Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by Align Technology, Inc. (“we”, “our”, or “Align”) in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and contain all adjustments, including normal recurring adjustments, necessary to state fairly our results of operations for the three months ended March 31, 2018 and 2017, our comprehensive income for the three months ended March 31, 2018 and 2017, our financial position as of March 31, 2018 and our cash flows for the three months ended March 31, 2018 and 2017. The Condensed Consolidated Balance Sheet as of December 31, 2017 was derived from the December 31, 2017 audited financial statements and have been recast to reflect the adoption of accounting standards as described below. It does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.”).

During the first quarter of fiscal year 2018, we adopted the Accounting Standards Codification (“ASC”) 606, “Revenues from Contracts with Customers,” using the full retrospective method and Accounting Standards Update (“ASU”) 2016-18, “Statement of Cash Flows - Restricted Cash,” on a retrospective basis. Condensed Consolidated Balance Sheet as of December 31, 2017 and Condensed Consolidated Statement of Cash Flow for the three months ended March 31, 2017 have been recast to comply with the adoption of these standards.

The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 or any other future period, and we make no representations related thereto. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk” and the Consolidated Financial Statements and notes thereto included in Items 7, 7A and 8, respectively, in our Annual Report on Form 10-K for the year ended December 31, 2017.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the U.S. requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates, including those related to the fair values of financial instruments, long-lived assets and goodwill, equity method investments, useful lives of intangible assets and property and equipment, revenue recognition, stock-based compensation, income taxes and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Significant Accounting Policies

Our significant accounting policies are described in Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K. Significant changes to the Revenue Recognition policy as a result of ASC 606 adoption are discussed below:

Revenue Recognition

Our revenues are derived primarily from the sale of aligners, scanners, and services from our Clear Aligner and Scanner segments. We enter into sales contracts that may consist of multiple distinct performance obligations where certain performance obligations of the sales contract are not delivered in one reporting period. We measure and allocate revenue according to Accounting Standards Codification (“ASC”) 606-10, “Revenues from Contracts with Customers”.

We identify a performance obligation as distinct if both the following criteria are true: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Determining the standalone selling price (“SSP”) and allocation of consideration from a contract to the individual performance obligations, and the appropriate timing of revenue recognition, is the result of significant qualitative and quantitative judgments. Management considers a variety of factors such as historical sales, usage rates, costs, and expected margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. While changes in the allocation of the SSP between performance obligations will not affect the amount of total revenue recognized for a particular contract, any material changes could impact the timing of revenue recognition, which would have a material effect on our financial position and result of operations. This is because the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation.

Clear Aligner

We enter into contracts (“treatment plan(s)”) that involve multiple future performance obligations. Invisalign Full, Invisalign Teen, and Invisalign Assist products include optional additional aligners at no charge for a period of up to five years after initial shipment and Invisalign Go includes optional additional aligners at no charge for a period of up to two years after initial shipment. Invisalign Teen also includes up to six optional replacement aligners in the price of the product and may be ordered by the dental professional any time throughout treatment. Invisalign Lite includes one optional case refinement in the price of the product. Case refinement is a finishing tool used to adjust a patient’s teeth to the desired final position and may be elected by the dental professional at any time during treatment; however, it is generally ordered in the last stages of orthodontic treatment.

We determined that our treatment plans comprise the following performance obligations that also represent distinct deliverables: initial aligners, additional aligners, case refinement, and replacement aligners. The Company elected to take the practical expedient to consider shipping and handling costs as activities to fulfill the performance obligation. We allocate revenue for each treatment plan based on each unit’s SSP and recognize the revenue over the manufacturing period, typically 1-3 days, as the aligners do not have an alternative use and we have enforceable rights to payment. As we collect most consideration upfront, we considered whether a significant financing component exists. However, as the delivery of the performance obligations are at the customer’s discretion, we concluded that no significant financing component exists.

Scanners

We sell intraoral scanners and CAD/CAM services through both our direct sales force and distribution partners. The intraoral scanner sales price includes one year of warranty and unlimited scanning services. The customer may, for additional fees, also select extended warranty and unlimited scanning services for periods beyond the initial year. When intraoral scanners are sold with an unlimited scanning service agreement and/or extended warranty, we allocate revenue based on each element’s SSP. We estimate the SSP of each element, taking into consideration historical prices as well as our discounting strategies. Revenue is then recognized over time as the monthly services are rendered and upon shipment for the scanner, as that is when we deem the customer to have obtained control.

Warranties

For both Clear Aligner and iTero scanner segments, the Company offers an assurance warranty, which provides the customer assurance that the product will function as the parties intended because it complies with agreed-upon specifications, and thus is not treated as a separate performance obligation and will continue to be accrued in accordance with the FASB guidance on guarantees.

Volume Discounts

In certain situations, we offer promotions in which the discount will increase depending upon the volume purchased over time. We concluded that in these situations, the promotions can represent either variable consideration or options, depending upon the specifics of the promotion. In the event the promotion contains an option, the option is considered a material right and therefore, included in the accounting for the initial arrangement. We estimate the average anticipated discount over the lifetime of the promotion or contract, and apply that discount to each unit as it is sold. On a quarterly basis, we review our estimates and if needed, updates are made and changes are applied prospectively.

Costs to Obtain a Contract

We offer a variety of commission plans to our salesforce; each plan has multiple components. To match the costs to obtain a contract to the associated revenue, we evaluate the individual components and capitalize the eligible components, recognizing the costs over the treatment period.

Unfulfilled Performance Obligations for Clear Aligners and Scanners

The Company’s unfilled performance obligations as of March 31, 2018 and the estimated revenue expected to be recognized in the future related to these performance obligations are $309 million. This includes performance obligations from the Clear Aligner segment, primarily the shipment of additional aligners, which are fulfilled over 1-5 years, and performance obligations from the iTero scanner segment, primarily contracted deliveries of additional scanners and support, which are fulfilled over 1-5 years. The estimate includes both product and service unfulfilled performance obligations and the time range reflect our best estimate of when the Company will transfer control to the customer and may change based on customer usage patterns, timing of shipments, readiness of customers’ facilities for installation, and manufacturing availability.

Contract Balances

The timing of revenue recognition results in deferred revenues on the Condensed Consolidated Balance Sheet. We usually collect the entire treatment fee prior to all performance obligations being performed and payment terms vary from net 30 to net 90. Contract liabilities are recorded as deferred revenue balances, which are generated based upon timing of invoices and recognition patterns, not payments. If the revenue recognition exceeds the billing, the exceeded amount is considered unbilled receivable and a contract asset. Conversely, if the billing occurs prior to the revenue recognition, the amount is considered deferred revenue and a contract liability.

Recent Accounting Pronouncements

(i) New Accounting Updates Recently Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) released ASU 2014-9, “Revenue from Contracts with Customers,” (Topic 606) to supersede nearly all existing revenue recognition guidance under GAAP. The core principle of the standard is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for the goods or services. We adopted the guidance in the first quarter of fiscal year 2018 by applying the full retrospective method. We have completed the financial statement impact of adoption including, but not limited to, volume-based discount programs, sales commissions and the identification of performance obligations. The impact of adoption was primarily related to the Clear Aligner segment. Our disaggregation of revenue can be found in Note 14 “Segments and Geographical Information.” The Company elected to take the practical expedient to exclude from the transaction price all taxes assessed by a governmental authority. In preparation for adoption of the standard, we have reviewed and, where necessary, implemented additional key system functionalities and internal controls to enable the preparation of financial information. Prior periods have been retrospectively adjusted, and we recognized cumulative effect of adopting the guidance as an adjustment to our opening balance of retained earnings as of January 1, 2016. The adoption of ASU 2014-09 did not have a material impact on our Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Income or Condensed Consolidated Statements of Cash Flows for the historical periods presented in the Item 1 Financial Statements section. Consolidated balance sheet line items, which reflect the adoption of the ASU 2014-09 are as follows (in thousands):



	December 31, 2017
	As Previously Reported		Adjustment			As Adjusted
Asset Accounts:
Accounts receivable, net	$	322,825	$	1,364		$	324,189
Deferred tax assets	50,059		(725		)	49,334
Other assets	38,379		5,514			43,893
Liability and Stockholders’ Equity Accounts:
Accrued liabilities	$	194,198	$	1,364		$	195,562
Deferred revenues	266,842		871			267,713
Retained earnings	263,356		3,918			267,274

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which clarifies the presentation and classification of certain cash receipts and cash payments in the statements of cash flows. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2017. We adopted the standard in the first quarter of fiscal year 2018 on a retrospective basis which did not have an impact on our consolidated statements of cash flows.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows - Restricted Cash,” which provides guidance to address the classification and presentation of changes in restricted cash in the statements of cash flows. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2017 on a retrospective basis. We adopted the guidance in the first quarter of fiscal year 2018 on a retrospective basis and presented the changes in the total of cash, cash equivalents, and restricted cash in the consolidated statements of cash flows. Consolidated statement of cash flows line items, which reflect the adoption of the ASU 2016-18, are as follows (in thousands):



	March 31, 2017
	As Previously Reported			Adjustment			As Adjusted
Cash Flows from Investing Activities
Other investing activities	$	2,314		$	(3,164	)	$	(850	)
Net cash provided by (used in) investing activities	(145,298		)	(3,164		)	(148,462		)
Net increase (decrease) in cash, cash equivalent, and restricted cash	(128,248		)	(3,164		)	(131,412		)
Cash, cash equivalents, and restricted cash at beginning of the period	389,275			3,744			393,019
Cash, cash equivalents, and restricted cash at end of the period	$	261,027		$	580		$	261,607

In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2017 on a prospective basis. We adopted the standard in the first quarter of fiscal year 2018 on a prospective basis which did not have an impact on our consolidated financial statements and related disclosures.

(ii) Recent Accounting Updates Not Yet Effective

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The updated guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. We plan to adopt the standard in the first quarter of fiscal year 2019 by electing practical expedients available in the standard. While we are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements, we expect the adoption will have a material increase in assets and liabilities on our consolidated balance sheet.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses” (Topic 326). The FASB issued this update to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this update replace the existing guidance of incurred loss impairment methodology with an approach that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact of this guidance on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” to simplify the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. Under the amendments, an entity will recognize an impairment charge for the amount by which the carrying value exceeds the fair value. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2019 on a prospective basis and early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements and related disclosures.

In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which gives entities the option to reclassify to retained earnings the tax effects resulting from the U.S. Tax Cuts and Jobs Act (the “TCJA”) related to items in accumulated other comprehensive income. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2018 on a retrospective basis and early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements and related disclosures.

Marketable Securities and Fair Value Measurements

3 Months Ended

Mar. 31, 2018

Marketable Securities and Fair Value Measurements

As of March 31, 2018 and December 31, 2017, the estimated fair value of our short-term and long-term marketable securities, classified as available for sale, are as follows (in thousands):

Short-term



March 31, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Commercial paper	$	20,447	$	—	$	(1	)	$	20,446
Corporate bonds	106,583		1		(333		)	106,251
U.S. government agency bonds	8,999		—		(52		)	8,947
U.S. government treasury bonds	28,146		—		(51		)	28,095
Certificates of deposit	1,001		—		—			1,001
Total marketable securities, short-term	$	165,176	$	1	$	(437	)	$	164,740

Long-term



March 31, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government agency bonds	$	7,032	$	—	$	(66	)	$	6,966
Corporate bonds	3,265		1		(20		)	3,246
Total marketable securities, long-term	$	10,297	$	1	$	(86	)	$	10,212

Short-term



December 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Commercial paper	$	58,503	$	—	$	(1	)	$	58,502
Corporate bonds	145,728		3		(174		)	145,557
U.S. government agency bonds	3,013		—		(7		)	3,006
U.S. government treasury bonds	60,650		—		(70		)	60,580
Certificates of deposit	4,386		—		—			4,386
Total marketable securities, short-term	$	272,280	$	3	$	(252	)	$	272,031

Long-term



December 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government agency bonds	$	15,023	$	—	$	(68	)	$	14,955
Corporate bonds	25,067		2		(76		)	24,993
Total marketable securities, long-term	$	40,090	$	2	$	(144	)	$	39,948

Cash equivalents are not included in the table above as the gross unrealized gains and losses are not material. We have no short-term or long-term investments that have been in a continuous material unrealized loss position for greater than twelve months as of March 31, 2018 and December 31, 2017. Amounts reclassified to earnings from accumulated other comprehensive income (loss), net related to unrealized gains or losses were not material for the three months ended March 31, 2018 and 2017. For the three months ended March 31, 2018 and 2017, realized gains or losses were not material.

Our fixed-income securities investment portfolio consists of investments that have a maximum effective maturity of 40 months on any individual security. The securities that we invest in are generally deemed to be low risk based on their credit ratings from the major rating agencies. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As interest rates increase, those securities purchased at a lower yield show a mark-to-market unrealized loss. The unrealized losses are due primarily to changes in credit spreads and interest rates. We expect to realize the full value of all these investments upon maturity or sale. The weighted average remaining duration of these securities was approximately five months and six months as of March 31, 2018 and December 31, 2017, respectively.

As the carrying value approximates the fair value for our short-term and long-term marketable securities shown in the tables above, the following table summarizes the fair value of our short-term and long-term marketable securities classified by maturity as of March 31, 2018 and December 31, 2017 (in thousands):



	March 31, 2018		December 31, 2017
One year or less	$	164,740	$	272,031
Due in greater than one year	10,212		39,948
Total available for sale short-term and long-term marketable securities	$	174,952	$	311,979

Fair Value Measurements

We measure the fair value of financial assets as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use the GAAP fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value:

Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities. Our Level 1 assets consist of money market funds and U.S. government treasury bonds. We did not hold any Level 1 liabilities as of March 31, 2018 and December 31, 2017.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. Our Level 2 assets consist of commercial paper, corporate bonds, U.S. government agency bonds, certificates of deposit and our Israeli funds that are mainly invested in insurance policies. We obtain fair values for our Level 2 investments. Our custody bank and asset managers independently use professional pricing services to gather pricing data which may include quoted market prices for identical or comparable financial instruments, or inputs other than quoted prices that are observable either directly or indirectly, and we are ultimately responsible for these underlying estimates. We did not hold any Level 2 liabilities as of March 31, 2018 and December 31, 2017.

Level 3 — Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation. Certain investments in private companies contain embedded derivatives, which do not require bifurcation as we elected to measure these investments at fair value. Our Level 3 assets consist of convertible short-term notes receivable.

The following table summarizes the reconciliation of assets measured and recorded at fair value on a recurring basis using significant unobservable inputs Level 3 (in thousands):



	Notes Receivable
Balance as of December 31, 2017	$	4,476
Accrued interest receivable	25
Change in fair value recognized in earnings	358
Balance as of March 31, 2018	$	4,859

Subsequent to March 31, 2018, in April 2018, the convertible notes receivable issued to a privately held company was converted into equity shares as a result of qualified financing secured by the company. We did not hold any Level 3 liabilities as of March 31, 2018 and December 31, 2017.

The following tables summarize our financial assets measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017 (in thousands):



Description	Balance as of March 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Observable Inputs (Level 3)
Cash equivalents:
Money market funds	$	255,373	$	255,373	$	—	$	—
Short-term investments:
Commercial paper	20,446		—		20,446		—
Corporate bonds	106,251		—		106,251		—
U.S. government agency bonds	8,947		—		8,947		—
U.S. government treasury bonds	28,095		28,095		—		—
Certificates of deposit	1,001		—		1,001		—
Long-term investments:
U.S. government agency bonds	6,966		—		6,966		—
Corporate bonds	3,246		—		3,246		—
Prepaid expenses and other current assets:
Israeli funds	3,114		—		3,114		—
Short-term notes receivable	4,859		—		—		4,859
	$	438,298	$	283,468	$	149,971	$	4,859



Description	Balance as of December 31, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Observable Inputs (Level 3)
Cash equivalents:
Money market funds	$	253,155	$	253,155	$	—	$	—
Commercial paper	7,246		—		7,246		—
Corporate bonds	2,016		—		2,016		—
Short-term investments:
Commercial paper	58,502		—		58,502		—
Corporate bonds	145,557		—		145,557		—
U.S. government agency bonds	3,006		—		3,006		—
U.S. government treasury bonds	60,580		60,580		—		—
Certificates of deposit	4,386		—		4,386		—
Long-term investments:
U.S. government agency bonds	14,955		—		14,955		—
Corporate bonds	24,993		—		24,993		—
Prepaid expenses and other current assets:
Israeli funds	3,075		—		3,075		—
Short-term notes receivable	4,476		—		—		4,476
	$	581,947	$	313,735	$	263,736	$	4,476

Derivative Financial Instruments

In March 2018, we began entering into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on certain trade and intercompany receivables and payables. These forward contracts are classified within level 2 of the fair value hierarchy. There was no net gain or loss from the settlement of foreign currency forward contracts during the three months ended March 31, 2018. As of March 31, 2018, the fair value of foreign exchange forward contracts outstanding was not material.

The following table presents the gross notional value of all our foreign exchange forward contracts outstanding as of March 31, 2018 (in thousands):



	March 31, 2018
	Local Currency Amount	Notional Contract Amount (USD)
Euro	€40,000	$	49,244
British Pound	£9,000	12,615
		$	61,859

Balance Sheet Components

3 Months Ended

Mar. 31, 2018

Balance Sheet Components

Inventories

Inventories consist of the following (in thousands):



	March 31, 2018		December 31, 2017
Raw materials	$	13,386	$	12,721
Work in process	11,442		12,157
Finished goods	11,038		6,810
Total inventories	$	35,866	$	31,688

Other Assets

Other assets consist of the following (in thousands):



	March 31, 2018		December 31, 2017
Capitalized commissions	$	7,681	$	5,515
Other long-term assets	5,831		4,821
Security deposits	3,721		3,557
Loan receivable	—		30,000
Total other assets	$	17,233	$	43,893

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):



	March 31, 2018		December 31, 2017
Accrued payroll and benefits	$	69,581	$	103,004
Accrued expenses	32,458		27,318
Accrued income taxes	17,134		12,405
Accrued fixed assets	15,241		11,362
Accrued warranty	6,657		5,929
Accrued professional fees	6,562		6,316
Accrued sales tax and value added tax	5,340		5,503
Accrued sales rebate	5,121		11,209
Accrued sales return reserve ¹	4,887		1,364
Other accrued liabilities	17,112		11,152
Total accrued liabilities	$	180,093	$	195,562

¹ December 31, 2017 balance has been reclassified from accounts receivable, net to reflect the adoption of ASU 2014-09 (Refer to Note 1 “Summary of Significant Accounting Policies” of the Notes to Condensed Consolidated Financial Statements for more information).

Warranty

We regularly review the balance for accrued warranty and update based on historical warranty trends. Actual warranty costs incurred have not materially differed from those accrued; however, future actual warranty costs could differ from the estimated amounts.

Warranty accrual as of March 31, 2018 and 2017 consists of the following activity (in thousands):



	Three Months Ended March 31,
	2018			2017
Balance at beginning of period	$	5,929		$	3,841
Charged to cost of revenues	2,359			1,822
Actual warranty expenditures	(1,631		)	(1,362		)
Balance at end of period	$	6,657		$	4,301

Deferred Revenues

Deferred revenues consist of the following (in thousands):



	March 31, 2018		December 31, 2017
Deferred revenues - current	$	296,011	$	267,713
Deferred revenues - long-term ¹	6,171		4,588

¹ Included in other long-term liabilities on our Condensed Consolidated Balance Sheets

During the three months ended March 31, 2018 and March 31, 2017, the Company recognized revenue of $437 million and $310 million, respectively, of which $86 million and $51 million were included in the deferred revenues balance at December 31, 2017 and December 31, 2016, respectively.

Equity Method Investments	3 Months Ended
Equity Method Investments	Mar. 31, 2018
Equity Method Investments and Joint Ventures [Abstract]
Equity Method Investments	Equity Method Investments On July 25, 2016, we acquired a 17% equity interest, on a fully diluted basis, in SmileDirectClub, LLC (“SDC”) for $46.7 million. The investment is accounted for under an equity method investment and the investee, SDC, is considered a related party. The investment is reported in our Condensed Consolidated Balance Sheet under equity method investments, and we record our proportional share of SDC’s losses within equity in losses of investee, net of tax, in our Condensed Consolidated Statement of Operations. On July 24, 2017, we purchased an additional 2% equity interest in SDC for $12.8 million. As a result of this purchase, we hold a 19% equity interest in SDC on a fully diluted basis. As of March 31, 2018 and December 31, 2017, the balance of our equity method investments was $52.8 million and $54.6 million, respectively. Concurrently with the investment on July 25, 2016, we also entered into a supply agreement with SDC to manufacture clear aligners for SDC’s doctor-led, at-home program for simple teeth straightening. The term of the supply agreement expires on December 31, 2019. We commenced supplying aligners to SDC in October 2016. The sale of aligners to SDC and the income from the supply agreement are reported in our Clear Aligner business segment. We eliminate unrealized profit on outstanding intercompany transactions. As of March 31, 2018 and December 31, 2017, the balance of accounts receivable due from SDC was $8.1 million and $14.3 million, respectively. For the three months ended March 31, 2018 and 2017, net revenues recognized from SDC were $5.3 million and $0.6 million, respectively. On July 25, 2016, we entered into a Loan and Security Agreement (the “Loan Agreement”) with SDC and amended on July 24, 2017 where we agreed to provide SDC a loan of up to $30.0 million in one or more advances. On February 7, 2018, $30.0 million of outstanding loan advances and related accrued interest were repaid in full, and the Loan Agreement was terminate (Refer to Note 8 “Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements for SDC legal proceedings discussion).

Business Combinations	3 Months Ended
Business Combinations	Mar. 31, 2018
Business Combinations [Abstract]
Business Combinations	Business Combinations During the first quarter of 2017, we completed the acquisitions of certain of our distributors for the total cash consideration of approximately $9.5 million including cash acquired. We recorded $1.9 million of net tangible liabilities, $8.2 million of identifiable intangible assets and $3.2 million of goodwill. The goodwill is primarily related to the benefit we expect to obtain from direct sales as we believe that the transition from our distributor arrangements to a direct sales model will increase our net revenues in the region as we will experience higher average sales prices (“ASP”) compared to our discounted ASP under the distribution agreements. The goodwill is not deductible for tax purposes. Pro forma results of operations for these acquisitions have not been presented as they were not material to our results of operations, either individually or in aggregate, for the three months ended March 31, 2017.

The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 805
-SubTopic 10
-Section 50
-Paragraph 5
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+ Details

Goodwill and Long-lived Assets

3 Months Ended

Mar. 31, 2018

Goodwill and Intangible Assets

Goodwill

The change in the carrying value of goodwill for the three months ended March 31, 2018, all attributable to our Clear Aligner reporting unit, is as follows (in thousands):



	Total
Balance as of December 31, 2017	$	64,614
Adjustments¹	7
Balance as of March 31, 2018	$	64,621

¹The adjustments to goodwill during the period were a result of foreign currency translation.

During the fourth quarter of fiscal 2017, we performed the annual goodwill impairment testing and found no impairment as the fair value of our Clear Aligner reporting unit was significantly in excess of the carrying value.

Intangible Long-Lived Assets

Acquired intangible long-lived assets are being amortized as follows (in thousands):



	Weighted Average Amortization Period (in years)	Gross Carrying Amount as of March 31, 2018		Accumulated Amortization			Accumulated Impairment Loss			Net Carrying Value as of March 31, 2018
Trademarks	15	$	7,100	$	(1,803	)	$	(4,179	)	$	1,118
Existing technology	13	12,600		(4,845		)	(4,328		)	3,427
Customer relationships	11	33,500		(15,147		)	(10,751		)	7,602
Reacquired rights	3	7,500		(1,914		)	—			5,586
Patents	8	6,796		(1,712		)	—			5,084
Other	2	618		(427		)	—			191
Total intangible assets		$	68,114	$	(25,848	)	$	(19,258	)	$	23,008



	Weighted Average Amortization Period (in years)	Gross Carrying Amount as of December 31, 2017		Accumulated Amortization			Accumulated Impairment Loss			Net Carrying Value as of December 31, 2017
Trademarks	15	$	7,100	$	(1,769	)	$	(4,179	)	$	1,152
Existing technology	13	12,600		(4,704		)	(4,328		)	3,568
Customer relationships	11	33,500		(14,681		)	(10,751		)	8,068
Reacquired rights	3	7,500		(1,356		)	—			6,144
Patents	8	6,798		(1,504		)	—			5,294
Other	2	618		(390		)	—			228
Total intangible assets		$	68,116	$	(24,404	)	$	(19,258	)	$	24,454

The total estimated annual future amortization expense for these acquired intangible assets as of March 31, 2018 is as follows (in thousands):



Fiscal Year Ending December 31,
Remainder of 2018	$	4,843
2019	6,343
2020	3,882
2021	3,389
2022	2,116
Thereafter	2,435
Total	$	23,008

Amortization for the three months ended March 31, 2018 and 2017 was $1.4 million for both periods.

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

Credit Facilities	3 Months Ended
Credit Facilities	Mar. 31, 2018
Notes To Financial Statements [Abstract]
Credit Facilities	Credit Facilities On February 27, 2018, we entered into a new credit facility for a $200.0 million revolving line of credit, with a $50.0 million letter of credit sublimit, and a maturity date of February 27, 2021, replacing the existing credit facility which we had $50.0 million revolving line of credit with a $10.0 million letter of credit. The credit facility requires us to comply with specific financial conditions and performance requirements. The loans bear interest, at our option, at either a rate based on the reserve adjusted LIBOR for the applicable interest period or a base rate, in each case plus a margin. The base rate is the highest of the credit facility’s publicly announced prime rate, the federal funds rate plus 0.50% and one month LIBOR plus 1.0%. The margin ranges from 1.25% to 1.75% for LIBOR loans and 0.25% to 0.75% for base rate loans. Interest on the loans is payable quarterly in arrears with respect to base rate loans and at the end of an interest period (and at three month intervals if the interest period exceeds three months) in the case of LIBOR loans. Principal, together with accrued and unpaid interest, is due on the maturity date. As of March 31, 2018, we had no outstanding borrowings under this credit facility and were in compliance with the conditions and performance requirements.

Legal Proceedings (Notes)	3 Months Ended
Legal Proceedings (Notes)	Mar. 31, 2018
Legal Proceedings [Abstract]
Legal Proceedings	Legal Proceedings Patent Infringement Lawsuit On November 14, 2017, Align filed six patent infringement lawsuits asserting 26 patents against 3Shape A/S, a Danish corporation, and a related U.S. corporate entity, asserting that 3Shape’s Trios intraoral scanning system and Dental System software infringe Align patents. Align filed two Section 337 complaints with the U.S. International Trade Commission (ITC) alleging that 3Shape violates U.S. trade laws by selling for importation and importing its infringing Trios intraoral scanning system and Dental System software. Align’s ITC complaints seek cease and desist orders and exclusion orders prohibiting the importation of 3Shape’s Trios scanning system and Dental System software products into the U.S. Align also filed four separate complaints in the United States District Court for the District of Delaware alleging patent infringement by 3Shape’s Trios intraoral scanning system and Dental System software. All of these district court complaints seek monetary damages and injunctive relief against further infringement. SDC Dispute On April 5, 2018, SDC Financial LLC, SmileDirectClub LLC, and the Members of SDC Financial LLC other than Align (collectively, the "SDC Entities") initiated proceedings that seek, among other forms of relief, to preliminarily and permanently enjoin all activities related to the Invisalign store pilot project, require Align to close the existing Invisalign stores, prohibit Align from opening any additional stores, and allow the SDC Entities to exercise a right to repurchase all of Align's SDC Financial LLC membership interests for a purchase price equal to the current capital account balance. We dispute the allegations that we have breached our obligations to the SDC Entities, including the allegation that the SDC Entities are entitled to exercise a repurchase right and we will oppose and vigorously defend ourselves in the proceedings. This dispute does not impact Align’s existing supply agreement with SDC which remains in place through 2019 and includes a minimum volume commitment. We are currently unable to predict the outcome of this amended complaint and therefore cannot determine the likelihood of loss nor estimate a range of possible loss, if any. In addition, in the course of Align’s operations, Align is involved in a variety of claims, suits, investigations, and proceedings, including actions with respect to intellectual property claims, patent infringement claims, government investigations, labor and employment claims, breach of contract claims, tax, and other matters. Regardless of the outcome, these proceedings can have an adverse impact on us because of defense costs, diversion of management resources, and other factors. Although the results of complex legal proceedings are difficult to predict and Align’s view of these matters may change in the future as litigation and events related thereto unfold; Align currently does not believe that these matters, individually or in the aggregate, will materially affect Align’s financial position, results of operations or cash flows.

Commitments and Contingencies

3 Months Ended

Mar. 31, 2018

Commitments and Contingencies

Operating Leases

As of March 31, 2018, minimum future lease payments for non-cancelable operating leases are as follows (in thousands):



Fiscal Year Ending December 31,	Operating Leases
Remainder of 2018	$	13,508
2019	15,061
2020	11,056
2021	9,270
2022	7,107
Thereafter	10,537
Total minimum future lease payments	$	66,539

Sublease income is not material and excluded from the table above.

Other Commitments

On July 25, 2016, we entered into a Loan and Security Agreement (the “Loan Agreement”) with SmileDirectClub, LLC (“SDC”) and subsequently amended on July 24, 2017 to provide a loan of up to $30.0 million in one or more advances to SDC (the “Loan Facility”). On February 7, 2018, $30.0 million of outstanding advances and related accrued interest were repaid in full, and the Loan Agreement was terminated (Refer to Note 4 “Equity Method Investments” of the Notes to Condensed Consolidated Financial Statements for more information on our investments in SDC).

Off-Balance Sheet Arrangements

As of March 31, 2018, we had no material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources other than certain items disclosed in Note 9 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K.

Indemnification Provisions

In the normal course of business to facilitate transactions in our services and products, we indemnify certain parties: customers, vendors, lessors, and other parties with respect to certain matters, including, but not limited to, services to be provided by us and intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and our executive officers that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. Several of these agreements limit the time within which an indemnification claim can be made and the amount of the claim.

It is not possible to make a reasonable estimate of the maximum potential amount under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Additionally, we have a limited history of prior indemnification claims and the payments we have made under such agreements have not had a material adverse effect on our results of operations, cash flows or financial position. However, to the extent that valid indemnification claims arise in the future, future payments by us could be significant and could have a material adverse effect on our results of operations or cash flows in a particular period. As of March 31, 2018, we did not have any material indemnification claims that were probable or reasonably possible.

Stockholders' Equity

3 Months Ended

Mar. 31, 2018

Stockholders' Equity

Stockholders’ Equity

Summary of Stock-Based Compensation Expense

As of March 31, 2018, the 2005 Incentive Plan (as amended) has a total reserve of 27,783,379 shares of which 6,302,917 shares are available for issuance.

Stock-based compensation is based on the estimated fair value of awards, net of estimated forfeitures, and recognized over the requisite service period. Estimated forfeitures are based on historical experience at the time of grant and may be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The stock-based compensation related to all of our stock-based awards and employee stock purchases for the three months ended March 31, 2018 and 2017 is as follows (in thousands):



	Three Months Ended March 31,
	2018		2017
Cost of net revenues	$	881	$	925
Selling, general and administrative	12,578		11,716
Research and development	2,371		2,171
Total stock-based compensation	$	15,830	$	14,812

Stock Options

We have not granted options since 2011 and all outstanding options were fully vested and associated stock-based compensation expenses was recognized as of December 31, 2015. Activity for the three months ended March 31, 2018 under the stock option plans is set forth below:



	Number of Shares Underlying Stock Options (in thousands)		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2017	75		$	11.36
Exercised	(15	)	11.65
Cancelled or expired	—		—
Outstanding as of March 31, 2018	60		$	11.28	0.81	$	14,369
Vested at March 31, 2018	60		$	11.28	0.81	$	14,369
Exercisable at March 31, 2018	60		$	11.28	0.81	$	14,369

Restricted Stock Units (“RSUs”)

The fair value of restricted stock units (“RSUs”) is based on our closing stock price on the date of grant. A summary for the three months ended March 31, 2018 is as follows:



	Shares Underlying RSUs (in thousands)		Weighted Average Grant Date Fair Value		Weighted Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Nonvested as of December 31, 2017	1,341		$	82.30
Granted	193		254.22
Vested and released	(439	)	67.12
Forfeited	(39	)	103.23
Nonvested as of March 31, 2018	1,056		$	119.34	1.61	$	265,087

As of March 31, 2018, we expect to recognize $105.2 million of total unamortized compensation cost, net of estimated forfeitures, related to RSUs over a weighted average period of 2.5 years.

Market-performance Based Restricted Stock Units (“MSUs”)

On an annual basis, we grant market-performance based restricted stock units (“MSUs”) to our executive officers. Each MSU represents the right to one share of Align’s common stock. The actual number of MSUs which will be eligible to vest will be based on the performance of Align’s stock price relative to the performance of the NASDAQ Composite Index over the vesting period, generally two to three years, up to 250% of the MSUs initially granted.

The following table summarizes the MSU performance for the three months ended March 31, 2018:



	Number of Shares Underlying MSUs (in thousands)		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Nonvested as of December 31, 2017	428		$	78.53
Granted	110		221.18
Vested and released	(146	)	56.75
Forfeited	—		—
Nonvested as of March 31, 2018	392		$	126.58	1.27	$	98,468

As of March 31, 2018, we expect to recognize $28.6 million of total unamortized compensation cost, net of estimated forfeitures, related to MSUs over a weighted average period of 1.3 years.

Employee Stock Purchase Plan (“ESPP”)

In May 2010, our shareholders approved the 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”) which will continue until terminated by either the Board of Directors or its administrator. The maximum number of shares available for purchase under the 2010 Purchase Plan is 2,400,000 shares. As of March 31, 2018, we have 647,363 shares available for future issuance.

The fair value of the option component of the 2010 Purchase Plan shares was estimated at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:



	Three Months Ended March 31,
	2018			2017
Expected term (in years)	1.3			1.2
Expected volatility	35.7		%	26.1		%
Risk-free interest rate	1.9		%	0.9		%
Expected dividends	—			—
Weighted average fair value at grant date	$	78.38		$	26.09

As of March 31, 2018, there was $2.4 million of total unamortized compensation costs related to employee stock purchases which we expect to be recognized over a weighted average period of 0.7 year.

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

Accounting for Income Taxes

Common Stock Repurchase	3 Months Ended
Common Stock Repurchase	Mar. 31, 2018
Notes To Financial Statements [Abstract]
Common Stock Repurchase	Common Stock Repurchase April 2014 Repurchase Program In January 2017, we repurchased on the open market approximately 0.04 million shares of our common stock at an average price of $96.37 per share, including commission for an aggregate purchase price of approximately $3.8 million, completing the April 2014 Repurchase Program. April 2016 Repurchase Program On April 28, 2016, we announced that our Board of Directors had authorized a plan to repurchase up to $300.0 million of the Company’s stock (“April 2016 Repurchase Program”). In May 2017, we entered into an accelerated share repurchase agreement ("2017 ASR") to repurchase $50.0 million of our common stock. The 2017 ASR was completed in August 2017. We received a total of approximately 0.4 million shares for an average share price of $146.48. In November 2017, we repurchased on the open market approximately 0.2 million shares of our common stock at an average price of $243.40 per share, including commissions, for an aggregate purchase price of approximately $50.0 million. In February 2018, we repurchased on the open market approximately 0.4 million shares of our common stock at an average price of $252.24 per share, including commission for an aggregate purchase price of approximately $100.0 million. As of March 31, 2018, we have $100.0 million remaining under the April 2016 Repurchase Plan.

Accounting for Income Taxes

3 Months Ended

Mar. 31, 2018

Our provision for (benefit from) income taxes was $2.9 million and $(7.2) million for the three months ended March 31, 2018 and 2017, respectively, representing effective tax rates of 2.9% and (11.4)%, respectively. As a result of the enactment of the U.S. Tax Cuts and Jobs Act (the “TCJA”), the U.S. federal statutory tax rate decreased from 35% to 21% effective January 1, 2018. Our effective tax rate differs from the statutory federal income tax rate of 21% and 35% for the three months ended March 31, 2018 and 2017, respectively, mainly as a result of recognition of excess tax benefits related to stock-based compensation and certain foreign earnings, primarily from the Netherlands and Costa Rica, being taxed at lower tax rates. The increase in effective tax rate for the three months ended March 31, 2018 compared to the same period in 2017 is primarily attributable to the decrease in corporate tax rate from 35% to 21% pursuant to the enactment of the TCJA, which reduced the excess tax benefits related to stock-based compensation, and the benefits from foreign earnings being taxed at a lower tax rate.

For the three months ended March 31, 2018 and 2017, we recognized excess tax benefits of $23.3 million and $21.3 million, respectively, in our provision for (benefit from) income taxes.

We exercise significant judgment in regards to estimates of future market growth, forecasted earnings and projected taxable income in determining the provision for income taxes and for purposes of assessing our ability to utilize any future benefit from deferred tax assets.

We file U.S. federal, U.S. state, and non-U.S. income tax returns. Our major tax jurisdictions include U.S. federal, the State of California and the Netherlands. For U.S. federal and state tax returns, we are no longer subject to tax examinations for years before 2000. With few exceptions, we are no longer subject to examination by foreign tax authorities for years before 2010.

Our total gross unrecognized tax benefits, excluding interest and penalties, was $50.3 million and $47.7 million as of March 31, 2018 and December 31, 2017, respectively, all of which would impact our effective tax rate if recognized. Our total interest and penalties accrued as of March 31, 2018 was $3.3 million. We have elected to recognize interest and penalties related to unrecognized tax benefits as a component of income taxes. The timing and resolution of income tax examinations is uncertain, and the amounts ultimately paid, if any, upon resolution of issues raised by the taxing authorities may differ materially from the amounts accrued for each year. It is reasonably possible that the gross unrecognized tax benefits related to the years that are subject to examination could decrease, whether by payment, release, or a combination of both, in the next 12 months by $28 million, which would impact our effective tax rate. During the three months ended March 31, 2018, we received notice that we are under examination by the Internal Revenue Service for the tax year of 2015.

In June 2017, the Costa Rica Ministry of Foreign Trade, an agency of the Government of Costa Rica, granted an extension of certain income tax incentives for an additional twelve year period. Under these incentives, all of the income in Costa Rica is subject to a reduced tax rate. In order to receive the benefit of these incentives, we must hire specified numbers of employees and maintain certain minimum levels of fixed asset investment in Costa Rica. If we do not fulfill these conditions for any reason, our incentive could lapse and our income in Costa Rica would be subject to taxation at higher rates which could have a negative impact on our operating results. The Costa Rica corporate income tax rate that would apply, absent the incentives, is 30% for 2018 and 2017. For the three months ended March 31, 2018, the reduction in income taxes due to the reduced tax rate was minimal.

As of December 31, 2017, undistributed earnings of the Company totaled $606.5 million. We reassessed our capital needs and investment strategy with regard to the indefinite reinvestment of the undistributed earnings from certain of our foreign subsidiaries as a result of the one-time transition tax on cumulative foreign earnings under the TCJA. During the fourth quarter of 2017, we determined that approximately $591.9 million of the total undistributed foreign earnings are no longer considered to be indefinitely reinvested outside the U.S. As a result, in the fourth quarter of 2017, we have recorded a deferred tax liability of approximately $3.3 million, which represents the provisional amount of U.S. state income taxes that would be due in the event these foreign earnings are distributed. The remaining amount of undistributed foreign earnings of approximately $14.7 million continues to be indefinitely reinvested in our international operations. Since U.S. federal income tax has already been provided under the provisions of the TCJA, the additional tax impact of the distribution of such foreign earnings to the U.S. parent would be limited to U.S. state income and withholding taxes and is not significant.

As of December 31, 2017, we recorded a provisional tax charge of $84.3 million related to the one-time transition tax liability and other tax impact of the TJCA. In the first quarter of 2018, we recorded an additional provisional tax charge of $2.4 million, primarily resulting from further analysis of our cumulative foreign earnings balances affecting the transition tax liability. As we complete our analysis of the TJCA, we may make further adjustments to the provisional amounts, which may impact our provision for income taxes in the period in which the adjustments are made.

The TCJA subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Given the complexity of the GILTI provisions, we are still evaluating the effects of the GILTI provisions and have not yet determined our accounting policy. As of March 31, 2018, as we are still evaluating the GILTI provisions and our analysis of future taxable income that is subject to GILTI, we have included GILTI related to current-year operations only in our estimated annual effective tax rate and have not provided additional GILTI on deferred items.

Net Income Per Share

3 Months Ended

Mar. 31, 2018

Net Income Per Share

Net Income per Share

Basic net income per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed using the weighted average number of shares of common stock, adjusted for any dilutive effect of potential common stock. Potential common stock, computed using the treasury stock method, includes RSU, MSU, stock options and our ESPP.

The following table sets forth the computation of basic and diluted net income per share attributable to common stock (in thousands, except per share amounts):



	Three Months Ended March 31,
	2018		2017
Numerator:
Net income	$	95,866	$	69,420
Denominator:
Weighted-average common shares outstanding, basic	80,036		79,904
Dilutive effect of potential common stock	1,592		1,630
Total shares, diluted	81,628		81,534

Net income per share, basic	$	1.20	$	0.87
Net income per share, diluted	$	1.17	$	0.85

For the three months ended March 31, 2018 and 2017, potentially anti-dilutive shares excluded from diluted net income per share related to RSUs, MSUs, stock options and ESPP were not material.

Segments and Geographical Information

3 Months Ended

Mar. 31, 2018

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 our Invisalign Full, Teen and Assist products.


•	Non-Comprehensive Products include our Invisalign Express, Invisalign Lite, Invisalign i7 and Invisalign Go products in addition to revenues from the sale of aligners to SmileDirectClub (“SDC”) under our supply agreement.


•	Non-Case includes our Vivera retainers along with our training and ancillary products for treating malocclusion.


•	Our Scanner segment consists of intraoral scanning systems and additional services available with the intraoral scanners that provide digital alternatives to the traditional cast models. This segment includes our iTero scanner and OrthoCAD services.

We eliminate unrealized profit on outstanding intercompany transactions.

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 March 31,
Net revenues	2018			2017
Clear Aligner	$	385,505		$	282,399
Scanner	51,419			27,942
Total net revenues	$	436,924		$	310,341
Gross profit
Clear Aligner	$	296,976		$	219,947
Scanner	30,432			15,678
Total gross profit	$	327,408		$	235,625
Income from operations
Clear Aligner	$	161,454		$	114,734
Scanner	16,082			6,004
Unallocated corporate expenses	(79,344		)	(59,065		)
Total income from operations	$	98,192		$	61,673
Depreciation and amortization
Clear Aligner	$	6,384		$	4,363
Scanner	1,104			1,037
Unallocated corporate expenses	3,946			2,467
Total depreciation and amortization	$	11,434		$	7,867

The following table reconciles total segment income from operations in the table above to net income before provision for (benefit from) income taxes and equity losses of investee, net of tax (in thousands):



	Three Months Ended March 31,
	2018			2017
Total segment income from operations	$	177,536		$	120,738
Unallocated corporate expenses	(79,344		)	(59,065		)
Total income from operations	98,192			61,673
Interest income	2,176			1,195
Other income (expense), net	177			450
Net income before provision for (benefit from) income taxes and equity in losses of investee	$	100,545		$	63,318

Geographical Information

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



	Three Months Ended March 31,
	2018		2017
Net revenues¹:
United States	$	237,103	$	183,273
The Netherlands	139,531		99,799
Other International	60,290		27,269
Total net revenues	$	436,924	$	310,341

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

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



	March 31, 2018		December 31, 2017
Long-lived assets¹:
The Netherlands	$	164,165	$	143,673
United States	126,983		128,171
Costa Rica	48,470		30,738
Mexico	30,215		25,090
China	12,258		5,480
Other International	18,437		15,641
Total long-lived assets	$	400,528	$	348,793

¹Long-lived assets are attributed to countries based on entity that owns the assets.

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

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+ Details

Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2018

Recent Accounting Pronouncements

Basis of presentation

Basis of Presentation

Use of estimates

Use of Estimates

Revenue Recognition

Clear Aligner

Scanners

Warranties

Volume Discounts

Costs to Obtain a Contract

Unfulfilled Performance Obligations for Clear Aligners and Scanners

Contract Balances

(i) New Accounting Updates Recently Adopted



	December 31, 2017
	As Previously Reported		Adjustment			As Adjusted
Asset Accounts:
Accounts receivable, net	$	322,825	$	1,364		$	324,189
Deferred tax assets	50,059		(725		)	49,334
Other assets	38,379		5,514			43,893
Liability and Stockholders’ Equity Accounts:
Accrued liabilities	$	194,198	$	1,364		$	195,562
Deferred revenues	266,842		871			267,713
Retained earnings	263,356		3,918			267,274



	March 31, 2017
	As Previously Reported			Adjustment			As Adjusted
Cash Flows from Investing Activities
Other investing activities	$	2,314		$	(3,164	)	$	(850	)
Net cash provided by (used in) investing activities	(145,298		)	(3,164		)	(148,462		)
Net increase (decrease) in cash, cash equivalent, and restricted cash	(128,248		)	(3,164		)	(131,412		)
Cash, cash equivalents, and restricted cash at beginning of the period	389,275			3,744			393,019
Cash, cash equivalents, and restricted cash at end of the period	$	261,027		$	580		$	261,607

(ii) Recent Accounting Updates Not Yet Effective

Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2018

Schedule of New Accounting Pronouncements and Changes in Accounting Principles

Consolidated statement of cash flows line items, which reflect the adoption of the ASU 2016-18, are as follows (in thousands):



	March 31, 2017
	As Previously Reported			Adjustment			As Adjusted
Cash Flows from Investing Activities
Other investing activities	$	2,314		$	(3,164	)	$	(850	)
Net cash provided by (used in) investing activities	(145,298		)	(3,164		)	(148,462		)
Net increase (decrease) in cash, cash equivalent, and restricted cash	(128,248		)	(3,164		)	(131,412		)
Cash, cash equivalents, and restricted cash at beginning of the period	389,275			3,744			393,019
Cash, cash equivalents, and restricted cash at end of the period	$	261,027		$	580		$	261,607

Consolidated balance sheet line items, which reflect the adoption of the ASU 2014-09 are as follows (in thousands):



	December 31, 2017
	As Previously Reported		Adjustment			As Adjusted
Asset Accounts:
Accounts receivable, net	$	322,825	$	1,364		$	324,189
Deferred tax assets	50,059		(725		)	49,334
Other assets	38,379		5,514			43,893
Liability and Stockholders’ Equity Accounts:
Accrued liabilities	$	194,198	$	1,364		$	195,562
Deferred revenues	266,842		871			267,713
Retained earnings	263,356		3,918			267,274

Tabular disclosure of changes in accounting principles, including adoption of new accounting pronouncements, that describes the new methods, amount and effects on financial statement line items.

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+ Details

Marketable Securities and Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2018

Short-Term And Long-Term Marketable Securities

As of March 31, 2018 and December 31, 2017, the estimated fair value of our short-term and long-term marketable securities, classified as available for sale, are as follows (in thousands):

Short-term



March 31, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Commercial paper	$	20,447	$	—	$	(1	)	$	20,446
Corporate bonds	106,583		1		(333		)	106,251
U.S. government agency bonds	8,999		—		(52		)	8,947
U.S. government treasury bonds	28,146		—		(51		)	28,095
Certificates of deposit	1,001		—		—			1,001
Total marketable securities, short-term	$	165,176	$	1	$	(437	)	$	164,740

Long-term



March 31, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government agency bonds	$	7,032	$	—	$	(66	)	$	6,966
Corporate bonds	3,265		1		(20		)	3,246
Total marketable securities, long-term	$	10,297	$	1	$	(86	)	$	10,212

Short-term



December 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Commercial paper	$	58,503	$	—	$	(1	)	$	58,502
Corporate bonds	145,728		3		(174		)	145,557
U.S. government agency bonds	3,013		—		(7		)	3,006
U.S. government treasury bonds	60,650		—		(70		)	60,580
Certificates of deposit	4,386		—		—			4,386
Total marketable securities, short-term	$	272,280	$	3	$	(252	)	$	272,031

Long-term



December 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government agency bonds	$	15,023	$	—	$	(68	)	$	14,955
Corporate bonds	25,067		2		(76		)	24,993
Total marketable securities, long-term	$	40,090	$	2	$	(144	)	$	39,948

Investments Classified by Contractual Maturity Date



	March 31, 2018		December 31, 2017
One year or less	$	164,740	$	272,031
Due in greater than one year	10,212		39,948
Total available for sale short-term and long-term marketable securities	$	174,952	$	311,979

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

The following table summarizes the reconciliation of assets measured and recorded at fair value on a recurring basis using significant unobservable inputs Level 3 (in thousands):



	Notes Receivable
Balance as of December 31, 2017	$	4,476
Accrued interest receivable	25
Change in fair value recognized in earnings	358
Balance as of March 31, 2018	$	4,859

Financial Assets Measured At Fair Value On Recurring Basis

The following tables summarize our financial assets measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017 (in thousands):



Description	Balance as of March 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Observable Inputs (Level 3)
Cash equivalents:
Money market funds	$	255,373	$	255,373	$	—	$	—
Short-term investments:
Commercial paper	20,446		—		20,446		—
Corporate bonds	106,251		—		106,251		—
U.S. government agency bonds	8,947		—		8,947		—
U.S. government treasury bonds	28,095		28,095		—		—
Certificates of deposit	1,001		—		1,001		—
Long-term investments:
U.S. government agency bonds	6,966		—		6,966		—
Corporate bonds	3,246		—		3,246		—
Prepaid expenses and other current assets:
Israeli funds	3,114		—		3,114		—
Short-term notes receivable	4,859		—		—		4,859
	$	438,298	$	283,468	$	149,971	$	4,859



Description	Balance as of December 31, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Observable Inputs (Level 3)
Cash equivalents:
Money market funds	$	253,155	$	253,155	$	—	$	—
Commercial paper	7,246		—		7,246		—
Corporate bonds	2,016		—		2,016		—
Short-term investments:
Commercial paper	58,502		—		58,502		—
Corporate bonds	145,557		—		145,557		—
U.S. government agency bonds	3,006		—		3,006		—
U.S. government treasury bonds	60,580		60,580		—		—
Certificates of deposit	4,386		—		4,386		—
Long-term investments:
U.S. government agency bonds	14,955		—		14,955		—
Corporate bonds	24,993		—		24,993		—
Prepaid expenses and other current assets:
Israeli funds	3,075		—		3,075		—
Short-term notes receivable	4,476		—		—		4,476
	$	581,947	$	313,735	$	263,736	$	4,476

Notional value of derivative instruments

The following table presents the gross notional value of all our foreign exchange forward contracts outstanding as of March 31, 2018 (in thousands):



	March 31, 2018
	Local Currency Amount	Notional Contract Amount (USD)
Euro	€40,000	$	49,244
British Pound	£9,000	12,615
		$	61,859

Tabular disclosure of available-for-sale securities which includes, but is not limited to, changes in the cost basis and fair value, fair value and gross unrealized gain (loss), fair values by type of security, contractual maturity and classification, amortized cost basis, contracts to acquire securities to be accounted for as available-for-sale, debt maturities, transfers to trading, change in net unrealized holding gain (loss) net of tax, continuous unrealized loss position fair value, aggregate losses qualitative disclosures, other than temporary impairment (OTTI) losses or other disclosures related to available for sale securities.

Balance Sheet Components (Tables)

3 Months Ended

Mar. 31, 2018

Schedule of Accrued Liabilities

Schedule of Inventories

Inventories consist of the following (in thousands):



	March 31, 2018		December 31, 2017
Raw materials	$	13,386	$	12,721
Work in process	11,442		12,157
Finished goods	11,038		6,810
Total inventories	$	35,866	$	31,688

Schedule of Other Assets

Other assets consist of the following (in thousands):



	March 31, 2018		December 31, 2017
Capitalized commissions	$	7,681	$	5,515
Other long-term assets	5,831		4,821
Security deposits	3,721		3,557
Loan receivable	—		30,000
Total other assets	$	17,233	$	43,893

Accrued liabilities consist of the following (in thousands):



	March 31, 2018		December 31, 2017
Accrued payroll and benefits	$	69,581	$	103,004
Accrued expenses	32,458		27,318
Accrued income taxes	17,134		12,405
Accrued fixed assets	15,241		11,362
Accrued warranty	6,657		5,929
Accrued professional fees	6,562		6,316
Accrued sales tax and value added tax	5,340		5,503
Accrued sales rebate	5,121		11,209
Accrued sales return reserve ¹	4,887		1,364
Other accrued liabilities	17,112		11,152
Total accrued liabilities	$	180,093	$	195,562

Schedule of Warranty Accrual

Warranty accrual as of March 31, 2018 and 2017 consists of the following activity (in thousands):



	Three Months Ended March 31,
	2018			2017
Balance at beginning of period	$	5,929		$	3,841
Charged to cost of revenues	2,359			1,822
Actual warranty expenditures	(1,631		)	(1,362		)
Balance at end of period	$	6,657		$	4,301

Schedule of Deferred Revenues

Deferred revenues consist of the following (in thousands):



	March 31, 2018		December 31, 2017
Deferred revenues - current	$	296,011	$	267,713
Deferred revenues - long-term ¹	6,171		4,588

¹ Included in other long-term liabilities on our Condensed Consolidated Balance Sheets

Goodwill and Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2018

Summary of Goodwill by Reportable Segment

The change in the carrying value of goodwill for the three months ended March 31, 2018, all attributable to our Clear Aligner reporting unit, is as follows (in thousands):



	Total
Balance as of December 31, 2017	$	64,614
Adjustments¹	7
Balance as of March 31, 2018	$	64,621

¹The adjustments to goodwill during the period were a result of foreign currency translation.

Schedule of Amortized Intangible Assets

Acquired intangible long-lived assets are being amortized as follows (in thousands):



	Weighted Average Amortization Period (in years)	Gross Carrying Amount as of March 31, 2018		Accumulated Amortization			Accumulated Impairment Loss			Net Carrying Value as of March 31, 2018
Trademarks	15	$	7,100	$	(1,803	)	$	(4,179	)	$	1,118
Existing technology	13	12,600		(4,845		)	(4,328		)	3,427
Customer relationships	11	33,500		(15,147		)	(10,751		)	7,602
Reacquired rights	3	7,500		(1,914		)	—			5,586
Patents	8	6,796		(1,712		)	—			5,084
Other	2	618		(427		)	—			191
Total intangible assets		$	68,114	$	(25,848	)	$	(19,258	)	$	23,008



	Weighted Average Amortization Period (in years)	Gross Carrying Amount as of December 31, 2017		Accumulated Amortization			Accumulated Impairment Loss			Net Carrying Value as of December 31, 2017
Trademarks	15	$	7,100	$	(1,769	)	$	(4,179	)	$	1,152
Existing technology	13	12,600		(4,704		)	(4,328		)	3,568
Customer relationships	11	33,500		(14,681		)	(10,751		)	8,068
Reacquired rights	3	7,500		(1,356		)	—			6,144
Patents	8	6,798		(1,504		)	—			5,294
Other	2	618		(390		)	—			228
Total intangible assets		$	68,116	$	(24,404	)	$	(19,258	)	$	24,454

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

The total estimated annual future amortization expense for these acquired intangible assets as of March 31, 2018 is as follows (in thousands):



Fiscal Year Ending December 31,
Remainder of 2018	$	4,843
2019	6,343
2020	3,882
2021	3,389
2022	2,116
Thereafter	2,435
Total	$	23,008

Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2018

Schedule of Future Lease Payments

As of March 31, 2018, minimum future lease payments for non-cancelable operating leases are as follows (in thousands):



Fiscal Year Ending December 31,	Operating Leases
Remainder of 2018	$	13,508
2019	15,061
2020	11,056
2021	9,270
2022	7,107
Thereafter	10,537
Total minimum future lease payments	$	66,539

Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2018

Stock-based Compensation Expense

The stock-based compensation related to all of our stock-based awards and employee stock purchases for the three months ended March 31, 2018 and 2017 is as follows (in thousands):



	Three Months Ended March 31,
	2018		2017
Cost of net revenues	$	881	$	925
Selling, general and administrative	12,578		11,716
Research and development	2,371		2,171
Total stock-based compensation	$	15,830	$	14,812

Stock Option Activity

Activity for the three months ended March 31, 2018 under the stock option plans is set forth below:



	Number of Shares Underlying Stock Options (in thousands)		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2017	75		$	11.36
Exercised	(15	)	11.65
Cancelled or expired	—		—
Outstanding as of March 31, 2018	60		$	11.28	0.81	$	14,369
Vested at March 31, 2018	60		$	11.28	0.81	$	14,369
Exercisable at March 31, 2018	60		$	11.28	0.81	$	14,369

Summary Of Restricted Stock Units

A summary for the three months ended March 31, 2018 is as follows:



	Shares Underlying RSUs (in thousands)		Weighted Average Grant Date Fair Value		Weighted Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Nonvested as of December 31, 2017	1,341		$	82.30
Granted	193		254.22
Vested and released	(439	)	67.12
Forfeited	(39	)	103.23
Nonvested as of March 31, 2018	1,056		$	119.34	1.61	$	265,087

Summary Of Market-performance Based Restricted Stock Units

The following table summarizes the MSU performance for the three months ended March 31, 2018:



	Number of Shares Underlying MSUs (in thousands)		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Nonvested as of December 31, 2017	428		$	78.53
Granted	110		221.18
Vested and released	(146	)	56.75
Forfeited	—		—
Nonvested as of March 31, 2018	392		$	126.58	1.27	$	98,468

Schedule of Share-based Payment Award, Employee Stock Purchase Plan, Valuation Assumptions

The fair value of the option component of the 2010 Purchase Plan shares was estimated at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:



	Three Months Ended March 31,
	2018			2017
Expected term (in years)	1.3			1.2
Expected volatility	35.7		%	26.1		%
Risk-free interest rate	1.9		%	0.9		%
Expected dividends	—			—
Weighted average fair value at grant date	$	78.38		$	26.09

Net Income Per Share (Tables)

3 Months Ended

Mar. 31, 2018

Schedule Of Earnings Per Share Basic And Diluted

The following table sets forth the computation of basic and diluted net income per share attributable to common stock (in thousands, except per share amounts):



	Three Months Ended March 31,
	2018		2017
Numerator:
Net income	$	95,866	$	69,420
Denominator:
Weighted-average common shares outstanding, basic	80,036		79,904
Dilutive effect of potential common stock	1,592		1,630
Total shares, diluted	81,628		81,534

Net income per share, basic	$	1.20	$	0.87
Net income per share, diluted	$	1.17	$	0.85

Segments and Geographical Information (Tables)

3 Months Ended

Mar. 31, 2018

Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas



	Three Months Ended March 31,
Net revenues	2018			2017
Clear Aligner	$	385,505		$	282,399
Scanner	51,419			27,942
Total net revenues	$	436,924		$	310,341
Gross profit
Clear Aligner	$	296,976		$	219,947
Scanner	30,432			15,678
Total gross profit	$	327,408		$	235,625
Income from operations
Clear Aligner	$	161,454		$	114,734
Scanner	16,082			6,004
Unallocated corporate expenses	(79,344		)	(59,065		)
Total income from operations	$	98,192		$	61,673
Depreciation and amortization
Clear Aligner	$	6,384		$	4,363
Scanner	1,104			1,037
Unallocated corporate expenses	3,946			2,467
Total depreciation and amortization	$	11,434		$	7,867



	Three Months Ended March 31,
	2018			2017
Total segment income from operations	$	177,536		$	120,738
Unallocated corporate expenses	(79,344		)	(59,065		)
Total income from operations	98,192			61,673
Interest income	2,176			1,195
Other income (expense), net	177			450
Net income before provision for (benefit from) income taxes and equity in losses of investee	$	100,545		$	63,318

Geographical Information

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



	Three Months Ended March 31,
	2018		2017
Net revenues¹:
United States	$	237,103	$	183,273
The Netherlands	139,531		99,799
Other International	60,290		27,269
Total net revenues	$	436,924	$	310,341

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

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



	March 31, 2018		December 31, 2017
Long-lived assets¹:
The Netherlands	$	164,165	$	143,673
United States	126,983		128,171
Costa Rica	48,470		30,738
Mexico	30,215		25,090
China	12,258		5,480
Other International	18,437		15,641
Total long-lived assets	$	400,528	$	348,793

¹Long-lived assets are attributed to countries based on entity that owns the assets.

Summary of Significant Accounting Policies - Balance sheet as adjusted (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Accounts receivable, net	$ 361,459	$ 324,189
Deferred tax assets	45,524	49,334
Other assets		43,893
Accrued liabilities	180,093	195,562
Deferred revenues	296,011	267,713
Retained earnings	$ 267,336	267,274
As Previously Reported \| Accounting Standards Update 2014-09
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Accounts receivable, net		322,825
Deferred tax assets		50,059
Other assets		38,379
Accrued liabilities		194,198
Deferred revenues		266,842
Retained earnings		263,356
Adjustment \| Accounting Standards Update 2014-09
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Accounts receivable, net		1,364
Deferred tax assets		(725)
Other assets		5,514
Accrued liabilities		1,364
Deferred revenues		871
Retained earnings		$ 3,918

Summary of Significant Accounting Policies - Cash flow statement as adjusted (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Initial Application Period [Line Items]
Other investing activities	$ 462	$ (850)
Net cash provided by (used in) investing activities	109,269	(148,462)
Net increase (decrease) in cash, cash equivalent, and restricted cash		(131,412)
Cash, cash equivalents, and restricted cash at beginning of the period	450,125	393,019
Cash, cash equivalents, and restricted cash at end of the period	$ 498,619	261,607
As Previously Reported
Initial Application Period [Line Items]
Other investing activities		2,314
Net cash provided by (used in) investing activities		(145,298)
Net increase (decrease) in cash, cash equivalent, and restricted cash		(128,248)
Cash, cash equivalents, and restricted cash at beginning of the period		389,275
Cash, cash equivalents, and restricted cash at end of the period		261,027
Accounting Standards Update 2016-18 \| Adjustment
Initial Application Period [Line Items]
Other investing activities		(3,164)
Net cash provided by (used in) investing activities		(3,164)
Net increase (decrease) in cash, cash equivalent, and restricted cash		(3,164)
Cash, cash equivalents, and restricted cash at beginning of the period		3,744
Cash, cash equivalents, and restricted cash at end of the period		$ 580

Short-Term and Long-Term Marketable Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Schedule of Available-for-sale Securities [Line Items]
Total available for sale short-term and long-term marketable securities	$ 174,952	$ 311,979
Fair Value, Measurements, Recurring \| Short-term Investments
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	165,176	272,280
Gross Unrealized Gains	1	3
Gross Unrealized Losses	(437)	(252)
Total available for sale short-term and long-term marketable securities	164,740	272,031
Fair Value, Measurements, Recurring \| Short-term Investments \| Commercial paper
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	20,447	58,503
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(1)	(1)
Total available for sale short-term and long-term marketable securities	20,446	58,502
Fair Value, Measurements, Recurring \| Short-term Investments \| Corporate bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	106,583	145,728
Gross Unrealized Gains	1	3
Gross Unrealized Losses	(333)	(174)
Total available for sale short-term and long-term marketable securities	106,251	145,557
Fair Value, Measurements, Recurring \| Short-term Investments \| U.S. government agency bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	8,999	3,013
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(52)	(7)
Total available for sale short-term and long-term marketable securities	8,947	3,006
Fair Value, Measurements, Recurring \| Short-term Investments \| U.S. government treasury bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	28,146	60,650
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(51)	(70)
Total available for sale short-term and long-term marketable securities	28,095	60,580
Fair Value, Measurements, Recurring \| Short-term Investments \| Certificates of deposit
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,001	4,386
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Total available for sale short-term and long-term marketable securities	1,001	4,386
Fair Value, Measurements, Recurring \| Long-term Investments
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	10,297	40,090
Gross Unrealized Gains	1	2
Gross Unrealized Losses	(86)	(144)
Total available for sale short-term and long-term marketable securities	10,212	39,948
Fair Value, Measurements, Recurring \| Long-term Investments \| Corporate bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	3,265	25,067
Gross Unrealized Gains	1	2
Gross Unrealized Losses	(20)	(76)
Total available for sale short-term and long-term marketable securities	3,246	24,993
Fair Value, Measurements, Recurring \| Long-term Investments \| U.S. government agency bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	7,032	15,023
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(66)	(68)
Total available for sale short-term and long-term marketable securities	$ 6,966	$ 14,955

Marketable Securities and Fair Value Measurements Additional Information (Details)	3 Months Ended	12 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Schedule of Available-for-sale Securities [Line Items]
Original maturity of highly liquid investments included in cash and cash equivalents	40 months
Weighted average maturity	5 months	6 months

Marketable Securities and Fair Value Measurements Available For Sale Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Investments, Debt and Equity Securities [Abstract]
One year or less	$ 164,740	$ 272,031
Due in greater than one year	10,212	39,948
Total available for sale short-term and long-term marketable securities	$ 174,952	$ 311,979

Investments in debt and equity securities which are categorized neither as held-to-maturity nor trading and which are intended to be sold or mature more than one year from the balance sheet date or operating cycle, if longer. Such securities are reported at fair value; unrealized gains (losses) related to Available-for-sale Securities are excluded from earnings and reported in a separate component of shareholders' equity (other comprehensive income), unless the Available-for-sale security is designated as a hedge or is determined to have had an other than temporary decline in fair value below its amortized cost basis. All or a portion of the unrealized holding gain (loss) of an Available-for-sale security that is designated as being hedged in a fair value hedge is recognized in earnings during the period of the hedge, as are other than temporary declines in fair value below the cost basis for investments in equity securities and debt securities that an entity intends to sell or it is more likely than not that it will be required to sell before the recovery of its amortized cost basis. Other than temporary declines in fair value below the cost basis for debt securities categorized as Available-for-sale that an entity does not intend to sell and for which it is not more likely than not that the entity will be required to sell before the recovery of its amortized cost basis are bifurcated into credit losses and losses related to all other factors. Other than temporary declines in fair value below cost basis related to credit losses are recognized in earnings, and losses related to all other factors are recognized in other comprehensive income.

Marketable Securities and Fair Value Measurements - Reconciliation (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($)
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance as of December 31, 2017	$ 4,476
Accrued interest receivable	25
Change in fair value recognized in earnings	358
Balance as of March 31, 2018	$ 4,859

Marketable Securities and Fair Value Measurements - Derivative Notional Instruments (Details) - Mar. 31, 2018 - Significant Other Observable Inputs (Level 2) - Prepaid expenses and other current assets - Foreign Exchange Forward € in Thousands, £ in Thousands, $ in Thousands	EUR (€)	USD ($)	GBP (£)
Derivative [Line Items]
Notional amount		$ 61,859
Euro
Derivative [Line Items]
Notional amount	€ 40,000	49,244
British Pound
Derivative [Line Items]
Notional amount		$ 12,615	£ 9,000

Inventories (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Disclosure Inventories [Abstract]
Raw materials	$ 13,386	$ 12,721
Work in process	11,442	12,157
Finished goods	11,038	6,810
Total inventories	$ 35,866	$ 31,688

Balance Sheet Components Other Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Notes To Financial Statements [Abstract]
Capitalized commissions	$ 7,681	$ 5,515
Other long-term assets	5,831	4,821
Security deposits	3,721	3,557
Loan receivable	0	30,000
Total other assets	$ 17,233	$ 43,893

Accrued Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Disclosure Accrued Liabilities [Abstract]
Accrued payroll and benefits	$ 69,581	$ 103,004
Accrued expenses	32,458	27,318
Accrued income taxes	17,134	12,405
Accrued fixed assets	15,241	11,362
Accrued warranty	6,657	5,929
Accrued professional fees	6,562	6,316
Accrued sales tax and value added tax	5,340	5,503
Accrued sales rebate	5,121	11,209
Accrued sales return reserve	4,887	1,364
Other accrued liabilities	17,112	11,152
Total accrued liabilities	$ 180,093	$ 195,562

Warranty Accrual Activity (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Movement in Standard Product Warranty Accrual [Roll Forward]
Balance at beginning of period	$ 5,929	$ 3,841
Charged to cost of revenues	2,359	1,822
Actual warranty expenditures	(1,631)	(1,362)
Balance at end of period	$ 6,657	$ 4,301

Balance Sheet Components Deferred Revenues (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Notes To Financial Statements [Abstract]
Deferred revenues - current	$ 296,011	$ 267,713
Deferred revenues - long-term	$ 6,171	$ 4,588

The carrying amount of consideration received or receivable as of the balance sheet date on potential earnings that were not recognized as revenue in conformity with GAAP, and which are expected to be recognized as such within one year or the normal operating cycle, if longer, including sales, license fees, and royalties, but excluding interest income.

The noncurrent portion of deferred revenue amount as of balance sheet date. Deferred revenue is a liability related to a revenue producing activity for which revenue has not yet been recognized, and is not expected to be recognized in the next twelve months. Generally, an entity records deferred revenue when it receives consideration from a customer before achieving certain criteria that must be met for revenue to be recognized in conformity with GAAP.

Balance Sheet Components - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017	Dec. 31, 2016
Condensed Balance Sheet Statements, Captions [Line Items]
Deferred revenues	$ 436,924		$ 310,341
Deferred Revenue
Condensed Balance Sheet Statements, Captions [Line Items]
Deferred revenues		$ 86,000		$ 51,000

Equity Method Investments (Details) - USD ($) $ in Thousands			3 Months Ended
	Jul. 24, 2017	Jul. 25, 2016	Mar. 31, 2018	Mar. 31, 2017	Feb. 07, 2018	Dec. 31, 2017
Schedule of Equity Method Investments [Line Items]
Equity method investments			$ 52,829			$ 54,606
Net revenues			436,924	$ 310,341
SDC
Schedule of Equity Method Investments [Line Items]
Ownership	19.00%	17.00%
Payments to acquire	$ 12,800	$ 46,700
Additional ownership acquired	2.00%
Due from related parties			8,100			$ 14,300
Net revenues			$ 5,300	$ 600
Loan receivable		$ 30,000			$ 30,000

Business Combinations (Details) - Certain Distributors $ in Millions	3 Months Ended
	Mar. 31, 2017 USD ($)
Business Acquisition [Line Items]
Cash consideration	$ 9.5
Net tangible liabilities	1.9
Intangibles acquired	8.2
Goodwill and intangible assets, net	$ 3.2

Goodwill and Intangible Assets - Change in Carrying Value of Goodwill (Details) - Clear Aligner $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($)
Goodwill [Roll Forward]
Balance as of December 31, 2017	$ 64,614
Adjustments	7
Balance as of March 31, 2018	$ 64,621

Goodwill and Intangible Assets - Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount, beginning balance	$ 68,114	$ 68,116
Accumulated Amortization	(25,848)	(24,404)
Accumulated Impairment Loss	(19,258)	(19,258)
Net Carrying Value, ending balance	$ 23,008	$ 24,454
Trademarks
Finite-Lived Intangible Assets [Line Items]
Weighted Average Amortization Period (in years)	15 years	15 years
Gross Carrying Amount, beginning balance	$ 7,100	$ 7,100
Accumulated Amortization	(1,803)	(1,769)
Accumulated Impairment Loss	(4,179)	(4,179)
Net Carrying Value, ending balance	$ 1,118	$ 1,152
Existing technology
Finite-Lived Intangible Assets [Line Items]
Weighted Average Amortization Period (in years)	13 years	13 years
Gross Carrying Amount, beginning balance	$ 12,600	$ 12,600
Accumulated Amortization	(4,845)	(4,704)
Accumulated Impairment Loss	(4,328)	(4,328)
Net Carrying Value, ending balance	$ 3,427	$ 3,568
Customer relationships
Finite-Lived Intangible Assets [Line Items]
Weighted Average Amortization Period (in years)	11 years	11 years
Gross Carrying Amount, beginning balance	$ 33,500	$ 33,500
Accumulated Amortization	(15,147)	(14,681)
Accumulated Impairment Loss	(10,751)	(10,751)
Net Carrying Value, ending balance	$ 7,602	$ 8,068
Reacquired rights
Finite-Lived Intangible Assets [Line Items]
Weighted Average Amortization Period (in years)	3 years	3 years
Gross Carrying Amount, beginning balance	$ 7,500	$ 7,500
Accumulated Amortization	(1,914)	(1,356)
Accumulated Impairment Loss	0	0
Net Carrying Value, ending balance	$ 5,586	$ 6,144
Patents
Finite-Lived Intangible Assets [Line Items]
Weighted Average Amortization Period (in years)	8 years	8 years
Gross Carrying Amount, beginning balance	$ 6,796	$ 6,798
Accumulated Amortization	(1,712)	(1,504)
Accumulated Impairment Loss	0	0
Net Carrying Value, ending balance	$ 5,084	$ 5,294
Other
Finite-Lived Intangible Assets [Line Items]
Weighted Average Amortization Period (in years)	2 years	2 years
Gross Carrying Amount, beginning balance	$ 618	$ 618
Accumulated Amortization	(427)	(390)
Accumulated Impairment Loss	0	0
Net Carrying Value, ending balance	$ 191	$ 228

Goodwill and Intangible Assets - Total Estimated Annual Future Amortization Expense for Acquired Intangible Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Disclosure Total Estimated Annual Future Amortization Expense For Acquired Intangible Assets [Abstract]
Remainder of 2018	$ 4,843
2019	6,343
2020	3,882
2021	3,389
2022	2,116
Thereafter	2,435
Net Carrying Value, ending balance	$ 23,008	$ 24,454

Goodwill and Intangible Assets - Narrative (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill impairment			$ 0
Amortization	$ 1,400,000	$ 1,400,000

Credit Facilities - Additional Information (Details) - USD ($)	Feb. 27, 2018	Mar. 31, 2018	Mar. 22, 2013
Line of Credit Facility [Line Items]
Line of credit, available borrowings	$ 200,000,000.0		$ 50,000,000
Current borrowing capacity	$ 50,000,000		$ 10,000,000
Outstanding borrowings		$ 0
Base Rate
Line of Credit Facility [Line Items]
Basis Spread on Variable Rate	0.50%
London Interbank Offered Rate (LIBOR)
Line of Credit Facility [Line Items]
Basis Spread on Variable Rate	1.00%
Minimum \| Base Rate
Line of Credit Facility [Line Items]
Basis Spread on Variable Rate	0.25%
Minimum \| London Interbank Offered Rate (LIBOR)
Line of Credit Facility [Line Items]
Basis Spread on Variable Rate	1.25%
Maximum \| Base Rate
Line of Credit Facility [Line Items]
Basis Spread on Variable Rate	0.75%
Maximum \| London Interbank Offered Rate (LIBOR)
Line of Credit Facility [Line Items]
Basis Spread on Variable Rate	1.75%

The carrying value as of the balance sheet date of the current and noncurrent portions of long-term obligations drawn from a line of credit, which is a bank's commitment to make loans up to a specific amount. Examples of items that might be included in the application of this element may consist of letters of credit, standby letters of credit, and revolving credit arrangements, under which borrowings can be made up to a maximum amount as of any point in time conditional on satisfaction of specified terms before, as of and after the date of drawdowns on the line. Includes short-term obligations that would normally be classified as current liabilities but for which (a) postbalance sheet date issuance of a long term obligation to refinance the short term obligation on a long term basis, or (b) the enterprise has entered into a financing agreement that clearly permits the enterprise to refinance the short-term obligation on a long term basis and the following conditions are met (1) the agreement does not expire within 1 year and is not cancelable by the lender except for violation of an objectively determinable provision, (2) no violation exists at the BS date, and (3) the lender has entered into the financing agreement is expected to be financially capable of honoring the agreement.