Segments and Geographical Information

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):



	For the Year Ended December 31,
	2018			2017			2016
Net revenues
Clear Aligner	$	1,691,467		$	1,309,262		$	958,327
Scanner	275,025			164,151			121,547
Total net revenues	$	1,966,492		$	1,473,413		$	1,079,874
Gross profit
Clear Aligner	$	1,280,495		$	1,019,563		$	747,494
Scanner	167,372			97,384			67,800
Total gross profit	$	1,447,867		$	1,116,947		$	815,294
Income from operations
Clear Aligner	$	712,439		$	564,648		$	411,817
Scanner	98,998			49,613			37,498
Unallocated corporate expenses	(344,873		)	(260,650		)	(200,394		)
Total income from operations	$	466,564		$	353,611		$	248,921
Depreciation and amortization
Clear Aligner	$	29,001		$	21,581		$	13,742
Scanner	4,965			4,385			3,871
Unallocated corporate expenses	20,761			11,773			6,389
Total depreciation and amortization	$	54,727		$	37,739		$	24,002

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,
	2018			2017			2016
Total segment income from operations	$	811,437		$	614,261		$	449,315
Unallocated corporate expenses	(344,873		)	(260,650		)	(200,394		)
Total income from operations	466,564			353,611			248,921
Interest income	8,576			6,948			4,213
Other income (expense), net	(8,489		)	4,240			(10,568		)
Net income before provision for income taxes and equity in losses of investee	$	466,651		$	364,799		$	242,566

Geographical Information

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



	For the Year Ended December 31,
	2018		2017		2016
Net revenues⁽¹⁾:
United States ⁽²⁾	$	1,023,559	$	836,200	$	692,254
The Netherlands ⁽²⁾	610,039		456,108		286,911
China	155,790		81,661		46,480
Other International	177,104		99,444		54,229
Total net revenues	$	1,966,492	$	1,473,413	$	1,079,874


⁽¹⁾	Net revenues are attributed to countries based on location of where revenue is recognized.

⁽²⁾ Effective July 2016, we implemented a new international corporate structure. This changed the structure of our international procurement and sales operations.

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



	As of December 31,
	2018		2017
Long-lived assets ⁽³⁾:
The Netherlands	$	206,679	$	143,673
United States	139,239		128,171
Costa Rica	80,218		30,738
China	36,249		5,480
Mexico	33,240		25,090
Other International	25,704		15,641
Total long-lived assets	$	521,329	$	348,793

⁽³⁾ Long-lived assets are attributed to countries based on entity that owns the assets.