Segments and Geographical Information

9 Months Ended

Sep. 30, 2023

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 and restructuring costs. We group our operations into two reportable segments (i) Clear Aligner segment and (ii) 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,
	2023		2022		2023		2022
Net revenues
Clear Aligner	$	794,939	$	732,837	$	2,417,417	$	2,340,931
Systems and Services	165,275		157,511		488,117		492,189
Total net revenues	$	960,214	$	890,348	$	2,905,534	$	2,833,120
Gross profit
Clear Aligner	$	562,331	$	519,387	$	1,731,721	$	1,710,328
Systems and Services	100,745		99,782		305,618		305,746
Total gross profit	$	663,076	$	619,169	$	2,037,339	$	2,016,074
Income from operations
Clear Aligner	$	296,319	$	259,434	$	879,933	$	879,362
Systems and Services	44,975		44,436		132,600		140,834
Unallocated corporate expenses	(174,948)		(160,214)		(540,740)		(490,262)
Total income from operations	$	166,346	$	143,656	$	471,793	$	529,934
Stock-based compensation
Clear Aligner	$	5,772	$	4,377	$	14,917	$	10,232
Systems and Services	366		240		950		690
Unallocated corporate expenses	33,464		28,301		99,330		87,757
Total stock-based compensation	$	39,602	$	32,918	$	115,197	$	98,679
Depreciation and amortization
Clear Aligner	$	17,737	$	14,678	$	50,725	$	42,474
Systems and Services	7,827		7,181		23,716		20,879
Unallocated corporate expenses	11,466		10,330		34,228		28,743
Total depreciation and amortization	$	37,030	$	32,189	$	108,669	$	92,096

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,
	2023		2022		2023		2022
Total segment income from operations	$	341,294	$	303,870	$	1,012,533	$	1,020,196
Unallocated corporate expenses	(174,948)		(160,214)		(540,740)		(490,262)
Total income from operations	166,346		143,656		471,793		529,934
Interest income	5,522		1,685		12,280		2,607
Other income (expense), net	(9,757)		(22,700)		(15,749)		(48,805)
Net income before provision for income taxes	$	162,111	$	122,641	$	468,324	$	483,736

Geographical Information

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net revenues 1:
U.S.	$	421,272	$	400,045	$	1,262,008	$	1,251,018
Switzerland	259,587		257,845		913,724		919,935
Other International	279,355		232,458		729,802		662,167
Total net revenues	$	960,214	$	890,348	$	2,905,534	$	2,833,120

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, 2023		December 31, 2022
Long-lived assets 1:
Switzerland	$	567,230	$	532,921
U.S.	206,348		214,804
Other International2	613,776		603,010
Total long-lived assets	$	1,387,354	$	1,350,735

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

2 Certain prior period immaterial amounts have been reclassified to conform to current presentation.