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, but not limited to, Invisalign Comprehensive, Invisalign Full, Invisalign Teen, Invisalign Assist and Invisalign First.


•	Non-Comprehensive Products include, but not limited to, Invisalign Express, Invisalign Lite and Invisalign Go in addition to revenues from the sale of aligners to SDC under our supply agreement.


•	Non-Case includes, but not limited to, 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 September 30,						Nine Months Ended September 30,
Net revenues	2018			2017			2018			2017
Clear Aligner	$	427,087		$	341,611		$	1,245,833		$	945,046
Scanner	78,202			43,656			186,639			107,044
Total net revenues	$	505,289		$	385,267		$	1,432,472		$	1,052,090
Gross profit
Clear Aligner	$	321,772		$	266,285		$	950,360		$	737,046
Scanner	50,009			26,203			114,411			61,984
Total gross profit	$	371,781		$	292,488		$	1,064,771		$	799,030
Income from operations
Clear Aligner	$	182,667		$	154,614		$	534,408		$	403,264
Scanner	31,498			13,525			65,250			28,324
Unallocated corporate expenses	(88,957		)	(69,376		)	(253,567		)	(187,583		)
Total income from operations	$	125,208		$	98,763		$	346,091		$	244,005
Depreciation and amortization
Clear Aligner	$	7,218		$	5,643		$	20,361		$	15,607
Scanner	1,237			1,130			3,510			3,248
Unallocated corporate depreciation and amortization	5,664			3,199			14,314			7,860
Total depreciation and amortization	$	14,119		$	9,972		$	38,185		$	26,715

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 September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Total segment income from operations	$	214,165		$	168,139		$	599,658		$	431,588
Unallocated corporate expenses	(88,957		)	(69,376		)	(253,567		)	(187,583		)
Total income from operations	125,208			98,763			346,091			244,005
Interest income	2,234			1,826			6,327			4,462
Other income (expense), net	(837		)	1,924			(7,759		)	4,145
Net income before provision for income taxes and equity in losses of investee	$	126,605		$	102,513		$	344,659		$	252,612

Geographical Information

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Net revenues¹:
United States	$	263,349	$	217,758	$	754,472	$	608,052
The Netherlands	141,405		109,068		437,364		318,399
China	52,874		26,965		116,891		59,195
Other International	47,661		31,476		123,745		66,444
Total net revenues	$	505,289	$	385,267	$	1,432,472	$	1,052,090

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

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



	September 30, 2018		December 31, 2017
Long-lived assets²:
The Netherlands	$	195,790	$	143,673
United States	135,369		128,171
Costa Rica	71,437		30,738
Mexico	34,272		25,090
China	33,955		5,480
Other International	20,807		15,641
Total long-lived assets	$	491,630	$	348,793

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