ALIGN TECHNOLOGY INC (ALGN)

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

A discussion regarding our financial condition and results of operations for fiscal 2024 compared to fiscal 2023 is presented under Results of Operations of this Form 10-K. Discussions regarding our financial condition and results of operations for fiscal 2023 compared to 2022 have been omitted from this Annual Report on Form 10-K, but can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 28, 2024, which is available without charge on the SEC’s website at www.sec.gov and on our investor relations website at investor.aligntech.com.

Executive Overview of Results

Trends and Uncertainties

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

We strive to deliver on each of our strategic growth drivers through a variety of interrelated enterprise-wide efforts including:

•Continuing penetration and adoption of Invisalign clear aligners, intraoral scanners and CAD/CAM solutions in international markets by investing in manufacturing operations, research and development, clinical treatment planning, sales and marketing and building our quality and regulatory capabilities in existing and emerging markets globally. For instance, we have fabrication facilities in three key regions as a part of our strategy to bring operational facilities closer to customers to serve them more quickly and respond to their needs more effectively as well as new treatment planning operations in targeted regional geographies. We have also diversified our research and development activities, which has created a longer term, more stable environment for consistent hiring, retention and innovation in a variety of high technology locations.

•Targeting growth opportunities with international orthodontists and GP customers, particularly with adopters of digital dentistry platforms by tailoring our sales and marketing strategies, manufacturing operations and resources around the unique needs of each customer channel. As we continue growing, we intend to opportunistically expand our research, development, manufacturing, treatment planning, and sales and marketing operations to meet local and regional demand thoughtfully and deliberately. Over the longer-term, we expect international revenues to grow faster than Americas' revenues as a result of growing international demand, our continued investment in international market expansion, the size of the market opportunities and our relatively low market penetration in these regions.

•Building confidence within the GP and orthodontic communities through training and education efforts to increase their adoption and utilization of digital dental practice transformation and clear aligner treatment. We continue to expand our clear aligner customer base by educating new doctors on the benefits of digital dentistry through the Invisalign System. We furthermore demonstrate to GPs and orthodontists how the iTero portfolio of intraoral scanners, products like Invisalign Go™ treatment, and CAD/CAM restorative services and workflows can increase revenues and profitability for their dental practices by enhancing patient experiences and creating operational practice efficiencies. DSOs represent a large and growing opportunity to help drive adoption of digital technology across the dental industry. We have well established relationships with many DSOs globally that recognize the benefits of digital workflows enabled by our portfolio of products and services that make up the AlignTM Digital Platform, including increased practice efficiency and profitability, as well as delivering a better patient experience from shorter cycle times and customer proximity. We have and may continue to financially invest in or explore collaborations with key ecosystem partners, including DSOs, whose missions and visions align with our own vision, strategy, business model and goals.

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•Investing in research and development that allows us to innovate, develop and bring to market products and solutions that deliver the ever-increasing clinical precision and predictability that doctors expect with the speed and convenience their patients require.

•Creating demand and enabling patient conversion with targeted investments in advertising and public relations through social media, influencers and other forms of digital communications to encourage treatment by Invisalign trained doctors. We believe that well-designed, targeted sales and marketing promotions that build on our strong brand awareness allow us to differentiate our products and solutions from traditional and emerging competitors. To increase awareness and educate young adults, parents and teens about the benefits of Invisalign treatment, in 2024, we continued to invest in and create campaigns across markets in media platforms such as TikTok, Instagram, YouTube, SnapChat, WeChat, and Douyin. We expect to make further investments to create additional demand for Invisalign System treatment driving more consumers to dental professionals for those treatments.

•Pursuing new product lines that complement our doctor-prescribed principal products currently available in certain e-commerce and retail channels in the United States. Similarly, in 2024, we continued our focus on our doctor subscription plan and grew our underpenetrated share of the retainer business through strategic marketing campaigns focused on driving adoption and increasing market share.

•Increasing global orthodontic utilization rates as doctors’ clinical confidence in the efficacy and predictability of the Invisalign System increases with advancements in products and technology and as patients and doctors demand treatments that emphasize convenience and safety through fewer visits and less invasive and quicker treatments. In addition, the teenage and younger market makes up about 70% of the approximately 22 million total annual global orthodontic case starts. We continue to emphasize the benefits of the Invisalign System for teenage and younger patient treatments through education, training and sales and marketing programs. In 2024, we had record shipments to teenage and younger patients. We expect utilization rates to continue to rise. However, our utilization rates will fluctuate from period to period due to a variety of factors, which may include seasonal trends in our business, consumer demand due to macroeconomic factors, and adoption rates for new products and features.

Below is a discussion of the significant trends and uncertainties that could impact our operations:

Macroeconomic Challenges and Military Conflicts in Ukraine and the Middle East

Our revenues are susceptible to fluctuations resulting from events and circumstances, including macroeconomic conditions, fluctuations in foreign currency exchange rates, inflation, higher interest rates, actual and threatened wars and military actions, threats or actual imposition of tariffs, customs duties and fees by nations and retaliatory actions, threats of or actual slowdowns or recessions, supply chain challenges, market volatility, employment levels, wages, debt obligations, discretionary income and other factors, each of which impacts customer confidence, consumer sentiment and demand. Many of these same factors also impact our costs and those of our suppliers through higher raw material prices, transportation costs, labor costs, supply and distribution operations. During 2024, we believe sales of our products were adversely impacted by macroeconomic conditions that negatively affected disposable income and consumer demand. We believe this trend will continue in 2025. We also expect the military conflict between Russia and Ukraine to continue to create market uncertainties and dampen consumer sentiment and demand, particularly in Europe.

Additionally, government actions in various countries relating to implemented or proposed tariffs, particularly the United States, China, Mexico, and Europe are expected to adversely impact our revenue and cost of goods sold if implemented. The degree of our exposure is dependent on, among other things, the type of goods subject to any tariffs enacted, the tariff rates imposed, the timing of the tariffs and any retaliatory measures enacted. The impact of declining demand may vary by time and region, making operational results uncertain and difficult to predict. We continue to closely monitor the foregoing issues, assess their potential impact on our operations and financial results, and implement plans to mitigate the impact of any adverse events.

Additionally, a material amount of our revenues are derived internationally and many of our international operations are denominated in currencies other than the U.S. dollar. In 2024, the U.S. dollar remained strong against major currencies, which negatively impacted our financial condition and results of operations for the year. Foreign exchange volatility and the subsequent strengthening or weakening of the U.S dollar against other currencies remains uncertain and unpredictable.

We continue to monitor the potential for violence and military actions that may directly or indirectly impact our personnel, manufacturing, supply chain, and sales. For instance, ongoing conflicts in the Middle East may further exacerbate general and regional macroeconomic instability, particularly if fighting intensifies, spreads to other locations, creates shipping and logistical challenges or cost increases, leads to sanctions or boycotts, or otherwise may materially impact our operations. For instance, our iTero business is headquartered in Israel and, although the sales, delivery times and cost of shipping our

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products have not been materially impacted and we have put measures in place to help reduce the future risks, it remains uncertain if there will be impacts on our sales, delivery times or cost of shipping our products. While there have been export and import restrictions imposed against products originating from and businesses operating in Israel, they have not materially impacted our sales or operations to date although we continue to monitor the risk.

Changing Product Preferences

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

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

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

Further discussion of the impact of these challenges on our business may be found in Part I, Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors.”

Key Financial and Operating Metrics

We measure our performance against these strategic priorities by the achievement of key financial and operating metrics. For the year ended December 31, 2024, our business operations reflect the following:

◦Revenues of $3,999.0 million, an increase of 3.5% year-over-year;

◦Clear Aligner revenues of $3,230.1 million, an increase of 1.0% year-over-year;

▪Americas Clear Aligner case revenues of $1,426.3 million, a decrease of 2.5% year-over-year;

▪International Clear Aligner case revenues of $1,500.5 million, an increase of 3.5% year-over-year;

▪Clear Aligner volume increase of 3.5% year-over-year and Clear Aligner volume increase for kids and teens of 7.7% year-over-year;

◦Imaging Systems and computer-aided design and computer-aided manufacturing (“CAD/CAM”) Services revenues of $768.9 million, an increase of 16.0% year-over-year;

◦Income from operations of $607.6 million and operating margin of 15.2%;

◦Effective tax rate of 30.8%;

◦Net income of $421.4 million with diluted net income per share of $5.62;

◦Cash and cash equivalents of $1,043.9 million as of December 31, 2024;

◦Cash provided by operating activities of $738.2 million;

◦Capital expenditures of $115.6 million, primarily related to investments in our manufacturing capacity and facilities; and

◦Number of employees of 20,945 as of December 31, 2024, a decrease of 3.1% year-over-year.

Other Statistical Data and Trends

•As of December 31, 2024, over 19 million people worldwide have been treated with our Invisalign System. Management measures these results by comparing to the millions of people who can benefit from straighter teeth and uses this data to target opportunities to expand the market for orthodontics by educating consumers about the benefits of straighter teeth using the Invisalign System.

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•The total number of Invisalign trained doctors cases were shipped to (doctor submitters) in 2024 was 130.4 thousand compared to 125.8 thousand in 2023, a 3.6% increase. GP and orthodontist doctor submitters increased by approximately 3% and 4%, respectively, in 2024 compared to 2023.

•Our total utilization rate in 2024 of 19.1 cases per doctor was flat compared to 2023 and slightly down from 19.3 cases per doctor in 2022. Our utilization rates have been impacted by the macroeconomic conditions and other factors as described in the “Trends and Uncertainties” section above. In general, we expect utilization rates to rise over time although they are likely to fluctuate from period to period.

•North America: The utilization rate among our North American orthodontist customers was 95.0 cases per doctor in 2024 compared to 94.5 cases per doctor in 2023 and 94.9 cases per doctor in 2022 and the utilization rate among our North American GP customers was 14.3 cases per doctor in 2024 compared to 14.0 cases per doctor in 2023 and 13.9 cases per doctor in 2022.

•International: International doctor utilization rate was 16.2 cases per doctor in 2024 compared to 16.3 cases per doctor in 2023 and 16.2 cases per doctor in 2022.

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

Results of Operations

Net Revenues by Reportable Segment

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

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

•Comprehensive Products include, but are not limited to, Invisalign Comprehensive, Invisalign First and Invisalign Comprehensive 3in3.

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

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

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

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

Net revenues for our Clear Aligner and Systems and Services segments by region for the year ended December 31, 2024, 2023 and 2022 are as follows (in millions):

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

Clear Aligner Case Volume

Case volume data which represents Clear Aligner case shipments for the year ended December 31, 2024, 2023 and 2022 is as follows (in thousands):

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

Total net revenues increased by $137 million in 2024 as compared to 2023, primarily due to an increase in Systems and Services net revenues from higher scanner ASP, increase in non-system sales and services revenue. Clear Aligner net revenues increased primarily from an increase in volume, partially offset by lower Clear Aligner ASP.

Clear Aligner - Americas

Americas net revenues decreased by $37 million in 2024 as compared to 2023, primarily due to a 3.0% decrease in ASP, resulting in a decrease of net revenues of $44 million. The decrease in ASP was primarily driven by a mix shift to lower priced products and countries which reduced net revenues by $88 million and higher promotional discounts which decreased net

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revenues by $66 million and unfavorable foreign exchange rates that decreased net revenues by $9 million. These decreases were partially offset by lower net deferrals which increased net revenues by $94 million and price changes which increased net revenues by $19 million. The decrease in ASP was partially offset by an increase in volume which increased net revenues by $7 million.

Clear Aligner - International

International net revenues increased by $51 million in 2024 as compared to 2023 due to a 7.0% increase in volume, resulting in increased net revenues of $101 million. This increase was partially offset by a decrease of 3.3% in ASP which decreased net revenues by $50 million. Lower ASP was due to unfavorable foreign exchange rates that decreased net revenues by $21 million and a price reduction for sales in the United Kingdom (“UK”) to offset VAT we began charging in 2024, which decreased net revenues by $32 million, a mix shift to lower priced products and countries which reduced net revenues by $60 million and higher promotional discounts which reduced net revenues by $114 million. The decreases in ASP were partially offset by lower net deferrals and price changes which increased net revenues by $99 million and $72 million, respectively.

Clear Aligner - Non-Case

Non-case net revenues increased by $16 million in 2024 compared to 2023 mainly due to increased volume of Vivera retainers which includes retention aligners ordered through our Doctor Subscription Program.

Systems and Services

Systems and Services net revenues increased by $106 million in 2024 as compared to 2023 primarily due to higher scanner ASP which increased net revenues by $45 million, an increase in sales of upgrade scanner systems which increased net revenues by $38 million, higher services revenue which increased net revenues by $19 million and higher volume which increased net revenues by $4 million. Additionally, CAD/CAM software revenues increased net revenues by $7 million. These increases were partially offset by unfavorable foreign exchange rates which decreased net revenues by $7 million.

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

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

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

Clear Aligner

The gross margin percentage decreased in 2024 as compared to 2023 primarily due to lower ASPs and higher restructuring expense.

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Systems and Services

The gross margin percentage increased in 2024 as compared to 2023 primarily due to higher ASPs and lower cost of net revenues leverage, partially offset by lower service revenue mix.

Selling, general and administrative (in millions):

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

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

Selling, general and administrative expense increased in 2024 compared to 2023 primarily due to higher employee costs, including salaries, fringe benefits, stock-based compensation and bonus partially offset by lower outside services expense.

Research and development (in millions):

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

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

Research and development expense increased in 2024 compared to 2023 primarily due to higher employee costs, including salaries, fringe benefits, stock-based compensation, net of capitalized labor costs related to internal use software, and bonus, partially offset by lower outside services expense.

Restructuring and other charges (in millions):

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

Restructuring and other charges increased in 2024 compared to 2023 due to higher severance and other one-time post-employment benefits, driven by a more significant restructuring plan initiated in 2024. Refer to Note 17 “Restructuring and Other Charges” of the Notes to Consolidated Financial Statements for more information.

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Legal settlement loss (in millions):

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

Legal settlement loss incurred during 2024 was due to litigation and other settlements. Refer to Note 8 “Legal Proceedings” of the Notes to Consolidated Financial Statements for more information.

Income from operations (in millions):

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

1    Refer to Note 16 “Segments and Geographical Information” of the Notes to Consolidated Financial Statements for details on unallocated corporate expenses and the reconciliation to consolidated Income from operations.

Total operating margin percentage decreased in 2024 compared to 2023 primarily due to increased legal settlement losses, restructuring and other charges and employee costs. Refer to Note 8 “Legal Proceedings” of the Notes to Consolidated Financial Statements.

Clear Aligner

Operating margin percentage decreased in 2024 compared to 2023 primarily due to a decrease in gross margin and an increase in employee costs.

Systems and Services

Operating margin percentage increased in 2024 compared to 2023 primarily due to higher gross margin, partially offset by an increase in employee costs.

Interest income (in millions):

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

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

Interest income increased in 2024 compared to 2023 primarily due to primarily due to higher cash and cash equivalents.

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

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

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

Other income (expense), net increased in 2024 compared to 2023 primarily due to gains recorded on our equity investments, offset by the unfavorable impact of foreign exchange rates.

Provision for income taxes (in millions):

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

The increase in our effective tax rate for the year ended December 31, 2024 compared to the same period in 2023 is primarily attributable to an increase in U.S. taxes on foreign earnings, partially offset by a change in our jurisdictional mix of income and release of unrecognized tax benefits due to a lapse of the statute of limitation.

Liquidity and Capital Resources

Liquidity and Trends

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

As of December 31, 2024 and 2023, approximately $855 million and $785 million, respectively, of cash, cash equivalents and marketable securities were held by our foreign subsidiaries. We continue to evaluate opportunities to repatriate our foreign earnings if or when needed. We do not expect to incur significant additional costs upon repatriation of these foreign earnings. We generate sufficient domestic operating cash flow and have access to $300 million under our revolving line of credit. We believe that our current cash balances and the borrowing capacity under our credit facility, if necessary, will be sufficient to fund our business for at least the next 12 months.

Our material cash requirements as of December 31, 2024 are as follows:

•Our purchase commitments consist primarily of open purchase orders for goods and services, including manufacturing inventory, supplies and services, sales and marketing, research and development services and technological services, issued in the normal course of business. Our purchase commitments totaled $1,193 million. We anticipate a majority, an estimated $1,003 million, will be payable within the next 12 months. These purchase commitments exclude capital expenditures.

•We expect our investments in capital expenditures to be between $100 million and $150 million for the next 12 months. Capital expenditures primarily relate to building construction and improvements as well as additional manufacturing capacity. Despite the challenging market conditions, we intend to expand our investments in research

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and development, manufacturing, treatment planning, sales and marketing operations to meet actual and anticipated demand.

•We have future operating lease payments of $133 million, which includes $2.6 million for leases that have not yet commenced as of December 31, 2024. Refer to Note 4 “Leases” of the Notes to Consolidated Financial Statements for details on the lease payments.

•We have approximately $297 million, inclusive of approximately $72 million repurchased in January 2025, available for repurchases of our common stock under the stock repurchase program authorized by our Board of Directors in January 2023 (“January 2023 Repurchase Program”). Our stock repurchase program is subject to periodic evaluations to determine when and if repurchases are in the best interests of our stockholders, taking into account prevailing market conditions. Refer to Note 11 “Common Stock Repurchase Programs” of the Notes to Consolidated Financial Statements for details on our stock repurchase activity.

•In 2024, we agreed, in principle, to settle certain legal matters. As of December 31, 2024, a total of $27.5 million remained unpaid. Settlement payments will be made in accordance with the terms and conditions as set forth in the settlement agreement. Refer to Note 8 “Legal Proceedings” of the Notes to Consolidated Financial Statements for more information.

•As of December 31, 2024, we had no material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material impact on our liquidity or capital resources.

Sources and Uses of Cash

The following table summarizes our Consolidated Statements of Cash Flows for the year ended December 31, 2024, 2023 and 2022 (in thousands):

Operating Activities

For the year ended December 31, 2024, cash flows from operations of $738 million resulted primarily from our net income of approximately $421 million as well as the following:

Significant adjustments to net income

•Stock-based compensation of $174 million related to equity awards granted to employees and directors; and

•Depreciation and amortization of $145 million related to our investments in property, plant and equipment and intangible assets.

Significant changes in working capital

•Net inflow of $90 million from accrued and other long-term liabilities primarily due to timing of payments;

•Net inflow of $68 million from prepaid expenses and other assets primarily due to settlement of tax matter. Refer to Note 8 “Legal Proceedings” of the Notes to Consolidated Financial Statements.

•Net outflow of $80 million from deferred revenues; and

•Net outflow of $153 million from accounts receivable due to timing of collections and increased revenues.

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For the year ended December 31, 2023, cash flows from operations of $786 million resulted primarily from our net income of approximately $445 million as well as the following:

Significant adjustments to net income

•Stock-based compensation of $154 million related to equity awards granted to employees and directors; and

•Depreciation and amortization of $142 million related to our investments in property, plant and equipment and intangible assets.

Significant changes in working capital

•Net inflow of $46 million from accrued and other long-term liabilities primarily due to higher incentive accruals for 2023, as well as timing of payments of other activities;

•Net inflow of $87 million from deferred revenues due to the deferral of revenue on shipments;

•Net inflow of $30 million from inventories primarily due to lower purchases of materials used in manufacturing; and

•Net outflow of $105 million, net from accounts receivable due to timing of collections and increased revenues.

Investing Activities

Net cash used in investing activities was $255 million for the year ended December 31, 2024 which primarily consisted of $116 million for purchases of property, plant and equipment, $77 million for the Cubicure acquisition and $106 million for investments in privately held companies, partially offset by sales and maturities of marketable securities of $44 million.

Net cash used in investing activities was $196 million for the year ended December 31, 2023 which primarily consisted of purchases of property, plant and equipment of $178 million which included a building acquisition for $25 million, an investment in equity of a privately held company of $77 million and purchases of marketable securities of $3 million, partially offset by sales and maturities of marketable securities of $61 million.

Financing Activities

Net cash used in financing activities was $356 million for the year ended December 31, 2024 which consisted of payments to repurchase shares of our common stock of $353 million and payroll taxes paid for equity awards through share withholdings of $28 million, which were partially offset by proceeds from the issuance of common stock for $25 million.

Net cash used in financing activities was $598 million for the year ended December 31, 2023 which consisted of payments to repurchase shares of our common stock of $602 million and payroll taxes paid for equity awards through share withholdings of $23 million, which were partially offset by proceeds from the issuance of common stock for $27 million of proceeds from the issuance of common stock.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and disclosures at the date of the financial statements. We evaluate our estimates on an on-going basis and use authoritative pronouncements, historical experience and other assumptions as the basis for making the estimates. Actual results could differ from those estimates.

We believe the following critical accounting estimates affect our more significant judgments used in the preparation of our consolidated financial statements. For further information on all of our significant accounting policies, see Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements.

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Revenue Recognition

Our revenues are derived primarily from the sale of aligners, scanners, and services from our Clear Aligner and Systems and Services segments. We enter into sales contracts that may consist of multiple distinct performance obligations. Sales contracts with multiple performance obligations require management to exercise judgment in allocating the transaction price, based on standalone selling prices, to each performance obligation and determining the timing of revenue recognition which directly impacts our unfulfilled performance obligations at period end.

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

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

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

Unfulfilled Performance Obligations for Clear Aligners and Scanners

Our unfulfilled performance obligations, including deferred revenues and backlog, and the estimated revenues expected to be recognized in the future related to these performance obligations are $1,444.9 million and $1,578.3 million as of December 31, 2024 and 2023, respectively. This includes performance obligations from the Clear Aligner reportable segment, primarily the shipment of additional aligners, which are fulfilled over six months to five years. This also includes performance obligations from our Systems and Services reportable segment, primarily services and support, which are fulfilled over one to five years, and contracted deliveries of additional scanners. The estimate includes both product and service unfulfilled performance obligations and the time range reflects our best estimate of when we will transfer control to the customer and may change based on customer usage patterns, timing of shipments, readiness of customers' facilities for installation, and manufacturing availability.

Impairment of Goodwill and Finite-Lived Intangible Assets

Goodwill

We evaluate goodwill for impairment at least annually on November 30th or more frequently if indicators of impairment are identified between annual testing dates. Goodwill is tested for impairment between annual testing dates when events or circumstances indicate that the fair value of a reporting unit has been reduced below its carrying value. When an indicator of impairment is identified we perform a quantitative impairment assessment in which we determine the fair value of a reporting unit and compare it to the carrying value of the respective reporting unit. We generally determine the fair value of a reporting unit via a discounted cash flow (“DCF”) analysis and allocate our net assets to each reporting unit to determine carrying value. The use of a DCF model requires management to exercise significant judgement related to operating assumptions and estimates including, revenue growth rates, terminal growth rates, operating margins and discount rates, among others. Additionally, management exercises judgement when determining the methodology used to allocate net assets to each reporting unit. We will record an impairment charge when our quantitative impairment analysis indicates that the carrying value of a reporting unit exceeds its fair value.

Finite-Lived Intangible Assets

Finite-lived intangible assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset (asset group) may not be recoverable. When an impairment indicator is identified, we perform a recoverability test, in

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which the estimated, undiscounted future cash flows expected to result from the use and eventual disposition of the asset (asset group) are compared to the carrying value of the asset (asset group). When our recoverability test results in undiscounted cash flows that are greater than carrying value, no impairment is recorded. However, when our recoverability test results in undiscounted cash flows that are less than carrying value, we determine the fair value of the asset (asset group) and reduce the carrying amount of the asset (asset group), through an impairment charge, to its fair value. The process of identifying impairment indicators, preparing an undiscounted cash flow and determining the fair value of the asset (asset group) require management to exercise significant judgement related to various assumptions and estimates.

If we were to have impairments to goodwill or finite-lived intangible assets, it could adversely affect our operating results. During the year ended 2024 and 2023, we did not have any impairment charges related to our goodwill or finite-lived intangible assets.

Accounting for Income Taxes

We are subject to income taxes in the United States and numerous foreign jurisdictions. The evaluation of our uncertain tax positions involves significant judgment in the interpretation and application of U.S. GAAP and complex domestic and international tax laws related to the allocation of international taxation rights between countries. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis in accordance with U.S. GAAP. Realization of our deferred tax assets is dependent on our ability to generate future taxable income which is determined based on assumptions such as estimated growth rates in revenues, gross margins, future cash flows and discount rates in the jurisdictions in which we operate. The accuracy of these estimates could be affected by unforeseen events or actual results, and the sustainability of our future tax benefits is dependent upon the acceptance of these valuation estimates and assumptions by the taxing authorities. We may, in the future, be required to increase the valuation allowance to take into account additional deferred tax assets that we may be unable to realize.

Accounting for Legal Proceedings

Estimates of probable losses resulting from litigation are inherently difficult to make, particularly when the matters are in early procedural stages with incomplete facts and information. The final outcome of legal proceedings is dependent on many variables that are difficult to predict and, therefore, the ultimate cost to resolve such matters may be materially different than our current estimates. Consequently, new information or changes in judgments and estimates could have a material adverse effect on our business, financial condition, and results of operations or cash flows.

Recent Accounting Pronouncements

See Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on results of operations and financial condition, which is incorporated herein.

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

A discussion regarding our financial condition and results of operations for fiscal 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, 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.

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 growth strategy depends on our ability to facilitate the digital transformation of dentistry happening around the world, our continuous focus on innovation, and expansion to meet and exceed evolving customer expectations as the array of products and services available to them increases.

We strive to deliver on each of our strategic growth drivers through a variety of interrelated enterprise-wide efforts including:

•Continuing penetration and adoption of Invisalign products, intraoral scanners and CAD/CAM solutions in international markets by investing in manufacturing operations, research and development, clinical treatment planning, sales and marketing and building our quality and regulatory capabilities in existing and emerging markets globally. For instance, in 2022, we opened a new aligner fabrication facility in Wroclaw, Poland as a part of our strategy to bring operational facilities closer to customers to serve them more quickly and respond to their needs more effectively as well as new treatment planning operations in targeted regional geographies. We have also diversified our research and development activities throughout Europe, which has created a longer term, more stable environment for consistent hiring, retention and innovation in a variety of high technology sectors. We are in over 100 markets and have 13 fabrication and treatment locations throughout the world.

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•Targeting growth opportunities with international orthodontists and GP customers, particularly with adopters of digital dentistry platforms by tailoring our sales and marketing strategies, manufacturing operations and resources around the unique needs of each customer channel. As we continue growing, we intend to opportunistically expand our research, development, manufacturing, treatment planning, and sales and marketing operations to meet local and regional demand thoughtfully and deliberately. Over the longer-term, we expect international revenues to grow faster than Americas' revenues as a result of growing international demand, our continued investment in international market expansion, the size of the market opportunities and our relatively low market penetration in these regions.

•Building confidence within the GP and orthodontic communities through training and education efforts to increase their adoption and utilization of digital dental practice transformation and clear aligner treatment. We continue to expand our clear aligner customer base by educating new doctors on the benefits of digital dentistry through the Invisalign system. We furthermore demonstrate to GPs and orthodontists how the iTero portfolio of intraoral scanners 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. We believe that well-designed, targeted sales and marketing promotions that build on our strong brand awareness allow us to differentiate our products and solutions from traditional and emerging competitors. To increase awareness and educate young adults, parents and teens about the benefits of 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. We expect to make further investments to create additional demand for Invisalign system treatment driving more consumers to dental professionals for those treatments.

•Pursuing new product lines that complement our doctor-prescribed principal products currently available in certain e-commerce and retail channels in the U.S. 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. 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. 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.

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. 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. 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.

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. Foreign exchange

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volatility and the subsequent strengthening or weakening of the U.S dollar against other currencies remains uncertain and unpredictable.

Moreover, military conflicts increase the unpredictability of the volatile macroeconomic conditions. While the military conflict between Russia and Ukraine did not materially impact our 2023 financial condition and results of operations, we expect the conflict will continue to create market uncertainties and dampen consumer sentiment and demand, particularly in Europe.

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

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 expect to meet customer demands with innovative treatment options that include more choices to address a wider scope of treatment goals and budgets based on our existing and new products. This may result in larger and unpredictable variations in geographic and product mix and selling prices with uncertain implications on our financial statements and business operations.

We strive to manage the challenges from the trends and uncertainties, including the macroeconomic conditions, military 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. 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. The 3in3 configuration offers doctors Invisalign Comprehensive treatment with a three-year treatment expiration date and three additional clear aligners included prior to the treatment expiration date. We anticipate adoption of the Invisalign Comprehensive 3in3 product will continue to increase in 2024. The 3in3 product allows us to recognize more revenue up front but is offered at a lower price as compared to our traditional Invisalign comprehensive product that has a five-year treatment expiration date with unlimited additional clear aligner prior to the treatment end date.

Further discussion of the impact of these challenges on our business may be found in Part I, Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors.”

Key Financial and Operating Metrics

We measure our performance against these strategic priorities by the achievement of key financial and operating metrics. For the year ended December 31, 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.

Other Statistical Data and Trends

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•As of December 31, 2023, 17 million people worldwide have been treated with our Invisalign system. Management measures these results by comparing to the millions of people who can benefit from straighter teeth and uses this data to target opportunities to expand the market for orthodontics by educating consumers about the benefits of straighter teeth using the Invisalign system.

•For the 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. 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. Our utilization rates have declined in 2023 due to the macroeconomic conditions and other factors as described in the Trends and Uncertainties section above. In general, we expect utilization rates to rise over time although they are likely to fluctuate from period to period.

•North America: The utilization rate among our North American orthodontist customers was 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. Our International region includes Europe, Middle East and Africa (“EMEA”) and Asia Pacific (“APAC”). Latin America (“LATAM”) is excluded from the International region based on its immateriality to the year; however is included in the Total utilization.

During the third quarter of 2023, we began including Touch Up case revenues in Americas and/or International net revenues that were previously included in Non-Case revenues and have recast business metrics for the periods presented above accordingly.

Results of Operations

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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.

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

•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. Our services include subscription software, disposables, rentals, leases, pay per scan services, as well as exocad’s CAD/CAM software solutions that integrate workflows to dental labs and dental practices.

Net revenues for our Clear Aligner and Systems and Services segments by region for the year ended December 31, 2023, 2022 and 2021 are as follows (in millions):

During 2023, we began including Touch Up case revenues in Americas and/or International net revenues. Touch Up case revenues were previously recorded in Non-case revenues. We have recast the year ended December 31, 2022 and 2021 to reflect this change. Amount and percentage changes are based on recast amounts. Certain tables may not sum or recalculate due to rounding.

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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):

During 2023, we began including Touch Up case revenues in Americas and/or International net revenues. Touch Up case revenues were previously recorded in Non-case revenues. We have recast the year ended December 31, 2022 and 2021 to reflect this change. Amount and percentage changes are based recast amounts. Certain tables may not sum or recalculate due to rounding.

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.

Clear Aligner - Americas

Americas net revenues decreased by $9.0 million in 2023 as compared to 2022, primarily due to a 2.1% decrease in case volumes, resulting in a reduction of net revenues of $31.4 million, partially offset by a $22.4 million increase due to higher ASP. Higher ASP includes price increases which increased net revenues by $68.6 million along with higher additional aligners which increased net revenues by $43.9 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.

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. Higher ASP was largely due to higher additional aligners increasing net revenues by $100.8 million and price increases on most products which increased net revenues by $96.9 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.

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.

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. 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.

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

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

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

Clear Aligner

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.

Selling, general and administrative (in millions):

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

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

Selling, general and administrative expense increased in 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.

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Research and development (in millions):

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

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

Research and development expense increased in 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.

Restructuring and other charges (in millions):

Changes and percentages are based on actual values. 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.

Income from operations (in millions):

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

1    Refer to Note 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 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.

Interest income (in millions):

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

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

Interest income increased in 2023 compared to 2022 primarily due to higher interest rates during 2023.

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

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

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

Other income (expense), net decreased in 2023 compared to 2022 primarily due to the favorable impact of foreign exchange rates offset slightly by losses in investments in private companies.

Provision for (benefit from) income taxes (in millions):

Changes and percentages are based on actual values. 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.

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):

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. 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

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credit. We believe that our current cash balances and the borrowing capacity under our credit facility, if necessary, will be sufficient to fund our business for at least the next 12 months.

Our material cash requirements as of December 31, 2023 are as below:

•Our purchase commitments consist primarily of open purchase orders for goods and services, including manufacturing inventory, supplies and services, sales and marketing, research and development services and technological services, issued in the normal course of business. Our purchase commitments totaled $1,234.5 million. 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. 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. 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”). Our stock repurchase program is subject to periodic evaluations to determine when and if repurchases are in the best interests of our stockholders, taking into account prevailing market conditions. Refer to Note 10 “Common Stock Repurchase Programs” of the Notes to Consolidated Financial Statements for details on our stock repurchase programs. Beginning in fiscal year 2023 our stock repurchases, net of certain issuances, were subject to a 1% excise tax. This excise tax is not expected to have a material impact on our liquidity or capital resources.

•On January 2, 2024 we completed the acquisition of the remaining interest in privately held Cubicure GmbH for total purchase consideration of approximately $87 million. We paid approximately $79 million in cash, which represents the total purchase consideration less credit for our previously owned interest.

•As of December 31, 2023, we had no material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material impact on our liquidity or capital resources.

Sources and 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):

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

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•Depreciation and amortization of $142.4 million related to our investments in property, plant and equipment and intangible assets.

Significant changes in working capital

•Inflow of $46.3 million, net from accrued and other long-term liabilities primarily due to higher incentive accruals for 2023, as well as timing of payments of other activities;

•Inflow of $86.7 million, net from deferred revenues due to the deferral of revenue on shipments;

•Inflow of $30.2 million, net from inventories primarily due to lower purchases of materials used in manufacturing; and

•Outflow of $104.6 million, net from accounts receivable due to timing of collections and increased revenues.

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.

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.

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. These outflows were partially offset by sales and maturities of marketable securities of $121.1 million.

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.

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.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and disclosures at the date of the financial statements. We

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evaluate our estimates on an on-going basis and use authoritative pronouncements, historical experience and other assumptions as the basis for making the estimates. Actual results could differ from those estimates.

We believe the following critical accounting estimates affect our more significant judgments used in the preparation of our consolidated financial statements. For further information on all of our significant accounting policies, see Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements.

Revenue Recognition

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

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

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

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

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. This includes performance obligations from the Clear Aligner reportable segment, primarily the shipment of additional aligners, which are fulfilled over six months to five years. This also includes performance obligations from our Systems and Services reportable segment, primarily services and support, which are fulfilled over one to five years, and contracted deliveries of additional scanners. The estimate includes both product and service unfulfilled performance obligations and the time range reflects our best estimate of when we will transfer control to the customer and may change based on customer usage patterns, timing of shipments, readiness of customers' facilities for installation, and manufacturing availability.

Impairment of Goodwill and Finite-Lived Intangible Assets

Goodwill

We evaluate goodwill for impairment at least annually on November 30th or more frequently if indicators of impairment are identified between annual testing dates. Goodwill is tested for impairment between annual testing dates when events or circumstances indicate that the fair value of a reporting unit has been reduced below its carrying value. When an indicator of impairment is identified we perform a quantitative impairment assessment in which we determine the fair value of a reporting unit and compare it to the carrying value of the respective reporting unit. We generally determine the fair value of a reporting unit via a discounted cash flow analysis and allocate the net assets of the Company to each reporting unit to determine carrying value. We will record an impairment charge when our quantitative impairment analysis indicates that the carrying value of a reporting unit 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.

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Finite-Lived Intangible Assets

Finite-lived intangible assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset (asset group) may not be recoverable. When an impairment indicator is identified, we perform a recoverability test, in which the estimated, undiscounted future cash flows expected to result from the use and eventual disposition of the asset (asset group) are compared to the carrying value of the asset (asset group). When our recoverability test results in undiscounted cash flows more than carrying value, no impairment is recorded. However, when our recoverability test results in undiscounted cash flows that are less than carrying value, we determine the fair value of the asset (asset group) and reduce the carrying amount of the asset (asset group), through an impairment charge, to its fair value. The process of identifying impairment indicators, preparing an undiscounted cash flow and determining the fair value of the asset (asset group) require management to exercise significant judgement related to various assumptions and estimates.

If we were to have impairments to goodwill or finite-lived intangible assets, it could adversely affect our operating results. During the 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. 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. 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. The accuracy of these estimates could be affected by unforeseen events or actual results, and the sustainability of our future tax benefits is dependent upon the acceptance of these valuation estimates and assumptions by the taxing authorities.

Accounting for Legal Proceedings and Litigation

Estimates of probable losses resulting from litigation are inherently difficult to make, particularly when the matters are in early procedural stages with incomplete facts and information. The final outcome of legal proceedings is dependent on many variables difficult to predict and, therefore, the ultimate cost to entirely resolve such matters may be materially different than the amount of current estimates. Consequently, new information or changes in judgments and estimates could have a material adverse effect on our business, financial condition, and results of operations or cash flows.

Recent Accounting Pronouncements

See Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on results of operations and financial condition, which is incorporated herein.

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

A discussion regarding our financial condition and results of operations for fiscal 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. 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.

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. Our growth strategy depends on our ability to facilitate the digital transformation of dentistry happening around the world, our continuous focus on innovation, and expansion to meet and exceed evolving customer expectations as the array of products and services available to them increases.

We strive to deliver on each of our strategic growth drivers through a variety of interrelated enterprise-wide efforts including:

•Continuing penetration and adoption of Invisalign products, intraoral scanners and CAD/CAM solutions in international markets by investing in manufacturing operations, research and development, clinical treatment planning, sales and marketing and building our quality and regulatory capabilities in existing and emerging markets globally. For instance, in 2022, we opened a new aligner fabrication facility in Wroclaw, Poland as a part of our strategy to bring operational facilities closer to customers to serve them more quickly and respond to their needs more effectively as well as new treatment planning operations in targeted regional geographies. We 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

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unique needs of each customer channel. As we continue growing, we intend to opportunistically expand our research, development, manufacturing, treatment planning, and sales and marketing operations to meet local and regional demand thoughtfully and deliberately. Over the longer-term, we expect international revenues to grow faster than Americas' revenues as a result of growing international demand, our continued investment in international market expansion, the size of the market opportunities and our relatively low market penetration in these regions.

•Building confidence within the GP and orthodontic communities through training and education efforts to increase their adoption and utilization of digital dental practice transformation and clear aligner treatment. 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 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 expect to make further investments to create additional demand for Invisalign system treatment driving more consumers to dental professionals for those treatments.

•Pursuing new product lines that complement our doctor-prescribed principal products currently available in certain e-commerce and retail channels in the U.S. 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. 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. 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.

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. 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. 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. 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.

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. 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.

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Although immaterial to our consolidated financial statements, our commercial business operations in Russia were significantly impacted by the conflict in 2022. 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. 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.

Our Board of Directors and its applicable committees receive regular updates from management regarding the military conflict between Russia and Ukraine and continue to provide oversight of the risks to our personnel, operations and other areas of strategic importance. Our management continues to closely monitor the situation and evaluate additional ways in which we can support our employees and operations.

COVID-19 Pandemic Update

Although there remains significant uncertainty surrounding the COVID-19 pandemic for regional economies, its global impact has gradually declined. During 2022, we experienced the impacts of the COVID-19 pandemic primarily in the Asia Pacific region, particularly in China, where lockdowns decreased economic activity throughout most of the year. With the easing of the restrictions in China in 2023 and the increased rate of infections, the impacts of the COVID-19 pandemic are likely to persist into 2023 and remain unpredictable, but we expect it to be at a lesser extent than in 2022. Nevertheless, comparing our financial results for the reporting periods of 2023 to the same reporting periods of 2022 or earlier may not be a useful means by which to evaluate our business and results of operations due to volatility in regional business environments caused by the pandemic.

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 expect to meet customer demands with innovative treatment options that include more choices to address a wider scope of treatment goals and budgets based on our existing and new products. This may result in larger and unpredictable variations in geographic and product mix and selling prices with uncertain implications on our financial statements and business operations.

We strive to manage the challenges from the 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. 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.

Further discussion of the impact of these challenges on our business may be found in Part I, Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors.”

Key Financial and Operating Metrics

We measure our performance against these strategic priorities by the achievement of key financial and operating metrics. For the year ended December 31, 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

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◦Number of employees was 23,165 as of December 31, 2022, an increase of 2.8% year-over-year.

Other Statistical Data and Trends

•As of December 31, 2022, over 14 million people worldwide have been treated with our Invisalign system. Management measures these results by comparing to the millions of people who can benefit from straighter teeth and uses this data to target opportunities to expand the market for orthodontics by educating consumers about the benefits of straighter teeth using the Invisalign system.

•For the 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. 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. 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. 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. Our International region includes Europe, Middle East and Africa (“EMEA”) and Asia Pacific (“APAC”). Latin America (“LATAM”) is excluded from the International region based on its immateriality to the year; however is included in the Total utilization.

Results of Operations

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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. We also offer in the U.S. and Canada, a Doctor Subscription Program which is a monthly subscription program based on the doctor’s monthly need for retention or limited treatment. 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. Our services include subscription software, disposables, rentals, leases, pay per scan services, as well as exocad’s CAD/CAM software solutions that integrate workflows to dental labs and dental practices.

Net revenues for our Clear Aligner and Systems and Services segments by region for the year ended December 31, 2022, 2021 and 2020 are as follows (in millions):

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

Clear Aligner Case Volume

Case volume data which represents Clear Aligner case shipments for the year ended December 31, 2022, 2021 and 2020 is as follows (in thousands):

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

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”).

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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. 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.

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. 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 decrease in ASP was partially offset by processing fees charged on most shipments which increased net revenues by $94.1 million and lower net deferrals which increased net revenues by $81.4 million.

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.

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. The decreases were partially offset by higher service and other revenues which increased net revenues by $62.6 million mostly due to a larger scanner install base.

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

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

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

Clear Aligner

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The gross margin percentage decreased in 2022 as compared to 2021 primarily due to a higher mix of additional aligners, higher freight costs and increased manufacturing spend as we continue to ramp our new manufacturing facility in Poland.

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.

Selling, general and administrative (in millions):

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

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

Selling, general and administrative expense decreased in 2022 compared to 2021 primarily due to lower incentive compensation, lower advertising and marketing costs and lower allocations of corporate overhead expenses. These decreases were offset by higher salaries expenses, fringe benefits and stock-based compensation from increased headcount as well as higher equipment, software and maintenance costs.

Research and development (in millions):

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

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

Research and development expense increased in 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.

Restructuring and other charges (in millions):

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

Restructuring and other charges includes $7.3 million of severance and related costs, in addition to lease termination charges and asset impairments.

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Income from operations (in millions):