Segments and Geographical Information

Segment Information

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is our Chief Executive Officer. We report segment information based on the management approach. The management approach designates the internal reporting used by CODM for decision making and performance assessment as the basis for determining our reportable segments. The performance measures of our reportable segments include net revenues, gross profit and income from operations. Income from operations for each segment includes all geographic revenues, related cost of net revenues and operating expenses directly attributable to the segment. Certain operating expenses are attributable to operating segments and each allocation is measured differently based on the specific facts and circumstances of the costs being allocated. Costs not specifically allocated to segment income from operations include various corporate expenses such as stock-based compensation and costs related to IT, facilities, human resources, accounting and finance, legal and regulatory, and other separately managed general and administrative costs outside the operating segments.

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


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


•	Comprehensive Products include our Invisalign Full, Teen and Assist products.


•	Non-Comprehensive Products include our Invisalign Express, Invisalign Lite, Invisalign i7 and Invisalign Go products in addition to revenues from the sale of aligners to SDC under our supply agreement.


•	Non-Case includes our Vivera retainers along with our training and ancillary products for treating malocclusion.


•	Our Scanner segment consists of intraoral scanning systems and additional services available with the intraoral scanners that provide digital alternatives to the traditional cast models. This segment includes our iTero scanner and OrthoCAD services.

These reportable operating segments are based on how our CODM views and evaluates our operations as well as allocation of resources. The following information relates to these segments (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
Net revenues	2018			2017			2018			2017
Clear Aligner	$	433,241		$	321,036		$	818,746		$	603,435
Scanner	57,018			35,446			108,437			63,388
Total net revenues	$	490,259		$	356,482		$	927,183		$	666,823
Gross profit
Clear Aligner	$	331,612		$	250,814		$	628,588		$	470,761
Scanner	33,970			20,103			64,402			35,781
Total gross profit	$	365,582		$	270,917		$	692,990		$	506,542
Income from operations
Clear Aligner	$	190,287		$	133,916		$	351,741		$	248,650
Scanner	17,670			8,795			33,752			14,799
Unallocated corporate expenses	(85,266		)	(59,142		)	(164,610		)	(118,207		)
Total income from operations	$	122,691		$	83,569		$	220,883		$	145,242
Depreciation and amortization
Clear Aligner	$	6,759		$	5,600		$	13,143		$	9,963
Scanner	1,169			1,082			2,273			2,119
Unallocated corporate depreciation and amortization	4,704			2,194			8,650			4,661
Total depreciation and amortization	$	12,632		$	8,876		$	24,066		$	16,743

The following table reconciles total segment income from operations in the table above to net income before provision for income taxes and equity losses of investee (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Total segment income from operations	$	207,957		$	142,711		$	385,493		$	263,449
Unallocated corporate expenses	(85,266		)	(59,142		)	(164,610		)	(118,207		)
Total income from operations	122,691			83,569			220,883			145,242
Interest income	1,917			1,441			4,093			2,636
Other income (expense), net	(7,099		)	1,771			(6,922		)	2,221
Net income before provision for income taxes and equity in losses of investee	$	117,509		$	86,781		$	218,054		$	150,099

Geographical Information

Net revenues are presented below by geographic area (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Net revenues¹:
United States	$	254,020	$	207,021	$	491,123	$	390,294
The Netherlands	156,428		109,532		295,959		209,331
Other International	79,811		39,929		140,101		67,198
Total net revenues	$	490,259	$	356,482	$	927,183	$	666,823

¹Net revenues are attributed to countries based on location of where revenue is recognized.

Tangible long-lived assets are presented below by geographic area (in thousands):



	June 30, 2018		December 31, 2017
Long-lived assets²:
The Netherlands	$	190,130	$	143,673
United States	129,837		128,171
Costa Rica	61,609		30,738
Mexico	31,289		25,090
China	16,393		5,480
Other International	18,675		15,641
Total long-lived assets	$	447,933	$	348,793

²Long-lived assets are attributed to countries based on entity that owns the assets.