. A ROU asset and lease liability is recognized on the lease commencement date. The lease liability is determined based on the present value of lease payments over the lease term. We use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments as the rate implicit in our leases is not readily determinable. The ROU asset consists of the initial lease liability adjusted for lease incentives received and any initial direct costs incurred. The lease term represents the noncancellable period of the lease and may include options to extend the lease when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components which are accounted for as a single lease component. Payments under our lease arrangements are primarily fixed; however, certain lease agreements contain variable payments which are expensed as incurred and not included in the lease liability balance. The short-term portion of our lease liabilities is recorded in accrued liabilities on our Consolidated Balance Sheets.
Leases - Lessor
We determine if an arrangement is or contains a lease at inception. All of our leases in which we are the lessor are classified as operating leases, exclusive of leases with a term of 12 months or less. The underlying asset in an operating lease arrangement is carried at depreciated cost within Property, plant, and equipment, net on our Consolidated Balance Sheets.
Business Combinations
We allocate the fair value of the purchase consideration to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. When determining the fair value of assets acquired and liabilities assumed, management is required to make certain estimates and assumptions, particularly with respect to determining the fair value of intangible assets. The estimates and assumptions used in fair valuing intangible assets include, but are not limited to, the amount and timing of projected future cash flows which are dependent on forecasted revenues and expenses, a discount rate, and the assets’ life cycle, among others. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.
Goodwill
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Goodwill represents the excess of the purchase price paid over the fair value of tangible and identifiable intangible net assets acquired in a business combination and is allocated to the respective reporting units based on relative synergies generated.
Finite-Lived Intangible Assets
Our intangible assets primarily consist of intangible assets acquired as part of a business combination. These assets are amortized using the straight-line method over their estimated useful lives. The average amortization period by intangible asset class ranges from ten to twelve years. This amortization period reflects the period in which the economic benefits of the assets are expected to be realized.
Impairment of Goodwill and Long-Lived Assets and Finite-Lived Intangible Assets
Goodwill
We evaluate goodwill for impairment at least annually on November 30th or more frequently if indicators of impairment are identified between annual testing dates.
We perform an initial assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit has been reduced below its carrying amount. In performing this qualitative assessment, we identify and consider the significance of relevant key factors, events, and circumstances that affect the fair value of our reporting units. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as our actual and planned financial performance. We also give consideration to the difference between the reporting unit fair value and carrying value as of the most recent date a fair value measurement was performed. If, after assessing the totality of relevant events and circumstances, we determine that it is not more likely than not that the fair value of the reporting unit is less than its carrying value, no further testing is performed; however, if we conclude otherwise, then we will perform a quantitative impairment test which compares the estimated fair value of the reporting unit to its carrying value, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss would be recorded in our Consolidated Statements of Operations for the amount of the excess. Management is required to exercise significant judgement when identifying the relevant assumptions and estimates used in determining the fair value and carrying value of our reporting units.
Long-Lived Assets and Finite-Lived Intangible Assets
We evaluate long-lived assets (including ROU assets) and finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. Factors we consider important which could trigger a quantitative impairment test include but are not limited to significant negative industry or economic trends, significant adverse changes in our competitive environment and a significant loss of customers. If an impairment indicator is identified, we perform a quantitative impairment analysis in which we compare the carrying value of an asset (asset group) to the future undiscounted cash flows the asset (asset group) is expected to generate. An asset (asset group) is considered impaired if its carrying amount exceeds the undiscounted cash flows. If an asset (asset group) is deemed to be impaired, the impairment to be recognized is calculated as the amount by which the carrying amount of the asset (asset group) exceeds its fair value. Our estimates of future cash flows attributable to our assets (asset groups) require significant judgment based on our historical and anticipated results and are subject to many assumptions.
Development Costs for Internal Use Software
Internally developed software includes enterprise-level business software that we customize to meet our specific operational needs. Such capitalized costs include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related costs for employees, who are directly associated with the development of the applications. Capitalized internally developed software costs were not material as of December 31, 2024 or 2023.
Development Costs for Software to be Marketed
The costs to develop software that is marketed externally have not been capitalized as we believe our current software development process is essentially completed concurrent with the establishment of technological feasibility. As such, all related software development costs are expensed as incurred and included in research and development expense in our Consolidated Statements of Operations.
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Product Warranty
We offer assurance warranties on our products which provide the customer assurance that the product will function as intended because it complies with agreed-upon specifications; therefore, our warranties are not treated as a separate revenue performance obligation in accordance with the revenue standard but rather are accounted for as guarantees.
Clear Aligner
We warrant our Invisalign products against material defects until the treatment plan is complete except in the case of retainers, which are warranted up to three months from expected first use. We accrue for warranty costs, which are primarily based on historical product failure rates as well as current information on replacement cost.
Systems and Services
We warrant our intraoral scanners for a period of one year, which includes materials and labor. We accrue for these warranty costs based on average historical repair costs. An extended warranty may be purchased for an additional fee. Sales of extended warranties are accounted for as a separate performance obligation and recorded as revenue.
We warrant our CAD/CAM software for a one year period to perform in accordance with agreed product specifications. As we have not historically incurred any material warranty costs, we do not accrue for these software warranties.
Warranty costs are recorded in cost of net revenues upon shipment of products. We regularly review our warranty liability and update these balances based on historical warranty cost trends. Actual warranty costs incurred have not materially differed from those accrued; however future actual warranty costs could differ from the estimated amounts.
Revenue Recognition
Our revenues are derived primarily from the sale of aligners, scanners, and services from our Clear Aligner and Systems and Services reportable segments. We identify separate performance obligations, determine the transaction price, allocate the transaction price and record revenue in accordance with ASC 606 “Revenues from Contracts with Customers.”
We identify a performance obligation as distinct if both of the following criteria are met: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Determining the standalone selling price (“SSP”) in order to allocate the transaction price 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.
Clear Aligner
We enter into contracts (“treatment plan(s)”) that involve multiple future performance obligations. Invisalign Comprehensive, Invisalign First Phase 1, Invisalign First Comprehensive Phase 2, Invisalign Adult, Invisalign Standard, Invisalign Moderate, Invisalign Go, Invisalign Go Plus, and Lite and Express Packages include optional additional aligners at no charge for a certain period of time ranging from six months to five years after initial shipment.
Our treatment plans comprise the following performance obligations that also represent distinct deliverables: initial aligners and the option of additional aligners. We allocate the transaction price for each treatment plan based on each unit’s standalone selling price. Management considers a variety of factors such as same or similar product historical sales, costs, and gross margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. In addition to historical data, we take into consideration changing trends and market conditions. For treatment plans with multiple future options, we also consider usage rates, which is the number of times a customer is expected to order additional aligners. Our process for estimating usage rates requires significant judgment and evaluation of inputs, including historical usage data by region, country and channel. We recognize revenue upon shipment, as the customers obtain physical possession and we have enforceable rights to payment. We have made an accounting policy election to account for shipping and handling costs as activities to fulfill the performance obligation. Where processing fees are charged, the consideration received from the fees are included in the transaction price.
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As we collect most consideration upfront, we consider whether a significant financing component exists; however, as the delivery of the performance obligations are at the customer’s discretion, we conclude that no significant financing component exists.
Systems and Services
We sell intraoral scanners and CAD/CAM services through both our direct sales force and distribution partners. The intraoral scanner sales price includes one year of warranty and unlimited scanning services. The customer may also select, for additional fees, an extended warranty and unlimited scanning services for periods beyond the initial year. When intraoral scanners are sold with an unlimited scanning service agreement and/or extended warranty, we allocate revenues based on the respective SSP of the scanner and the subscription services. We estimate the SSP of each element, taking into account factors such as same or similar historical prices and discounting strategies. Revenues are then recognized over time as the monthly services are rendered and upon shipment of the scanner, as that is when we deem the customer to have obtained control. We also have a rental program, where scanners are leased to customers. The contracts for the program are treated as operating leases, and the revenue is recognized ratably over the lease term.
CAD/CAM services, where sold separately, include the initial software license and maintenance and support. We allocate revenues based upon the respective SSPs of the software license and the maintenance and support. We estimate the SSP of each element using data such as historical prices. Revenues related to the software license are recognized upfront and revenues related to the maintenance and support are recognized over time. For both scanner and service sales, most consideration is collected upfront and in cases where there are payment plans, consideration is collected within one year and, therefore, there are no significant financing components.
Volume Discounts
In certain situations, we offer promotions in which the discount will increase depending upon the volume purchased over time. We concluded that in these situations, the promotions can represent either variable consideration or options, depending upon the specifics of the promotion. In the event the promotion contains an option, the option is considered a material right and, therefore, included in the accounting for the initial arrangement. We estimate the average anticipated discount over the lifetime of the promotion or contract, and apply that discount to each unit as it is sold. On a quarterly basis, we review our estimates and, if needed, updates are made and changes are applied prospectively.
Accrued Sales Return Reserve
We provide a reserve for sales returns based on historical sales returns as a percentage of revenues.
Costs to Obtain a Contract
We offer a variety of commission plans to our salesforce; each plan has multiple components. To match the costs to obtain a contract to the associated revenues, we evaluate the individual components and capitalize the eligible components, recognizing the costs over the treatment period. The capitalized costs to obtain contracts were $25.8 million and $25.1 million as of December 31, 2024 and 2023, respectively, and are included in other assets in our Consolidated Balance Sheets. We recognized amortization on our costs to obtain a contract of $18.7 million, $12.5 million, and $20.8 million during the year ended December 31, 2024, 2023, and 2022, respectively, which is included in selling, general and administrative expenses in our Consolidated Statements of Operations.
Unfulfilled Performance Obligations for Clear Aligners and Scanners
Our unfulfilled performance obligations, including deferred revenues and backlog, and the estimated revenues expected to be recognized in the future related to these performance obligations are $1,444.9 million and $1,578.3 million as of December 31, 2024 and 2023, respectively. This includes performance obligations from the Clear Aligner reportable segment, primarily the shipment of additional aligners, which are fulfilled over six months to five years. This also includes performance obligations from our Systems and Services reportable segment, primarily services and support, which are fulfilled over one to five years, and contracted deliveries of additional scanners. The estimate includes both product and service unfulfilled performance obligations and the time range reflects our best estimate of when we will transfer control to the customer and may change based on customer usage patterns, timing of shipments, readiness of customers' facilities for installation, and manufacturing availability.
Contract Balances
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The timing of revenue recognition results in deferred revenues being recognized on our Consolidated Balance Sheet. For both aligners and scanners, we usually collect the total consideration owed prior to all performance obligations being satisfied with payment terms generally varying from net 30 to net 180 days. Contract liabilities are recorded as deferred revenue, which is generated based upon the timing of invoices and recognition patterns, not payments. If revenue recognition exceeds the billing, the excess amount is considered an unbilled receivable or a contract asset. Conversely, if the billing occurs prior to the revenue recognition, the amount is considered deferred revenue and a contract liability.
Shipping and Handling Costs
Shipping and handling charges to customers as well as processing fees are included in net revenues, and the associated costs incurred are recorded in cost of net revenues.
Legal Proceedings
We are involved in legal proceedings on an ongoing basis. If we believe that a loss arising from such matters is probable and can be reasonably estimated, we accrue the estimated loss in our consolidated financial statements. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range.
Research and Development
Research and development costs are expensed as incurred and include costs associated with the research and development of new products and enhancements to existing products. These costs primarily include employee related costs, including payroll, benefits and stock-based compensation, equipment, material and maintenance costs, outside consulting expenses, depreciation and amortization expense and allocations of corporate overhead expenses including facilities and information technology (“IT”).
Advertising Costs
The cost of advertising and media is expensed as incurred. For the year ended December 31, 2024, 2023 and 2022, we incurred advertising costs of $185.0 million, $201.2 million and $222.0 million, respectively.
Stock-Based Compensation
We recognize stock-based compensation cost for shares expected to vest on a straight-line basis over the requisite service period of the award, net of estimated forfeitures. We use the Black-Scholes option pricing model to determine the fair value of employee stock purchase plan shares. We use a Monte Carlo simulation model to estimate the fair value of awards with a market based condition which requires the input of assumptions, including expected term, stock price volatility and the risk-free rate of return. For restricted stock units that include a performance condition, we use the stock price on the grant date to estimate the fair value and stock-based compensation cost is recorded based on expected attainment of performance targets. Forfeitures are estimated based on historical experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Income Taxes
We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenues and expenses for tax and financial statement purposes.
As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our current tax exposure under the applicable tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities which are included in our Consolidated Balance Sheets.
We account for uncertainty in income taxes pursuant to authoritative guidance based on a two-step approach to recognize and measure uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit based on its technical merits, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the
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largest amount that is more than 50% likely to be realized upon ultimate settlement. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit or refinement of estimates due to new information. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will impact our tax provision in our Consolidated Statements of Operations in the period in which such determination is made.
We assess the likelihood that we will be able to realize our deferred tax assets. Should there be a change in our ability to realize our deferred tax assets, our tax provision would increase in the period in which we determine that it is more likely than not that we cannot realize our deferred tax assets. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If it is more likely than not that we will not realize our deferred tax assets, we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be realizable.
Common Stock Repurchase
We repurchase our own common stock from time to time under stock repurchase programs approved by our Board of Directors. We account for these repurchases under the accounting guidance for equity where we allocate the total repurchase value that is in excess of par value between additional paid-in capital and retained earnings. All shares repurchased are retired.
Recent Accounting Pronouncements
(i) New Accounting Updates Recently Adopted
On November 27, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07 (“ASU 2023-07”), “Improvements to Reportable Segment Disclosures.” The amendments in this update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and other segment expenses. For public business entities, the provisions of ASU 2023-07 are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. We adopted this standard in the fiscal year ended December 31, 2024. Note 16 “Segments and Geographical Information" of the Notes of Consolidated Financial Statements
(ii) Recent Accounting Pronouncements Not Yet Effective
On December 14, 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures.” The amendments in this ASU require a public entity to disclose in tabular format, using both percentages and reporting currency amounts, specific categories in the rate reconciliation and to provide additional information for reconciling items that meet a quantitative threshold. The amendments in this ASU also require taxes paid (net of refunds received) to be disaggregated by federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. For public business entities, the provisions of ASU 2023-09 are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. There will be no impact to our consolidated balance sheets or statements of operations; however, the Company is evaluating the effect of this pronouncement on our consolidated financial statement disclosures.
On November 4, 2024, the FASB issued ASU 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures.” The amendments in this ASU require a public entity to disclose, in the notes to the financial statements, specified information about certain costs and expenses, including the amounts of inventory purchases, employee compensation, depreciation and intangible asset amortization. For public business entities, the provisions of ASU 2024-03 are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. There will be no impact to our consolidated balance sheets or statements of operations; however, the Company is evaluating the effect of this pronouncement on our consolidated financial statement disclosures.
Note 2. Financial Instruments
Cash, Cash Equivalents and Marketable Securities
The following tables summarize our cash and cash equivalents, and marketable securities recorded in our Consolidated Balance Sheets as of December 31, 2024 and 2023 (in thousands):
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Reported as:
We have no short-term or long-term marketable securities as of December 31, 2024.
Reported as:
The following table summarizes the fair value of our available-for-sale marketable securities classified by contractual maturity as of December 31, 2023 (in thousands):
Due in 1 year through 5 years 8,709
The securities that we invest in are generally deemed to be low risk based on their credit ratings from the major rating agencies. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As interest rates increase, those securities purchased at a lower yield show a mark-to-market unrealized loss. Our unrealized losses as of December 31, 2023 are primarily due to changes in interest rates and credit spreads.
The following table summarizes the gross unrealized losses as of December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous loss position (in thousands):
Less than 12 months 12 Months or Greater Total
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Fair Value Measurements
The following tables summarize our financial assets measured at fair value and categorized by fair value hierarchy as of December 31, 2024 and 2023 (in thousands):
Description Balance as of December 31, 2024 Level 1 Level 2
Cash equivalents:
Description Balance as of December 31, 2023 Level 1 Level 2
Cash equivalents:
Short-term investments:
U.S. government agency bonds 5,181 — 5,181
Asset-backed securities 719 — 719
Long-term investments:
U.S. government treasury bonds 4,756 — 4,756
Asset-backed securities 698 — 698
We had no financial assets that were categorized as level 3 in the fair value hierarchy for the year ended December 31, 2024 or 2023.
Derivatives Not Designated as Hedging Instruments
Recurring foreign currency forward contracts
We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on certain assets and liabilities. These forward contracts are classified within Level 2 of the fair value hierarchy. As a result of the settlement of foreign currency forward contracts, we recognized a net gain of $35.2 million during the year ended December 31, 2024. We recognized a net loss of $15.9 million during the year ended December 31, 2023 and the net gain recognized during the year ended December 31, 2022 was not material. As of December 31, 2024 and 2023, the fair value of foreign exchange forward contracts outstanding was not material.
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The following tables present the gross notional value of all our foreign exchange forward contracts outstanding as of December 31, 2024 and 2023 (in thousands):
Local Currency Amount Notional Contract Amount (USD)
Local Currency Amount Notional Contract Amount (USD)
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Note 3. Balance Sheet Components
Inventories consist of the following (in thousands):
December 31,
Prepaid expenses and other current assets consist of the following (in thousands):
December 31,
Total prepaid expenses and other current assets $ 198,582 $ 273,550
1 Refer to Note 9 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements for discussion of tax matter.
Property, plant and equipment, net consist of the following (in thousands):
December 31,
Generally Used Estimated Useful Life 2024 2023
Clinical and manufacturing equipment Up to 13 years $ 871,827 $ 703,805
Less: Accumulated depreciation and impairment charges (661,712) (550,762)
1Shorter of the remaining lease term or the estimated useful lives of the assets.
Depreciation was $126.2 million, $126.0 million and $109.8 million for the year ended December 31, 2024, 2023 and 2022, respectively.
Accrued liabilities consist of the following (in thousands):
December 31,
Accrued property, plant and equipment 13,462 23,618
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Accrued warranty as of December 31, 2024 and 2023, which is included in the “Other accrued liabilities” category in the accrued liabilities table above, consists of the following activity (in thousands):
Charged to cost of net revenues 18,248
Actual warranty expenditures (13,695)
Charged to cost of net revenues 21,962
Actual warranty expenditures (13,177)
Deferred revenues consist of the following (in thousands):
December 31,
1Included in Other long-term liabilities within our Consolidated Balance Sheets.
During the year ended December 31, 2024 and 2023, we recognized $3,999.0 million and $3,862.3 million of net revenues, respectively, of which $819.0 million and $732.4 million was included in the deferred revenues balance at December 31, 2023 and December 31, 2022, respectively.
Note 4. Leases
Lessee Information
We have operating leases for our digital treatment planning and office facilities, retail spaces, vehicles and office equipment. The components of lease expense consist of following (in thousands):
Year Ended December 31,
1Includes expense associated with short term leases, lease terms of 12 months or less, which is not material.
2Includes payments related to agreements with embedded leases that are not otherwise reflected on the balance sheet.
The following table provides a summary of our operating lease terms and discount rates:
December 31,
Remaining Lease Term and Discount Rate 2024 2023
Weighted average remaining lease term (in years) 5.4 6.2
Weighted average discount rate 3.8 % 3.7 %
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As of December 31, 2024, the future payments related to our operating lease liabilities are as follows (in thousands):
Fiscal Year Ending December 31, Operating Leases
Less: Imputed interest (11,244)
Total lease liabilities $ 119,277
As of December 31, 2024, we had additional leases that had not commenced with future lease payments of $2.6 million. These leases will commence during 2025 with non-cancelable lease terms of two to five years.
Lessor Information
We lease iTero intraoral scanners to customers which are classified as operating leases. Our portfolio of leased iTero scanners included in Property, plant and equipment, net are as follows:
December 31,
Scanners under operating leases, gross $ 33,770 $ 27,145
Less: accumulated depreciation (12,038) (9,815)
Scanners under operating leases, net $ 21,732 $ 17,330
As of December 31, 2024, the future lease payments due to us are as follows (in thousands):
Fiscal Year Ending December 31, Operating Leases
Total lease payments $ 46,958
For the year ended December 31, 2024, 2023 and 2022, operating lease income was $21.7 million, $16.6 million and $12.3 million, respectively. Operating lease income is recorded in net revenues in our Consolidated Statements of Operations.
Note 5. Business Combination
On January 2, 2024 (the “Cubicure Acquisition Date”), we completed the acquisition of privately-held Cubicure GmbH (“Cubicure”) (the “Cubicure Acquisition”). Cubicure is an Austrian company and specializes in direct 3D printing solutions for polymer additive manufacturing that develops, produces, and distributes innovative materials, equipment, and processes for 3D printing solutions. The Cubicure Acquisition is intended to support and scale our strategic innovation roadmap and strengthen the Align Digital Platform. In fiscal year 2021, we acquired a 9.04% equity interest in Cubicure. Subsequently, on the Cubicure Acquisition Date, we acquired the remaining equity of Cubicure. Prior to the acquisition, we also had technology license and joint development agreements with Cubicure.
The fair value of consideration transferred in the acquisition is shown in the table below (in thousands):
Cash paid to Cubicure Stockholders $ 80,142
Fair value of pre-existing equity interest ownership 7,968
Settlement of pre-existing relationship - accounts payable (2,316)
Total purchase consideration paid $ 85,794
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The Cubicure Acquisition was accounted for as a business combination under ASC Topic 805, Business Combinations (“ASC 805”) that was achieved in stages. As a result of the Cubicure Acquisition, we remeasured our pre-existing equity interest in Cubicure at fair value prior to the Cubicure Acquisition. Based on the fair value of this equity interest, derived from the purchase price, we estimated the fair value of our 9.04% pre-existing investment in Cubicure to be approximately $8.0 million. The remeasurement resulted in the recognition of a pre-tax gain of $4.1 million, which was reflected as a component of Other income (expense), net within our Consolidated Statements of Operations.
In 2021, we initiated Joint development (“JDA”) and Technology license agreements (“TLA”) to provide us with access to Cubicure’s technology. The settlement of the JDA and TLA were concluded to be at market terms on the Cubicure Acquisition Date; therefore, no gain or loss was recorded related to the settlement of these contracts. We also had accounts payable from the pre-existing arrangements with Cubicure of $2.3 million, which were effectively settled and reduced from the purchase consideration of the Cubicure Acquisition.
The allocation of purchase price to assets acquired and liabilities assumed is as follows (in thousands):
Working capital $ 1,039
Property & equipment 975
Developed technology 47,000
Other non-current asset 1,483
Other liabilities (12,279)
Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets, and represents the value associated with future technology, future customer relationships, and the knowledge and experience of the workforce in place. None of this goodwill is deductible for tax purposes. We allocated all goodwill to our Clear Aligner reporting unit.
As part of the Cubicure Acquisition we acquired a developed technology intangible asset. The acquired developed technology had an estimated fair value of $47.0 million as of the Cubicure Acquisition Date and will be amortized over a useful life of thirteen years.
The fair value of developed technology was estimated under the Multi-Period Excess Earnings Method and the fair value estimates for developed technology include significant assumptions in the prospective financial information which include, but are not limited to, the projected future cash flows associated with the technology, asset's life cycle and the present value factor.
Acquisition related costs are recognized separately from the business combination and are expensed as incurred. Acquisition related costs were not material.
Our consolidated financial statements include the operating results of Cubicure from the Cubicure Acquisition Date. Separate post-acquisition operating results and pro forma results of operations for this acquisition have not been presented as the effect is not material to our consolidated financial results.
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Note 6. Goodwill and Intangible Assets
Goodwill
The change in the carrying value of goodwill for the year ended December 31, 2024 and 2023, categorized by reportable segment, is as follows (in thousands):
Clear Aligner Systems and Services Total
We completed our annual goodwill impairment assessment in 2024 and 2023 and determined there were no impairments.
Finite-Lived Intangible Assets
Acquired finite-lived intangible assets were as follows, excluding intangible assets that were fully amortized (in thousands):
Foreign currency translation adjustments (5,769)
Total intangible assets, net $ 103,488
Foreign currency translation adjustments 987
Total intangible assets, net $ 82,118
Of the $146.7 million recorded as Existing technology intangible assets as of December 31, 2024, $47.0 million was acquired during the first quarter of 2024 as part of the Cubicure Acquisition. The existing technology acquired in the Cubicure Acquisition had an estimated useful life of 13 years, which had the effect of increasing the weighted average amortization period from approximately 10 years as of December 31, 2023 to approximately 11 years as of December 31, 2024. Refer to Note 5. “Business Combination”.
For the year ended December 31, 2024 and 2023, we did not identify any impairment triggering events that would indicate that the carrying value of our finite-lived intangible assets was not recoverable.
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The total estimated future amortization expense for these acquired finite-lived intangible assets as of December 31, 2024 is as follows (in thousands):
Fiscal Year Amortization
Amortization expense was $18.9 million, $16.4 million and $16.0 million for the year ended December 31, 2024, 2023 and 2022, respectively.
Note 7. Credit Facility
We have a credit facility that provides for a $300.0 million unsecured revolving line of credit, along with a $50.0 million letter of credit. On December 23, 2022, we amended certain provisions in our credit facility which included extending the maturity date on the facility to December 23, 2027 and replacing the interest rate from the existing LIBOR with SOFR (“2022 Credit Facility”). The 2022 Credit Facility requires us to comply with specific financial conditions and performance requirements. Loans under the 2022 Credit Facility bear interest, at our option, at either a rate based on the SOFR for the applicable interest period or a base rate, in each case plus a margin. As of December 31, 2024, we had no outstanding borrowings under the 2022 Credit Facility and were in compliance with the conditions and performance requirements in all material respects.
Note 8. Legal Proceedings
2019 Shareholder Derivative Lawsuit
In January 2019, three derivative lawsuits were filed in the U.S. District Court for the Northern District of California which were later consolidated, purportedly on our behalf, naming as defendants the then current members of our Board of Directors along with certain of our executive officers. The complaints assert various state law causes of action, including for breaches of fiduciary duty, insider trading, and unjust enrichment. The consolidated action has been resolved per the settlement discussed below.
On April 12, 2019, a derivative lawsuit was also filed in California Superior Court for Santa Clara County, purportedly on our behalf, naming as defendants the then-current members of our Board of Directors along with certain of our executive officers. The allegations in the complaint were similar to those in the derivative suits described above. The matter has been resolved per the settlement discussed below.
In the first quarter of 2024, the parties to these actions entered into a settlement agreement whereby, plaintiffs dismissed the lawsuits and released their claims. In the settlement agreement, Align and the defendants deny any wrongdoing and are not making any monetary payments, other than an award of $575,000 in attorney’s fees to plaintiffs’ counsel, covered by insurance. On February 4, 2025, the court granted final approval of the settlement and closed the case.
Antitrust Class Actions
On June 5, 2020, a dental practice named Simon and Simon, PC doing business as City Smiles, brought an antitrust action in the U.S. District Court for the Northern District of California on behalf of itself and a putative class of similarly situated practices seeking treble monetary damages, interest, costs, attorneys’ fees, and injunctive relief relating to our alleged market activities in alleged clear aligner and intraoral scanner markets. Plaintiff filed an amended complaint and added VIP Dental Spas as a plaintiff on August 14, 2020. On December 18, 2023, the court certified a class of persons or entities that purchased Invisalign directly from Align between January 1, 2019 and March 31, 2022. The court denied Plaintiffs’ motion to certify a class of purchasers of scanners. On February 21, 2024, the court granted Align’s motion for summary judgment on all claims brought by the plaintiffs. Plaintiffs have appealed the district court’s summary judgment ruling to the United States Court of Appeals for the Ninth Circuit. Oral argument is scheduled for April 10, 2025.
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