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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________ 
FORM 10-Q
____________________________ 
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to
Commission file number: 000-32259
____________________________
ALIGN TECHNOLOGY INC
(Exact name of registrant as specified in its charter)
____________________________ 
Delaware94-3267295
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
2820 Orchard Parkway
San Jose, California 95134
(Address of principal executive offices)
(408) 470-1000
(Registrant’s telephone number, including area code)
 ____________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.0001 par valueALGNThe NASDAQ Stock Market LLC
(NASDAQ Global Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No ☒
The number of shares outstanding of the registrant’s Common Stock, $0.0001 par value, as of April 30, 2020 was 78,762,958.


1
Table of Contents

ALIGN TECHNOLOGY, INC.
INDEX
 
PART I
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.

Invisalign, Align, the Invisalign logo, ClinCheck, Made to Move, Invisalign Assist, Invisalign Teen, Invisalign Go, Vivera, SmartForce, SmartTrack, SmartStage, SmileView, iTero, iTero Element, Orthocad, iCast and iRecord, among others, are trademarks and/or service marks of Align Technology, Inc. or one of its subsidiaries or affiliated companies and may be registered in the United States and/or other countries.
2
Table of Contents
PART I—FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
   
Three Months Ended
March 31,
 20202019
Net revenues$550,963  $548,971  
Cost of net revenues156,607  146,875  
Gross profit394,356  402,096  
Operating expenses:
Selling, general and administrative282,906  247,110  
Research and development41,532  37,503  
Impairments and other charges—  29,782  
Total operating expenses324,438  314,395  
Income from operations69,918  87,701  
Interest income and other income (expense), net:
Interest income1,986  2,633  
Other income (expense), net(18,549) (5,746) 
      Total interest income and other income (expense), net(16,563) (3,113) 
Net income before provision for (benefit from) income taxes and equity in losses of investee53,355  84,588  
Provision for (benefit from) income taxes(1,464,776) 8,796  
Equity in losses of investee, net of tax—  3,944  
Net income $1,518,131  $71,848  
Net income per share:
Basic
$19.32  $0.90  
Diluted
$19.21  $0.89  
Shares used in computing net income per share:
Basic
78,592  79,860  
Diluted
79,028  80,687  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
Three Months Ended
March 31,
 20202019
Net income $1,518,131  $71,848  
Net change in foreign currency translation adjustment689  409  
Change in unrealized gains (losses) on investments, net of tax(194) 84  
Other comprehensive income 495  493  
Comprehensive income $1,518,626  $72,341  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)

March 31,
2020		December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents$790,696  $550,425  
Marketable securities, short-term—  318,202  
Accounts receivable, net of allowance for doubtful accounts of $11,057 and $6,756, respectively533,004  550,291  
Inventories120,977  112,051  
Prepaid expenses and other current assets131,848  102,450  
Total current assets1,576,525  1,633,419  
Property, plant and equipment, net663,491  631,730  
Operating lease right-of-use assets, net70,366  56,244  
Goodwill and intangible assets, net73,751  75,692  
Deferred tax assets1,551,141  64,007  
Other assets29,566  39,610  
Total assets$3,964,840  $2,500,702  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$72,690  $87,250  
Accrued liabilities259,459  319,958  
Deferred revenues578,537  563,762  
Total current liabilities910,686  970,970  
Income tax payable109,128  102,794  
Operating lease liabilities53,745  43,463  
Other long-term liabilities38,292  37,306  
Total liabilities1,111,851  1,154,533  
Commitments and contingencies (Notes 8 and 9)
Stockholders’ equity:
Preferred stock, $0.0001 par value (5,000 shares authorized; none issued)—  —  
Common stock, $0.0001 par value (200,000 shares authorized; 78,759 and 78,433 issued and outstanding, respectively)8  8  
Additional paid-in capital895,131  906,937  
Accumulated other comprehensive income (loss), net(193) (688) 
Retained earnings1,958,043  439,912  
Total stockholders’ equity2,852,989  1,346,169  
Total liabilities and stockholders’ equity$3,964,840  $2,500,702  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
Common Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss), Net
Retained EarningsTotal
Three Months Ended March 31, 2020SharesAmount
Balance as of December 31, 201978,433  $8  $906,937  $(688) $439,912  $1,346,169  
Net income—  —  —  —  1,518,131  1,518,131  
Net change in unrealized gains (losses) from investments—  —  —  (194) —  (194) 
Net change in foreign currency translation adjustment
 
—  —  —  689  —  689  
Issuance of common stock relating to employee equity compensation plans326  —  10,662  —  —  10,662  
Tax withholdings related to net share settlements of equity awards—  —  (45,395) —  —  (45,395) 
Stock-based compensation—  —  22,927  —  —  22,927  
Balance as of March 31, 202078,759  $8  $895,131  $(193) $1,958,043  $2,852,989  

Common Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss), Net
Retained EarningsTotal
Three Months Ended March 31, 2019SharesAmount
Balance as of December 31, 201879,778  $8  $877,514  $(2,774) $378,143  $1,252,891  
Net income—  —  —  —  71,848  71,848  
Net change in unrealized gains (losses) from investments—  —  —  84  —  84  
Net change in foreign currency translation adjustment
 
—  —  —  409  —  409  
Issuance of common stock relating to employee equity compensation plans427  —  9,609  —  —  9,609  
Tax withholdings related to net share settlements of equity awards—  —  (50,181) —  —  (50,181) 
Common stock repurchased and retired(205) —  (2,030) —  (47,970) (50,000) 
Stock-based compensation—  —  21,044  —  —  21,044  
Balance as of March 31, 201980,000  $8  $855,956  $(2,281) $402,021  $1,255,704  

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







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ALIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Three Months Ended
March 31,
 20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,518,131  $71,848  
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes(1,487,154) 7,586  
Depreciation and amortization20,738  18,316  
Stock-based compensation22,927  21,044  
Non-cash operating lease cost5,546  4,362  
Impairments on equity investments2,900  3,975  
Impairments on long-lived assets—  28,498  
Equity in losses of investee—  3,944  
Other non-cash operating activities12,566  5,101  
Changes in assets and liabilities:
Accounts receivable13,761  (42,743) 
Inventories(10,496) (13,280) 
Prepaid expenses and other assets(37,244) (35,033) 
Accounts payable(12,034) 1,470  
Accrued and other long-term liabilities(69,103) (5,183) 
Long-term income tax payable6,354  4,808  
Deferred revenues22,892  42,494  
Net cash provided by operating activities9,784  117,207  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment(46,085) (35,261) 
Purchase of marketable securities(5,341) (125,823) 
Proceeds from maturities of marketable securities42,641  80,306  
Proceeds from sales of marketable securities278,817  8,727  
Repayment on unsecured promissory note4,419  —  
Other investing activities1,760  (2,367) 
Net cash provided by (used in) investing activities276,211  (74,418) 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock10,662  9,609  
Common stock repurchases—  (50,000) 
Payroll taxes paid upon the vesting of equity awards(45,395) (50,181) 
Other financing activities—  (2,190) 
Net cash used in financing activities(34,733) (92,762) 
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash(11,007) 1,089  
Net increase (decrease) in cash, cash equivalents, and restricted cash240,255  (48,884) 
Cash, cash equivalents, and restricted cash at beginning of the period551,134  637,566  
Cash, cash equivalents, and restricted cash at end of the period$791,389  $588,682  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ALIGN TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by Align Technology, Inc. (“we”, “our”, or “Align”) in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and contains all adjustments, including normal recurring adjustments, necessary to state fairly our results of operations for the three months ended March 31, 2020 and 2019, our comprehensive income for the three months ended March 31, 2020 and 2019, our financial position as of March 31, 2020, our stockholders’ equity for the three months ended March 31, 2020 and 2019, and our cash flows for the three months ended March 31, 2020 and 2019. The Condensed Consolidated Balance Sheet as of December 31, 2019 was derived from the December 31, 2019 audited financial statements. It does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.”).

The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or any other future period, and we make no representations related thereto. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the U.S. requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, useful lives of intangible assets and property and equipment, long-lived assets and goodwill, income taxes and contingent liabilities, the fair values of financial instruments, stock-based compensation, unsecured promissory note receivable, and valuation of investments in privately held companies among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Certain Risks and Uncertainties

Due to the COVID-19 pandemic, we are subject to a greater degree of uncertainty than normal in making the judgments and estimates needed to apply our significant accounting policies. As COVID-19 continues to develop, we may make changes to these estimates and judgments, which could result in meaningful impacts to our financial statements in future periods. The extent and duration of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as the response to the pandemic is in its incipient stages and information is rapidly evolving. Because COVID-19 spreads readily through airways in nasal passages and the mouth, our principal customers, dentists and orthodontists and their patients, have been a primary focus of the protective and preventative efforts. For instance, in many countries, governments and dental regulatory associations acted quickly to prohibit non-essential dental procedures; thereby preventing our customers from conducting most or all business activities and materially adversely harming our sales and sales efforts. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession.

The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on our customers, all of which are uncertain and cannot be predicted. Our future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that we may undertake to address financial and operations challenges faced by our customers. Additionally, the uncertainty of future results and cash flows may impact our significant assumptions and estimates including the collectability of accounts and other receivables and realization of our deferred tax assets. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations is uncertain.

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Recent Accounting Pronouncements

(i) New Accounting Updates Recently Adopted

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, “Financial Instruments - Credit Losses” (Topic 326) to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this update replace the existing guidance of incurred loss impairment methodology with an approach that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” which clarifies the scope of guidance in the ASU 2016-13. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. We adopted this standard in the first quarter of fiscal year 2020 which did not have a material impact on our condensed consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” to simplify the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. Under the amendments in this update, an entity will recognize an impairment charge for the amount by which the carrying value exceeds the fair value. The updated guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019 on a prospective basis. We adopted this standard in the first quarter of fiscal year 2020 which did not have any impact on our condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,” to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The updated guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019 on a prospective basis. We adopted this standard in the first quarter of fiscal year 2020 which did not have any impact on our condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” to clarify the guidance on the costs of implementing a cloud computing hosting arrangement that is a service contract. Under the amendments in this update, the entity is required to follow the guidance in Subtopic 350-40, Internal-Use Software, to determine which implementation costs under the service contract to be capitalized as an asset and which costs to expense. The updated guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019 either on a retrospective or prospective basis. We adopted this standard in the first quarter of fiscal year 2020 on a prospective basis which did not have any impact on our condensed consolidated financial statements and related disclosures.

(ii) Recent Accounting Updates Not Yet Effective

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes,” to enhance and simplify various aspects of the income tax accounting guidance. The amendment removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The amendments are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. We are currently evaluating the impact of this guidance on our consolidated financial statements and related disclosures; however, we anticipate the adoption of the guidance will not have a material impact to our consolidated financial statements and related disclosures.

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Note 2. Investments and Fair Value Measurements

Marketable Securities

We have no short-term or long-term marketable securities as of March 31, 2020.

As of December 31, 2019, the estimated fair value of our short-term marketable securities, classified as available for sale, are as follows (in thousands):
December 31, 2019Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
Corporate bonds210,891  142  (27) 211,006  
U.S. government treasury bonds70,587  65  (2) 70,650  
U.S. government agency bonds22,085  17  (1) 22,101  
Commercial paper14,426  —  —  14,426  
Certificates of deposit19  —  —  19  
Total marketable securities, short-term$318,008  $224  $(30) $318,202  

We had no long-term marketable securities as of December 31, 2019.

Cash equivalents are not included in the tables above as the gross unrealized gains and losses are not material. We have no short-term marketable securities that have been in a continuous material unrealized loss position for greater than twelve months as of December 31, 2019. Amounts reclassified to earnings from accumulated other comprehensive income (loss), net related to unrealized gains or losses were not material for the three months ended March 31, 2020 and 2019. For the three months ended March 31, 2020 and 2019, realized gains or losses were not material.

Our fixed-income securities investment portfolio consists of investments that can have a maximum effective maturity of up to 40 months on any individual security. The securities that we invest in are generally deemed to be low risk based on their credit ratings from the major rating agencies. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As interest rates increase, those securities purchased at a lower yield show a mark-to-market unrealized loss which are primarily due to changes in interest rates and credit spreads. We expect to realize the full value of all these investments upon maturity or sale. The weighted average remaining duration of these securities was approximately seven months as of December 31, 2019.

As the carrying value approximates the fair value for our short-term marketable securities shown in the table above, the fair value of our short-term marketable securities as of December 31, 2019 had a contractual maturity one year or less.

Fair Value Measurements

The following tables summarize our financial assets measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 (in thousands):
DescriptionBalance as of
March 31, 2020		Level 1

Level 2
Level 3
Cash equivalents:
Money market funds$36,683  $36,683  $—  $—  
Prepaid expenses and other current assets:
Israeli funds3,293  —  3,293  —  
Current unsecured promissory note27,914  —  —  27,914  
$67,890  $36,683  $3,293  $27,914  


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DescriptionBalance as of December 31, 2019Level 1Level 2Level 3
Cash equivalents:
Money market funds$236,923  $236,923  $—  $—  
Short-term investments:
Corporate bonds211,006  —  211,006  —  
Commercial paper14,426  —  14,426  —  
U.S. government treasury bonds70,650  70,650  —  —  
U.S. government agency bonds22,101  —  22,101  —  
Certificates of deposit19  —  19  —  
Prepaid expenses and other current assets:
Israeli funds3,226  —  3,226  —  
Current unsecured promissory note25,005  —  —  25,005  
Other assets:
Long-term unsecured promissory note7,328  —  —  7,328  
$590,684  $307,573  $250,778  $32,333  

The unsecured promissory note that was entered into in 2019 is classified as Level 3 in our fair value hierarchy as financial information of third parties may not be timely available and consequently we estimate the fair value based on the best available information at the measurement date. The original amount of the note was $54.2 million which has decreased due to payments received. Refer to Note 4 “Equity Method Investments” of the Notes to Condensed Consolidated Financial Statements for more information.

Investments in Privately Held Companies

Our investments in equity securities of privately held companies without readily determinable fair values were $3.0 million and $5.9 million as of March 31, 2020 and December 31, 2019, respectively, and are reported as nonrecurring investments within other assets in our Condensed Consolidated Balance Sheet. Our investments in equity securities are considered Level 3 in the fair value hierarchy since the investments are in private companies without quoted market prices and we adjust the carrying value based on observable price changes. During the three months ended March 31, 2020 and March 31, 2019, we recorded impairment losses of $2.9 million and $4.0 million, respectively, resulting from observable price changes.

Derivatives Not Designated as Hedging Instruments

Recurring foreign currency forward contracts

We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on certain trade and intercompany receivables and payables. These forward contracts are classified within Level 2 of the fair value hierarchy. The net gain from the settlement of foreign currency forward contracts during the three months ended March 31, 2020 was $15.6 million and the net gain from the settlement of foreign currency forward contracts during the three months ended March 31, 2019 was not material. As of March 31, 2020 and December 31, 2019, the fair value of foreign exchange forward contracts outstanding was not material.

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The following table presents the gross notional value of all our foreign exchange forward contracts outstanding as of March 31, 2020 and December 31, 2019 (in thousands):
March 31, 2020
Local Currency AmountNotional Contract Amount (USD)
Euro€67,500$74,274  
Chinese Yuan¥517,00072,825  
Canadian DollarC$47,00033,103  
British Pound£23,20028,894  
Brazilian RealR$150,00028,765  
Japanese Yen¥2,685,00024,916  
Israeli ShekelILS26,0007,349  
Mexican PesoM$160,0006,840  
Australian DollarA$5,5003,375  
$280,341  

December 31, 2019
Local Currency AmountNotional Contract Amount (USD)
Euro€97,000$108,870  
Chinese Yuan¥431,00060,702  
Canadian DollarC$52,00039,802  
British Pound£28,00036,770  
Brazilian RealR$130,00032,185  
Japanese Yen¥3,000,00027,604  
Israeli ShekelILS63,70018,439  
Mexican PesoM$140,0007,398  
Australian DollarA$3,0002,101  
$333,871  

Other foreign currency forward contract

During the three months ended March 31, 2020, in anticipation for the closing of the exocad Global Holdings GmbH ("exocad") acquisition on April 1, 2020, we entered into a Euro foreign currency forward contract with a notional contract amount of €376.0 million. During the three months ended March 31, 2020, we recognized an unrealized loss of $9.2 million within other income (expense), net in our Condensed Consolidated Statement of Operation as a result of the forward contract's fair value as of March 31, 2020.

Note 3. Balance Sheet Components

Inventories consist of the following (in thousands): 
March 31,
2020		December 31,
2019
Raw materials$59,136  $54,947  
Work in process35,627  30,974  
Finished goods26,214  26,130  
Total inventories$120,977  $112,051  

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Prepaid expenses and other current assets consist of the following (in thousands): 
March 31,
2020		December 31,
2019
Tax related receivables$50,866  $41,252  
Prepaid software and maintenance29,182  7,128  
Current promissory note 1
27,914  25,005  
Other prepaid expenses and current assets19,624  24,637  
Other current receivables4,262  4,428  
Total prepaid expenses and other current assets$131,848  $102,450  

1Refer to Note 4“Equity Method Investments” of the Notes to Condensed Consolidated Financial Statements for more information.

Accrued liabilities consist of the following (in thousands): 
March 31,
2020		December 31,
2019
Accrued payroll and benefits$87,526  $162,486  
Accrued expenses50,669  55,529  
Current operating lease liabilities20,225  15,737  
Accrued fixed assets18,781  9,167  
Accrued income taxes15,324  14,130  
Accrued professional fees12,738  10,410  
Others54,196  52,499  
Total accrued liabilities$259,459  $319,958  

We regularly review the balance for accrued warranty and update based on historical warranty trends. Actual warranty costs incurred have not materially differed from those accrued; however, future actual warranty costs could differ from the estimated amounts. Warranty accrual consists of the following activity (in thousands):
Three Months Ended
March 31,
 20202019
Balance at beginning of period$11,205  $8,551  
Charged to cost of net revenues3,724  3,133  
Actual warranty expenditures(3,140) (1,451) 
Balance at end of period$11,789  $10,233  

Deferred revenues consist of the following (in thousands):
March 31,
2020		December 31,
2019
Deferred revenues - current$578,537  $563,762  
Deferred revenues - long-term 1
$36,628  $35,503  

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

During the three months ended March 31, 2020 and 2019, we recognized $551.0 million and $549.0 million of revenue, respectively, of which $95.5 million and $68.4 million was included in the deferred revenues balance at December 31, 2019 and 2018, respectively.

Our unfilled performance obligations, including deferred revenues and backlog, as of March 31, 2020 were $619.7 million. These performance obligations are expected to be recognized over the next one to five years.

Note 4. Equity Method Investments

On July 25, 2016, we acquired a 17% equity interest, on a fully diluted basis, in SmileDirectClub, LLC (“SDC”) for $46.7 million. Concurrently with the investment, we also entered into a supply agreement to manufacture clear aligners for SDC, which expired on December 31, 2019. The sale of aligners to SDC and the income from the supply agreement are reported in our Clear Aligner business segment. On July 24, 2017, we purchased an additional 2% equity interest in SDC for $12.8 million.
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The investment was accounted for as an equity method investment and recorded in our Condensed Consolidated Balance Sheet. We recorded our proportional share of SDC’s losses within equity in losses of investee, net of tax, in our Condensed Consolidated Statement of Operations.

As a result of the arbitrator’s decision regarding SDC announced on March 5, 2019, we were ordered to tender our SDC equity interest by April 3, 2019 for a purchase price equal to the “capital account” balance as of October 31, 2017 under the terms of the investment. In April 2019, based on the “capital account” value provided by SDC, we entered into an unsecured promissory note with SDC to receive $54.2 million through February 1, 2021 in exchange for the tender of our membership interests. As a result, we derecognized the equity method investment balance of $38.4 million in exchange for an unsecured promissory note of $54.2 million and we recorded the difference of $15.8 million as a gain in the second quarter of 2019 in other income in our Condensed Consolidated Statement of Operations. Although we tendered our membership interests pursuant to the arbitrator’s decision, the parties did not agree on the amount of the “capital account” balance as of October 31, 2017 or the appropriate repurchase price for the membership units. On July 3, 2019, we filed a demand for arbitration regarding SDC’s calculation of the “capital account” balance. The arbitration proceeding remains pending (Refer to Note 8 “Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements for SDC legal proceedings discussion).

Note 5. Goodwill and Intangible Assets

Goodwill

The change in the carrying value of goodwill for the three months ended March 31, 2020, all attributable to our Clear Aligner reporting unit, is as follows (in thousands):
Total
Balance as of December 31, 2019$63,924  
Adjustments 1
(640) 
Balance as of March 31, 2020$63,284  

1 Adjustments were related to foreign currency translation within the measurement period.

During the fourth quarter of fiscal 2019, we performed the annual goodwill impairment testing and found no impairment as the fair value of our Clear Aligner reporting unit was significantly in excess of the carrying value.

Intangible Long-Lived Assets

Acquired intangible long-lived assets are being amortized as follows (in thousands): 
Weighted Average Amortization Period
(in years)		Gross Carrying Amount as of March 31, 2020
Accumulated
Amortization
Accumulated
Impairment Loss
Net Carrying
Value as of
March 31, 2020
Trademarks15$7,100  $(2,080)