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 contains all adjustments, including normal recurring adjustments, necessary to state fairly our results of operations for the three and nine months ended September 30, 2018 and 2017, our comprehensive income for the three and nine months ended September 30, 2018 and 2017, our financial position as of September 30, 2018 and our cash flows for the nine months ended September 30, 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. The Condensed Consolidated Balance Sheet as of December 31, 2017 and the Condensed Consolidated Statement of Cash Flow for the nine months ended September 30, 2017 have been recast to comply with the adoption of these standards.

The results of operations for the three and nine months ended September 30, 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, valuation of investments in privately held companies, useful lives of intangible assets and property and equipment, revenue recognition, stock-based compensation, long-lived assets and goodwill, 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 and Investments in Privately Held Companies policy 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 revenues according to ASC 606-10, “Revenues from Contracts with Customers.”

We identify a performance obligation as distinct if both of 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 revenues 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 Comprehensive, Invisalign Full, Invisalign Teen, Invisalign First, Invisalign Lite, Invisalign Express and Invisalign Assist products include optional additional aligners at no charge for a certain period of time, from one 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.

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. We elected to take the practical expedient to consider shipping and handling costs as activities to fulfill the performance obligation. We allocate revenues for each treatment plan based on each unit’s SSP and recognize the revenues upon shipment, as the customers obtain physical possession 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.

Scanner

We sell intraoral scanners and computer-aided design/computer-aided manufacturing (“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 also select, for additional fees, 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 revenues based on each element’s SSP. We estimate the SSP of each element, taking into consideration historical prices as well as our discounting strategies. Revenues are 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. Most consideration is collected upfront and in cases where there are payment plans, consideration is collected by the one year mark and therefore, there are no significant financing components.

Warranties

For both Clear Aligner and Scanner segments, we offer 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 Financial Accounting Standards Board (“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

Our unfilled performance obligations as of September 30, 2018 and the estimated revenues expected to be recognized in the future related to these performance obligations are $380.7 million. This includes performance obligations from the Clear Aligner segment, primarily the shipment of additional aligners, which are fulfilled over one to five years, and performance obligations from the iTero scanner segment, primarily contracted deliveries of additional scanners and support, which are fulfilled over one to five years. The estimate includes both product and service unfulfilled performance obligations and the time range reflects our best estimate of when we 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 being recognized on the Condensed Consolidated Balance Sheet. For both aligners and scanners, we usually collect the total consideration owed prior to all performance obligations being performed and payment terms vary from net 30 to net 180 days. 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.

Investments in Privately Held Companies

Investments in privately held companies in which we can exercise significant influence but do not own a majority equity interest or otherwise control are accounted for under ASC 323, “Investments—Equity Method and Joint Ventures.” Equity securities qualified as equity method investments are reported on our Condensed Consolidated Balance Sheet as a single amount, and we record our share of their operating results within equity in losses of investee, net of tax, in our Condensed Consolidated Statement of Operations. Investments in privately held companies in which we cannot exercise significant influence and do not own a majority equity interest or otherwise control are accounted for under ASC 321, “Investments—Equity Securities.” The equity securities without readily determinable fair values are recorded at cost and adjusted for impairments and observable price changes with a same or similar security from the same issuer (“Measurement Alternative”). Equity securities under ASC 321 are reported on our Condensed Consolidated Balance Sheet as other assets, and we record a change in carrying value of our equity securities, if any, in other income (expense), net in our Condensed Consolidated Statement of Operations.

Equity securities are evaluated for impairment as events or circumstances indicate that there is an other-than-temporary loss in value. The decrease in value is recognized in the period the impairment occurs and recorded in other income (expense), net in the Condensed Consolidated Statement of Operations.

Recent Accounting Pronouncements

(i) New Accounting Updates Recently Adopted

In May 2014, the FASB released ASU 2014-09, “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. The impact of adoption was primarily related to the Clear Aligner segment. Our disaggregation of revenues can be found in Note 14 “Segments and Geographical Information.” We 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, and it did not have an impact on our Condensed 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 Condensed Consolidated Statements of Cash Flows. Condensed Consolidated Statement of Cash Flows line items, which reflect the adoption of the ASU 2016-18, are as follows (in thousands):



	Nine Months Ended September 30, 2017
	As Previously Reported			Adjustment			As Adjusted
Cash Flows from Investing Activities
Other investing activities	$	397		$	(3,164	)	$	(2,767	)
Net cash used in investing activities	(228,620		)	(3,164		)	(231,784		)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash	4,781			25			4,806
Net decrease in cash, cash equivalents, and restricted cash	(26,662		)	(3,139		)	(29,801		)
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	$	362,613		$	605		$	363,218

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 condensed 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. In July 2018, the FASB issued ASU 2018-11, “Leases- Targeted Improvements,” which provides an additional transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. We plan to adopt the standard in the first quarter of fiscal year 2019 by electing the transition method issued in ASU 2018-11 and the package of practical expedients available in the standard. In addition, we are in the process of implementing changes to our systems, processes and controls and 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.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,” to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. 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 related disclosures.

In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” to clarify the guidance on the costs of implementing a cloud computing hosting arrangement that is a service contract. Under the amendments, the entity is required to follow the guidance in Subtopic 350-40, Internal-Use Software, to determine which implementation costs under the service contract to be capitalized as an asset and which costs to expense. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2019 either on a retrospective or prospectively basis and early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements and related disclosures.

Investments and Fair Value Measurements

9 Months Ended

Sep. 30, 2018

Investments and Fair Value Measurements

Marketable Securities

As of September 30, 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



September 30, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Commercial paper	$	24,675	$	—	$	—		$	24,675
Corporate bonds	75,461		1		(94		)	75,368
U.S. government agency bonds	11,665		—		(31		)	11,634
U.S. government treasury bonds	72,622		—		(22		)	72,600
Certificates of deposit	20		—		—			20
Total marketable securities, short-term	$	184,443	$	1	$	(147	)	$	184,297

Long-term



September 30, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government agency bonds	$	7,035	$	—	$	(74	)	$	6,961
Corporate bonds	1,127		3		—			1,130
Total marketable securities, long-term	$	8,162	$	3	$	(74	)	$	8,091

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 September 30, 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 and nine months ended September 30, 2018 and 2017. For the three and nine months ended September 30, 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 three months and six months as of September 30, 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 contractual maturity as of September 30, 2018 and December 31, 2017 (in thousands):



	September 30, 2018		December 31, 2017
One year or less	$	184,297	$	272,031
Due in greater than one year	8,091		39,948
Total available for sale short-term and long-term marketable securities	$	192,388	$	311,979

Investments in Privately Held Companies

Our investments in privately held companies as of September 30, 2018 and December 31, 2017 are as follows (in thousands):



	September 30, 2018		December 31, 2017
Equity securities under the equity method investment ¹	$	47,996	$	54,606
Equity securities without readily determinable fair values ²	$	9,862	$	—


¹	Refer to Note 4 “Equity Method Investments” of the Notes to Condensed Consolidated Financial Statements for more information

In April 2018, $4.9 million of convertible short term notes receivable (recurring Level 3 investment) was converted into equity securities as a result of qualified financing secured by the private company in accordance with ASC 321, “Investments—Equity Securities.” The equity securities issued upon conversion are reported as a nonrecurring investment within other assets in our Condensed Consolidated Balance Sheet. During the three and nine months ended September 30, 2018, there were no fair value adjustments to equity securities without readily determinable fair values.

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.

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. 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.

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.

The following tables summarize our financial assets measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017 (in thousands):



Description	Balance as of September 30, 2018		Level 1		Level 2
Cash equivalents:
Money market funds	$	256,689	$	256,689	$	—
Commercial paper	6,883		—		6,883
Corporate bonds	2,014		—		2,014
Short-term investments:
Commercial paper	24,675		—		24,675
Corporate bonds	75,368		—		75,368
U.S. government agency bonds	11,634		—		11,634
U.S. government treasury bonds	72,600		72,600		—
Certificates of deposit	20		—		20
Long-term investments:
U.S. government agency bonds	6,961		—		6,961
Corporate bonds	1,130		—		1,130
Prepaid expenses and other current assets:
Israeli funds	3,143		—		3,143
	$	461,117	$	329,289	$	131,828



Description	Balance as of December 31, 2017		Level 1		Level 2		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. The gains from the settlement of foreign currency forward contracts during the three and nine months ended September 30, 2018 were $2.3 million and $7.7 million, respectively. As of September 30, 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 September 30, 2018 (in thousands):



	September 30, 2018
	Local Currency Amount	Notional Contract Amount (USD)
Euro	€61,000	$	70,992
Chinese Yuan	¥330,000	47,882
Canadian Dollar	C$28,000	21,653
British Pound	£13,000	16,966
Japanese Yen	¥1,700,000	14,985
Brazilian Real	R$55,500	13,821
Australian Dollar	A$2,900	2,097
		$	188,396

Balance Sheet Components

9 Months Ended

Sep. 30, 2018

Balance Sheet Components

Inventories

Inventories consist of the following (in thousands):



	September 30, 2018		December 31, 2017
Raw materials	$	23,395	$	12,721
Work in process	11,090		12,157
Finished goods	14,373		6,810
Total inventories	$	48,858	$	31,688

Other Assets

Other assets consist of the following (in thousands):



	September 30, 2018		December 31, 2017
Capitalized commissions	$	8,651	$	5,515
Equity securities	9,862		—
Security deposits	4,259		3,557
Loan receivable from equity investee	—		30,000
Other long-term assets	2,692		4,821
Total other assets	$	25,464	$	43,893

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):



	September 30, 2018		December 31, 2017
Accrued payroll and benefits	$	102,109	$	103,004
Accrued expenses	36,110		27,318
Accrued fixed assets	17,765		11,362
Accrued warranty	8,026		5,929
Accrued professional fees	7,774		6,316
Accrued sales rebate	7,765		11,209
Accrued customer credits	7,618		5,373
Accrued sales tax and value added tax	6,734		5,503
Accrued sales return reserve ¹	5,876		1,364
Accrued income taxes	4,111		12,405
Other accrued liabilities	15,147		5,779
Total accrued liabilities	$	219,035	$	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 September 30, 2018 and 2017 consists of the following activity (in thousands):



	Nine Months Ended September 30,
	2018			2017
Balance at beginning of period	$	5,929		$	3,841
Charged to cost of revenues	10,874			5,201
Actual warranty expenditures	(8,777		)	(3,987		)
Balance at end of period	$	8,026		$	5,055

Deferred Revenues

Deferred revenues consist of the following (in thousands):



	September 30, 2018		December 31, 2017
Deferred revenues - current	$	356,109	$	267,713
Deferred revenues - long-term ¹	11,739		4,588

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

During the three months ended September 30, 2018 and September 30, 2017, we recognized $505.3 million and $385.3 million of revenue, respectively, of which $125.6 million and $74.0 million was included in the deferred revenues balance at December 31, 2017 and December 31, 2016, respectively.

During the nine months ended September 30, 2018 and September 30, 2017, we recognized $1.4 billion and $1.1 billion of revenue, respectively, of which $313.4 million and $186.8 million was included in the deferred revenues balance at December 31, 2017 and December 31, 2016, respectively.

Equity Method Investments	9 Months Ended
Equity Method Investments	Sep. 30, 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 Sheets 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 of September 30, 2018 and December 31, 2017, the balance of our equity method investments was $48.0 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 September 30, 2018 and December 31, 2017, the balance of accounts receivable due from SDC was $12.5 million and $14.3 million, respectively. For the three months ended September 30, 2018 and 2017, net revenues recognized from SDC was $8.1 million and $10.6 million, respectively, and for the nine months ended September 30, 2018 and 2017, net revenues recognized from SDC was $22.0 million and $14.2 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 terminated (Refer to Note 8 “Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements for SDC legal proceedings discussion).

Business Combinations	9 Months Ended
Business Combinations	Sep. 30, 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 nine months ended September 30, 2017.

Goodwill and Long-lived Assets

9 Months Ended

Sep. 30, 2018

Goodwill and Intangible Assets

Goodwill

The change in the carrying value of goodwill for the nine months ended September 30, 2018, all attributable to our Clear Aligner reporting unit, is as follows (in thousands):



	Total
Balance as of December 31, 2017	$	64,614
Adjustments¹	(542		)
Balance as of September 30, 2018	$	64,072

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 September 30, 2018		Accumulated Amortization			Accumulated Impairment Loss			Net Carrying Value as of September 30, 2018
Trademarks	15	$	7,100	$	(1,873	)	$	(4,179	)	$	1,048
Existing technology	13	12,600		(5,127		)	(4,328		)	3,145
Customer relationships	11	33,500		(16,078		)	(10,751		)	6,671
Reacquired rights	3	7,500		(3,604		)	—			3,896
Patents	8	6,796		(2,126		)	—			4,670
Other	2	618		(513		)	—			105
Total intangible assets		$	68,114	$	(29,321	)	$	(19,258	)	$	19,535



	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 September 30, 2018 is as follows (in thousands):



Fiscal Year Ending December 31,	Amortization
Remainder of 2018	$	1,571
2019	6,171
2020	3,854
2021	3,388
2022	2,116
Thereafter	2,435
Total	$	19,535

Amortization for both the three months ended September 30, 2018 and 2017 was $1.5 million and amortization for the nine months ended September 30, 2018 and 2017 was $4.5 million and $4.7 million, respectively.

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	9 Months Ended
Credit Facilities	Sep. 30, 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 provided for a $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 September 30, 2018, we had no outstanding borrowings under this credit facility and were in compliance with the conditions and performance requirements.

Legal Proceedings (Notes)	9 Months Ended
Legal Proceedings (Notes)	Sep. 30, 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 Experience program, require Align to close the existing Invisalign locations, prohibit Align from opening any additional locations, 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. On June 29, 2018, the Chancery Court for Davidson County, Tennessee, denied the SDC Entities’ request for a temporary injunction to prevent Align from opening additional Invisalign locations. Align continues to dispute the allegations that it has breached its obligations to the SDC Entities under applicable law and will oppose and vigorously defend itself at the arbitration proceedings currently scheduled for December 2018. 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 dispute and therefore cannot determine the likelihood of loss, if any, nor estimate a range of possible loss. 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

9 Months Ended

Sep. 30, 2018

Commitments and Contingencies

Operating Leases

As of September 30, 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	$	4,839
2019	19,131
2020	15,988
2021	14,386
2022	12,026
Thereafter	25,769
Total minimum future lease payments	$	92,139

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 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).

On November 27, 2017, we entered into a Purchase Agreement with one of our existing single source suppliers. Under the terms of the original agreement, we are required to purchase a minimum approximately $305.2 million of aligner materials over the next four years. On May 29, 2018, we entered into an amendment to the Purchase Agreement with the existing single source supplier to increase the original term of the agreement to five years and total minimum purchase amount to approximately $425.9 million.

Off-Balance Sheet Arrangements

As of September 30, 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 September 30, 2018, we did not have any material indemnification claims that were probable or reasonably possible.

Stockholders' Equity (Notes)

9 Months Ended

Sep. 30, 2018

Accounting for Income Taxes

Stockholders' Equity

Stockholders’ Equity

Summary of Stock-Based Compensation Expense

As of September 30, 2018, the 2005 Incentive Plan (as amended) has a total reserve of 27,783,379 shares of which 6,063,095 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 and nine months ended September 30, 2018 and 2017 is as follows (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Cost of net revenues	$	966	$	833	$	2,747	$	2,526
Selling, general and administrative	15,403		11,880		41,197		34,814
Research and development	2,829		2,254		7,974		6,684
Total stock-based compensation	$	19,198	$	14,967	$	51,918	$	44,024

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 nine months ended September 30, 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	(63	)	11.99
Cancelled or expired	—		—
Outstanding as of September 30, 2018	12		$	7.99	0.41	$	4,534
Vested at September 30, 2018	12		$	7.99	0.41	$	4,534
Exercisable at September 30, 2018	12		$	7.99	0.41	$	4,534

Restricted Stock Units (“RSUs”)

The fair value of RSUs is based on our closing stock price on the date of grant. A summary for the nine months ended September 30, 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	225		261.52
Vested and released	(516	)	73.44
Forfeited	(74	)	105.53
Nonvested as of September 30, 2018	976		$	126.52	1.23	$	381,710

As of September 30, 2018, we expect to recognize $90.1 million of total unamortized compensation cost, net of estimated forfeitures, related to RSUs over a weighted average period of 2.1 years.

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

We grant 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 a stock market index over the vesting period, and certain MSU grants are also based on Align’s stock price at the end of the performance period. Generally, the vesting period of MSUs is three years. For MSUs granted during the nine months ended September 30, 2018, the maximum number of MSUs which will be eligible to vest are between 250% to 300% of the MSUs initially granted.

The following table summarizes the MSU performance for the nine months ended September 30, 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	208		266.78
Vested and released	(312	)	62.41
Forfeited	—		—
Nonvested as of September 30, 2018	324		$	215.07	1.41	$	126,834

As of September 30, 2018, we expect to recognize $44.6 million of total unamortized compensation cost, net of estimated forfeitures, related to MSUs over a weighted average period of 1.4 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 September 30, 2018, we have 571,778 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 September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Expected term (in years)	1.2			1.2			1.3			1.2
Expected volatility	35.7		%	28.8		%	35.2		%	26.8		%
Risk-free interest rate	2.5		%	1.2		%	2.2		%	1.0		%
Expected dividends	—			—			—			—
Weighted average fair value at grant date	$	109.58		$	47.02		$	94.71		$	31.36

As of September 30, 2018, there was $3.3 million of total unamortized compensation costs related to employee stock purchases which we expect to be recognized over a weighted average period of 0.6 years.

Common Stock Repurchase Programs	9 Months Ended
Common Stock Repurchase Programs	Sep. 30, 2018
Disclosure Common Stock Repurchase Program Additional Information [Abstract]
Common Stock Repurchase Programs	Common Stock Repurchase Programs 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 In April 2016, we announced that our Board of Directors had authorized a plan to repurchase up to $300.0 million of our common 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 commissions, for an aggregate purchase price of approximately $100.0 million. In July 2018, we repurchased on the open market approximately 0.3 million shares of our common stock at an average price of $350.08 per share, including commissions, for an aggregate purchase price of approximately $100.0 million, completing the April 2016 Repurchase Program. May 2018 Repurchase Program In May 2018, we announced that our Board of Directors had authorized a plan to repurchase up to $600.0 million of our common stock (“May 2018 Repurchase Program”). In August 2018, we repurchased on the open market approximately 0.1 million shares of our common stock at an average price of $356.54 per share, including commissions, for an aggregate purchase price of approximately $50.0 million. As of September 30, 2018, we have $550.0 million remaining under the May 2018 Repurchase Program.

Accounting for Income Taxes

9 Months Ended

Sep. 30, 2018

Our provision for income taxes was $24.6 million and $18.3 million for the three months ended September 30, 2018 and 2017, respectively, representing effective tax rates of 19.4% and 17.9%, respectively. Our provision for income taxes was $35.2 million and $26.5 million for the nine months ended September 30, 2018 and 2017, respectively, representing effective tax rates of 10.2% and 10.5%, respectively. As a result of the enactment of 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 both the three and nine months ended September 30, 2018 and 2017, respectively, mainly as a result of the recognition of excess tax benefits related to stock-based compensation, tax benefits recognized related to a statute of limitations expiration, and certain foreign earnings, primarily from the Netherlands and Costa Rica, being taxed at lower tax rates, partially offset by unfavorable tax impact of the TCJA, including non-deductible officers’ compensation described below.

On August 21, 2018, the Internal Revenue Service (“IRS”) issued Notice 2018-68, which provides interpretative guidance on the application of the new executive compensation deduction limits enacted under the TCJA. Based upon our assessment of this new guidance, for the three and nine months ended September 30, 2018, we reversed $20.2 million of previously recognized tax benefits associated with officers’ stock-based compensation deductions.

The increase in effective tax rate for the three months ended September 30, 2018 compared to the same period in 2017 is primarily attributable to the unfavorable tax impact from IRS Notice 2018-68 related to limitations on officers’ compensation deductions as described above and reduced tax benefits from foreign earnings being taxed at a lower tax rate due to the decrease in corporate tax rate from 35% to 21%, partially offset by the recognition of tax benefits related to a statute of limitations expiration.

The decrease in effective tax rate for the nine months ended September 30, 2018 compared to the same period in 2017 is mainly driven by the decrease in corporate tax rate from 35% to 21% pursuant to the enactment of the TCJA, the recognition of tax benefits related to a statute of limitations expiration and the increase in excess tax benefits related to stock-based compensation, offset in part by the unfavorable tax impact of the TCJA including non-deductible officers’ compensation under IRS Notice 2018-68 described above and reduced tax benefits from foreign earnings being taxed at a lower rate.

As a result of our assessment of the impact of IRS Notice 2018-68 mentioned above, we reversed $20.2 million of previously recognized tax benefits associated with officers’ stock-based compensation deductions which resulted in a tax expense accrual of $14.7 million for the three months ended September 30, 2018. For the nine months ended September 30, 2018, the excess tax benefits we recognized in our provision for income taxes related to stock-based compensation was $25.2 million.

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 2015. We are currently under examination by the Internal Revenue Service for tax years 2015 and 2016. With few exceptions, we are no longer subject to examination by foreign tax authorities for years before 2010.

During the three and nine months ended September 30, 2018, a statute of limitations expired. As a result, we recorded approximately $29.0 million of previously unrecognized tax benefits and reduced our accrual for interest by approximately $2.9 million.

Our total gross unrecognized tax benefits, excluding interest and penalties, was $27.1 million and $47.7 million as of September 30, 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 September 30, 2018 was $0.8 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. Although it is possible that our balance of gross unrecognized tax benefits could materially change in the next 12 months, given the uncertainty in the development of ongoing income tax examinations, we are unable to estimate the full range of possible adjustments to this balance.

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 and nine months ended September 30, 2018, the reduction in income taxes due to the reduced tax rate was minimal.

As of December 31, 2017, our undistributed earnings 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 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 for the estimated impact of the TCJA of $84.3 million, of which $73.9 million was related to a provisional transition tax liability on the mandatory deemed repatriation of foreign earnings and $10.4 million was related to the remeasurement of certain deferred tax assets and liabilities. During the nine months ended September 30, 2018, the cumulative additional provisional tax charge recorded was $3.3 million, primarily resulting from further analysis of our cumulative foreign earnings balances affecting the U.S. transition tax liability and the corresponding state tax impact. 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(s) 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 September 30, 2018, 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

9 Months Ended

Sep. 30, 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 RSUs, MSUs, 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 September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Numerator:
Net income	$	100,872	$	82,555	$	302,843	$	221,154
Denominator:
Weighted-average common shares outstanding, basic	80,111		80,163		80,122		80,086
Dilutive effect of potential common stock	1,248		1,626		1,416		1,671
Total shares, diluted	81,359		81,789		81,538		81,757

Net income per share, basic	$	1.26	$	1.03	$	3.78	$	2.76
Net income per share, diluted	$	1.24	$	1.01	$	3.71	$	2.71

For the three and nine months ended September 30, 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

9 Months Ended

Sep. 30, 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, but not limited to, Invisalign Comprehensive, Invisalign Full, Invisalign Teen, Invisalign Assist and Invisalign First.


•	Non-Comprehensive Products include, but not limited to, Invisalign Express, Invisalign Lite and Invisalign Go in addition to revenues from the sale of aligners to SDC under our supply agreement.


•	Non-Case includes, but not limited to, Vivera retainers along with our training and ancillary products for treating malocclusion.


•	Our Scanner segment consists of intraoral scanning systems 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.

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 September 30,						Nine Months Ended September 30,
Net revenues	2018			2017			2018			2017
Clear Aligner	$	427,087		$	341,611		$	1,245,833		$	945,046
Scanner	78,202			43,656			186,639			107,044
Total net revenues	$	505,289		$	385,267		$	1,432,472		$	1,052,090
Gross profit
Clear Aligner	$	321,772		$	266,285		$	950,360		$	737,046
Scanner	50,009			26,203			114,411			61,984
Total gross profit	$	371,781		$	292,488		$	1,064,771		$	799,030
Income from operations
Clear Aligner	$	182,667		$	154,614		$	534,408		$	403,264
Scanner	31,498			13,525			65,250			28,324
Unallocated corporate expenses	(88,957		)	(69,376		)	(253,567		)	(187,583		)
Total income from operations	$	125,208		$	98,763		$	346,091		$	244,005
Depreciation and amortization
Clear Aligner	$	7,218		$	5,643		$	20,361		$	15,607
Scanner	1,237			1,130			3,510			3,248
Unallocated corporate depreciation and amortization	5,664			3,199			14,314			7,860
Total depreciation and amortization	$	14,119		$	9,972		$	38,185		$	26,715

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Total segment income from operations	$	214,165		$	168,139		$	599,658		$	431,588
Unallocated corporate expenses	(88,957		)	(69,376		)	(253,567		)	(187,583		)
Total income from operations	125,208			98,763			346,091			244,005
Interest income	2,234			1,826			6,327			4,462
Other income (expense), net	(837		)	1,924			(7,759		)	4,145
Net income before provision for income taxes and equity in losses of investee	$	126,605		$	102,513		$	344,659		$	252,612

Geographical Information

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Net revenues¹:
United States	$	263,349	$	217,758	$	754,472	$	608,052
The Netherlands	141,405		109,068		437,364		318,399
China	52,874		26,965		116,891		59,195
Other International	47,661		31,476		123,745		66,444
Total net revenues	$	505,289	$	385,267	$	1,432,472	$	1,052,090

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

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



	September 30, 2018		December 31, 2017
Long-lived assets²:
The Netherlands	$	195,790	$	143,673
United States	135,369		128,171
Costa Rica	71,437		30,738
Mexico	34,272		25,090
China	33,955		5,480
Other International	20,807		15,641
Total long-lived assets	$	491,630	$	348,793

²Long-lived assets are attributed to countries based on entity that owns the assets.

Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Investments in Privately Held Companies

Basis of presentation

Basis of Presentation

Use of estimates

Use of Estimates

Revenue Recognition

Clear Aligner

Scanner

Warranties

Volume Discounts

Costs to Obtain a Contract

Unfulfilled Performance Obligations for Clear Aligners and Scanners

Contract Balances

Recent Accounting Pronouncements

(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



	Nine Months Ended September 30, 2017
	As Previously Reported			Adjustment			As Adjusted
Cash Flows from Investing Activities
Other investing activities	$	397		$	(3,164	)	$	(2,767	)
Net cash used in investing activities	(228,620		)	(3,164		)	(231,784		)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash	4,781			25			4,806
Net decrease in cash, cash equivalents, and restricted cash	(26,662		)	(3,139		)	(29,801		)
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	$	362,613		$	605		$	363,218

(ii) Recent Accounting Updates Not Yet Effective

Disclosure of accounting policy for investments in financial assets, including marketable securities (debt and equity securities with readily determinable fair values), investments accounted for under the equity method and cost method, securities borrowed and loaned, and repurchase and resale agreements. For marketable securities, the disclosure may include the entity's accounting treatment for transfers between investment categories and how the fair values for such securities are determined. Also, for all investments, an entity may describe its policy for assessing, recognizing and measuring impairment of the investment.

Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2018

Schedule of New Accounting Pronouncements and Changes in Accounting Principles

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

Condensed Consolidated Statement of Cash Flows line items, which reflect the adoption of the ASU 2016-18, are as follows (in thousands):



	Nine Months Ended September 30, 2017
	As Previously Reported			Adjustment			As Adjusted
Cash Flows from Investing Activities
Other investing activities	$	397		$	(3,164	)	$	(2,767	)
Net cash used in investing activities	(228,620		)	(3,164		)	(231,784		)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash	4,781			25			4,806
Net decrease in cash, cash equivalents, and restricted cash	(26,662		)	(3,139		)	(29,801		)
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	$	362,613		$	605		$	363,218

Investments and Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2018

Short-Term And Long-Term Marketable Securities

As of September 30, 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



September 30, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Commercial paper	$	24,675	$	—	$	—		$	24,675
Corporate bonds	75,461		1		(94		)	75,368
U.S. government agency bonds	11,665		—		(31		)	11,634
U.S. government treasury bonds	72,622		—		(22		)	72,600
Certificates of deposit	20		—		—			20
Total marketable securities, short-term	$	184,443	$	1	$	(147	)	$	184,297

Long-term



September 30, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government agency bonds	$	7,035	$	—	$	(74	)	$	6,961
Corporate bonds	1,127		3		—			1,130
Total marketable securities, long-term	$	8,162	$	3	$	(74	)	$	8,091

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



	September 30, 2018		December 31, 2017
One year or less	$	184,297	$	272,031
Due in greater than one year	8,091		39,948
Total available for sale short-term and long-term marketable securities	$	192,388	$	311,979

Investments in privately held companies

Our investments in privately held companies as of September 30, 2018 and December 31, 2017 are as follows (in thousands):



	September 30, 2018		December 31, 2017
Equity securities under the equity method investment ¹	$	47,996	$	54,606
Equity securities without readily determinable fair values ²	$	9,862	$	—


¹	Refer to Note 4 “Equity Method Investments” of the Notes to Condensed Consolidated Financial Statements for more information

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 September 30, 2018 and December 31, 2017 (in thousands):



Description	Balance as of September 30, 2018		Level 1		Level 2
Cash equivalents:
Money market funds	$	256,689	$	256,689	$	—
Commercial paper	6,883		—		6,883
Corporate bonds	2,014		—		2,014
Short-term investments:
Commercial paper	24,675		—		24,675
Corporate bonds	75,368		—		75,368
U.S. government agency bonds	11,634		—		11,634
U.S. government treasury bonds	72,600		72,600		—
Certificates of deposit	20		—		20
Long-term investments:
U.S. government agency bonds	6,961		—		6,961
Corporate bonds	1,130		—		1,130
Prepaid expenses and other current assets:
Israeli funds	3,143		—		3,143
	$	461,117	$	329,289	$	131,828



Description	Balance as of December 31, 2017		Level 1		Level 2		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 September 30, 2018 (in thousands):



	September 30, 2018
	Local Currency Amount	Notional Contract Amount (USD)
Euro	€61,000	$	70,992
Chinese Yuan	¥330,000	47,882
Canadian Dollar	C$28,000	21,653
British Pound	£13,000	16,966
Japanese Yen	¥1,700,000	14,985
Brazilian Real	R$55,500	13,821
Australian Dollar	A$2,900	2,097
		$	188,396

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)

9 Months Ended

Sep. 30, 2018

Schedule of Accrued Liabilities

Schedule of Inventories

Inventories consist of the following (in thousands):



	September 30, 2018		December 31, 2017
Raw materials	$	23,395	$	12,721
Work in process	11,090		12,157
Finished goods	14,373		6,810
Total inventories	$	48,858	$	31,688

Schedule of Other Assets

Other assets consist of the following (in thousands):



	September 30, 2018		December 31, 2017
Capitalized commissions	$	8,651	$	5,515
Equity securities	9,862		—
Security deposits	4,259		3,557
Loan receivable from equity investee	—		30,000
Other long-term assets	2,692		4,821
Total other assets	$	25,464	$	43,893

Accrued liabilities consist of the following (in thousands):



	September 30, 2018		December 31, 2017
Accrued payroll and benefits	$	102,109	$	103,004
Accrued expenses	36,110		27,318
Accrued fixed assets	17,765		11,362
Accrued warranty	8,026		5,929
Accrued professional fees	7,774		6,316
Accrued sales rebate	7,765		11,209
Accrued customer credits	7,618		5,373
Accrued sales tax and value added tax	6,734		5,503
Accrued sales return reserve ¹	5,876		1,364
Accrued income taxes	4,111		12,405
Other accrued liabilities	15,147		5,779
Total accrued liabilities	$	219,035	$	195,562

Schedule of Warranty Accrual

Warranty accrual as of September 30, 2018 and 2017 consists of the following activity (in thousands):



	Nine Months Ended September 30,
	2018			2017
Balance at beginning of period	$	5,929		$	3,841
Charged to cost of revenues	10,874			5,201
Actual warranty expenditures	(8,777		)	(3,987		)
Balance at end of period	$	8,026		$	5,055

Schedule of Deferred Revenues

Deferred revenues consist of the following (in thousands):



	September 30, 2018		December 31, 2017
Deferred revenues - current	$	356,109	$	267,713
Deferred revenues - long-term ¹	11,739		4,588

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

Goodwill and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2018

Summary of Goodwill by Reportable Segment

The change in the carrying value of goodwill for the nine months ended September 30, 2018, all attributable to our Clear Aligner reporting unit, is as follows (in thousands):



	Total
Balance as of December 31, 2017	$	64,614
Adjustments¹	(542		)
Balance as of September 30, 2018	$	64,072

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 September 30, 2018		Accumulated Amortization			Accumulated Impairment Loss			Net Carrying Value as of September 30, 2018
Trademarks	15	$	7,100	$	(1,873	)	$	(4,179	)	$	1,048
Existing technology	13	12,600		(5,127		)	(4,328		)	3,145
Customer relationships	11	33,500		(16,078		)	(10,751		)	6,671
Reacquired rights	3	7,500		(3,604		)	—			3,896
Patents	8	6,796		(2,126		)	—			4,670
Other	2	618		(513		)	—			105
Total intangible assets		$	68,114	$	(29,321	)	$	(19,258	)	$	19,535



	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 September 30, 2018 is as follows (in thousands):



Fiscal Year Ending December 31,	Amortization
Remainder of 2018	$	1,571
2019	6,171
2020	3,854
2021	3,388
2022	2,116
Thereafter	2,435
Total	$	19,535

Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2018

Schedule of Future Lease Payments

As of September 30, 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	$	4,839
2019	19,131
2020	15,988
2021	14,386
2022	12,026
Thereafter	25,769
Total minimum future lease payments	$	92,139

Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2018

Stock-based Compensation Expense

The stock-based compensation related to all of our stock-based awards and employee stock purchases for the three and nine months ended September 30, 2018 and 2017 is as follows (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Cost of net revenues	$	966	$	833	$	2,747	$	2,526
Selling, general and administrative	15,403		11,880		41,197		34,814
Research and development	2,829		2,254		7,974		6,684
Total stock-based compensation	$	19,198	$	14,967	$	51,918	$	44,024

Stock Option Activity

Activity for the nine months ended September 30, 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	(63	)	11.99
Cancelled or expired	—		—
Outstanding as of September 30, 2018	12		$	7.99	0.41	$	4,534
Vested at September 30, 2018	12		$	7.99	0.41	$	4,534
Exercisable at September 30, 2018	12		$	7.99	0.41	$	4,534

Summary Of Restricted Stock Units

A summary for the nine months ended September 30, 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	225		261.52
Vested and released	(516	)	73.44
Forfeited	(74	)	105.53
Nonvested as of September 30, 2018	976		$	126.52	1.23	$	381,710

Summary Of Market-performance Based Restricted Stock Units

The following table summarizes the MSU performance for the nine months ended September 30, 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	208		266.78
Vested and released	(312	)	62.41
Forfeited	—		—
Nonvested as of September 30, 2018	324		$	215.07	1.41	$	126,834

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 September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Expected term (in years)	1.2			1.2			1.3			1.2
Expected volatility	35.7		%	28.8		%	35.2		%	26.8		%
Risk-free interest rate	2.5		%	1.2		%	2.2		%	1.0		%
Expected dividends	—			—			—			—
Weighted average fair value at grant date	$	109.58		$	47.02		$	94.71		$	31.36

Net Income Per Share (Tables)

9 Months Ended

Sep. 30, 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 September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Numerator:
Net income	$	100,872	$	82,555	$	302,843	$	221,154
Denominator:
Weighted-average common shares outstanding, basic	80,111		80,163		80,122		80,086
Dilutive effect of potential common stock	1,248		1,626		1,416		1,671
Total shares, diluted	81,359		81,789		81,538		81,757

Net income per share, basic	$	1.26	$	1.03	$	3.78	$	2.76
Net income per share, diluted	$	1.24	$	1.01	$	3.71	$	2.71

Segments and Geographical Information (Tables)

9 Months Ended

Sep. 30, 2018

Schedule of Segment Reporting Information, by Segment



	Three Months Ended September 30,						Nine Months Ended September 30,
Net revenues	2018			2017			2018			2017
Clear Aligner	$	427,087		$	341,611		$	1,245,833		$	945,046
Scanner	78,202			43,656			186,639			107,044
Total net revenues	$	505,289		$	385,267		$	1,432,472		$	1,052,090
Gross profit
Clear Aligner	$	321,772		$	266,285		$	950,360		$	737,046
Scanner	50,009			26,203			114,411			61,984
Total gross profit	$	371,781		$	292,488		$	1,064,771		$	799,030
Income from operations
Clear Aligner	$	182,667		$	154,614		$	534,408		$	403,264
Scanner	31,498			13,525			65,250			28,324
Unallocated corporate expenses	(88,957		)	(69,376		)	(253,567		)	(187,583		)
Total income from operations	$	125,208		$	98,763		$	346,091		$	244,005
Depreciation and amortization
Clear Aligner	$	7,218		$	5,643		$	20,361		$	15,607
Scanner	1,237			1,130			3,510			3,248
Unallocated corporate depreciation and amortization	5,664			3,199			14,314			7,860
Total depreciation and amortization	$	14,119		$	9,972		$	38,185		$	26,715

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Total segment income from operations	$	214,165		$	168,139		$	599,658		$	431,588
Unallocated corporate expenses	(88,957		)	(69,376		)	(253,567		)	(187,583		)
Total income from operations	125,208			98,763			346,091			244,005
Interest income	2,234			1,826			6,327			4,462
Other income (expense), net	(837		)	1,924			(7,759		)	4,145
Net income before provision for income taxes and equity in losses of investee	$	126,605		$	102,513		$	344,659		$	252,612

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

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Net revenues¹:
United States	$	263,349	$	217,758	$	754,472	$	608,052
The Netherlands	141,405		109,068		437,364		318,399
China	52,874		26,965		116,891		59,195
Other International	47,661		31,476		123,745		66,444
Total net revenues	$	505,289	$	385,267	$	1,432,472	$	1,052,090

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

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



	September 30, 2018		December 31, 2017
Long-lived assets²:
The Netherlands	$	195,790	$	143,673
United States	135,369		128,171
Costa Rica	71,437		30,738
Mexico	34,272		25,090
China	33,955		5,480
Other International	20,807		15,641
Total long-lived assets	$	491,630	$	348,793

²Long-lived assets are attributed to countries based on entity that owns the assets.

Summary of Significant Accounting Policies - Narrative (Details) $ in Millions	9 Months Ended
	Sep. 30, 2018 USD ($)
Notes To Financial Statements [Abstract]
Revenue remaining performance obligation	$ 380.7
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2018-10-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-10-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Expected timing	5 years

Summary of Significant Accounting Policies - Balance sheet as adjusted (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Accounts receivable, net	$ 420,276	$ 324,189
Deferred tax assets	47,435	49,334
Other assets	25,464	43,893
Accrued liabilities	219,035	195,562
Deferred revenues	356,109	267,713
Retained earnings	$ 328,432	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	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Initial Application Period [Line Items]
Other investing activities	$ 604	$ (2,767)
Net cash used in investing activities	(24,021)	(231,784)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash	(2,890)	4,806
Net decrease in cash, cash equivalents, and restricted cash		(29,801)
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	$ 421,449	363,218
As Previously Reported
Initial Application Period [Line Items]
Other investing activities		397
Net cash used in investing activities		(228,620)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash		4,781
Net decrease in cash, cash equivalents, and restricted cash		(26,662)
Cash, cash equivalents, and restricted cash at beginning of the period		389,275
Cash, cash equivalents, and restricted cash at end of the period		362,613
Accounting Standards Update 2016-18 \| Adjustment
Initial Application Period [Line Items]
Other investing activities		(3,164)
Net cash used in investing activities		(3,164)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash		25
Net decrease in cash, cash equivalents, and restricted cash		(3,139)
Cash, cash equivalents, and restricted cash at beginning of the period		3,744
Cash, cash equivalents, and restricted cash at end of the period		$ 605

Investments and Fair Value Measurements Short-Term and Long-Term Marketable Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Schedule of Available-for-sale Securities [Line Items]
Total available for sale short-term and long-term marketable securities	$ 192,388	$ 311,979
Fair Value, Measurements, Recurring \| Short-term Investments
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	184,443	272,280
Gross Unrealized Gains	1	3
Gross Unrealized Losses	(147)	(252)
Total available for sale short-term and long-term marketable securities	184,297	272,031
Fair Value, Measurements, Recurring \| Short-term Investments \| Commercial paper
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	24,675	58,503
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	(1)
Total available for sale short-term and long-term marketable securities	24,675	58,502
Fair Value, Measurements, Recurring \| Short-term Investments \| Corporate bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	75,461	145,728
Gross Unrealized Gains	1	3
Gross Unrealized Losses	(94)	(174)
Total available for sale short-term and long-term marketable securities	75,368	145,557
Fair Value, Measurements, Recurring \| Short-term Investments \| U.S. government agency bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	11,665	3,013
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(31)	(7)
Total available for sale short-term and long-term marketable securities	11,634	3,006
Fair Value, Measurements, Recurring \| Short-term Investments \| U.S. government treasury bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	72,622	60,650
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(22)	(70)
Total available for sale short-term and long-term marketable securities	72,600	60,580
Fair Value, Measurements, Recurring \| Short-term Investments \| Certificates of deposit
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	20	4,386
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Total available for sale short-term and long-term marketable securities	20	4,386
Fair Value, Measurements, Recurring \| Long-term Investments
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	8,162	40,090
Gross Unrealized Gains	3	2
Gross Unrealized Losses	(74)	(144)
Total available for sale short-term and long-term marketable securities	8,091	39,948
Fair Value, Measurements, Recurring \| Long-term Investments \| Corporate bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,127	25,067
Gross Unrealized Gains	3	2
Gross Unrealized Losses	0	(76)
Total available for sale short-term and long-term marketable securities	1,130	24,993
Fair Value, Measurements, Recurring \| Long-term Investments \| U.S. government agency bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	7,035	15,023
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(74)	(68)
Total available for sale short-term and long-term marketable securities	$ 6,961	$ 14,955

Investments and Fair Value Measurements Additional Information (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Investments, Debt and Equity Securities [Abstract]
Original maturity of highly liquid investments included in cash and cash equivalents	40 months
Weighted average maturity	3 months	6 months

Investments and Fair Value Measurements Available For Sale Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Investments, Debt and Equity Securities [Abstract]
One year or less	$ 184,297	$ 272,031
Due in greater than one year	8,091	39,948
Total available for sale short-term and long-term marketable securities	$ 192,388	$ 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.

Investments and Fair Value Measurements Investments in Privately Held Companies (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Apr. 30, 2018	Dec. 31, 2017
Fair Value Disclosures [Abstract]
Equity securities under the equity method investment	$ 47,996		$ 54,606
Equity securities without readily determinable fair values	$ 9,862		0
Fair Value, Measurements, Recurring \| Short-term notes receivable
Schedule of Available-for-sale Securities [Line Items]
Short-term notes receivable			4,476
Level 3 \| Fair Value, Measurements, Recurring \| Short-term notes receivable
Schedule of Available-for-sale Securities [Line Items]
Short-term notes receivable		$ 4,900	$ 4,476

Investments and Fair Value Measurements Derivative Notional Instruments (Details) - Foreign Exchange Forward € in Thousands, ¥ in Thousands, ¥ in Thousands, £ in Thousands, R$ in Thousands, $ in Thousands, $ in Thousands, $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2018 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2018 EUR (€)	Sep. 30, 2018 CNY (¥)	Sep. 30, 2018 USD ($)	Sep. 30, 2018 JPY (¥)	Sep. 30, 2018 AUD ($)	Sep. 30, 2018 BRL (R$)	Sep. 30, 2018 CAD ($)	Sep. 30, 2018 GBP (£)
Derivative [Line Items]
Gain on foreign currency forward contracts	$ 2,300	$ 7,700
Level 2 \| Prepaid expenses and other current assets
Derivative [Line Items]
Notional amount					$ 188,396
Euro \| Level 2 \| Prepaid expenses and other current assets
Derivative [Line Items]
Notional amount			€ 61,000		70,992
Chinese Yuan \| Level 2 \| Prepaid expenses and other current assets
Derivative [Line Items]
Notional amount				¥ 330,000	47,882
Canadian Dollar \| Level 2 \| Prepaid expenses and other current assets
Derivative [Line Items]
Notional amount					21,653				$ 28,000
British Pound \| Level 2 \| Prepaid expenses and other current assets
Derivative [Line Items]
Notional amount					16,966					£ 13,000
Japanese Yen \| Level 2 \| Prepaid expenses and other current assets
Derivative [Line Items]
Notional amount					14,985	¥ 1,700,000
Brazilian Real \| Level 2 \| Prepaid expenses and other current assets
Derivative [Line Items]
Notional amount					13,821			R$ 55,500
Australian Dollar \| Level 2 \| Prepaid expenses and other current assets
Derivative [Line Items]
Notional amount					$ 2,097		$ 2,900

Inventories (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Disclosure Inventories [Abstract]
Raw materials	$ 23,395	$ 12,721
Work in process	11,090	12,157
Finished goods	14,373	6,810
Total inventories	$ 48,858	$ 31,688

Balance Sheet Components Other Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Notes To Financial Statements [Abstract]
Capitalized commissions	$ 8,651	$ 5,515
Equity securities	9,862	0
Security deposits	4,259	3,557
Loan receivable from equity investee	0	30,000
Other long-term assets	2,692	4,821
Total other assets	$ 25,464	$ 43,893

Accrued Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Disclosure Accrued Liabilities [Abstract]
Accrued payroll and benefits	$ 102,109	$ 103,004
Accrued expenses	36,110	27,318
Accrued fixed assets	17,765	11,362
Accrued warranty	8,026	5,929
Accrued professional fees	7,774	6,316
Accrued sales rebate	7,765	11,209
Accrued customer credits	7,618	5,373
Accrued sales tax and value added tax	6,734	5,503
Accrued sales return reserve	5,876	1,364
Accrued income taxes	4,111	12,405
Other accrued liabilities	15,147	5,779
Total accrued liabilities	$ 219,035	$ 195,562

Warranty Accrual Activity (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Movement in Standard Product Warranty Accrual [Roll Forward]
Balance at beginning of period	$ 5,929	$ 3,841
Charged to cost of revenues	10,874	5,201
Actual warranty expenditures	(8,777)	(3,987)
Balance at end of period	$ 8,026	$ 5,055

Balance Sheet Components Deferred Revenues (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Notes To Financial Statements [Abstract]
Deferred revenues - current	$ 356,109	$ 267,713
Deferred revenues - long-term	$ 11,739	$ 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		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Condensed Balance Sheet Statements, Captions [Line Items]
Revenue recognized	$ 505,289	$ 385,267	$ 1,432,472	$ 1,052,090
Deferred Revenue
Condensed Balance Sheet Statements, Captions [Line Items]
Deferred revenue	$ 125,600	$ 74,000	$ 313,400	$ 186,800

Equity Method Investments (Details) - USD ($)				3 Months Ended		9 Months Ended
Equity Method Investments (Details) - USD ($)	Feb. 07, 2018	Jul. 24, 2017	Jul. 25, 2016	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Schedule of Equity Method Investments [Line Items]
Equity method investments				$ 47,996,000		$ 47,996,000		$ 54,606,000
Net revenues				505,289,000	$ 385,267,000	1,432,472,000	$ 1,052,090,000
Loan repayment from equity investee						30,000,000	6,000,000
SDC
Schedule of Equity Method Investments [Line Items]
Ownership			17.00%
Payments to acquire		$ 12,800,000	$ 46,700,000
Additional ownership acquired		2.00%
Due from related parties				12,500,000		12,500,000		$ 14,300,000
Net revenues				$ 8,100,000	$ 10,600,000	$ 22,000,000	$ 14,200,000
SDC
Schedule of Equity Method Investments [Line Items]
Loan repayment from equity investee	$ 30,000,000
Maximum \| SDC
Schedule of Equity Method Investments [Line Items]
Loan receivable		$ 30,000,000.0

Business Combinations (Details) - Certain Distributors $ in Millions	9 Months Ended
	Sep. 30, 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	9 Months Ended
	Sep. 30, 2018 USD ($)
Goodwill [Roll Forward]
Balance as of December 31, 2017	$ 64,614
Adjustments	(542)
Balance as of September 30, 2018	$ 64,072

Goodwill and Intangible Assets - Intangible Assets (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount, beginning balance	$ 68,114	$ 68,116
Accumulated Amortization	(29,321)	(24,404)
Accumulated Impairment Loss	(19,258)	(19,258)
Net Carrying Value, ending balance	$ 19,535	$ 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	(1,873)	(1,769)
Accumulated Impairment Loss	(4,179)	(4,179)
Net Carrying Value, ending balance	$ 1,048	$ 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	(5,127)	(4,704)
Accumulated Impairment Loss	(4,328)	(4,328)
Net Carrying Value, ending balance	$ 3,145	$ 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	(16,078)	(14,681)
Accumulated Impairment Loss	(10,751)	(10,751)
Net Carrying Value, ending balance	$ 6,671	$ 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	(3,604)	(1,356)
Accumulated Impairment Loss	0	0
Net Carrying Value, ending balance	$ 3,896	$ 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	(2,126)	(1,504)
Accumulated Impairment Loss	0	0
Net Carrying Value, ending balance	$ 4,670	$ 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	(513)	(390)
Accumulated Impairment Loss	0	0
Net Carrying Value, ending balance	$ 105	$ 228

Goodwill and Intangible Assets - Total Estimated Annual Future Amortization Expense for Acquired Intangible Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Disclosure Total Estimated Annual Future Amortization Expense For Acquired Intangible Assets [Abstract]
Remainder of 2018	$ 1,571
2019	6,171
2020	3,854
2021	3,388
2022	2,116
Thereafter	2,435
Net Carrying Value, ending balance	$ 19,535	$ 24,454

Goodwill and Intangible Assets - Narrative (Details) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill impairment					$ 0
Amortization	$ 1,500,000	$ 1,500,000	$ 4,500,000	$ 4,700,000

Credit Facilities - Additional Information (Details) - USD ($)	Feb. 27, 2018	Sep. 30, 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.