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What changed in Align Technology's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Align Technology's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+357 added−407 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-27)

Top changes in Align Technology's 2023 10-K

357 paragraphs added · 407 removed · 285 edited across 6 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

198 edited+39 added−85 removed21 unchanged
Biggest changeIn addition to the factors otherwise described herein, some of the other factors that have historically and could cause our operating results to fluctuate in the future include: • higher manufacturing, delivery and inventory costs; • the creditworthiness, liquidity and solvency of our customers and their ability to timely make payments when due; • changes in the timing of revenue recognition and changes in our average selling prices, including as a result of the timing of receipt of product orders and shipments, product and services mix, geographic mix, product and services deferrals, the introduction of new products and software releases, product pricing, bundling and promotions, pricing for fees or expenses, modifications to our terms and conditions such as payment terms, or as a result of new accounting pronouncements or changes to critical accounting estimates including, without limitation, estimates based on matters such as our predicted usage of additional aligners; • seasonal fluctuations, including those related to patient demographics or seasonality as well as the availability of doctors to take appointments; • longer customer payment cycles and greater difficulty in accounts receivable collection for our international sales; • costs and expenditures, including connection with the establishment of new treatment planning and fabrication facilities, the hiring and deployment of personnel, litigation, and the success of or changes to our marketing programs from quarter to quarter; and • timing and fluctuation of spending around marketing and brand awareness campaigns and industry trade shows.
Biggest changeSome of the factors that have historically, and could in the future, cause our operating results to fluctuate include: • changes in consumer and doctor demand; • higher manufacturing, delivery and inventory costs; • the creditworthiness, liquidity and solvency of our customers and their ability to timely make payments when due; • changes in the timing of revenue recognition and our average selling prices; • seasonal fluctuations; • improvements to or changes in our products, capabilities or technologies that replace or shorten the life cycles of legacy products or cause customers to defer or stop purchasing legacy products until new products become available; • longer customer payment cycles and greater difficulty in accounts receivable collection; • costs and expenditures, including in connection with new treatment planning and fabrication facilities, the hiring and deployment of personnel and litigation; • the timing of clear aligner treatment order submission, acceptance, processing and fulfillment, which can cause fluctuations in our backlog; and • timing and fluctuation of spending around marketing and brand awareness campaigns and industry trade shows. 24 If we underestimate product demand, it may exceed our manufacturing capacity or that of one or more of our suppliers, we may be understaffed and we may not have sufficient materials for production.
Significant service disruptions, breaches in our infrastructure and IT systems or other cybersecurity incidents could expose us to litigation or regulatory investigations, impair our reputation and competitive position, be distracting to our management, and require significant time and resources to address.
Significant service disruptions, breaches in our infrastructure and IT systems or other cybersecurity incidents could expose us to litigation or regulatory investigations, impair our reputation and competitive position, be distracting to management, and require significant time and resources to address.
If our products are safe but they are promoted for use or used in unintended or unexpected ways or for which we have not obtained clearance or approvals (“off-label” usage), we may be investigated, fined or have our products or services enjoined or approvals rescinded or we may be required to defend ourselves in litigation.
If our products are safe but they are promoted for use or used in unintended or unexpected ways or for which we have not obtained clearance (“off-label” usage), we may be investigated, fined or have our products or services enjoined or approvals rescinded or we may be required to defend ourselves in litigation.
Investor advocacy groups, institutional investors, investment funds, proxy advisory services, stockholders, and customers are also increasingly focused on corporate ESG practices. Additionally, public interest and legislative pressure related to public companies’ ESG practices continues to grow.
Investor advocacy groups, institutional investors, investment funds, proxy advisory services, stockholders, and customers are also increasingly focused on corporate ESG practices. Additionally, public interest and legislative pressure related to companies’ ESG practices continues to grow.
These proceedings are used to determine the validity, scope or non-infringement of certain patent rights pertinent to the manufacture, use or sale of our products and the products of competitors. We have been sued for infringement of third parties’ patents in the past and we are currently defending patent infringement lawsuits and other legal claims.
These proceedings are used to determine the validity, scope or non-infringement of certain patent rights pertinent to the manufacture, use or sale of our products and the products of competitors. We have been sued for infringement of third parties’ patents in the past and are currently defending patent infringement lawsuits and other legal claims.
If we are unable to assert that our internal control over financial reporting is effective in any future period (or if our auditors are unable to express an opinion on the effectiveness of our internal controls or conclude that our internal controls are ineffective), the timely filing of our financial reports could be delayed or we could be required to restate past reports, and cause us to lose investor confidence in the accuracy and completeness of our financial reports in the future, which could have an adverse effect on our stock price.
If we are unable to assert that our internal control over financial reporting is effective in any future period (or if our auditors are unable to express an opinion on the effectiveness of our internal controls or conclude that our internal controls are ineffective), the timely filing of our financial reports could be delayed or we could be required to restate past reports, and cause us to lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.
We cannot guarantee that we will continue to repurchase our common stock in the future, and any repurchases that we may make may not achieve our desired objectives. We have a history of recurring stock repurchase programs intended to return capital to our investors.
We cannot guarantee that we will continue to repurchase our common stock in the future, and any repurchases we may make may not achieve our desired objectives. We have a history of recurring stock repurchase programs intended to return capital to our investors.
The average selling prices of our products, particularly our Invisalign system, are influenced by numerous factors, including the type and timing of products sold (particularly the timing of orders for additional clear aligners for certain Invisalign products) and foreign exchange rates. In addition, we sell a number of products at different list prices which may differ based on country.
The average selling prices of our products, particularly the Invisalign system, are influenced by numerous factors, including the type and timing of products sold (particularly the timing of orders for additional clear aligners for certain Invisalign products) and foreign currency exchange rates. In addition, we sell a number of products at different list prices which may differ based on country.
Consumer spending habits are affected by, among other things, inflation, fluctuations in currency exchange rates, weakness in general economic conditions, threats or actual recessions, pandemics, wars and military actions, levels of employment, wages, debt obligations, discretionary income, interest rates, volatility in capital, and consumer confidence and perceptions of current and future economic conditions.
Consumer spending habits are affected by, among other things, inflation, fluctuations in currency exchange rates, general economic weakness, threats or actual recessions, pandemics, wars and military actions, employment levels, wages, debt obligations, discretionary income, interest rates, volatility in capital, and consumer confidence and perceptions of 20 current and future economic conditions.
Moreover, the performance of certain securities in our investment 35 portfolio correlates with the credit condition of the U.S. financial sector. In an unstable credit or economic environment, it is necessary to assess the value of our investments more frequently and we might incur material realized, unrealized or impairment losses associated with these investments.
Moreover, the performance of certain securities in our investment portfolio correlates with the credit condition of the U.S. financial sector. In an unstable credit or economic environment, it is necessary to assess the value of our investments more frequently and we might incur material realized, unrealized or impairment losses associated with these investments.
Increased focus on current and anticipated environmental, social and governance (“ESG”) laws and increased scrutiny of our ESG policies and practices may materially increase our costs, expose us to potential liability, adversely impact our reputation, employee retention, willingness of customers and suppliers to do business with us and willingness of investors to invest in us.
Increased focus on current and anticipated environmental, social and governance (“ESG”) laws and scrutiny of our ESG policies and practices may materially increase our costs, expose us to liability, adversely impact our reputation, employee retention, willingness of customers and suppliers to do business with us and willingness of investors to invest in us.
We are required to furnish in our Form 10-K a report by our management regarding the effectiveness of our internal control over financial reporting that includes, among other things, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether our internal control over financial reporting is effective.
We are required to furnish in our Form 10-K a report by our management regarding the effectiveness of our internal control over financial reporting that includes, among other things, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether it is effective.
Litigation, interferences, oppositions, re-exams, inter partes reviews, post grant reviews or other proceedings have been necessary and will likely be needed in the future to determine the validity and scope of certain of our IP rights and the IP rights claimed by third parties.
Litigation, interferences, oppositions, re-exams, inter partes reviews, post grant reviews or other proceedings have been necessary and will likely be needed in the future to determine the validity and scope of certain of our IP rights and those claimed by third parties.
Security breaches, data breaches, cyber attacks, other cybersecurity incidents or the failure to comply with privacy, security and data protection laws could materially impact our operations, patient care could suffer, we could be liable for damages, and our business, operations and reputation could be harmed.
Security breaches, data breaches, cybersecurity attacks, other cybersecurity incidents or the failure to comply with privacy, security and data protection laws could materially impact our operations, patient care could suffer, we could be liable for damages, and our business, operations and reputation could be harmed.
We may not be afforded the protection of a patent if our currently pending or future patent filings do not result in the issuance of patents or we fail to apply for patent protection. We may fail to apply for a patent if our personnel fail to disclose or recognize new patentable ideas or innovations.
We may not be afforded the protection of a patent if our currently pending or future patent filings do not result in the issuance of patents or we fail to timely apply for patent protection. We may not apply for a patent if our personnel fail to disclose or recognize new patentable ideas or innovations.
Historically, securities litigation, including securities class action lawsuits and securities derivative lawsuits, is often brought against an issuer following periods of volatility in the market price of its securities and we have not been exempt from such litigation.
Securities litigation, including securities class action lawsuits and securities derivative lawsuits, is often brought against an issuer following periods of volatility in the market price of its securities and we have not been exempt from such litigation.
To obtain this data, we are dependent on third parties and popular mobile operating systems, networks, technologies, products, and standards that we do not control, such as the Android and iOS operating systems and mobile browsers.
To obtain this data, we are dependent on third parties and popular mobile operating systems, networks, technologies, products, and standards we do not control, such as the Android and iOS operating systems, and mobile browsers.
The effects of greenhouse gas emission limits on power generation are subject to significant uncertainties, including the timing of any new requirements, levels of emissions reductions and the scope and types of emissions regulated.
The effects of greenhouse gas emission limits on power generation are subject to significant uncertainties, including the timing of new requirements, levels of emissions reductions and the scope and types of emissions regulated.
The loss of any of our key personnel, particularly executive management, key research and development personnel or key sales team personnel, could harm our business and prospects and could impede the achievement of our research and development, operational or strategic objectives.
The loss of any key personnel, particularly executive management, research and development personnel or sales personnel, could harm our business and prospects and impede the achievement of our research and development, operational or strategic objectives.
Specifically, our manufacturing process relies on sophisticated computer software and requires new technicians to undergo a relatively long training process, often 120 days or longer.
Specifically, our manufacturing process relies on sophisticated computer software and requires new technicians to undergo a long training process, often 120 days or longer.
The costs to eliminate, mitigate or recover from security problems and cyber attacks and incidents could be material and depending on the nature and extent of the problem and the networks or products impacted, may result in network or systems interruptions, decreased product sales, or data loss that may have a material impact on our operations, net revenues and operating results.
The costs to eliminate, mitigate or recover from security problems and cybersecurity attacks and incidents could be material and, depending on the nature and extent of the problem and the networks or products impacted, may result in network or systems interruptions, decreased product sales, or data loss that may have a material impact on our operations, net revenues and operating results.
Changes in tax laws or changes to how those laws are applied to our business in practice, could affect the amount of tax to which we are subject and the manner in which we operate.
Changes in tax laws or changes to how those laws are applied to our business could affect the amount of tax which we are subject to and the manner in which we operate.
To effectively manage and improve our operations, our IT systems and applications require an ongoing commitment of significant expenditures and resources to maintain, protect, upgrade, enhance and restore existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving industry and regulatory standards, increasingly sophisticated cyber threats, and changing customer preferences.
To effectively manage and improve our operations, our IT systems and applications require an ongoing commitment of significant expenditures and resources to maintain, protect, upgrade, enhance and restore existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving industry and regulatory standards, increasingly sophisticated cybersecurity threats, and changing customer preferences.
The factors include: • quarterly variations in our results of operations and liquidity or changes in our forecasts and guidance; • our ability to regain or sustain our historical growth rates; • changes in recommendations by the investment community or speculation in the press or investment community regarding estimates of our net revenues, operating results or other performance indicators; • announcements by us or our competitors or new market entrants, including strategic actions, management changes, and material transactions or acquisitions; 36 • technical factors in the public trading markets for our stock that may produce price movements that may or may not comport with macro, industry or company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as it may be expressed on financial trading and other social media sites), the amount and status of short interest in our securities, access to margin debt, trading in options and other derivatives on our common stock, fractional share trading, and other technical trading factors or strategies; • announcements regarding stock repurchases, sales or purchases of our common stock by us, our officers or directors, credit agreements and debt issuances; • announcements of technological innovations, new, additional or revised programs, business models, products or product offerings by us, our customers or competitors; • key decisions in pending litigation, new litigation, settlements, judgments or decrees; and • general economic market conditions, including rising interest rates, inflationary pressures, recessions, consumer sentiment and demand, global political conflict and industry factors unrelated to our actual performance.
The factors include: • quarterly variations in our results of operations and liquidity or changes in our forecasts and guidance; • our ability to regain or sustain our historical growth rates; • changes in recommendations by the investment community or speculation in the press or investment community regarding estimates of our net revenues, operating results or other performance indicators; • announcements by us or our competitors or new market entrants, including strategic actions, management changes, and material transactions or acquisitions; • technical factors in the public trading markets for our stock that may produce price movements inconsistent with macro, industry or company-specific fundamentals, including the sentiment of retail investors (as it may be expressed on financial trading and other social media sites), the amount and status of short interest in our securities, access to margin debt, trading in options and other derivatives on our common stock, fractional share trading, and other technical trading factors or strategies; • announcements regarding stock repurchases, sales or purchases of our common stock by us, our officers or directors, credit agreements and debt issuances; • announcements of technological innovations, new, additional or revised programs, business models, products or product offerings by us, our customers or competitors; • key decisions in pending litigation, new litigation, settlements, judgments or decrees; and • general economic market conditions, including rising interest rates, inflationary pressures, recessions, consumer sentiment and demand, global political conflict and industry factors unrelated to our actual performance.
Additionally, the third-party software integrated into or interoperable with our products and services will routinely reach end of life, and as a consequence, certain models of our iTero intraoral scanners may be exposed to additional vulnerabilities, including increased security risks, errors and malfunctions that may be irreparable or difficult to repair.
Additionally, the third-party software integrated into or interoperable with our products and services will routinely reach end of life, and as a consequence, certain applications and models of our iTero scanners may be exposed to additional vulnerabilities, including increased security risks, errors and malfunctions that may be irreparable or difficult to repair.
Additionally, as an organization we do not have a history of significant acquisitions or integrating their operations and cultures with our own.
As an organization we do not have a history of significant acquisitions or integrating their operations and cultures with our own.
We are highly dependent on our supply chain, particularly manufacturers of specialized scanning equipment, rapid prototyping machines, resin and other advanced materials, as well as the optics, electronic and other mechanical components of our intraoral scanners. We maintain single supply relationships for many of these machines and materials.
We are highly dependent on our supply chain, particularly manufacturers of specialized scanning equipment, rapid prototyping machines, resin and other advanced materials, as well as the optics, electronic and other mechanical components of our iTero scanners. We maintain single supply relationships for many of these machines and materials.
Remote working can decrease the opportunities for our personnel to collaborate, thereby reducing the opportunities for effective invention disclosures and patent application filings. We may choose not to file a foreign patent application if the limited protections provided by a foreign patent do not outweigh the costs to obtain it.
Remote working can decrease opportunities for our personnel to collaborate, thereby reducing invention disclosures and patent application filings. We may 31 choose not to file a foreign patent application if the limited protections provided by a foreign patent do not outweigh the costs to obtain it.
Further, decreased demand for dental services can cause dentists and labs to postpone investments in capital equipment, such as intraoral scanners and CAD/CAM equipment and software. The recent declines in, or uncertain economic outlooks for, the U.S., Chinese, European and certain other international economies has and may continue to adversely affect consumer and dental practice spending.
Further, decreased demand for dental services can cause dentists and labs to postpone investments in capital equipment, such as intraoral scanners and CAD/CAM equipment and software. The declines in, or uncertain economic outlooks for, the U.S., Chinese, European and certain other international economies have and may continue to adversely affect consumer and dental practice spending.
Sales of substantial amounts of our stock by existing stockholders may adversely affect the market price of our stock by creating the perception of difficulties or problems with our business that may depress our stock price. Item 1B. Unresolved Staff Comments. None. 37
Sales of substantial amounts of our stock by existing stockholders may adversely affect the market price of our stock by creating the perception of difficulties or problems with our business that may depress our stock price. 34 Item 1B. Unresolved Staff Comments. None.
Our internal controls may become inadequate because of changes in personnel, updates and upgrades to existing software, failure to maintain accurate books and records, changes in accounting standards or interpretations of existing standards, and, as a result, the degree of compliance of our internal control over financial reporting with the existing policies or procedures may become ineffective.
Our internal controls may become inadequate because of changes in personnel, updates and upgrades to or migration away from existing software, failure to maintain accurate books and records, changes in accounting standards or interpretations of existing standards, and, as a result, the degree of compliance of our internal control over financial reporting with the existing policies or procedures may become ineffective.
We rely on the efficient, uninterrupted and secure operation of our own complex IT systems and are dependent on key third party software embedded in our products and IT systems as well as third-party hosted IT systems to support our operations. All software and IT systems are vulnerable to damage, cyber attacks or interruption from a variety of sources.
We rely on the efficient, uninterrupted and secure operation of our complex IT systems and are dependent on key third party software embedded in our products and IT systems as well as third-party hosted IT systems to support our operations. All software and IT systems are vulnerable to damage, cybersecurity attacks or interruption from a variety of sources.
Expanded remote working and increased usage of online and hosted technology platforms by us, our customers and suppliers, including teledentistry and new or expanded use of online service platforms, products and solutions such as video conferencing applications, doctor, consumer and patient apps have increased the demands on and risks to our IT systems and personnel.
Usage of online and hosted technology platforms by us, our customers and suppliers, including remote working, teledentistry and new or expanded use of online service platforms, products and solutions such as doctor, consumer and patient apps have increased the demands on and risks to our IT systems and personnel.
Natural disasters include earthquakes, tsunamis, floods, droughts, hurricanes, wildfires, and other extreme weather conditions that can cause deaths, injuries, and critical health crises, power outages, restrictions and shortages of food, water, shelter, and medical supplies, telecommunications failures, materials scarcity, price volatility and other ramifications.
Natural disasters include earthquakes, tsunamis, floods, droughts, hurricanes, wildfires, and extreme weather conditions that cause deaths, injuries, and critical health crises, power outages, property damage restrictions and shortages of food, water, shelter, and medical supplies, telecommunications failures, materials scarcity, price volatility and other ramifications.
Concerns over our privacy practices could adversely affect others’ perception of us and deter customers, patients and partners from using our products. In addition, patient care could suffer, and we could be liable if our products or IT systems fail to deliver accurate and complete information in a timely manner.
Concerns over our privacy practices could adversely affect others’ perception of us and deter customers and patients from using our products. In addition, patient care could suffer, and we could be liable if our products or IT systems fail to timely deliver accurate and complete information.
We may also suffer financial and reputational harm if customers require, and we are unable to deliver, certification that our products are conflict free. In all of these situations, customers may stop purchasing products from us, and may take legal action against us, which could harm our reputation, revenues and results of operations.
We may also suffer financial and reputational harm if customers require, and we are unable to deliver, certification that our products are complaint. In all of these situations, customers may stop purchasing products from us, and may take legal action against us, which could harm our reputation, revenues and results of operations.
However, despite the existence of these protections, we have experienced incidents in which our proprietary information has been misappropriated and believe it could be misappropriated again in the future.
However, despite the existence of these protections, we have experienced incidents in which our proprietary information has been misappropriated and believe it will be misappropriated again in the future.
The potential effects on our business operations resulting from litigation, whether or not ultimately determined in our favor or settled by us, are costly and could materially affect our results of operations and reputation. Financial, Tax and Accounting Risks If our goodwill or long-lived assets become impaired, we may be required to record a material charge to earnings. Under U.S.
The potential effects on our business operations resulting from litigation, whether or not ultimately determined in our favor or settled by us, are costly and could materially affect our results of operations and reputation. Financial, Tax and Accounting Risks If our goodwill, intangible or long-lived assets become impaired, we may be required to record a material charge to earnings.
If we fail to adopt ESG standards or practices as quickly as stakeholders desire, report on our ESG efforts or practices accurately, or satisfy the disclosure and other expectations of stakeholders, our reputation, business, financial performance, growth, and stock price may be adversely impacted.
If we fail to adopt ESG standards or practices as quickly as stakeholders desire, comply with or timely report on our ESG efforts or practices accurately, or satisfy the disclosure and other expectations of stakeholders, our reputation, business, financial performance, growth, and stock price may be adversely impacted.
We provide significant training to our personnel and our business will be impacted if our training fails to properly prepare our personnel to perform the work required, we are unable to successfully instill technical expertise in new and existing personnel or if our techniques prove unsuccessful or not cost-effective.
We provide significant training to our personnel and our business will be harmed if our training fails to properly prepare them to perform the work required, we are unable to successfully instill technical expertise in new and existing personnel or if our techniques prove unsuccessful or are not cost-effective.
Our failure or the failure of our suppliers, customers, advertisers and influencers to strictly adhere to clearances or approvals in the labeling, marketing and sales of our products and services could subject us to claims or litigation, including actions alleging false or misleading advertising or other violations of laws or regulations, which may result in costly investigations, fines, penalties, as well as material judgments, settlements or decrees.
Our failure or the failure of our suppliers, customers, advertisers and influencers to strictly adhere to clearances or approvals in the labeling, marketing and sales of our products and services could subject us to claims or litigation, including allegations of false or misleading advertising or violations of laws or regulations, which may result in costly investigations, fines, penalties, as well as material judgments, settlements or decrees.
If alternative distributors must be quickly found and trained in the use, marketing, sales and support of our products and services, our revenues and ability to sell or service our products in markets key to our business could be adversely affected. These distributors may also choose to sell alternative or competing products or services.
If alternative distributors cannot be quickly found and trained in the use, marketing, sales and support of our products and services, our revenues and ability to sell or service our products in key markets could be adversely affected. These distributors may also choose to sell alternative or competing products or services.
As a result, there have been and may be widespread failures of our iTero intraoral scanners or we may experience epidemic failures of our iTero intraoral scanner to perform as anticipated.
As a result, there have been and may be widespread failures of our iTero scanners or we may experience epidemic failures of our iTero scanners to perform as anticipated.
We and many of our healthcare provider customers, suppliers and distributors are subject to extensive and frequently changing regulations under numerous federal, state, local and foreign laws, including those regulating: • the storage, transmission and disclosure of medical information and healthcare records; • prohibitions against the offer, payment or receipt of remuneration to induce referrals to entities providing healthcare services or goods or to induce the order, purchase or recommendation of our products; and • the design, manufacture marketing and advertising of our products.
We and many of our healthcare provider customers, suppliers and distributors are subject to extensive and frequently changing regulations under numerous federal, state, local and foreign laws, including those regulating: • the storage, transmission and disclosure of personal, financial, and medical information as well as healthcare records; 28 • prohibitions against the offer, payment or receipt of remuneration to induce referrals to entities providing healthcare services or goods or to induce the order, purchase or recommendation of our products; and • the design, manufacture, marketing and advertising of our products.
Our compliance obligations will likely span all aspects of our business and operations, including product design and development, materials sourcing and other procurement activities, product packaging, product safety, energy and natural resources usage, facilities design and utilization, recycling and collection, transportation, disposal activities and workers’ rights.
Our compliance obligations span all aspects of our business and operations, including product design and development, materials sourcing and 30 other procurement activities, product packaging, product safety, energy and natural resources usage, facilities design and utilization, recycling and collection, transportation, disposal activities and workers’ rights.
Intellectual Property Risks Our success depends in part on our proprietary technology, and if we fail to successfully obtain or enforce our intellectual property (“IP”) rights, our competitive position may be harmed. Our success depends in part on our ability to maintain existing IP rights and obtain and maintain further IP protection for our products.
Intellectual Property Risks Our success depends in part on our proprietary technology, and if we fail to successfully obtain or enforce our IP rights, our competitive position may be harmed. Our success depends in part on our ability to maintain existing IP rights and obtain, maintain and enforce further IP protections for our products.
Our operations may be impacted by natural disasters, which may become more frequent or severe as a result of climate change, and may adversely impact our business and operating results as well as those of our customers and suppliers. Natural disasters can impact us and our customers, as well as suppliers critical to our operations.
Our operations may be impacted by natural disasters, which may become more frequent or severe as a result of climate change, and may adversely impact our business and operating results as well as those of our customers and suppliers. Natural disasters can impact our operations as well as those of our customers and suppliers.
The positions we take regarding taxes as well as the amounts we collect or remit may be challenged and we may be liable for failing to collect or remit all or any portion of taxes deemed owed or the taxes could exceed our estimates.
The positions we take regarding taxes as well as the amounts we collect or remit may be challenged and we may be liable for failing to collect or remit all taxes deemed owed or the taxes could exceed our estimates.
Our products and information technology systems are critical to our business. Issues with product development or enhancements, IT system integration, implementation, updates and upgrades have previously and could again in the future disrupt our operations and have a material impact on our business and operating results.
Our products and IT systems are critical to our business. Issues with product development or enhancements, IT system and software integration, implementation, updates and upgrades have previously and could again in the future disrupt our operations and have a material impact on our business, our reputation and operating results.
Future stock repurchase programs are contingent on a variety of factors, including our financial condition, results of operations, business requirements, and our Board of Directors' continuing determination that stock repurchases are in the best interests of our stockholders and in compliance with all applicable laws and agreements.
Future stock repurchase programs are contingent on a variety of factors, including our financial condition, market conditions, results of operations, business requirements, and our continuing determination that stock repurchases are in the best interests of our stockholders and in compliance with all applicable laws and agreements.
Our average selling prices for our Invisalign system and iTero scanners have been impacted in the past and may be adversely affected again in the future if: • we introduce new or change existing promotions, general or volume-based discount programs, product or services bundles, or consumer rebate programs; • participation in any promotions or programs unexpectedly increases or decreases or drives demand in unexpected and material ways; • our geographic, channel, or product mix shifts to lower priced products or to products that have a higher percentage of deferred revenue; • we decrease prices on one or more products or services in response to increasing competitive pricing pressures; • we introduce new or change existing products or services, or modify how we market or sell any of our new or existing products or services; • governments impose pricing regulations such as the volume-based procurement regulations in China; or • estimates used in the calculation of deferred revenue differ from actual average selling prices.
Our average selling prices for our Invisalign system and iTero scanners have been impacted in the past and may be adversely affected in the future if: • we introduce new promotions, change existing promotions, or offer general or volume-based discount programs, product or services bundles, large account sales or consumer rebate programs; • participation in promotions or programs unexpectedly increases, decreases or changes demand in material ways; • our geographic, channel or product mix shifts to lower priced products or to products with a higher percentage of deferred revenue; • we decrease prices on one or more products or services in response to increasing competitive pricing pressures; • we introduce new or change existing products or services, or modify how we market or sell any of our new or existing products or services; • governments impose pricing regulations such as volume-based procurement regulations in China; or • estimates used in the calculation of deferred revenue differ from actual average selling prices.
Our competitors also include direct-to-consumer (“DTC”) companies that provide clear aligners using a remote business model requiring little or no in-office care from trained and licensed doctors, and doctors and DSOs who can manufacture custom aligners in their offices using 3D printing technology. Large consumer product companies may also start supplying orthodontic products.
Our competitors also include DTC companies that provide clear aligners using a remote business model requiring little or no in-office care from trained and licensed doctors, and doctors and DSOs who manufacture custom aligners in their offices using 3D printing technology. Large consumer product companies may also start supplying orthodontic products.
In addition, the stock market in general, and the market for technology and medical device companies, in particular, have experienced extreme price and volume fluctuations often unrelated to or disproportionate to corporate operating performance.
In addition, the stock market in general, and the market for technology and medical device companies, in particular, often experience extreme price and volume fluctuations unrelated or disproportionate to corporate operating performance.
Despite the implementation of security features in our products and security measures in our IT systems, we and our service providers, vendors, and other third parties continue to be targeted by or subject to physical break-ins, computer viruses or other malicious code, unauthorized or fraudulent access, programming errors or other technical malfunctions, hacking or phishing attacks, malware, ransomware, employee error or malfeasance, cyber attacks, and other breaches of IT systems or similar disruptive actions, including by organized groups and nation-state actors.
Despite the implementation of security features in our products and security measures in our IT systems, we and our service providers, third-party vendors, and other third parties are targeted by or subject to physical break-ins, computer viruses and other malicious code, unauthorized or fraudulent access, programming errors or other technical malfunctions, hacking or phishing attacks, malware, ransomware, employee error or malfeasance, cybersecurity attacks, and other breaches of IT systems or similar disruptive actions, including 29 by organized groups and nation-state actors.
It may be difficult, expensive, and time-consuming for us to re-establish market access or regulatory compliance. A disruption in the operations of a primary freight carrier, higher shipping costs or shipping delays could disrupt our supply chain and impact our revenues or gross margin. We are dependent on commercial freight carriers, primarily UPS, to deliver our products.
It may be difficult, expensive, and time-consuming for us to re-establish market access or regulatory compliance. A disruption in the operations of a primary freight carrier, higher shipping costs or shipping delays could disrupt our supply chain and impact our operating and financial results. We are dependent on commercial freight carriers, primarily UPS, to deliver our products.
The application of existing, new, or future tax laws, and results of audits, whether in the U.S. or internationally, could harm our business. Furthermore, there have been and will continue to be substantial ongoing costs associated with complying with the various tax requirements and defending our positions in the numerous markets in which we conduct or will conduct business.
The application of existing and new tax laws, and the results of audits could harm our business. Furthermore, there have been and will continue to be substantial ongoing costs associated with complying with the various tax requirements and defending our positions in the numerous markets in which we conduct or will conduct business.
In addition to our direct sales force, we have and expect to continue to use distributors to import, market, sell, service and support our products. Our agreements with these distributors are generally non-exclusive and terminable by either party with little notice.
In addition to our direct sales force, we have and expect to continue to use distributors to import, market, sell, service and support our products. Our distribution agreements are generally non-exclusive and terminable by either party with customary notice.
Business and Industry Risks Demand for our products may not increase or may decrease due to resistance to non-traditional treatment methods, which could have a material impact on our business and operating results.
Business and Industry Risks Demand for our products may not increase or may decrease due to resistance to non-traditional treatment methods, which could have a material impact on our business and operating results. Our products require our customers to change from traditional treatment methods.
Any failure to obtain or maintain approvals or comply with regulations regarding our products or services or the products and services of our suppliers or customers could materially harm our sales, result in substantial penalties and fines and cause harm to our reputation.
Failure to obtain or maintain approvals or comply with regulations regarding our products or services or those of our suppliers could materially harm our sales, result in substantial penalties and fines and cause harm to our reputation.
In addition, our foreign currency exposure on assets, liabilities and cash flows that we do not hedge have and could continue to have a material impact on our financial results in periods when the U.S. dollar significantly fluctuates in relation to foreign currencies.
In addition, our foreign currency exposure on assets, liabilities and cash flows that we do not hedge have and could in the future materially impact our financial results in periods when the U.S. dollar significantly fluctuates in relation to foreign currencies.
As such, we are subject to various risks when making a strategic investment or acquisition which could materially impact our business or results of operations, including that we may: • fail to perform proper due diligence and inherit unexpected material issues or assets, including IP or other litigation or ongoing investigations, accounting irregularities or improprieties, bribery, corruption or other compliance liabilities; • fail to comply with regulations, governmental orders or decrees; • experience IT security and privacy compliance issues; • invest in companies that generate net losses or the markets for their products, services or technologies may be slow or fail to develop; • not realize a positive return on investment or determine that our investments have declined in value, such that it may be necessary to record impairments such as future impairments of intangible assets and goodwill; • have to pay cash, incur debt or issue equity securities to pay for an acquisition, adversely affecting our liquidity, financial condition or the value of our common stock.
As such, we are subject to various risks when making a strategic investment or acquisition which could materially impact our business or results of operations, including that we may: • fail to perform proper due diligence and inherit unexpected material issues or assets, including intellectual property (“IP”) or other litigation or ongoing investigations, accounting irregularities or compliance liabilities; • fail to comply with regulations, governmental orders or decrees; • experience IT security and privacy compliance issues; • invest in companies that generate net losses or are slow or fail to develop; • not realize a positive return on investment or determine that our investments have declined in value, necessitating we record impairments such as future impairments of intangible assets and goodwill; • have to pay cash, incur debt or issue equity securities to pay for an acquisition, adversely affecting our liquidity, financial condition or the value of our common stock.
Specifically, production levels for our intraoral scanner are generally forecasted based on forecasts and historic product demand and we often place orders with suppliers for materials, components and sub-assemblies (“materials and components”) as well as finished products weeks or more in advance of projected customer orders.
Specifically, production levels for our iTero scanners are generally set based on forecasts and historic product demand and we often place orders with suppliers for materials, components and sub-assemblies (“materials and components”) as well as finished products weeks or more in advance of projected customer orders.
These factors include changes in the global economic environment, changes in our legal entity structure or activities performed within our entities, changes in our business operations, changes in tax laws, regulations and/or rates, new or changes to accounting pronouncements, changing interpretations of existing tax laws or regulations, changes in relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates, changes in overall levels of pretax earnings, the future levels of tax benefits of stock-based compensation, settlement of income tax audits and non-deductible goodwill impairments.
These factors include changes in the global economic environment, our legal entity structure or activities performed within our entities, our business operations, in tax laws, regulations and/or rates, to existing accounting pronouncements, interpretations of existing tax laws or regulations, in relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates, in overall levels of pretax earnings, as well as the settlement of income tax audits and non-deductible goodwill impairments.
Complying with new or changed trade restrictions is expensive, time-consuming and disruptive to our operations. Such restrictions can be announced with little or no advance notice and we may be unable to effectively mitigate the adverse impacts 21 of such measures.
Complying with new or changed trade restrictions is expensive, time-consuming and disruptive to our operations. Such restrictions can be announced with little or no advance notice and we may be unable to effectively mitigate any adverse impacts.
It is critical that the facilities, infrastructure and IT systems on which we depend to run our business and the products we develop remain secure and be perceived by the marketplace and our customers to be secure.
It is critical that the facilities, infrastructure and IT systems on which we depend and the products we develop remain secure and be perceived by the marketplace and our customers as secure.
In order to manage current and anticipated future operations effectively, we must continually implement and improve our operational, financial and management information systems, hire, train, motivate, manage and retain employees, and ensure our suppliers remain diverse and capable of meeting growing demand for the systems, raw materials, parts and components essential to the manufacture and delivery of our products.
To manage current and anticipated future operations effectively, we must continually implement and improve our operational, financial and management information systems, hire, train, motivate, manage and retain employees, and ensure our suppliers remain diverse and capable of meeting demand for the systems, raw materials, parts and components essential to product manufacturing and delivery.
Invisalign treatment represents a significant change from traditional metal wires and brackets orthodontic treatment, and customers and consumers may not find it cost-effective or preferable to traditional treatment. For instance, a number of dental professionals continue to believe the Invisalign treatment is appropriate for only a limited percentage of patients.
For example, Invisalign treatment is a significant change from traditional orthodontic metal wires and brackets, and customers and consumers may not find it cost-effective or preferable. A number of dental professionals believe Invisalign treatment is only appropriate for a limited percentage of patients.
For instance, the sourcing and availability of metals that may be used in the manufacture of, or contained in, our products may be affected by laws and regulations regarding the use of minerals obtained from certain regions of the world like the Democratic Republic of Congo and adjoining countries.
Additionally, the sourcing and availability of metals used in the manufacture of, or contained in, our products may be affected by laws and regulations governing the use of minerals obtained from certain regions of the world like the Democratic Republic of Congo and adjoining countries.
Failures of all or any portion of ours or third-party software or other components or systems to interoperate with iTero or third-party scanners, termination of interoperability with third-party scanners, malware or ransomware attacks, product or system vulnerabilities or defects, interference or disruptions for us, our customers, labs or other business partners in the use of our products or the transmission or processing of data needed for the use or ordering of our products, or a system outage for any reason have harmed our operations previously and in the future could affect materially and adversely our ability to accept scans, manufacture clear aligners or restorative procedures or treatments and services or otherwise service our customers which may, amongst other things, harm our sales, damage our reputation, adversely impact our strategic partners or result in litigation.
Failures of all or any portion of our or third-party software or other components or systems to interoperate with iTero or third-party scanners, termination of interoperability with third-party scanners, malware or ransomware attacks, product or system vulnerabilities or defects, interference or disruptions for us, our customers, labs or other business partners in the use of our products or the transmission or processing of data needed for the use or ordering of our products, or a system outage for any reason have harmed our operations previously and in the future could materially and adversely affect our ability to accept scans, manufacture clear aligners or restorative procedures or treatments and services or otherwise service our customers.
We have and likely will again in the future be required to implement new or expand existing data storage protocols, build new storage facilities, and/or devote additional resources to comply with such laws, any of which could be costly.
Other countries are considering similar data localization or data residency laws. We have and likely will again in the future be required to implement new or expand existing data storage protocols, build new storage facilities, and/or devote additional resources to comply with such laws, any of which could be costly.
Moreover, independent actions by competitors, customers or others have been brought alleging that our efforts to enforce our patent or other IP rights constitute unfair competition or violations of antitrust laws in the U.S. and other jurisdictions and investigations and additional litigation based on the same or similar claims may be brought in the future.
Moreover, independent actions by competitors, customers or others have alleged that our efforts to enforce our IP rights constitute unfair competition or violations of antitrust laws and investigations and additional litigation based on the same or similar claims may be brought in the future.
In addition, we may be held responsible for the actions of these distributors and their employees and agents for compliance with laws and regulations, including fair competition, bribery and corruption, trade compliance, safety, data privacy and marketing and sales activities.
In addition, we may be held responsible for the actions of these distributors and their employees and agents for compliance with laws and regulations, including fair 26 competition, bribery and corruption, trade compliance, safety, data privacy and marketing and sales activities. The conduct of these distributors also impacts our reputation and our brand.
We are also subject to data export restrictions and international transfer laws which prohibit or impose conditions upon the transfer of such data from one country to another. These laws and regulations are constantly evolving and may be interpreted, applied, created or amended in a manner that could adversely affect our business.
We are also subject to data export restrictions and international transfer laws which prohibit or impose conditions upon the transfer of such data. These laws and regulations are constantly evolving and may be created, interpreted, applied, or amended in ways that adversely affect our business.
Competition in the markets for our products is increasing and we expect aggressive competition from existing competitors, other companies that may introduce new technologies or products in the future and customers who alone or with others create orthodontic appliances and solutions or other products or services that compete with us.
Competition in the markets for our products is increasing and we expect aggressive competition from existing competitors, other companies that introduce new technologies or products in the future and customers who alone or with others create orthodontic appliances and solutions or other products or services that compete with us. The dental industry is experiencing immense and rapid digital transformation.
As a result, if we are unable to accurately predict demand, we may have an insufficient number of trained technicians to ensure products are timely manufactured and delivered to meet customers’ expectations, which could damage our relationships with our existing customers or harm our ability to attract new customers.
As a result, if we fail to accurately predict demand, we may have an insufficient number of trained technicians to timely manufacture and deliver products to meet customers’ expectations, which could damage our relationships with our existing customers or harm our ability to attract new customers.
Countries could also adopt other measures, such as controls on imports or exports of goods, technology or data, that could adversely impact our operations and supply chain and limit our ability to offer products and services. These measures could require us to take various actions, including changing suppliers or restructuring business relationships.
Countries may also adopt other measures, such as controls on the import or export of goods, technology or data, that would adversely impact our operations and supply chains or limit our ability to offer products and services. These measures could require us to take various actions, including changing suppliers or restructuring business relationships.
We attempt to structure our advertising campaigns to increase brand awareness, adoption and goodwill; however, there is no assurance our campaigns will achieve the returns on advertising spend desired, increase brand or product awareness sufficiently or generate goodwill and positive reputational goals.
There is no assurance our advertising campaigns will achieve the returns on advertising spend desired, increase brand or product awareness sufficiently or generate goodwill and positive reputational goals.
If freight costs materially increase and we are unable to successfully pass all or significant portions of the increases along to our customers, or we cannot otherwise offset such increases in our cost of net revenues, our gross margin and financial results could be materially affected.
If freight costs materially increase and we are unable to successfully pass all or significant portions of the increases along to our customers, or we cannot otherwise offset such increases, our gross margin and financial results could be materially affected. Our success depends on our personnel.
Our products and services involve an inherent risk of claims concerning their design, manufacture, safety and performance, how they are marketed and advertised in a complex framework of highly regulated domestic and international laws and regulations, how we package, bundle or sell them to customers who may be private individuals or companies or public entities such as hospitals and clinics and how we train and support doctors, their staffs and patients who administer or use our products.
Our products and services involve an inherent risk of claims concerning their design, materials, manufacture, safety and performance, how they are marketed and advertised in a complex framework of highly regulated domestic and international laws and regulations, how we package, bundle or sell them to individual customers or companies, including hospitals and clinics, and how we train and support doctors, their staffs and patients who use our products.
If we fail to comply with any requirements, we could be subject to significant penalties or liabilities and we may be required to implement new and materially more costly processes and procedures to come into compliance. Further these laws are subject to unpredictable changes. Even if we successfully comply with these laws and regulations, our suppliers may fail to comply.
If we fail to comply with any requirements, we could be subject to significant penalties or liabilities and we may be required to implement new and materially more costly processes and procedures. Even if we successfully comply with these laws and regulations, our suppliers may not.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOwn Office for Americas regional headquarters San Jose, Costa Rica Lease and Own Office for administrative personnel, treatment personnel, and customer care Wroclaw, Poland Lease and Own Manufacturing and office for treatment and administrative personnel Petah Tikva, Israel Lease and Own Manufacturing and office for research & development and administrative personnel Rotkreuz, Switzerland Lease Office for EMEA regional headquarters Juarez, Mexico Own Manufacturing and office for administrative personnel Ziyang, China Own Manufacturing and office for administrative personnel We believe our existing facilities are in good operating condition and are suitable for the conduct of our business.
Biggest changeOwn Office for Americas regional headquarters Belen, Heredia, Costa Rica Own Office for administrative personnel, treatment personnel, and customer care La Lima, Cartago, Costa Rica Own Office for administrative personnel, treatment personnel, and customer care Wroclaw, Poland Lease and Own Manufacturing and office for treatment and administrative personnel Petah Tikva, Israel Lease and Own Manufacturing and office for research & development and administrative personnel Rotkreuz, Switzerland Lease Office for EMEA regional headquarters Juarez, Mexico Own Manufacturing and office for administrative personnel Ziyang, China Own Manufacturing and office for administrative personnel We believe our existing facilities are in good operating condition and are suitable for the conduct of our business.
Item 2. Properties. We occupy several leased and owned facilities. As of December 31, 2022, the significant facilities occupied were as follows: Location Lease/Own Primary Use Tempe, Arizona, U.S.A. Lease Office for corporate headquarters San Jose, California, U.S.A. Own Office for research & development and administrative personnel Raleigh, North Carolina, U.S.A.
Item 2. Properties. We occupy several leased and owned facilities. As of December 31, 2023, the significant facilities occupied were as follows: Location Lease/Own Primary Use Tempe, Arizona, U.S.A. Lease Office for corporate headquarters San Jose, California, U.S.A. Own Office for research & development and administrative personnel Raleigh, North Carolina, U.S.A.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. For a discussion of legal proceedings, refer to Note 7 "Legal Proceedings" of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K. Item 4. Mine Safety Disclosures. Not applicable. 38 PART II
Biggest changeItem 3. Legal Proceedings. For a discussion of legal proceedings, refer to Note 7 "Legal Proceedings" of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K. Item 4. Mine Safety Disclosures. Not applicable. 36 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePurchases of Equity Securities by the Issuer and Affiliated Purchasers The following table summarizes the stock repurchase activity for the three months ended December 31, 2022: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs (1) October 1, 2022 through October 31, 2022 848,266 $ 188.62 848,266 $ 249,926,094 November 1, 2022 through November 30, 2022 — $ — — $ 249,926,094 December 1, 2022 through December 31, 2022 — $ — — $ 249,926,094 Total 848,266 848,266 1 May 2021 Repurchase Program.
Biggest changePurchases of Equity Securities by the Issuer and Affiliated Purchasers The following table summarizes the stock repurchase activity for the three months ended December 31, 2023: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs (1) October 1, 2023 through October 31, 2023 1,049,538 $ 190.56 1,049,538 $ 750,000,000 November 1, 2023 through November 30, 2023 283,335 $ 206.89 283,335 $ 691,380,496 December 1, 2023 through December 31, 2023 182,183 $ 227.14 182,183 $ 650,000,000 Total 1,515,056 1,515,056 1 January 2023 Repurchase Program.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is traded on the NASDAQ Global Market under the symbol ALGN. As of February 20, 2023, there were approximately 53 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is traded on the NASDAQ Global Market under the symbol ALGN. As of February 22, 2024, there were approximately 52 holders of record of our common stock.
The graph tracks the performance of a $100 investment in our common stock and each index (with the reinvestment of all dividends) from December 31, 2017 to December 31, 2022. 39 Unregistered Sales of Equity Securities None.
The graph tracks the performance of a $100 investment in our common stock and each index (with the reinvestment of all dividends) from December 31, 2018 to December 31, 2023. 37 Unregistered Sales of Equity Securities None.
On May 13, 2021, we announced that our Board of Directors had authorized a plan to repurchase up to $1.0 billion of our common stock. See Note 10 “ Common Stock Repurchase Programs” of the Notes to Consolidated Financial Statements for details on the May 2021 Repurchase Program. Item 6. [Reserved]
In January 2023, we announced that our Board of Directors had authorized a plan to repurchase up to $1,000,000,000 of our common stock. See Note 10 “ Common Stock Repurchase Programs” of the Notes to Consolidated Financial Statements for details on the January 2023 Repurchase Program. Item 6. [Reserved]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations 43 Net Revenues by Reportable Segment We group our operations into two reportable segments: Clear Aligner segment and Systems and Services segment. • Our Clear Aligner segment consists of Comprehensive Products, Non-Comprehensive Products and Non-Case revenues as defined below: • Comprehensive Products include, but are not limited to, Invisalign Comprehensive and Invisalign First. • Non-Comprehensive Products include, but are not limited to, Invisalign Moderate, Lite and Express packages and Invisalign Go and Invisalign Go Plus. • Non-Case products include, but are not limited to, retention products, 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 e-commerce channels in select markets.
Biggest changeThe low-stage aligners, the Touch up product, are included as a Non-Comprehensive Product. • Non-Case products include, but are not limited to, retention products including retention aligners ordered through the Doctor Subscription Program, Invisalign training, adjusting tools used by dental professionals during the course of treatment and Invisalign Accessory Products that are complementary to our doctor-prescribed principal products such as aligner cases (clamshells), teeth whitening products, cleaning solutions (crystals, foam and other material) and other oral health products available in certain commerce channels in select markets. • Our Systems and Services segment consists of our iTero intraoral scanning systems, which includes a single hardware platform and restorative or orthodontic software options.
Investing Activities Net cash used in investing activities was $213.3 million for the year ended December 31, 2022 which primarily consisted of purchases of property, plant and equipment of $291.9 million, purchases of marketable securities of $28.0 million and $12.3 million cash paid relating to a business acquisition.
Net cash used in investing activities was $213.3 million for the year ended December 31, 2022 which primarily consisted of purchases of property, plant and equipment of $291.9 million, purchases of marketable securities of $28.0 million and $12.3 million cash paid relating to a business acquisition.
We measure and allocate revenues according to ASC 606-10, “Revenues from Contracts with Customers.” Determining the standalone selling price (“SSP”) in order to allocate consideration from the contract to the individual performance obligations is the result of various factors, such as changing trends and market conditions, historical prices, costs, and gross margins.
We measure and allocate revenues according to ASC 606-10, “Revenues from Contracts with Customers.” Determining the standalone selling price (“SSP”) in order to allocate consideration from the contract to the individual performance obligations is the result of various factors, such as historical prices, changing trends and market conditions, costs, and gross margins.
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.
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 48 evaluate our estimates on an on-going basis and use authoritative pronouncements, historical experience and other assumptions as the basis for making the estimates.
Critical Accounting Policies and 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.
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.
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 revenues for each clear aligner treatment plan based on each unit’s SSP.
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.
A discussion regarding our financial condition and results of operations for fiscal 2022 compared to fiscal 2021 is presented under Results of Operations of this Form 10-K. Discussions regarding our financial condition and results of operations for fiscal 2021 compared to 2020 have been omitted from this Annual Report on Form 10-K, but can be found in "Item 7.
A discussion regarding our financial condition and results of operations for fiscal 2023 compared to fiscal 2022 is presented under Results of Operations of this Form 10-K. Discussions regarding our financial condition and results of operations for fiscal 2022 compared to 2021 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, 2021, filed with the SEC on February 25, 2022, which is available without charge on the SEC's website at www.sec.gov and on our investor relations website at investor.aligntech.com .
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, 2022, filed with the SEC on February 27, 2023, which is available without charge on the SEC's website at www.sec.gov and on our investor relations website at investor.aligntech.com .
Recent Accounting Pronouncements See Note 1 “ Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in Item 8 for a discussion of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein.
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.
Management measures these results by comparing to the millions of people who can benefit from straighter teeth and uses this data to target opportunities to expand the market for orthodontics by educating consumers about the benefits of straighter teeth using the Invisalign system. • For the fourth quarter of 2022, total Invisalign cases submitted with a digital scanner in the Americas increased to 92.5%, up from 89.1% in the fourth quarter of 2021 and international scans increased to 86.8%, up from 80.8% in the fourth quarter of 2021.
Management measures these results by comparing to the millions of people who can benefit from straighter teeth and uses this data to target opportunities to expand the market for orthodontics by educating consumers about the benefits of straighter teeth using the Invisalign system. • For the fourth quarter of 2023, total Invisalign cases submitted with a digital scanner in the Americas increased to 95.1%, up from 92.7% * in the fourth quarter of 2022 and international scans increased to 88.1%, up from 86.8% in the fourth quarter of 2022.
Despite the challenging market conditions, we intend to expand our investments in research and development, manufacturing, treatment planning, sales and marketing operations to meet actual and anticipated local and regional demands. • We have future operating lease payments of $158.3 million, which includes $14.3 million for leases that have not yet commenced as of December 31, 2022.
Despite the challenging market conditions, we intend to expand our investments in research and development, manufacturing, treatment planning, sales and marketing operations to meet actual and anticipated local and regional demands. • We have future operating lease payments of $153.5 million, which includes $13.3 million for leases that have not yet commenced as of December 31, 2023.
Similarly, in 2023 we expect to continue to focus on our doctor subscription plan and grow our underpenetrated share of the retainer business through strategic marketing campaigns focused on driving adoption and increasing market share in the U.S. • 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.
Similarly, in 2023, 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 in the U.S., Canada, Iberia and the Nordics. • 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.
This 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 some of which involve significant judgement.
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.
Financing Activities Net cash used in financing activities was $501.7 million for the year ended December 31, 2022 which consisted of payments related to our common stock repurchases of $475.0 million and payroll taxes paid for equity awards through share withholdings of $52.8 million, which were partially offset by $26.1 million of proceeds from the issuance of common stock under our employee stock purchase plan.
Net cash used in financing activities was $501.7 million for the year ended December 31, 2022 which consisted of payments to repurchase shares of our common stock of $475.0 million and payroll taxes paid for equity awards through share withholdings of $52.8 million, which were partially offset by $26.1 million of proceeds from the issuance of common stock.
Restructuring and other charges (in millions): Year Ended December 31, Year Ended December 31, 2022 2021 Change 2021 2020 Change Restructuring and other charges $ 11.5 $ — $ 11.5 $ — $ — $ — % of net revenues 0.3 % — % — % — % Changes and percentages are based on actual values.
Restructuring and other charges (in millions): Year Ended December 31, Year Ended December 31, 2023 2022 Change 2022 2021 Change Restructuring and other charges $ 13.3 $ 11.5 $ 1.9 $ 11.5 $ — $ 11.5 % of net revenues 0.3 % 0.3 % 0.3 % — % Changes and percentages are based on actual values.
We strive to manage the challenges from the macroeconomic conditions, the conflict in Ukraine, COVID-19 and the evolution of our target markets by focusing on improving our operations, building flexibility and efficiencies in our processes, adjusting our business models to changing circumstances and offering products that meet market demand.
We strive to manage the challenges from the trends and uncertainties, including the macroeconomic conditions, military conflict and the evolution of our target markets, by focusing on improving our operations, building flexibility and efficiencies in our processes, adjusting our business models to changing circumstances and offering products that meet market demand.
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 89.2 cases per doctor in 2022 compared to 98.1 cases per doctor in 2021 and 67.3 cases per doctor in 2020 and the utilization rate among our North American GP customers was 13.9 cases per doctor in 2022 compared to 14.3 cases per doctor in 2021 and 9.6 cases per doctor in 2020. • International: International doctor utilization rate was 16.2 cases per doctor in 2022 compared to 17.5 cases per doctor in 2021 and 14.5 cases per doctor in 2020 . * Invisalign utilization rates are calculated by the number of cases shipped divided by the number of doctors to whom cases were shipped.
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 94.5 cases per doctor in 2023 compared to 94.9 * cases per doctor in 2022 and 99.7 * cases per doctor in 2021 and the utilization rate among our North American GP customers was 14.0 cases per doctor in 2023 compared to 13.9 cases per doctor in 2022 and 14.3 cases per doctor in 2021. • International: International doctor utilization rate was 16.3 cases per doctor in 2023 compared to 16.2 cases per doctor in 2022 and 17.5 cases per doctor in 2021 . * Invisalign utilization rates are calculated by the number of cases shipped divided by the number of doctors to whom cases were shipped.
Interest income (in millions): Year Ended December 31, Year Ended December 31, 2022 2021 Change 2021 2020 Change Interest income $ 5.4 $ 3.1 $ 2.3 $ 3.1 $ 3.1 $ — % of net revenues 0.1 % 0.1 % 0.1 % 0.1 % Changes and percentages are based on actual values.
Interest income (in millions): 45 Year Ended December 31, Year Ended December 31, 2023 2022 Change 2022 2021 Change Interest income $ 17.3 $ 5.4 $ 11.9 $ 5.4 $ 3.1 $ 2.3 % of net revenues 0.4 % 0.1 % 0.1 % 0.1 % Changes and percentages are based on actual values.
Accordingly, we continue to expand our Invisalign customer base by educating new doctors on the benefits of digital dentistry through the Invisalign system and demonstrating to GPs and orthodontists how the iTero portfolio of intraoral scanners and CAD/CAM restorative services and workflows can increase revenues and profitability for their dental practices by enhancing patient experiences and creating operation practice efficiencies. • 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 through 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 furthermore demonstrate to GPs and orthodontists how the iTero portfolio of intraoral scanners 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. • 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 through targeted investments in advertising and public relations through social media, influencers and other forms of digital communications to encourage treatment by Invisalign trained doctors.
Other income (expense), net (in millions): Year Ended December 31, Year Ended December 31, 2022 2021 Change 2021 2020 Change Other income (expense), net $ (48.9) $ 32.9 $ (81.8) $ 32.9 $ (11.3) $ 44.3 % of net revenues (1.3) % 0.8 % 0.8 % (0.5) % Changes and percentages are based on actual values.
Other income (expense), net (in millions): Year Ended December 31, Year Ended December 31, 2023 2022 Change 2022 2021 Change Other income (expense), net $ (19.4) $ (48.9) $ 29.5 $ (48.9) $ 32.9 $ (81.8) % of net revenues (0.5) % (1.3) % (1.3) % 0.8 % Changes and percentages are based on actual values.
Unfulfilled Performance Obligations for Clear Aligners and Scanners The estimated revenues expected to be recognized in the future related to our unfulfilled performance obligations, including deferred revenues and backlog, as of December 31, 2022 is $1,515.4 million.
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 $1,578.3 million and $1,515.4 million as of December 31, 2023 and 2022, respectively.
Selling, general and administrative (in millions): Year Ended December 31, Year Ended December 31, 2022 2021 Change 2021 2020 Change Selling, general and administrative $ 1,674.5 $ 1,708.6 $ (34.2) $ 1,708.6 $ 1,200.8 $ 507.9 % of net revenues 44.8 % 43.2 % 43.2 % 48.6 % Changes and percentages are based on actual values.
Selling, general and administrative (in millions): Year Ended December 31, Year Ended December 31, 2023 2022 Change 2022 2021 Change Selling, general and administrative $ 1,703.4 $ 1,674.5 $ 28.9 $ 1,674.5 $ 1,708.6 $ (34.2) % of net revenues 44.1 % 44.8 % 44.8 % 43.2 % Changes and percentages are based on actual values.
Executive Overview of Results Trends and Uncertainties Our business strategic priorities remain focused on four principal pillars for growth: (i) international expansion; (ii) GP adoption; (iii) patient demand and conversion; and (iv) orthodontic utilization.
Executive Overview of Results Trends and Uncertainties Our business strategic priorities focus on four principal pillars for growth: (i) international expansion; (ii) GP dentist treatment; (iii) patient demand; and (iv) orthodontic utilization.
Our utilization rates have declined in 2022 due to the macroeconomic conditions, COVID-19 impacts, and other factors as described in the Trends and Uncertainties section above.
Our utilization rates have declined in 2023 due to the macroeconomic conditions and other factors as described in the Trends and Uncertainties section above.
Macroeconomic Challenges and Military Conflict in Ukraine Our revenues are susceptible to fluctuations in macroeconomic conditions, in line with inflation, rising interest rates, threats of or actual recessions, fluctuations in currency exchange rates, supply chain challenges, market volatility, wars and military actions, and other factors, each of which impact customer confidence, consumer sentiment and demand.
Macroeconomic Challenges and Military Conflict in Ukraine and the Middle East Our revenues are susceptible to fluctuations caused by macroeconomic conditions, inflation, changes to currency exchange rates, rising interest rates, actual and threatened wars and military actions, threats of or actual recessions, supply chain challenges, market volatility, and other factors, each of which impacts customer confidence, consumer sentiment and demand.
Sources and Use of Cash The following table summarizes our Consolidated Statements of Cash Flows for the year ended December 31, 2022, 2021 and 2020 (in thousands): Year Ended December 31, 2022 2021 2020 Net cash provided by (used in): Operating activities $ 568,732 $ 1,172,544 $ 662,174 Investing activities (213,316) (563,430) (231,506) Financing activities (501,686) (458,332) (30,808) Effects of foreign exchange rate changes on cash, cash equivalents, and restricted cash (11,514) (12,117) 10,480 Net (decrease) increase in cash, cash equivalents, and restricted cash $ (157,784) $ 138,665 $ 410,340 Operating Activities For the year ended December 31, 2022, cash flows from operations of $568.7 million resulted primarily from our net income of approximately $361.6 million as well as the following: Significant adjustments to net income • Stock-based compensation of $133.4 million related to equity awards granted to employees and directors; and • Depreciation and amortization of $125.8 million related to our investments in property, plant and equipment and intangible assets.
Sources and Use of Cash The following table summarizes our Consolidated Statements of Cash Flows for the year ended December 31, 2023, 2022 and 2021 (in thousands): Year Ended December 31, 2023 2022 2021 Net cash provided by (used in): Operating activities $ 785,776 $ 568,732 $ 1,172,544 Investing activities (195,943) (213,316) (563,430) Financing activities (598,340) (501,686) (458,332) Effects of foreign exchange rate changes on cash, cash equivalents, and restricted cash 4,671 (11,514) (12,117) Net (decrease) increase in cash, cash equivalents, and restricted cash $ (3,836) $ (157,784) $ 138,665 Operating Activities For the year ended December 31, 2023, cash flows from operations of $785.8 million resulted primarily from our net income of approximately $445.1 million as well as the following: Significant adjustments to net income • Stock-based compensation of $154.0 million related to equity awards granted to employees and directors; and 47 • Depreciation and amortization of $142.4 million related to our investments in property, plant and equipment and intangible assets.
Other Statistical Data and Trends • As of December 31, 2022, over 14 million people worldwide have been treated with our Invisalign system.
Other Statistical Data and Trends 40 • As of December 31, 2023, 17 million people worldwide have been treated with our Invisalign system.
Systems and Services Systems and Services net revenues decreased by $43.5 million in 2022 as compared to 2021 primarily due to a lower number of scanners sold which decreased net revenues by $97.1 million and lower scanner ASP which decreased net revenues by $9.0 million.
Systems and Services Systems and Services net revenues decreased by $0.9 million in 2023 as compared to 2022 primarily due to a lower number of scanners sold which lowered net revenues by $26.1 million and lower scanner ASP which reduced net revenues by $23.9 million.
We intend to continue reinvesting our foreign subsidiary earnings indefinitely and expect the additional costs upon repatriation of these foreign earnings not to be significant. We generate sufficient domestic operating cash flow and have access to external funding under our $300.0 million revolving line of credit.
We intend to reinvest our foreign subsidiary earnings indefinitely outside of the U.S. and 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 $300.0 million under our revolving line of 46 credit.
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, office closures or slowdowns related to COVID-19-and adoption rates for new products and features.
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.
GAAP, which requires the assessment of both of our historical and future performance as well as other relevant factors. Realization of our deferred tax assets is dependent on our ability to generate future taxable income which is determined based on assumptions such as 51 estimated growth rates in revenues, gross margins, future cash flows and discount rates.
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.
For the fourth quarter of 2022, 97.4% of Invisalign cases submitted by North American orthodontists were submitted digitally. • The total utilization rate in 2022 was 18.9 cases per doctor compared to 20.8 cases per doctor in 2021 and 16.1 cases per doctor in 2020.
For the fourth quarter of 2023, 98.0% of Invisalign cases submitted by North American orthodontists were submitted digitally. • The total utilization rate in 2023 was 19.1 cases per doctor compared to 19.3 * cases per doctor in 2022 and 20.9 * cases per doctor in 2021.
Certain tables may not sum or recalculate due to rounding. 1 Refer to Note 15 “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. Clear Aligner Operating margin percentage decreased in 2022 compared to 2021 primarily due to lower gross margin.
Certain tables may not sum or recalculate due to rounding. 1 Refer to Note 15 “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.
Refer to Note 4 “ Leases ” of the Notes to Consolidated Financial Statements for details on the lease payments. • We have $249.9 million available for repurchase under the stock repurchase program authorized by our Board of Directors in May 2021 (“May 2021 Repurchase Program”).
Refer to Note 4 “ Leases ” of the Notes to Consolidated Financial Statements for details on the lease payments. • We have approximately $650.0 million 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”).
Net cash used in financing activities was $458.3 million for the year ended December 31, 2021 which consisted of payments related to our accelerated stock repurchase arrangements of $375.0 million and payroll taxes paid for equity awards through share withholdings of $108.9 million which were partially offset by $25.6 million of proceeds from the issuance of common stock.
Financing Activities Net cash used in financing activities was $598.3 million for the year ended December 31, 2023 which consisted of payments to repurchase shares of our common stock of $602.4 million and payroll taxes paid for equity awards through share withholdings of $22.6 million, which were partially offset by $26.6 million of proceeds from the issuance of common stock.
Liquidity and Capital Resources Liquidity and Trends As of December 31, 2022 and 2021, we had the following cash and cash equivalents and short-term and long-term marketable securities (in thousands): December 31, 2022 2021 Cash and cash equivalents $ 942,050 $ 1,099,370 Marketable securities, short-term 57,534 71,972 Marketable securities, long-term 41,978 125,320 Total $ 1,041,562 $ 1,296,662 As of December 31, 2022 and 2021, approximately $653.7 million and $713.8 million, respectively, of cash, cash equivalents and marketable securities were held by our foreign subsidiaries.
Liquidity and Capital Resources Liquidity and Trends As of December 31, 2023 and 2022, we had the following cash and cash equivalents and short-term and long-term marketable securities (in thousands): December 31, 2023 2022 Cash and cash equivalents $ 937,438 $ 942,050 Marketable securities, short-term 35,304 57,534 Marketable securities, long-term 8,022 41,978 Total $ 980,764 $ 1,041,562 As of December 31, 2023 and 2022, approximately $784.7 million and $653.7 million, respectively, of cash, cash equivalents and marketable securities were held by our foreign subsidiaries.
Certain tables may not sum or recalculate due to rounding. Interest income generally includes interest earned on cash, cash equivalents and investment balances.
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 2023 compared to 2022 primarily due to higher interest rates during 2023.
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.
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.
Specifically, we are managing cost impacts through pricing actions, implementing cost saving measures and slowing hiring. We also continue to innovate and introduce new and enhanced products that augment our doctor customer and patient experiences.
Specifically, we are managing cost impacts through pricing actions, implementing cost saving measures and slowing hiring. We also continue to innovate and introduce new and enhanced products that augment our doctor customer and patient experiences. For instance, in the first quarter of 2023, we successfully launched the Invisalign Comprehensive 3in3 product.
In addition, the teenage and younger market makes up 75% of the approximately 21 million total annual global orthodontic case starts each year. As we continue to emphasize the benefits of the Invisalign system for teenage and younger patient treatments through education, training and sales and marketing programs, we expect utilization rates to rise.
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 2023, we had record shipments to teenage and younger patients.
Actual results could differ from those estimates. We believe the following critical accounting policies and estimates affect our more significant judgments used in the preparation of our consolidated financial statements.
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 .
The program allows doctors the flexibility to order both “touch-up” or retention 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. • Our Systems and Services segment consists of our iTero intraoral scanning systems, which includes a single hardware platform and restorative or orthodontic software options.
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.
Changing Product Preferences As the markets for clear aligners and digital processes and workflows used to transform the practice of dentistry continue to mature, we anticipate customer and patient expectations and demands will evolve.
We continue to monitor the potential for violence and military actions that may directly or indirectly impact our personnel, manufacturing, supply chain, and sales. Changing Product Preferences As the markets for clear aligners and digital processes and workflows used to transform the practice of dentistry continue to mature, we anticipate customer and patient expectations and demands will evolve.
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 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, which requires the assessment of both of our historical and future performance as well as other relevant factors.
Additionally, many of our international operations are denominated in currencies other than the U.S. dollar and in 2022 were impacted, and may continue to be impacted, by macroeconomic slowing or contraction causing weakening against the U.S. dollar, which is negatively impacting our financial condition and results of operations.
Additionally, many of our international operations are denominated in currencies other than the U.S. dollar. In 2023, the macroeconomic slowing or contraction resulted in foreign exchange volatility causing the U.S dollar to strengthen against other currencies. This negatively impacted our financial condition and results of operation compared to 2022.
For the year ended December 31, 2022, our business operations reflect the following: ◦ Revenues of $3,734.6 million, a decrease of 5.5% year-over-year; ◦ Clear Aligner revenues of $3,072.6 million, a decrease of 5.4% year-over-year; ▪ Americas Clear Aligner revenues of $1,458.8 million, a decrease of 5.6% year-over-year; ▪ International Clear Aligner revenues of $1,349.0 million, a decrease of 10.0% year-over-year; ▪ Clear Aligner volume decrease of 7.4% year-over-year and Clear Aligner volume decrease for teenage patients of 0.2% year-over-year; ◦ Imaging Systems and CAD/CAM Services revenues of $662.1 million, a decrease of 6.2% year-over-year; ◦ Income from operations of $642.6 million and operating margin of 17.2%; ◦ Effective tax rate of 39.6%; ◦ Net income of $361.6 million with diluted net income per share of $4.61; ◦ Cash, cash equivalents and marketable securities of $1,041.6 million as of December 31, 2022; ◦ Operating cash flow of $568.7 million; ◦ Capital expenditures of $291.9 million, predominantly related to increases in our manufacturing capacity and facilities; and 42 ◦ Number of employees was 23,165 as of December 31, 2022, an increase of 2.8% year-over-year.
For the year ended December 31, 2023, our business operations reflect the following: ◦ Revenues of $3,862.3 million, an increase of 3.4% year-over-year; ◦ Clear Aligner revenues of $3,199.3 million, an increase of 4.1% year-over-year; ▪ Americas Clear Aligner case revenues of $1,463.0 million, a decrease of 0.6% year-over-year; ▪ International Clear Aligner case revenues of $1,449.5 million, an increase of 7.4% year-over-year; ▪ Clear Aligner volume increase of 0.4% year-over-year and Clear Aligner volume increase for teenage patients of 7.8% year-over-year; ◦ Imaging Systems and CAD/CAM Services revenues of $662.9 million, an increase of 0.1% year-over-year; ◦ Income from operations of $643.3 million and operating margin of 16.7%; ◦ Effective tax rate of 30.6%; ◦ Net income of $445.1 million with diluted net income per share of $5.81; ◦ Cash, cash equivalents and marketable securities of $980.8 million as of December 31, 2023; ◦ Operating cash flow of $785.8 million; ◦ Capital expenditures of $177.7 million, predominantly related to purchases of property, plant and equipment; and ◦ Number of employees was 21,610 as of December 31, 2023, a decrease of 6.7% year-over-year.
We enter into sales contracts that may consist of multiple distinct performance obligations where certain performance obligations of the sales contract are not delivered in one reporting period.
Revenue Recognition Our revenues are derived primarily from the sale of aligners, scanners, and services from our Clear Aligner and Systems and Services segments. We enter into sales contracts that may consist of multiple distinct performance obligations where certain performance obligations of the sales contract are not delivered in one reporting period.
Restructuring and other charges includes $7.3 million of severance and related costs, in addition to lease termination charges and asset impairments. 46 Income from operations (in millions): Year Ended December 31, Year Ended December 31, 2022 2021 Change 2021 2020 Change Clear Aligner Income from operations $ 1,134.4 $ 1,325.9 $ (191.4) $ 1,325.9 $ 768.0 $ 557.8 Operating margin % 36.9 % 40.8 % 40.8 % 36.5 % Systems and Services Income from operations $ 179.8 $ 259.1 $ (79.4) $ 259.1 $ 96.1 $ 163.1 Operating margin % 27.2 % 36.7 % 36.7 % 25.9 % Total income from operations 1 $ 642.6 $ 976.4 $ (333.8) $ 976.4 $ 387.2 $ 589.2 Operating margin % 17.2 % 24.7 % 24.7 % 15.7 % Changes and percentages are based on actual values.
Income from operations (in millions): Year Ended December 31, Year Ended December 31, 2023 2022 Change 2022 2021 Change Clear Aligner Income from operations $ 1,182.3 $ 1,134.4 $ 47.8 $ 1,134.4 $ 1,325.9 $ (191.4) Operating margin % 37.0 % 36.9 % 36.9 % 40.8 % Systems and Services Income from operations $ 191.4 $ 179.8 $ 11.6 $ 179.8 $ 259.1 $ (79.4) Operating margin % 28.9 % 27.2 % 27.2 % 36.7 % Total income from operations 1 $ 643.3 $ 642.6 $ 0.7 $ 642.6 $ 976.4 $ (333.8) Operating margin % 16.7 % 17.2 % 17.2 % 24.7 % Changes and percentages are based on actual values.
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. In 2022, we continued to build on the success of the “Invis-is” consumer advertising campaign with creative content and influencers focused on teens and young adults.
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.
If we were to have impairments to goodwill or finite-lived acquired intangible assets, it could adversely affect our operating results. During the fiscal year 2022 and 2021, we did not have any impairment charges related to our goodwill or acquired intangible assets. Accounting for Income Taxes We are subject to income taxes in the U.S. and numerous foreign jurisdictions.
During the years ended 2023 and 2022, 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 U.S. and numerous foreign jurisdictions. The evaluation of our uncertain tax positions involves significant judgment in the interpretation and application of U.S.
Cost of net revenues and gross profit (in millions): Year Ended December 31, Year Ended December 31, 2022 2021 Change 2021 2020 Change Clear Aligner Cost of net revenues $ 844.4 $ 772.7 $ 71.7 $ 772.7 $ 569.3 $ 203.4 % of net segment revenues 27.5 % 23.8 % 23.8 % 27.1 % Gross profit $ 2,228.2 $ 2,474.4 $ (246.2) $ 2,474.4 $ 1,532.1 $ 942.2 Gross margin % 72.5 % 76.2 % 76.2 % 72.9 % Systems and Services Cost of net revenues $ 256.4 $ 244.5 $ 11.9 $ 244.5 $ 139.4 $ 105.1 % of net segment revenues 38.7 % 34.7 % 34.7 % 37.6 % Gross profit $ 405.6 $ 461.0 $ (55.4) $ 461.0 $ 231.1 $ 229.9 Gross margin % 61.3 % 65.3 % 65.3 % 62.4 % Total cost of net revenues $ 1,100.9 $ 1,017.2 $ 83.6 $ 1,017.2 $ 708.7 $ 308.5 % of net revenues 29.5 % 25.7 % 25.7 % 28.7 % Gross profit $ 2,633.8 $ 2,935.4 $ (301.6) $ 2,935.4 $ 1,763.2 $ 1,172.1 Gross margin % 70.5 % 74.3 % 74.3 % 71.3 % Changes and percentages are based on actual values.
The decrease in scanner net revenues was mostly offset by higher service revenues of $31.8 million and other revenues which increased $19.1 million primarily due to revenue from sales of certified pre-owned scanners, CAD/CAM software, and scanner rentals. 43 Cost of net revenues and gross profit (in millions): Year Ended December 31, Year Ended December 31, 2023 2022 Change 2022 2021 Change Clear Aligner Cost of net revenues $ 911.3 $ 844.4 $ 66.9 $ 844.4 $ 772.7 $ 71.7 % of net segment revenues 28.5 % 27.5 % 27.5 % 23.8 % Gross profit $ 2,288.0 $ 2,228.2 $ 59.9 $ 2,228.2 $ 2,474.4 $ (246.2) Gross margin % 71.5 % 72.5 % 72.5 % 76.2 % Systems and Services Cost of net revenues $ 244.1 $ 256.4 $ (12.3) $ 256.4 $ 244.5 $ 11.9 % of net segment revenues 36.8 % 38.7 % 38.7 % 34.7 % Gross profit $ 418.8 $ 405.6 $ 13.2 $ 405.6 $ 461.0 $ (55.4) Gross margin % 63.2 % 61.3 % 61.3 % 65.3 % Total cost of net revenues $ 1,155.4 $ 1,100.9 $ 54.5 $ 1,100.9 $ 1,017.2 $ 83.6 % of net revenues 29.9 % 29.5 % 29.5 % 25.7 % Gross profit $ 2,706.9 $ 2,633.8 $ 73.1 $ 2,633.8 $ 2,935.4 $ (301.6) Gross margin % 70.1 % 70.5 % 70.5 % 74.3 % Changes and percentages are based on actual values.
Significant changes in working capital • Increase of $241.9 million in deferred revenues due to the deferral of revenue on shipments over the period as well as timing of revenue recognition; • Increase of $130.1 million in inventories primarily due to lower shipment volumes over the period in addition to our efforts to manage stock at appropriate levels as required; and 49 • Decrease of $121.9 million in accrued and other long-term liabilities primarily due to the payment of our 2021 corporate bonus as well as timing payment of other activities.
For the year ended December 31, 2022, cash flows from operations of $568.7 million resulted primarily from our net income of approximately $361.6 million as well as the following: Significant adjustments to net income • Stock-based compensation of $133.4 million related to equity awards granted to employees and directors; • Depreciation and amortization of $125.8 million related to our investments in property, plant and equipment and intangible assets; and Significant changes in working capital • Inflow of $241.9 million, net from deferred revenues due to the deferral of revenue on shipments over the period as well as timing of revenue recognition; • Outflow of $130.1 million, net from inventories primarily due to lower shipment volumes over the period in addition to our efforts to manage stock at appropriate levels as required; and • Outflow of $121.9 million, net from accrued and other long-term liabilities primarily due to the payment of our 2021 corporate bonus as well as timing payment of other activities.
Certain tables may not sum or recalculate due to rounding. The increase in our effective tax rate for the year ended December 31, 2022 compared to the same period in 2021 is primarily attributable to decreased earnings in low tax jurisdictions and an increase in the amount of foreign earnings subject to US tax in 2022.
Certain tables may not sum or recalculate due to rounding. The decrease in our effective tax rate for the year ended December 31, 2023 compared to the same period in 2022 is primarily attributable to the application of newly issued tax guidance, including IRS Notice 2023-55 and a change in our jurisdictional mix of income.
Systems and Services The gross margin percentage decreased in 2022 as compared to 2021 primarily due to manufacturing inefficiencies from lower production volumes and lower ASP. These factors were partially offset by higher service revenues.
Clear Aligner The gross margin percentage decreased in 2023 as compared to 2022 primarily due to a increased manufacturing spend offset by higher ASP. Systems and Services The gross margin percentage increased in 2023 as compared to 2022 primarily due to lower purchase price variance and higher service revenue mix, partially offset by lower ASP.
Research and development expense increased in 2022 compared to 2021 primarily due to higher salaries expense, fringe benefits and stock-based compensation as we continue to focus our investments in innovation and research in addition to higher allocations of corporate overhead expenses, outside services costs and equipment and materials costs. These increases were partially offset by lower incentive compensation.
Research and development expense increased in 2023 compared to 2022 primarily due to higher employee costs, including higher salaries expense, fringe benefits, stock-based compensation and bonus as we continue to focus our investments in innovation and research.
These commitments primarily relate to agreements with contract manufacturers and suppliers, sales and marketing services, research and development services and technological services. • We expect our investments in capital expenditures to exceed $200.0 million for the next 12 months. Capital expenditures primarily relate to building construction and improvements as well as additional manufacturing capacity due to international expansion.
We anticipate a majority, an estimated $861.5 million, will be payable within the next 12 months. These purchase commitments exclude capital expenditures. • We expect our investments in capital expenditures to be approximately $100.0 million for the next 12 months. Capital expenditures primarily relate to building construction and improvements as well as additional manufacturing capacity due to international expansion.
Lower ASP was largely due to unfavorable foreign exchange rates which resulted in lower net revenues of $150.6 million, a product mix shift to lower priced products which decreased net revenues by $60.5 million, and unfavorable promotional discounts which decreased net revenues $39.4 million.
The increases in ASP were partially offset by a product mix shift to lower priced products reducing net revenues by $68.2 million, higher promotional discounts which reduced net revenues by $52.5 million, and unfavorable foreign exchange rates which decreased net revenues by $27.2 million.
Net revenues for our Clear Aligner and Systems and Services segments by region for the year ended December 31, 2022, 2021 and 2020 are as follows (in millions): Year Ended December 31, Year Ended December 31, Net Revenues 2022 2021 Change 2021 2020 Change Clear Aligner revenues: Americas $ 1,458.8 $ 1,544.8 $ (85.9) (5.6) % $ 1,544.8 $ 1,010.2 $ 534.5 52.9 % International 1,349.0 1,498.7 (149.7) (10.0) % 1,498.7 965.4 533.2 55.2 % Non-case 264.8 203.7 61.1 30.0 % 203.7 125.8 77.8 61.9 % Total Clear Aligner net revenues $ 3,072.6 $ 3,247.1 $ (174.5) (5.4) % $ 3,247.1 $ 2,101.5 $ 1,145.6 54.5 % Systems and Services net revenues 662.1 705.5 (43.5) (6.2) % 705.5 370.5 335.0 90.4 % Total net revenues $ 3,734.6 $ 3,952.6 $ (217.9) (5.5) % $ 3,952.6 $ 2,471.9 $ 1,480.6 59.9 % Changes and percentages are based on actual values.
Net revenues for our Clear Aligner and Systems and Services segments by region for the year ended December 31, 2023, 2022 and 2021 are as follows (in millions): Year Ended December 31, Year Ended December 31, Net Revenues 2023 2022 Change 2022 2021 Change Clear Aligner revenues: Americas $ 1,463.0 $ 1,471.9 $ (9.0) (0.6) % $ 1,471.9 $ 1,548.8 $ (76.9) (5.0) % International 1,449.5 1,349.0 100.5 7.4 % 1,349.0 1,498.7 (149.7) (10.0) % Non-case 286.9 251.7 35.2 14.0 % 251.7 199.6 52.1 26.1 % Total Clear Aligner net revenues $ 3,199.3 $ 3,072.6 $ 126.7 4.1 % $ 3,072.6 $ 3,247.1 $ (174.5) (5.4) % Systems and Services net revenues 662.9 662.1 0.9 0.1 % 662.1 705.5 (43.5) (6.2) % Total net revenues $ 3,862.3 $ 3,734.6 $ 127.6 3.4 % $ 3,734.6 $ 3,952.6 $ (217.9) (5.5) % During 2023, we began including Touch Up case revenues in Americas and/or International net revenues.
Total net revenues decreased by $217.9 million in 2022 as compared to 2021, primarily due to unfavorable foreign exchange rates, a decrease in both Clear Aligner case volumes and scanner volumes, partially offset by increases in Clear Aligner non-case revenues, service revenues and an increase in Clear Aligner average selling price (“ASP”). 44 Clear Aligner - Americas Americas net revenues decreased by $85.9 million in 2022 as compared to 2021, primarily due to a decrease in case volumes of 9.4% which reduced net revenues by $145.3 million, partially offset by an increase in ASP which increased net revenues by $59.4 million.
Total net revenues increased by $127.6 million in 2023 as compared to 2022, primarily due to an increase in Clear Aligner average selling price (“ASP”), an increase in Clear Aligner non-case revenue and higher Systems and Services services mix, partially offset by a decrease in both scanner volumes and ASP’s.
We also diversified our research and development activities throughout Europe in 2022, which has created a longer term, more stable environment for consistent hiring, retention and innovation in a variety of high technology sectors. • 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 40 unique needs of each customer channel.
We have also diversified our research and development activities throughout Europe, which has created a longer term, more stable environment for consistent hiring, retention and innovation in a variety of high technology sectors.
Clear Aligner - Non-Case Non-case net revenues increased by $61.1 million in 2022 compared to 2021 mainly due to increased volume for retention products across most regions primarily driven by Vivera retainers.
Clear Aligner - Non-Case Non-case net revenues increased by $35.2 million in 2023 compared to 2022 mainly due to increased volume of Vivera retainers across all regions which includes retention aligners ordered through our Doctor Subscription Program.
Research and development (in millions): Year Ended December 31, Year Ended December 31, 2022 2021 Change 2021 2020 Change Research and development $ 305.3 $ 250.3 $ 54.9 $ 250.3 $ 175.3 $ 75.0 % of net revenues 8.2 % 6.3 % 6.3 % 7.1 % Changes and percentages are based on actual values.
Selling, general and administrative expense increased in 2023 compared to 2022 primarily due to higher employee costs, including higher salaries expense, fringe benefits, stock-based compensation and bonus, offset by lower advertising and marketing and outside service provider costs. 44 Research and development (in millions): Year Ended December 31, Year Ended December 31, 2023 2022 Change 2022 2021 Change Research and development $ 346.8 $ 305.3 $ 41.6 $ 305.3 $ 250.3 $ 54.9 % of net revenues 9.0 % 8.2 % 8.2 % 6.3 % Changes and percentages are based on actual values.
Net cash used in investing activities was $563.4 million for the year ended December 31, 2021 and primarily consisted of purchases of property, plant and equipment of $401.1 million and purchases of marketable securities of $200.9 million, which were partially offset by $43.4 million of proceeds from our SDC arbitration award.
Investing Activities Net cash used in investing activities was $195.9 million for the year ended December 31, 2023 which primarily consisted of purchases of property, plant and equipment of $177.7 million which included a building acquisition for $24.5 million, an investment in the equity of a privately held company of $77.0 million and purchases of marketable securities of $2.9 million, partially offset by sales and maturities of marketable securities of $61.4 million.
Clear Aligner - International International net revenues decreased by $149.7 million in 2022 as compared to 2021 due to a 5.0% decrease in case volumes, which decreased net revenues by $75.1 million, and lower ASP, which decreased net revenues by $74.6 million.
Clear Aligner - International International net revenues increased by $100.5 million in 2023 as compared to 2022 due to a 3.5% increase in case volumes, resulting in an increase of net revenues by $46.9 million, and higher ASP increasing net revenues by $53.6 million.
Goodwill and Finite-Lived Acquired Intangible Assets Goodwill and acquired intangible assets with finite lives are subject to impairment testing and are reviewed for impairment when events or circumstances indicate that the carrying value of an asset is not recoverable and the carrying amount exceeds its fair value.
Both the determination of fair value and carrying value of a reporting unit require management to exercise significant judgement related to operating assumptions and estimates and allocation methodologies. 49 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.
Other income (expense), net decreased in 2022 compared to 2021 primarily due to a $43.4 million gain associated to the arbitration award related to our investment in SmileDirectClub recognized in the first quarter of 2021 as well as $30.5 million of higher net foreign exchange losses from the weakening of international currencies against the U.S. dollar in 2022 as compared to 2021. 47 Provision for (benefit from) income taxes (in millions): Year Ended December 31, Year Ended December 31, 2022 2021 Change 2021 2020 Change Provision for (benefit from) income taxes $ 237.5 $ 240.4 $ (2.9) $ 240.4 $ (1,396.9) $ 1,637.3 Effective tax rates 39.6 % 23.7 % 23.7 % (368.6) % Changes and percentages are based on actual values.
Provision for (benefit from) income taxes (in millions): Year Ended December 31, Year Ended December 31, 2023 2022 Change 2022 2021 Change Provision for (benefit from) income taxes $ 196.2 $ 237.5 $ (41.3) $ 237.5 $ 240.4 $ (2.9) Effective tax rates 30.6 % 39.6 % 39.6 % 23.7 % Changes and percentages are based on actual values.
Many of these same factors are also impacting our costs through higher raw material prices, transportation costs, labor costs, supply and distribution operations and the operations of our suppliers.
Many of these same factors also impact our costs and those of our suppliers through higher raw material prices, transportation costs, labor costs, supply and distribution operations. In 2023, we believe that sales of our products were primarily harmed by macroeconomic conditions that ultimately adversely impacted disposable income and consumer demand.
Systems and Services Operating margin percentage decreased in 2022 compared to 2021 primarily due to higher operating expenses as a percentage of net revenues as well as lower gross margin.
Clear Aligner Operating margin percentage remained relatively flat in 2023 compared to 2022 primarily due to a decrease in gross margin which was offset by operating leverage. Systems and Services Operating margin percentage increased in 2023 compared to 2022 primarily due to higher gross margin.
Higher ASP was mainly due to processing fees charged on most shipments and price increases in certain markets which increased net revenues by $54.2 million along with lower net deferrals which increased net revenues by $34.5 million. The increases in ASP were partially offset by unfavorable promotional discounts and sales credits which reduced net revenues by $25.1 million.
The increases in ASP were partially offset by higher promotional discounts which decreased net revenues by $44.3 million, a product mix shift to lower priced products which reduced net revenues by $37.6 million and higher sales credits which lowered net revenues $11.5 million.
Certain tables may not sum or recalculate due to rounding.
Certain tables may not sum or recalculate due to rounding. Restructuring and other charges incurred during 2023 was primarily related to post employment benefits, including employee severance.
Clear Aligner Case Volume Case volume data which represents Clear Aligner case shipments for the year ended December 31, 2022, 2021 and 2020 is as follows (in thousands): Year Ended December 31, Year Ended December 31, 2022 2021 Change 2021 2020 Change Total case volume 2,358.7 2,547.7 (189.0) (7.4) % 2,547.7 1,645.3 902.4 54.8 % Changes and percentages are based on actual values.
Certain tables may not sum or recalculate due to rounding. 42 Clear Aligner Case Volume Case volume data which represents Clear Aligner case shipments for the year ended December 31, 2023, 2022 and 2021 is as follows (in thousands): Year Ended December 31, Year Ended December 31, 2023 2022 Change 2022 2021 Change Total case volume 2,408.5 2,398.4 10.2 0.4 % 2,398.4 2,559.6 (161.3) (6.3) % During 2023, we began including Touch Up case revenues in Americas and/or International net revenues.
Removed
While we expect moderation of the strength of the dollar, we also expect the dollar to remain historically strong against many of these currencies. The nature and extent of the impact of these factors varies by time and region and remains uncertain and unpredictable.
Added
We are in over 100 markets and have 13 fabrication and treatment locations throughout the world. 38 • 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.
Removed
The military conflict between Russia and Ukraine increased the unpredictability of the already uncertain macroeconomic conditions during 2022 and may continue to impact this unpredictability.
Added
We continue to expand our clear aligner customer base by educating new doctors on the benefits of digital dentistry through the Invisalign system.
Removed
While we continue to employ research and development personnel in Russia as well as certain sales, marketing and administrative personnel, the total number of employees in Russia was significantly reduced in 2022, complementing programs previously underway aimed at maintaining and growing our research and development operations and diversifying the facilities at which our personnel are located. 41 Although immaterial to our consolidated financial statements, our commercial business operations in Russia were significantly impacted by the conflict in 2022.
Added
To increase awareness and educate young adults, parents and teens about the benefits of the Invisalign brand, in 2023 we continued to invest in and create campaigns across markets in media platforms such as TikTok, Instagram, YouTube, SnapChat, WeChat, and Douyin.
Removed
Although we remain committed to providing continuity of care consistent with our values and ethical responsibility to patients who are in Invisalign treatment in Russia, we deemed it prudent to align the size of our commercial operations with the ongoing resources needed to perform those functions.
Added
In particular, dental practices and industry research firms reported deteriorating orthodontic trends for the third and fourth quarters of 2023, including decreased patient visits and increased patient appointment cancellations, along with fewer case starts overall, especially among adult patients. The impact of declining demand varied by time and region, making operational results uncertain and difficult to predict.
Removed
Accordingly, in the fourth quarter of 2022, we initiated a restructuring plan to increase efficiencies across the organization and lower our overall cost structure, which reduced the number of employees and our commercial business operations in Russia. Refer to Note 16 “Restructuring and Other Charges ” of the Notes to Consolidated Financial Statements for further details.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

9 edited+1 added−2 removed5 unchanged
Biggest changeAs of December 31, 2022, we had approximately $99.5 million invested in available-for-sale marketable securities. An immediate 10% change in interest rates would not have a material adverse impact on our future operating results and cash flows.
Biggest changeAn immediate 10% change in interest rates would not have a material adverse impact on our future operating results and cash flows. 50 We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.
Interest Rate Risk Changes in interest rates could impact our anticipated interest income on our cash equivalents and investments in marketable securities. Our investments are fixed-rate short-term and long-term securities.
Interest Rate Risk Changes in interest rates could impact our anticipated interest income on our cash and cash equivalents and investments in marketable securities. Our investments are fixed-rate short-term and long-term securities.
Fixed-rate securities may have their fair market value adversely impacted due to a rise in interest rates, and, as a result, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates.
Fixed-rate securities may have their fair market value adversely impacted due to a rise in interest rates, and, as a result, our future investment income may fall short of expectations or we may suffer losses in principal if forced to sell securities which have declined in market value due.
If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. There can be no assurance that our results of operations and financial condition will not be materially impacted by inflation in the future. 53
If our costs become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. There can be no assurance that our results of operations and financial condition will not be materially impacted by inflation in the future. 51
We enter into foreign currency forward contracts for currencies where we have exposures, primarily the Euro, Chinese Yuan, Polish Zloty and Canadian Dollar, to minimize the short-term impact of foreign currency exchange rate fluctuations on cash and certain trade and intercompany receivables and payables.
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 cash and certain trade and intercompany receivables and payables.
It is difficult to predict the impact forward contracts could have on our results of operations. 52 Although we will continue to monitor our exposure to currency fluctuations, and, where appropriate, may use forward contracts to minimize the effect of these fluctuations, the impact of an aggregate change of 10% in foreign currency exchange rates relative to the U.S. dollar on our results of operations and financial position could be material.
Although we will continue to monitor our exposure to currency fluctuations, and, where appropriate, may use forward contracts to minimize the effect of these fluctuations, the impact of an aggregate change of 10% in foreign currency exchange rates relative to the U.S. dollar on our results of operations and financial position could be material.
In addition, we are subject to the broad market risk that is created by the global market disruptions and uncertainties resulting from macroeconomic challenges, the military conflict between Russia and Ukraine and the COVID-19 pandemic. Further discussion on these risks may be found in Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors” .
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 Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors” .
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.
We do not enter into foreign currency forward contracts for trading or speculative purposes. As our international operations grow, we will continue to reassess our approach to managing the risks relating to fluctuations in currency rates. It is difficult to predict the impact forward contracts could have on our results of operations.
We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. As of December 31, 2022, we are not subject to risks from immediate interest rate increases on our unsecured revolving line of credit facility.
As of December 31, 2023, we are not subject to risks from immediate interest rate increases on our unsecured revolving line of credit facility.
Removed
Military Conflict between Russia and Ukraine Beginning 2022, the military conflict between Russia and Ukraine has continued to escalate and create challenges to already uncertain macroeconomic conditions. As of December 31, 2022, we do not expect these events to have any material impact on our operations.
Added
As of December 31, 2023, we had approximately $43.3 million invested in available-for-sale marketable securities.
Removed
Our Russia net revenues as a percentage of our consolidated net revenues and our assets domiciled in Russia, including cash and cash equivalents, as a percentage of our total assets, are immaterial.

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