Company: ALGN
Filing Date: 2025-02-28
Form Type: 10-K
Source: 0001097149-25-000012
Chunk: 112

Company: ALIGN TECHNOLOGY INC
Filing Date: 2025-02-28
Form: 10-K
Item: Item 7
Chunk 112
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 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