Segments and Geographical Information

9 Months Ended

Sep. 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, Invisalign First and Invisalign Moderate.


•	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 September 30,						Nine Months Ended September 30,
Net revenues	2019			2018			2019			2018
Clear Aligner	$	516,265		$	427,087		$	1,482,172		$	1,245,833
Scanner	91,076			78,202			274,837			186,639
Total net revenues	$	607,341		$	505,289		$	1,757,009		$	1,432,472
Gross profit
Clear Aligner	$	379,202		$	321,772		$	1,096,702		$	950,360
Scanner	58,352			50,009			175,237			114,411
Total gross profit	$	437,554		$	371,781		$	1,271,939		$	1,064,771
Income from operations
Clear Aligner	$	211,952		$	182,667		$	614,622		$	534,408
Scanner	32,760			31,498			100,286			65,250
Unallocated corporate expenses	(117,560		)	(88,957		)	(323,565		)	(253,567		)
Total income from operations	$	127,152		$	125,208		$	391,343		$	346,091
Depreciation and amortization
Clear Aligner	$	9,306		$	7,218		$	27,851		$	20,361
Scanner	1,987			1,237			5,349			3,510
Unallocated corporate depreciation and amortization	8,413			5,664			23,994			14,314
Total depreciation and amortization	$	19,706		$	14,119		$	57,194		$	38,185
Impairments and other (gains) charges
Clear Aligner	$	(6,792	)	$	—		$	22,990		$	—
Scanner	—			—			—			—
Unallocated corporate impairments and other charges	—			—			—			—
Total impairments and other charges	$	(6,792	)	$	—		$	22,990		$	—

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,
	2019			2018			2019			2018
Total segment income from operations	$	244,712		$	214,165		$	714,908		$	599,658
Unallocated corporate expenses	(117,560		)	(88,957		)	(323,565		)	(253,567		)
Total income from operations	127,152			125,208			391,343			346,091
Interest income	3,478			2,234			9,576			6,327
Other income (expense), net	(2,211		)	(837		)	5,935			(7,759		)
Net income before provision for income taxes and equity in losses of investee	$	128,419		$	126,605		$	406,854		$	344,659

Geographical Information

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Net revenues¹:
United States	$	286,050	$	263,349	$	861,710	$	754,472
The Netherlands	173,926		141,405		540,858		437,364
China	63,636		52,874		151,075		116,891
Other International	83,729		47,661		203,366		123,745
Total net revenues	$	607,341	$	505,289	$	1,757,009	$	1,432,472

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):



	September 30, 2019		December 31, 2018
Long-lived assets²:
The Netherlands	$	231,746	$	206,679
United States	164,732		139,239
Costa Rica	81,574		80,218
China	62,359		36,249
Mexico	38,494		33,240
Other International	81,599		25,704
Total long-lived assets	$	660,504	$	521,329

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