Segments and Geographical Information

9 Months Ended

Sep. 30, 2022

Segment Reporting [Abstract]

Segments and Geographical Information

Segments and Geographical Information

Segment Information

We report segment information based on the management approach. The management approach designates the internal reporting used by our Chief Operating Decision Maker 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 Imaging Systems and CAD/CAM services (“Systems and Services”) segment.

Summarized financial information by segment is as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net revenues
Clear Aligner	$	732,837	$	837,593	$	2,340,931	$	2,431,821
Systems and Services	157,511		178,313		492,189		489,664
Total net revenues	$	890,348	$	1,015,906	$	2,833,120	$	2,921,485
Gross profit
Clear Aligner	$	519,387	$	638,169	$	1,710,328	$	1,869,368
Systems and Services	99,782		116,987		305,746		321,424
Total gross profit	$	619,169	$	755,156	$	2,016,074	$	2,190,792
Income from operations
Clear Aligner	$	259,434	$	346,957	$	879,362	$	1,022,048
Systems and Services	44,436		65,791		140,834		177,694
Unallocated corporate expenses	(160,214)		(151,588)		(490,262)		(444,234)
Total income from operations	$	143,656	$	261,160	$	529,934	$	755,508
Stock-based compensation
Clear Aligner	$	4,377	$	2,824	$	10,232	$	7,750
Systems and Services	240		169		690		514
Unallocated corporate expenses	28,301		25,409		87,757		76,234
Total stock-based compensation	$	32,918	$	28,402	$	98,679	$	84,498
Depreciation and amortization
Clear Aligner	$	14,678	$	13,191	$	42,474	$	36,481
Systems and Services	7,181		5,827		20,879		14,994
Unallocated corporate expenses	10,330		8,596		28,743		27,666
Total depreciation and amortization	$	32,189	$	27,614	$	92,096	$	79,141

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Total segment income from operations	$	303,870	$	412,748	$	1,020,196	$	1,199,742
Unallocated corporate expenses	(160,214)		(151,588)		(490,262)		(444,234)
Total income from operations	143,656		261,160		529,934		755,508
Interest income	1,685		401		2,607		2,427
Other income (expense), net	(22,700)		427		(48,805)		34,476
Net income before provision for income taxes	$	122,641	$	261,988	$	483,736	$	792,411

Geographical Information

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net revenues 1:
U.S.	$	400,045	$	448,858	$	1,251,018	$	1,266,258
Switzerland	257,845		323,036		919,935		1,004,820
Other International	232,458		244,012		662,167		650,407
Total net revenues	$	890,348	$	1,015,906	$	2,833,120	$	2,921,485

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):

	September 30, 2022		December 31, 2021
Long-lived assets 1:
Switzerland	$	519,202	$	444,205
U.S.	214,975		210,582
China	112,715		125,346
Other International	469,019		423,050
Total long-lived assets	$	1,315,911	$	1,203,183

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