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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________ 
FORM 10-Q
____________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to
Commission file number: 000-32259
____________________________
ALIGN TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
____________________________ 
Delaware94-3267295
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
410 North Scottsdale Road, Suite 1300
Tempe, Arizona 85288
(Address of principal executive offices, including zip code)
(602) 742-2000
(Registrant’s telephone number, including area code)
 ____________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par valueALGNThe NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No 
The number of shares outstanding of the registrant’s Common Stock, $0.0001 par value, as of April 26, 2024 was 75,281,687.
1


ALIGN TECHNOLOGY, INC.
TABLE OF CONTENTS
 
PART I
Item 1.
Item 2.
Item 3.
Item 4.
PART II
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

Invisalign, Align, the Invisalign logo, ClinCheck, Invisalign Assist, Invisalign Teen, Invisalign First, Invisalign Go, the Invisalign sonic logo, Vivera, SmartForce, SmartTrack, SmartStage, SmileView, iTero, iTero Element, iTero Lumina, Orthocad, exocad, Align Digital Platform, Smile Architect, iTero exocad Connector and exocad Dental CAD, among others, are trademarks and/or service marks of Align Technology, Inc. or one of its subsidiaries or affiliated companies and may be registered in the United States and/or other countries.

2

PART I—FINANCIAL INFORMATION

Item 1.        Financial Statements.

ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

Three Months Ended
March 31,
 20242023
Net revenues$997,431 $943,147 
Cost of net revenues299,615 282,493 
Gross profit697,816 660,654 
Operating expenses:
Selling, general and administrative451,822 439,691 
Research and development91,859 87,447 
Total operating expenses543,681 527,138 
Income from operations154,135 133,516 
Interest income and other income (expense), net:
Interest income4,392 2,337 
Other income (expense), net(141)(1,229)
      Total interest income and other income (expense), net4,251 1,108 
Net income before provision for income taxes158,386 134,624 
Provision for income taxes53,358 46,826 
Net income$105,028 $87,798 
Net income per share:
Basic
$1.40 $1.14 
Diluted
$1.39 $1.14 
Shares used in computing net income per share:
Basic
75,175 76,921 
Diluted
75,322 77,111 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
Three Months Ended
March 31,
 20242023
Net income$105,028 $87,798 
Other comprehensive income (loss):
Change in foreign currency translation adjustment, net of tax(2,932)10,474 
Change in unrealized gains (losses) on investments, net of tax203 1,645 
Other comprehensive income (loss)(2,729)12,119 
Comprehensive income$102,299 $99,917 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
March 31,
2024
December 31,
2023
ASSETS
Current assets:
Cash and cash equivalents$865,805 $937,438 
Marketable securities, short-term33,101 35,304 
Accounts receivable, net of allowance for doubtful accounts of $16,026 and $14,893, respectively
950,738 903,424 
Inventories280,076 296,902 
Prepaid expenses and other current assets349,594 273,550 
Total current assets2,479,314 2,446,618 
Marketable securities, long-term3,619 8,022 
Property, plant and equipment, net1,281,709 1,290,863 
Operating lease right-of-use assets, net118,996 117,999 
Goodwill458,235 419,530 
Intangible assets, net121,424 82,118 
Deferred tax assets1,570,626 1,590,045 
Other assets121,831 128,682 
Total assets$6,155,754 $6,083,877 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$117,238 $113,125 
Accrued liabilities496,601 525,780 
Deferred revenues 1,409,202 1,427,706 
Total current liabilities2,023,041 2,066,611 
Income tax payable121,314 116,744 
Operating lease liabilities95,092 96,968 
Other long-term liabilities156,447 173,065 
Total liabilities2,395,894 2,453,388 
Commitments and contingencies (Note 7 and Note 8)
Stockholders’ equity:
Preferred stock, $0.0001 par value (5,000 shares authorized; none issued)
  
Common stock, $0.0001 par value (200,000 shares authorized; 75,281 and 75,075 issued and outstanding, respectively)
7 7 
Additional paid-in capital1,238,739 1,162,140 
Accumulated other comprehensive income (loss), net18,439 21,168 
Retained earnings2,502,675 2,447,174 
Total stockholders’ equity3,759,860 3,630,489 
Total liabilities and stockholders’ equity$6,155,754 $6,083,877 

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

Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss), NetRetained EarningsTotal
Three Months Ended March 31, 2024SharesAmount
Balance as of December 31, 2023
75,075 $7 $1,162,140 $21,168 $2,447,174 $3,630,489 
Net income— — — — 105,028 105,028 
Net change in unrealized gains (losses) from investments— — — 203 — 203 
Net change in foreign currency translation adjustment— — — (2,932)— (2,932)
Issuance of common stock relating to employee equity compensation plans328 — 14,339 — — 14,339 
Tax withholdings related to net share settlements of equity awards(86)— (26,055)— — (26,055)
Common stock repurchased and retired(36)— — — — — 
Equity forward contract related to accelerated stock repurchase— 49,527 — (49,527) 
Stock-based compensation— — 38,788 — 38,788 
Balance as of March 31, 2024
75,281 $7 $1,238,739 $18,439 $2,502,675 $3,759,860 


Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss), NetRetained EarningsTotal
Three Months Ended March 31, 2023SharesAmount
Balance as of December 31, 202277,267 $8 $1,044,946 $(10,284)$2,566,688 $3,601,358 
Net income— — — — 87,798 87,798 
Net change in unrealized gains (losses) from investments— — — 1,645 — 1,645 
Net change in foreign currency translation adjustment— — — 10,474 — 10,474 
Issuance of common stock relating to employee equity compensation plans1
191 — 14,256 — — 14,256 
Tax withholdings related to net share settlements of equity awards— — (20,857)— — (20,857)
Common stock repurchased and retired(942)— (11,387)— (280,973)(292,360)
Equity forward contract related to accelerated stock repurchase— — 40,000 — — 40,000 
Stock-based compensation— — 37,735 — — 37,735 
Balance as of March 31, 202376,516 $8 $1,104,693 $1,835 $2,373,513 $3,480,049 
 1 Includes tax withholding shares related to net share settlements of equity awards.

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








6

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

 Three Months Ended
March 31,
 20242023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $105,028 $87,798 
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes18,047 (18,417)
Depreciation and amortization32,946 35,820 
Stock-based compensation38,788 37,735 
Non-cash operating lease cost9,612 7,755 
Other non-cash operating activities(2,359)11,586 
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable(69,589)(32,734)
Inventories15,573 24,008 
Prepaid expenses and other assets(79,160)(26,850)
Accounts payable4,100 5,993 
Accrued and other long-term liabilities(34,473)37,420 
Long-term income tax payable4,570 2,119 
Deferred revenues(14,419)27,662 
Net cash provided by operating activities
28,664 199,895 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired(77,075) 
Purchase of property, plant and equipment(9,369)(64,119)
Purchase of marketable securities (2,371)
Proceeds from maturities of marketable securities6,035 10,870 
Proceeds from sales of marketable securities831 2,785 
Other investing activities(6)6 
Net cash used in investing activities(79,584)(52,829)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock14,339 14,256 
Common stock repurchases (292,360)
Activity for equity forward contracts related to accelerated stock repurchase agreements, net 40,000 
Payroll taxes paid upon the vesting of equity awards(26,055)(20,857)
Net cash used in financing activities(11,716)(258,961)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash(9,004)2,221 
Net decrease in cash, cash equivalents, and restricted cash(71,640)(109,674)
Cash, cash equivalents, and restricted cash at beginning of the period938,519 942,355 
Cash, cash equivalents, and restricted cash at end of the period$866,879 $832,681 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation and Preparation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by Align Technology, Inc. (“we”, “our”, the "Company", or “Align”) on a consistent basis with the audited Consolidated Financial Statements for the year ended December 31, 2023, and contain all adjustments, including normal recurring adjustments, necessary to fairly state the information set forth herein. These unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), and, therefore, omit certain information and footnote disclosures necessary to present the unaudited Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (“U.S.”).

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2023. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or any other future period, and we make no representations related thereto. 

Use of Estimates

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

Certain Risks and Uncertainties

We are subject to risks including, but not limited to, global and regional economic market conditions, inflation, fluctuations in foreign currency exchange rates, changes in consumer confidence and demand, increased competition, dependence on key personnel, protection and litigation of proprietary technology, shifts in taxable income between tax jurisdictions and compliance with regulations of the U.S. Food and Drug Administration (“FDA”) and similar international agencies.

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.

Recent Accounting Pronouncements

Recent Accounting Pronouncements Not Yet Effective

On November 27, 2023, the FASB issued 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. 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. Early adoption is permitted. Companies must apply the guidance retrospectively to all prior periods presented in the financial statements. The
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Company expects this pronouncement to result in changes to the nature of our reportable segment disclosures; however, we do not expect this new guidance to impact our financial results.

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. The Company is evaluating the effect of this pronouncement on its annual consolidated financial statements.


Note 2. Financial Instruments

Cash, Cash Equivalents and Marketable Securities

The following tables summarize our cash and cash equivalents, and marketable securities on our Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 (in thousands):
Reported as:
March 31, 2024Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair ValueCash and Cash EquivalentsMarketable securities, short-termMarketable securities, long-term
Cash$816,224 $— $— $816,224 $816,224 $— $— 
Money market funds49,581 — — 49,581 49,581 — — 
Corporate bonds26,535 3 (417)26,121 — 24,551 1,570 
U.S. government treasury bonds
4,871  (101)4,770 — 2,721 2,049 
Asset-backed securities586  (1)585 — 585  
U.S. government agency bonds5,264  (20)5,244 — 5,244  
Total$903,061 $3 $(539)$902,525 $865,805 $33,101 $3,619 


Reported as:
December 31, 2023Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair ValueCash and Cash EquivalentsMarketable securities, short-termMarketable securities, long-term
Cash$887,682 $— $— $887,682 $887,682 $— $— 
Money market funds49,756 — — 49,756 49,756 — — 
Corporate bonds31,943 5 (676)31,272  28,704 2,568 
U.S. government treasury bonds
4,855  (99)4,756 —  4,756 
Asset-backed securities1,416 2 (1)1,417 — 719 698 
Municipal bonds702  (2)700  700  
U.S. government agency bonds5,215  (34)5,181 — 5,181  
Total$981,569 $7 $(812)$980,764 $937,438 $35,304 $8,022 

The following table summarizes the fair value of our available-for-sale marketable securities classified by contractual maturity as of March 31, 2024 and December 31, 2023 (in thousands):

March 31, 2024December 31, 2023
Due in 1 year or less $32,515 $34,617 
Due in 1 year through 5 years4,205 8,709 
Total$36,720 $43,326 
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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 March 31, 2024 and December 31, 2023 are primarily due to changes in interest rates and credit spreads.

The following tables summarize the fair value and gross unrealized losses as of March 31, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

As of March 31, 2024
Less than 12 months12 Months of GreaterTotal
March 31, 2024Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
Corporate bonds$1,006 $(3)$22,805 $(414)$23,811 $(417)
U.S. government treasury bonds
2,049 (26)2,721 (75)4,770 (101)
Asset-backed securities535 (1)  535 (1)
Municipal bonds      
U.S. government agency bonds4,051 (9)1,193 (11)5,244 (20)
Total$7,641 $(39)$26,719 $(500)$34,360 $(539)

As of December 31, 2023
Less than 12 months12 Months of GreaterTotal
December 31, 2023Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
Corporate bonds$ $ $27,939 $(676)$27,939 $(676)
U.S. government treasury bonds
2,044 (11)2,712 (88)4,756 (99)
Asset-backed securities1,018 (1)83  1,101 (1)
Municipal bonds  700 (2)700 (2)
U.S. government agency bonds4,003 (11)1,178 (23)5,181 (34)
Total$7,065 $(23)$32,612 $(789)$39,677 $(812)

Accounts Receivable Factoring

We enter 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 accounts receivables and include the cash proceeds as a part of our cash flows from operations in the Condensed Consolidated Statements of Cash Flows. Total accounts receivable sold under the factoring arrangements was $14.6 million during the three months ended March 31, 2024 and $8.0 million during the three months ended March 31, 2023. Factoring fees on the sales of receivables were recorded in other income (expense), net in our Condensed Consolidated Statement of Operations and were not material.

Fair Value Measurements

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
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professional pricing services to gather pricing data which may include quoted market prices for identical or comparable financial instruments, or inputs other than quoted prices that are observable either directly or indirectly, and we are ultimately responsible for these underlying estimates.

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

The following tables summarize our financial assets measured at fair value as of March 31, 2024 and December 31, 2023 (in thousands):
DescriptionBalance as of
March 31, 2024
Level 1

Level 2
Cash equivalents:
Money market funds$49,581 $49,581 $ 
Short-term investments:
U.S. government agency bonds5,244  5,244 
U.S. government treasury bonds2,721  2,721 
Corporate bonds24,551  24,551 
Asset-backed securities585  585 
Long-term investments:
U.S. government treasury bonds2,049  2,049 
Corporate bonds1,570  1,570 
$86,301 $49,581 $36,720 

DescriptionBalance as of December 31, 2023Level 1Level 2
Cash equivalents:
Money market funds$49,756 $49,756 $ 
Short-term investments:
Corporate bonds28,704  28,704 
Municipal bonds700  700 
U.S. government agency bonds
5,181  5,181 
Asset-backed securities719  719 
Long-term investments:
U.S. government treasury bonds
4,756  4,756 
Corporate bonds2,568  2,568 
Asset-backed securities
698  698 
$93,082 $49,756 $43,326 


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 an investment 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 in equity securities at cost, minus impairment, if any. Additionally, we adjust the carrying value of our investments in equity securities to fair value for observable transactions for identical or similar investments of the same issuer.

On April 24, 2023, we entered into a Subscription Agreement (the "April 2023 Subscription Agreement") with Heartland Dental Holding Corporation (“Heartland”). Pursuant to the Subscription Agreement we acquired less than a 5% equity interest through the purchase of Class A Common Stock for $75 million. We are not the primary beneficiary of nor are we able to
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exercise significant influence over Heartland. As such, we are accounting for our investment in Heartland as an investment in equity securities.

Similar to our other investments in equity securities, Heartland is accounted for under the measurement alternative. Based on review of our investment in Heartland, we determined that no adjustments to the carrying value were necessary; therefore, it is properly reflected on our Condensed Consolidated Balance Sheet in Other assets at $75 million.

Investments in equity securities are reported on our Condensed Consolidated Balance Sheet as Other assets. We record upward and downward adjustments in carrying value or impairment, if any, in our investments in equity securities, in other income (expense), net in our Condensed Consolidated Statement of Operations. The carrying value of our investments in equity securities, exclusive of Heartland, were not material as of March 31, 2024 and the associated adjustments to the carrying values, if any, of the investments were not material during the three month periods ended March 31, 2024 and 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 equity method investments are reported on our Condensed Consolidated Balance Sheet as other assets and are not material as of March 31, 2024 and December 31, 2023.

Derivatives Not Designated as Hedging Instruments

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 $19.7 million during the three months ended March 31, 2024 and a net loss of $6.4 million during the three months ended March 31, 2023. Recognized gains and losses from the settlement of foreign currency forward contracts are recorded to Other income (expense), net in our Condensed Consolidated Statements of Operations. As of March 31, 2024 and December 31, 2023, the fair value of foreign exchange forward contracts outstanding were not material.

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The following tables present the gross notional value of all our foreign exchange forward contracts outstanding as of March 31, 2024 and December 31, 2023 (in thousands):

March 31, 2024
Local Currency AmountNotional Contract Amount (USD)
Euro262,300$283,818 
British Pound£121,800153,937 
Canadian DollarC$96,50071,174 
Polish ZlotyPLN276,400$69,117 
Chinese Yuan¥322,80044,536 
Japanese Yen¥4,300,00028,547 
Brazilian RealR$88,60017,650 
Mexican PesoM$270,00016,265 
Israeli ShekelILS48,200 13,137 
Swiss FrancCHF7,0007,776 
New Zealand DollarNZ$9,9005,912 
New Taiwan DollarNT$98,0003,064 
Australian DollarA$4,7003,061 
Czech Koruna44,6001,905 
Korean Won2,300,0001,708 
$721,607 

December 31, 2023
Local Currency AmountNotional Contract Amount (USD)
Euro337,780$373,705 
Canadian DollarC$108,90082,166 
Polish ZlotyPLN276,90070,393 
British Pound£45,59058,005 
Chinese Yuan¥244,500.0034,361 
Swiss FrancCHF28,60034,132 
Japanese Yen¥3,577,00025,347 
Israeli ShekelILS78,70021,800 
Brazilian RealR$80,50016,563 
Mexican PesoM$230,000 13,593 
New Zealand DollarNZ$6,6004,161 
Australian DollarA$4,3002,921 
New Taiwan DollarNT$89,0002,919 
Czech Koruna60,2002,687 
Korean Won2,200,0001,709 
$744,462 

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Note 3. Balance Sheet Components

Inventories consist of the following (in thousands):
March 31,
2024
December 31,
2023
Raw materials$134,305 $145,492 
Work in process92,518 91,259 
Finished goods53,253 60,151 
Total inventories$280,076 $296,902 

Prepaid expenses and other current assets consist of the following (in thousands):
March 31,
2024
December 31,
2023
Value added tax receivables$206,915 $143,728 
Prepaid expenses72,187 52,487 
Other current assets70,492 77,335 
Total prepaid expenses and other current assets$349,594 $273,550 

Accrued liabilities consist of the following (in thousands): 
March 31,
2024
December 31,
2023
Accrued payroll and benefits$191,904 $220,862 
Accrued expenses76,540 71,109 
Accrued sales and marketing expenses42,933 34,035 
Accrued income taxes38,942 38,103 
Current operating lease liabilities31,324 29,651 
Accrued property, plant and equipment16,093 23,618 
Other accrued liabilities98,865 108,402 
Total accrued liabilities$496,601 $525,780 

Accrued warranty, which is included in the "Other accrued liabilities" category of the accrued liabilities table above, consists of the following activity (in thousands):
Three Months Ended
March 31,
 20242023
Balance at beginning of period$22,426 $17,873 
Charged to cost of net revenues5,449 4,532 
Actual warranty expenditures(3,312)(3,476)
Balance at end of period$24,563 $18,929 

Deferred revenues consist of the following (in thousands):
March 31,
2024
December 31,
2023
Deferred revenues - current$1,409,202 $1,427,706 
Deferred revenues - long-term 1
$115,400 $138,000 

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

During the three months ended March 31, 2024 and 2023, we recognized $997.4 million and $943.1 million of net revenues, respectively, of which $236.8 million and $205.7 million was included in the deferred revenues balance at December 31, 2023 and 2022, respectively.


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Our unfulfilled performance obligations, including deferred revenues and backlog, as of March 31, 2024 were $1,533.1 million. These performance obligations are expected to be fulfilled over the next six months to five years.

Note 4Business Combination

On January 2, 2024 (the “Acquisition Date”), we completed the acquisition of privately-held Cubicure GmbH (“Cubicure”) (the "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 acquisition of Cubicure is intended to support and scale our strategic innovation roadmap and strengthen the Align Digital Platform. In fiscal year 2021, we acquired an 9.04% equity interest in Cubicure. Subsequently, on the 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 $80,142 
Fair value of pre-existing equity interest ownership7,968 
Settlement of pre-existing relationship - accounts payable$(2,316)
Total purchase consideration paid$85,794 

The 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 acquisition, we remeasured our pre-existing equity interest in Cubicure at fair value prior to the 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 Condensed Consolidated Statement 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 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 Acquisition.

The preliminary allocation of purchase price to assets acquired and liabilities assumed which is subject to change within the measurement period is as follows (in thousands):
Working capital$1,039 
Property & equipment975 
Developed technology47,000 
Other non-current asset1,386 
Other liabilities(12,279)
Goodwill$47,673 
Total$85,794 

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 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.

The following table presents details of the identified intangible assets acquired (in thousands, except years):

Weighted Average Amortization
 Period (in years)
Developed technology13$47,000

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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 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.


Note 5Goodwill and Intangible Assets

Goodwill

The change in the carrying value of goodwill for the three months ended March 31, 2024, categorized by reportable segments, is as follows (in thousands):
Clear AlignerSystems and ServicesTotal
Balance as of December 31, 2023$111,086 $308,444 $419,530 
Additions from acquisition47,673  47,673 
Foreign currency translation adjustments
(2,180)(6,788)(8,968)
Balance as of March 31, 2024$156,579 $301,656 $458,235 

Finite-Lived Intangible Assets

Acquired finite-lived intangible assets were as follows, excluding intangibles that were fully amortized, is as follows (in thousands): 
Weighted Average Amortization Period
(in years)
Gross Carrying Amount as of
March 31, 2024
Accumulated
Amortization
Accumulated
Impairment Loss
Net Carrying
Value as of
March 31, 2024
Existing technology11$159,051 $(49,183)$(4,328)$105,540 
Customer relationships1021,500 (8,600) 12,900 
Trademarks and tradenames1016,600 (7,990)(4,122)4,488 
Patents 12480 (250) 230 
$197,631 $(66,023)$(8,450)123,158 
Foreign currency translation adjustments(1,734)
Total intangible assets, net 1
$121,424 
1 Includes $34.3 million of fully amortized intangible assets related to customer relationships and trademarks.

Weighted Average Amortization Period
(in years)
Gross Carrying
Amount as of December 31, 2023
Accumulated
Amortization
Accumulated Impairment Loss
Net Carrying
Value as of
December 31, 2023
Existing technology10$112,051 $(45,331)$(4,328)$62,392 
Customer relationships1021,500 (8,063) 13,437 
Trademarks and tradenames1016,600 (7,605)(4,122)4,873 
Patents86,511 (6,082) 429 
$156,662 $(67,081)$(8,450)81,131 
Foreign currency translation adjustments987 
Total intangible assets, net 1
$82,118 
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1 Includes $34.3 million of fully amortized intangible assets related to customer relationships and trademarks.

Of the $159.1 million recorded as existing technology intangible assets as of March 31, 2024, $47.0 million was acquired during the first quarter of 2024 as part of our acquisition of Cubicure. 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 March 31, 2024. Refer to Note 4. Business Combination.

The total estimated annual future amortization expense for these acquired intangible assets as of March 31, 2024, is as follows (in thousands):

Fiscal Year Ending December 31,Amortization
Remainder of 2024
$13,977 
202518,574 
202617,969 
202715,607 
202814,505 
Thereafter42,526 
Total$123,158 

Amortization expense for the three months ended March 31, 2024 and 2023 was $5.0 million and $4.1 million, respectively.


Note 6Credit 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 March 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 7. 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 complaints seek unspecified monetary damages on our behalf, which is named solely as a nominal defendant against whom no recovery is sought, as well as disgorgement and the costs and expenses associated with the litigation, including attorneys’ fees. The consolidated action is currently stayed. Defendants have not yet responded to the complaints.

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 members of our Board of Directors along with certain of our executive officers. The allegations in the complaint are similar to those in the derivative suits described above. The matter is currently stayed. Defendants have not yet responded to the complaint.

In the first quarter of 2024, the parties to these actions entered into a settlement agreement whereby, subject to court approval, plaintiffs will dismiss the lawsuits and release their claims. In the settlement agreement, Align and the defendants deny any wrongdoing and are not making any monetary payments, other than a potential award of $575,000 in attorneys fees to plaintiffs counsel, covered by insurance. On March 1, 2024, the plaintiffs filed a motion for preliminary approval of the
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settlement with the U.S. District Court for the Northern District of California. The hearing on the motion for preliminary approval is currently set for May 21, 2024.

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. The court entered judgment on March 22, 2024. Plaintiffs have noticed appeal of the district court’s summary judgment ruling.

On May 3, 2021, an individual named Misty Snow brought an antitrust action in the U.S. District Court for the Northern District of California on behalf of herself and a putative class of similarly situated individuals seeking treble monetary damages, interest, costs, attorneys’ fees, and injunctive relief relating to our alleged market activities in alleged clear aligner and intraoral scanner markets based on Section 2 of the Sherman Act. Plaintiffs have filed several amended complaints adding new plaintiffs, various state law claims, and allegations based on Section 1 of the Sherman Act. On November 29, 2023, the court certified a class of indirect purchasers of Invisalign between July 1, 2018 and December 31, 2023 and a class of indirect purchasers of Invisalign seeking injunctive relief. On February 21, 2024, the court granted Align’s motion for summary judgment on the claims related to Section 2 allegations. The court entered judgment for the Section 2 and related state law claims on March 22, 2024. Plaintiffs have noticed appeal of the district court’s summary judgment ruling. A jury trial is scheduled to begin in this matter on January 21, 2025 for issues related to Section 1 allegations. We believe the plaintiffs’ claims are without merit and we intend to vigorously defend ourselves.

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

SDC Dispute

On August 27, 2020, we initiated a confidential arbitration proceeding against SmileDirectClub LLC (“SDC”) before the American Arbitration Association in San Jose, California. This arbitration relates to the Strategic Supply Agreement (“Supply Agreement”) entered into between the parties in 2016. The complaint alleges that SDC breached the Supply Agreements terms, causing damages to us in an amount to be determined. On January 19, 2021, SDC filed a counterclaim alleging that we breached the Supply Agreement. On May 3, 2022, SDC filed an additional counterclaim alleging that we breached the Supply Agreement. We denied SDC's allegations in the counterclaims.

On October 27, 2022, the arbitrator issued an interim award on our claims and SDC’s first counterclaim finding that SDC breached the Supply Agreement, we did not breach the Supply Agreement, and SDC caused harm to us. Based on these findings, the arbitrator awarded us an interim award of $63 million in damages.

On May 18, 2023, the arbitrator issued a final award on SDCs second counterclaim, finding that Align did not breach the Supply Agreement. The final award subsumed the interim award on our claims and SDCs first counterclaim and concluded the Supply Agreement arbitration proceedings.

On March 6, 2023, Align filed a petition to confirm the arbitrators interim award in the Superior Court for Santa Clara County.

On May 30, 2023, Align filed a petition to confirm the final award in the Superior Court of Santa Clara County. On August 21, 2023, the Superior Court issued an order confirming the Interim and Final Awards. On September 8, 2023, the Superior Court entered judgment in Align’s favor for $63 million in damages.

On September 29, 2023, SDC and certain affiliates filed bankruptcy petitions under chapter 11 of title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of Texas. On January 26, 2024, SDC’s bankruptcy cases were converted from cases under chapter 11 of the Bankruptcy Code to cases under chapter 7 of the Bankruptcy Code. In conjunction therewith, Allison D. Byman was appointed as the chapter 7 trustee in SDC’s bankruptcy cases. The extent to which Align will be able to collect any or all of its $63 million judgment through SDC’s bankruptcy proceedings is unknown.

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Straumann Litigation

On April 11, 2024, we filed a lawsuit in the U.S. District Court for the Western District of Texas against ClearCorrect Operating, LLC, ClearCorrect Holdings, Inc., and Institut Straumann AG. The complaint asserts claims of false advertising, unfair competition, civil conspiracy, and infringement of Align patents related to aligner material, treatment planning, and intraoral scanner technologies. Among other things, the complaint seeks relief enjoining the defendants’ infringement of multiple Align multilayer material patents through defendants’ manufacture, sale and offer for sale of aligners made with Zendura FLX/ClearQuartz materials. Defendants have not yet filed a response to the complaint.

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



Note 8Commitments and Contingencies

Tax Matter

Beginning in the third quarter of 2023 and continuing through the first quarter of 2024, the Company has received cumulative assessments of approximately $95 million from His Majesty’s Revenue and Customs (“HMRC”) for unpaid value added tax (“VAT”) related to certain clear aligner sales made during the period of October 2019 through May 2023. We are required to pay these assessments prior to contesting or litigating in statutory appeal. The Company has historically asserted and continues to assert that doctor prescribed clear aligners sold by dentists for the orthodontic treatment of patient malocclusions are exempt from VAT, that the Company has reasonably relied upon statements and guidance by HMRC and that the Company’s interpretation of United Kingdom legislation is appropriate. However, it is not possible at this stage to accurately evaluate the likelihood of an unfavorable outcome of any legal challenges brought by the Company against HMRC disputing this initial assessment and any assessments for other past periods. Accordingly, the Company has determined that a potential loss related to unpaid VAT is not probable. As such, we have not recorded a contingent loss for these assessments in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2024. The Company acknowledges that this matter poses risks of litigation and the ultimate resolution of this matter could result in an unfavorable ruling, which consequently could lead to a significant loss to the Company. As of March 31, 2024, if an unfavorable ruling is issued, we estimate a potential exposure of approximately $115 million, depending on fluctuations of foreign currency exchange rates, excluding interest and penalties.

Indemnification Provisions

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

It is not possible to make a reasonable estimate of the maximum potential amount of future payments, if any, under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Additionally, we have a limited history of prior indemnification claims and the payments we have made under such agreements have not had a material adverse effect on our results of operations, cash flows or financial position. However, to the extent that valid indemnification claims arise in the future, future payments by us could be significant and could have a material adverse effect on our results of operations or cash flows in a particular period. As of March 31, 2024, we did not have any material indemnification claims that were probable or reasonably possible.

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Note 9. Stockholders’ Equity

As of March 31, 2024, the 2005 Incentive Plan, as amended, has a total reserve of 32,168,895 shares of which 3,393,482 shares are available for issuance.

Summary of Stock-Based Compensation Expense

The stock-based compensation related to our stock-based awards and employee stock purchase plan for the three months ended March 31, 2024 and 2023 is as follows (in thousands):
 Three Months Ended
March 31,
 20242023
Cost of net revenues$2,064 $1,807 
Selling, general and administrative28,494 28,691 
Research and development8,230 7,237 
Total stock-based compensation$38,788 $37,735 

Restricted Stock Units (“RSUs”)

The fair value of RSUs is based on our closing stock price on the date of grant. RSUs granted generally vest over a period of four years. A summary for the three months ended March 31, 2024 is as follows:
Number of Shares
Underlying RSUs
(in thousands)
Weighted Average Grant Date Fair ValueWeighted Average Remaining
Contractual Term (in years)
Aggregate
Intrinsic Value
(in thousands)
Unvested as of December 31, 2023
736 $367.63 
Granted
610 311.35 
Vested and released(231)377.91 
Forfeited(20)377.56 
Unvested as of March 31, 2024
1,095 $333.90 2.0$359,130 

As of March 31, 2024, we expect to recognize $311.9 million of total unamortized compensation costs, net of estimated forfeitures, related to RSUs over a weighted average period of 3.2 years.

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

We grant MSUs to members of senior management. Each MSU represents the right to one share of our common stock. The actual number of MSUs which will be eligible to vest will be based on the performance of Align’s stock price relative to the performance of a stock market index over the vesting period. MSUs vest over a period of three years and the maximum number eligible to vest in the future is 250% of the MSUs initially granted.

The following table summarizes the MSU performance activity for the three months ended March 31, 2024: 
Number of Shares
Underlying MSUs
(in thousands)
Weighted Average Grant Date Fair Value
Weighted Average
Remaining
Contractual Term (in years)
Aggregate
Intrinsic Value
(in thousands)
Unvested as of December 31, 2023
158 $811.06 
Granted83 617.79 
Vested and released 1
(32)1,102.09 
Forfeited(5)1,102.09 
Unvested as of March 31, 2024
204 $679.52 2.1$66,889 
1    Includes MSUs vested during the period below 100% of the original grant as actual shares released is based on Aligns stock performance over the vesting period.

As of March 31, 2024, we expect to recognize $82.2 million of total unamortized compensation costs, net of estimated forfeitures, related to MSUs over a weighted average period of 2.1 years.
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Restricted Stock Units with Performance Conditions (“PSUs”)
During the three months ended March 31, 2024, we did not grant any PSUs to any employees. In the fourth quarter of 2022, we granted PSUs to certain employees which are eligible to vest based on the achievement of project-based milestones over a term of 2.2 years. Total PSUs granted were 4,728 and the weighted average grant date fair value for the PSUs was $201.63. Compensation costs related to PSUs is not material to our operating results.

Employee Stock Purchase Plan

As of March 31, 2024, we have 1,931,910 shares available for future issuance under our Amended and Restated 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”).

The fair value of the option component of the 2010 Purchase Plan shares was estimated at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:
 Three Months Ended
March 31,
 20242023
Expected term (in years)0.91.8
Expected volatility56.0 %58.6 %
Risk-free interest rate4.8 %4.8 %
Expected dividends  
Weighted average fair value at grant date$100.10 $138.13 

As of March 31, 2024, we expect to recognize $14.1 million of total unamortized compensation costs related to future employee stock purchases over a weighted average period of 0.8 years.


Note 10. Common Stock Repurchase Programs

In May 2021, our Board of Directors authorized a plan to repurchase up to $1.0 billion of our common stock (“May 2021 Repurchase Program”), which was completed in March 2023. In January 2023, our Board of Directors authorized a new plan to repurchase up to $1.0 billion of our common stock (“January 2023 Repurchase Program”). The January 2023 Repurchase Program does not have an expiration date.

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Accelerated Share Repurchase Agreements (“ASRs”)

During the three months ended March 31, 2023, we entered into or completed ASRs providing for the repurchase of our common stock based on the volume-weighted average price during the term of the agreement, less an agreed upon discount.

We did not enter into any new ASRs during the three months ended March 31, 2024; however, we did settle and obtain final delivery of shares for the ASR contract entered in the fourth quarter of 2023. The following table summarizes the information regarding repurchases of our common stock under the ASRs for the three months ended March 31, 2024 and 2023:


Agreement
 Date
Repurchase
 Program
Amount Paid
(in millions)
Completion
Date
Total Shares
Received
Average Price per Share
Q4 2022May 2021$200.0 Q1 2023984,714 $203.10 
Q1 2023May 2021$250.0 Q1 2023805,908 $310.21 
Q4 2023January 2023$250.0 Q1 20241,086,334 $230.13 

Open Market Common Stock Repurchases

During the three months ended March 31, 2024 and 2023 we did not repurchase any shares in the open market.

During the three months ended December 31, 2023, we repurchased $100.0 million of our common stock through open market repurchases under the January 2023 Repurchase Program.

As of March 31, 2024, $650.0 million remains available for repurchases under the January 2023 Repurchase Program.

Subsequent to the first quarter, on April 26, 2024, we announced a plan to repurchase $150.0 million of our common stock through open market repurchases under the January 2023 Repurchase Program.


Note 11. Accounting for Income Taxes

Our provision for income taxes was $53.4 million and $46.8 million for the three months ended March 31, 2024 and 2023, respectively, representing effective tax rates of 33.7% and 34.8%, respectively. Our effective tax rate differs from the statutory federal income tax rate of 21% for the three months ended March 31, 2024 and 2023 primarily due to the recognition of additional tax expense resulting from U.S. taxes on foreign earnings, foreign income taxed at different rates, state income taxes, and non-deductible expenses in the U.S.

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

Our total gross unrecognized tax benefits, excluding interest and penalties, were $150.8 million and $149.2 million as of March 31, 2024 and December 31, 2023, respectively, a material amount of which would impact our effective tax rate if recognized. The increase in our unrecognized tax benefits relates primarily to positions taken on income tax return calculations finalized during the three months ended March 31, 2024.

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Note 12. Net Income per Share

 The following table sets forth the computation of basic and diluted net income per share attributable to common stock (in thousands, except per share amounts):
 Three Months Ended
March 31,
 20242023
Numerator:
Net income$105,028 $87,798 
Denominator:
Weighted average common shares outstanding, basic75,175 76,921 
Dilutive effect of potential common stock147 190 
Total shares, diluted75,322 77,111 
Net income per share, basic$1.40 $1.14 
Net income per share, diluted$1.39 $1.14 
Anti-dilutive potential common shares 1
571 578 

1 Represents approximately 569 thousand RSU and 2 thousand ESPP weighted-average outstanding common stock equivalent shares that are excluded from the calculation of diluted net income per share as the effect would have been anti-dilutive.


Note 13. Supplemental Cash Flow Information

The supplemental cash flow information consists of the following (in thousands):
 Three Months Ended
March 31,
 20242023
Non-cash investing and financing activities:
Acquisition of property, plant and equipment in accounts payable and accrued liabilities$21,284 $30,907 
Final settlement of prior year stock repurchase forward contract50,000  
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$9,998 $7,871 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$10,568 $5,559 


Note 14Segments and Geographical Information

Segment Information

We report segment information based on the management approach. The management approach designates the internal reporting used by our Chief Operating Decision Maker for decision making and performance assessment as the basis for determining our reportable segments. The performance measures of our reportable segments include net revenues, gross profit and income from operations. Income from operations for each segment includes all geographic revenues, related cost of net revenues and operating expenses directly attributable to the reportable segment. Certain operating expenses are not directly attributable to a reportable segment and must be allocated. Each allocation is measured differently based on the nature of the cost being allocated. Certain other operating expense are not specifically allocated to segment income from operations and generally include various corporate expenses such as stock-based compensation and costs related to IT, facilities, human resources, accounting and finance, legal and regulatory, other separately managed general and administrative costs outside the reportable segments and restructuring costs. We group our operations into two reportable segments: Clear Aligner segment and Imaging Systems and CAD/CAM services (“Systems and Services”) segment.

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Summarized financial information by segment is as follows (in thousands):

 Three Months Ended
March 31,
20242023
Net revenues
Clear Aligner$817,251 $789,804 
Systems and Services180,180 153,343 
Total net revenues$997,431 $943,147 
Gross profit
Clear Aligner$579,146 $566,139 
Systems and Services118,670 94,515 
Total gross profit$697,816 $660,654 
Income from operations
Clear Aligner$286,238 $277,521