Segments and Geographical Information

6 Months Ended

Jun. 30, 2019

Notes To Financial Statements [Abstract]

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, our Invisalign Comprehensive (formerly known as Invisalign Full and Invisalign Teen), Invisalign Assist and Invisalign First.


•	Non-Comprehensive Products include, Invisalign Express 10, Invisalign Express 5, Express Package, Lite Package and Invisalign Go products 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, additional services and ancillary products 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	2019			2018			2019			2018
Clear Aligner	$	496,702		$	433,241		$	965,907		$	818,746
Scanner	103,995			57,018			183,761			108,437
Total net revenues	$	600,697		$	490,259		$	1,149,668		$	927,183
Gross profit
Clear Aligner	$	366,142		$	331,612		$	717,500		$	628,588
Scanner	66,147			33,970			116,885			64,402
Total gross profit	$	432,289		$	365,582		$	834,385		$	692,990
Income from operations
Clear Aligner	$	244,029		$	190,287		$	402,670		$	351,741
Scanner	39,267			17,670			67,526			33,752
Unallocated corporate expenses	(106,806		)	(85,266		)	(206,005		)	(164,610		)
Total income from operations	$	176,490		$	122,691		$	264,191		$	220,883
Depreciation and amortization
Clear Aligner	$	11,277		$	6,759		$	22,412		$	13,143
Scanner	2,451			1,169			4,548			2,273
Unallocated corporate depreciation and amortization	9,763			4,704			19,209			8,650
Total depreciation and amortization	$	23,491		$	12,632		$	46,169		$	24,066
Impairments and other charges
Clear Aligner	$	—		$	—		$	29,782		$	—
Scanner	—			—			—			—
Unallocated corporate impairments and other charges	—			—			—			—
Total impairments and other charges	$	—		$	—		$	29,782		$	—

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,
	2019			2018			2019			2018
Total segment income from operations	$	283,296		$	207,957		$	470,196		$	385,493
Unallocated corporate expenses	(106,806		)	(85,266		)	(206,005		)	(164,610		)
Total income from operations	176,490			122,691			264,191			220,883
Interest income	3,465			1,917			6,098			4,093
Other income (expense), net	13,892			(7,099		)	8,146			(6,922		)
Net income before provision for income taxes and equity in losses of investee	$	193,847		$	117,509		$	278,435		$	218,054

Geographical Information

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Net revenues¹:
United States	$	296,655	$	254,020	$	575,660	$	491,123
The Netherlands	192,188		156,428		366,932		295,959
China	44,823		38,431		87,439		64,017
Other International	67,031		41,380		119,637		76,084
Total net revenues	$	600,697	$	490,259	$	1,149,668	$	927,183

¹Net revenues are attributed to countries based on the location of where revenues are recognized by our legal entities.

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



	June 30, 2019		December 31, 2018
Long-lived assets²:
The Netherlands	$	226,068	$	206,679
United States	170,191		139,239
Costa Rica	82,186		80,218
China	57,176		36,249
Mexico	38,094		33,240
Other International	83,165		25,704
Total long-lived assets	$	656,880	$	521,329

²Long-lived assets are attributed to countries based on the location of our entity that owns or leases the assets.