Segments and Geographical Information

12 Months Ended

Dec. 31, 2019

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 Invisalign Comprehensive and Invisalign First.


•	Non-Comprehensive Products include, but are not limited to, Invisalign Moderate, Lite and Express packages and Invisalign Go, in addition to revenues from the sale of aligners to SmileDirectClub (“SDC”) under our supply agreement that expired on December 31, 2019.


•	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, which includes a single hardware platform and restorative or orthodontic software options, additional services and ancillary products. 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):



	For the Year Ended December 31,
	2019			2018			2017
Net revenues
Clear Aligner	$	2,025,750		$	1,691,467		$	1,309,262
Scanner	381,046			275,025			164,151
Total net revenues	$	2,406,796		$	1,966,492		$	1,473,413
Gross profit
Clear Aligner	$	1,499,713		$	1,280,495		$	1,019,563
Scanner	244,184			167,372			97,384
Total gross profit	$	1,743,897		$	1,447,867		$	1,116,947
Income from operations
Clear Aligner	$	835,957		$	712,439		$	564,648
Scanner	137,720			98,998			49,613
Unallocated corporate expenses	(431,184		)	(344,873		)	(260,650		)
Total income from operations	$	542,493		$	466,564		$	353,611
Depreciation and amortization
Clear Aligner	$	38,979		$	29,001		$	21,581
Scanner	7,441			4,965			4,385
Unallocated corporate depreciation and amortization	32,570			20,761			11,773
Total depreciation and amortization	$	78,990		$	54,727		$	37,739
Impairments and other (gains) charges
Clear Aligner	$	(22,990	)	$	—		$	—
Total impairments and other (gains) charges	$	(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 in losses of investee (in thousands):



	For the Year Ended December 31,
	2019			2018			2017
Total segment income from operations	$	973,677		$	811,437		$	614,261
Unallocated corporate expenses	(431,184		)	(344,873		)	(260,650		)
Total income from operations	542,493			466,564			353,611
Interest income	12,482			8,576			6,948
Other income (expense), net	7,676			(8,489		)	4,240
Net income before provision for income taxes and equity in losses of investee	$	562,651		$	466,651		$	364,799

Geographical Information

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



	For the Year Ended December 31,
	2019		2018		2017
Net revenues¹:
United States	$	1,161,959	$	1,023,559	$	836,200
The Netherlands	760,444		610,039		456,108
China	196,733		155,790		81,661
Other International	287,660		177,104		99,444
Total net revenues	$	2,406,796	$	1,966,492	$	1,473,413


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

Tangible long-lived assets, which includes Property, plant and equipment, net, and Operating lease right-of-use assets, net are presented below by geographic area (in thousands):



	As of December 31,
	2019		2018
Long-lived assets ²:
The Netherlands	$	226,286	$	206,679
United States	164,451		139,239
Costa Rica	82,083		80,218
China	73,174		36,249
Other International	141,980		58,944
Total long-lived assets	$	687,974	$	521,329

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