Document and Entity Information - USD ($)	12 Months Ended
Document and Entity Information - USD ($)	Dec. 31, 2018	Feb. 22, 2019	Jun. 29, 2018
Document Documentand Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY
Trading Symbol	ALGN
Entity Registrant Name	ALIGN TECHNOLOGY INC
Entity Central Index Key	0001097149
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Common Stock, Shares Outstanding (shares)		79,989,347
Entity Well-known Seasoned Issuer	Yes
Entity Public Float			$ 22,262,043,858
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Shell Company	false

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Income Statement [Abstract]
Net revenues	$ 1,966,492	$ 1,473,413	$ 1,079,874
Cost of net revenues	518,625	356,466	264,580
Gross profit	1,447,867	1,116,947	815,294
Operating expenses:
Selling, general and administrative	852,404	665,777	490,653
Research and development	128,899	97,559	75,720
Total operating expenses	981,303	763,336	566,373
Income from operations	466,564	353,611	248,921
Interest income	8,576	6,948	4,213
Other income (expense), net	(8,489)	4,240	(10,568)
Net income before provision for income taxes and equity in losses of investee	466,651	364,799	242,566
Provision for income taxes	57,723	130,162	51,200
Equity in losses of investee, net of tax	8,693	3,219	1,684
Net income	$ 400,235	$ 231,418	$ 189,682
Net income per share:
Basic (usd per share)	$ 5.00	$ 2.89	$ 2.38
Diluted (usd per share)	$ 4.92	$ 2.83	$ 2.33
Shares used in computing net income per share:
Basic (shares)	80,064	80,085	79,856
Diluted (shares)	81,357	81,832	81,484

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Statement of Comprehensive Income [Abstract]
Net income	$ 400,235	$ 231,418	$ 189,682
Net change in foreign currency translation adjustment	(3,631)	1,741	(670)
Change in unrealized gains (losses) on investments, net of tax	286	(232)	712
Other comprehensive income (loss)	(3,345)	1,509	42
Comprehensive income	$ 396,890	$ 232,927	$ 189,724

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References + Details

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 636,899	$ 449,511
Marketable securities, short-term	98,460	272,031
Accounts receivable, net of allowance for doubtful accounts of $2,378 and $5,814, respectively	439,009	324,189
Inventories	55,641	31,688
Prepaid expenses and other current assets	72,470	80,948
Total current assets	1,302,479	1,158,367
Marketable securities, long-term	9,112	39,948
Property, plant and equipment, net	521,329	348,793
Equity method investments	45,913	54,606
Goodwill and intangible assets, net	81,949	89,068
Deferred tax assets	64,689	49,334
Other assets	26,987	43,893
Total assets	2,052,458	1,784,009
Current liabilities:
Accounts payable	64,256	36,776
Accrued liabilities	234,679	195,562
Deferred revenues	393,138	267,713
Total current liabilities	692,073	500,051
Income tax payable	78,008	114,091
Other long-term liabilities	29,486	15,579
Total liabilities	799,567	629,721
Commitments and contingencies (Notes 8 and 9)
Stockholders’ equity:
Preferred stock, $0.0001 par value (5,000 shares authorized; none issued)	0	0
Common stock, $0.0001 par value (200,000 shares authorized; 79,778 and 80,040 issued and outstanding, respectively)	8	8
Additional paid-in capital	877,514	886,435
Accumulated other comprehensive income (loss), net	(2,774)	571
Retained earnings	378,143	267,274
Total stockholders’ equity	1,252,891	1,154,288
Total liabilities and stockholders’ equity	$ 2,052,458	$ 1,784,009

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) shares in Thousands, $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Accounts receivable, allowance for doubtful accounts and returns	$ 2,378	$ 5,814
Preferred stock, par value (usd per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized (shares)	5,000	5,000
Preferred stock, issued (shares)
Common stock, par value (usd per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized (shares)	200,000	200,000
Common stock, issued (shares)	79,778	80,040
Common stock, outstanding (shares)	79,778	80,040

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss), Net	Retained Earnings
Beginning Balance (in shares) at Dec. 31, 2015		79,500
Beginning Balance at Dec. 31, 2015	$ 847,926	$ 8	$ 821,507	$ (980)	$ 27,391
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	189,682				189,682
Net change in unrealized gains (losses) from investments	712			712
Net change in foreign currency translation adjustment	(670)		0	(670)
Issuance of common stock relating to employee equity compensation plans (in shares)		1,163
Issuance of common stock relating to employee equity compensation plans	13,778	$ 0	13,778
Tax withholdings related to net share settlements of restricted stock units	(29,857)		(29,857)
Common stock repurchased and retired (shares)		(1,110)
Common stock repurchased and retired	(96,218)		(10,593)		(85,625)
Net tax benefits from stock-based awards	15,888		15,888
Stock-based compensation	54,148		54,148
Ending Balance (in shares) at Dec. 31, 2016		79,553
Ending Balance at Dec. 31, 2016	999,307	$ 8	864,871	(938)	135,366
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	231,418				231,418
Net change in unrealized gains (losses) from investments	(232)			(232)
Net change in foreign currency translation adjustment	1,741		0	1,741
Issuance of common stock relating to employee equity compensation plans (in shares)		1,073
Issuance of common stock relating to employee equity compensation plans	14,461	$ 0	14,461
Tax withholdings related to net share settlements of restricted stock units	(46,168)		(46,168)
Common stock repurchased and retired (shares)		(586)
Common stock repurchased and retired	(103,793)		(5,583)		(98,210)
Stock-based compensation	58,854		58,854
Ending Balance (in shares) at Dec. 31, 2017		80,040
Ending Balance at Dec. 31, 2017	1,154,288	$ 8	886,435	571	267,274
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	400,235
Net change in unrealized gains (losses) from investments	286			286
Net change in foreign currency translation adjustment	(3,631)			(3,631)
Issuance of common stock relating to employee equity compensation plans (in shares)		795
Issuance of common stock relating to employee equity compensation plans	16,635		16,635
Tax withholdings related to net share settlements of restricted stock units	(86,067)		(86,067)
Common stock repurchased and retired (shares)		(1,057)
Common stock repurchased and retired	(300,002)		(10,252)		(289,750)
Stock-based compensation	70,763		70,763
Other	384				384
Ending Balance (in shares) at Dec. 31, 2018		79,778
Ending Balance at Dec. 31, 2018	$ 1,252,891	$ 8	$ 877,514	$ (2,774)	$ 378,143

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 400,235	$ 231,418	$ 189,682
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes	(15,680)	17,572	(16,401)
Depreciation and amortization	54,727	37,739	24,002
Stock-based compensation	70,763	58,854	54,148
Net tax benefits from stock-based awards	0	0	15,888
Excess tax benefit from share-based payment arrangements	0	0	(16,773)
Equity in losses of investee	8,693	3,219	1,684
Other non-cash operating activities	17,252	13,847	12,031
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable	(109,224)	(90,990)	(95,808)
Inventories	(24,109)	(5,481)	(7,663)
Prepaid expenses and other assets	(9,122)	(8,669)	(9,390)
Accounts payable	25,045	8,175	(3,395)
Accrued and other long-term liabilities	36,250	24,235	31,371
Long-term income tax payable	(36,548)	68,958	7,622
Deferred revenues	136,399	79,662	60,656
Net cash provided by operating activities	554,681	438,539	247,654
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment	(223,312)	(195,695)	(70,576)
Purchase of marketable securities	(180,191)	(390,244)	(405,612)
Proceeds from maturities of marketable securities	375,105	349,240	387,873
Proceeds from sales of marketable securities	9,560	39,536	216,119
Purchases of investments in privately held companies	(5,000)	(12,764)	(46,745)
Loan advances to equity investee	0	(36,000)	0
Loan repayment from equity investee	30,000	6,000	0
Acquisition, net of cash acquired	0	(8,953)	0
Other investing activities	765	(2,597)	(8,031)
Net cash provided by (used in) investing activities	6,927	(251,477)	73,028
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock	16,635	14,461	13,778
Common stock repurchases	(300,002)	(103,793)	(96,218)
Excess tax benefit from share-based payment arrangements	0	0	16,773
Employees’ taxes paid upon the vesting of restricted stock units	(86,067)	(46,168)	(29,857)
Net cash used in financing activities	(369,434)	(135,500)	(95,524)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash	(4,733)	5,544	(3,374)
Net increase in cash, cash equivalents, and restricted cash	187,441	57,106	221,784
Cash, cash equivalents, and restricted cash at beginning of year	450,125	393,019	171,235
Cash, cash equivalents, and restricted cash at end of the period	$ 637,566	$ 450,125	$ 393,019

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Business Description

Align Technology, Inc. (“We”, “Our”, or “Align”) was incorporated in April 1997 in Delaware. Align is a global medical device company engaged in the design, manufacture and marketing of Invisalign® clear aligners and iTero® intraoral scanners and services for orthodontics and restorative and aesthetic dentistry. Align’s products are intended primarily for the treatment of malocclusion or the misalignment of teeth and are designed to help dental professionals achieve the clinical outcomes that they expect. We are headquartered in San Jose, California with offices worldwide. Our Americas regional headquarters is located in Raleigh, North Carolina; our European regional headquarters is located in Amsterdam, the Netherlands; and our Asia Pacific regional headquarters is located in Singapore. We have two operating segments: (1) Clear Aligner, known as the Invisalign System, and (2) Scanners and Services ("Scanner"), known as the iTero intraoral scanner and OrthoCAD services.

Basis of Presentation and Preparation

The consolidated financial statements include the accounts of Align and our wholly-owned subsidiaries after elimination of intercompany transactions and balances.

During fiscal year 2018, we adopted 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 Consolidated Balance Sheet as of December 31, 2017, Consolidated Statements of Cash Flow for the year ended December 31, 2017 and 2016, and Consolidated Statements of Stockholders' Equity for the year ended December 31, 2017 and 2016 have been recast to comply with the adoption of these standards.

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.

Fair Value of Financial Instruments

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. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

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.

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Cash and Cash Equivalents

We consider currency on hand, demand deposits, time deposits, and all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase to be cash and cash equivalents. Cash and cash equivalents are held in various financial institutions in the U.S. and internationally.

Restricted Cash

The restricted cash primarily consists of funds reserved for legal requirements. Restricted cash balances are included in other current assets and other assets within our Consolidated Balance Sheet.

Marketable Securities

Marketable securities are classified as available-for-sale and are carried at fair value. Marketable securities classified as current assets have maturities of less than one year. Unrealized gains or losses on such securities are included in accumulated other comprehensive income (loss), net in stockholders’ equity. Realized gains and losses from maturities of all such securities are reported in earnings and computed using the specific identification cost method. Realized gains or losses and charges for other-than-temporary declines in value, if any, on available-for-sale securities are reported in other income (expense), net, as incurred. We periodically evaluate these investments for other-than-temporary impairment.

Variable Interest Entities

We evaluate whether an entity in which we have made an investment is considered a variable interest entity (“VIE”). If we determine we are the primary beneficiary of a VIE, we would consolidate the VIE into our financial statements. In determining if we are the primary beneficiary, we evaluate whether we have the power to direct the activities that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding, financing, and other applicable agreements and circumstances. Our assessments of whether we are the primary beneficiary of a VIE require significant assumptions and judgments. We have concluded that we are not the primary beneficiary of our VIE investments; therefore, we do not consolidate their results into our consolidated financial statements.

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 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 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 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 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 Consolidated Statement of Operations.

Derivative Financial Instruments

We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations associated with certain assets and liabilities. These forward contracts are not designated as hedging instruments and do not subject us to material balance sheet risk due to fluctuations in foreign currency exchange rates. The gains and losses on these forward contracts are intended to offset the gains and losses in the underlying foreign currency denominated monetary assets and liabilities being economically hedged. We do not enter into foreign currency forward contracts for trading or speculative purposes. The net gain or loss from the settlement of these foreign currency forward contracts is recorded in other income (expense), net in the Consolidated Statement of Operations.

Foreign Currency

For our international subsidiaries, we analyze on an annual basis or more often if necessary, if a significant change in facts and circumstances indicate that the functional currency has changed. For international subsidiaries where the local currency is the functional currency, adjustments from translating financial statements from the local currency to the U.S. dollar reporting currency are recorded as a separate component of accumulated other comprehensive income (loss), net in the stockholders’ equity section of the Consolidated Balance Sheet. This foreign currency translation adjustment reflects the translation of the balance sheet at period end exchange rates, and the income statement at an average exchange rate in effect during the period. The foreign currency revaluation that are derived from monetary assets and liabilities stated in a currency other than functional currency are included in other income (expense), net. For the year ended December 31, 2018, 2017 and 2016, we had foreign currency net gains (losses) of $(5.6) million, $9.0 million and $(8.0) million, respectively.

Certain Risks and Uncertainties

Our operating results depend to a significant extent on our ability to market and develop our products. The life cycles of our products are difficult to estimate due, in part, to the effect of future product enhancements and competition. Our inability to successfully develop and market our products as a result of competition or other factors would have a material adverse effect on our business, financial condition and results of operations.

Our cash and investments are held primarily by three financial institutions. Financial instruments which potentially expose us to concentrations of credit risk consist primarily of cash equivalents and marketable securities. We invest excess cash primarily in money market funds, commercial paper, corporate bonds, U.S. government agency bonds, U.S. government treasury bonds and certificates of deposits. If the carrying value of our investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we will be required to write down the value of our investments, which could adversely affect our results of operations and financial condition. Moreover, the performance of certain securities in our investment portfolio correlates with the credit condition of the U.S. economy.

We provide credit to customers in the normal course of business. Collateral is not required for accounts receivable, but ongoing evaluations of customers’ credit worthiness are performed. We maintain reserves for potential credit losses and such losses have been within management’s expectations. No individual customer accounted for 10% or more of our accounts receivable at December 31, 2018 or 2017, or net revenues for the year ended December 31, 2018, 2017 or 2016.

In the U.S., the Food and Drug Administration (“FDA”) regulates the design, manufacture, distribution, pre-clinical and clinical study, clearance and approval of medical devices. Products developed by us may require approvals or clearances from the FDA or other international regulatory agencies prior to commercialized sales. There can be no assurance that our products will receive any of the required approvals or clearances. If we were denied approval or clearance or such approval was delayed, it may have a material adverse impact on us.

We have manufacturing facilities located outside the U.S. In Juarez, Mexico and Ziyang, China, we manufacture our clear aligners, distribute and repair our scanners and perform our computer-aided design/computer-aided manufacturing ("CAD/CAM") services. In Or Yehuda, Israel, we produce our handheld intraoral scanner wand and perform the final assembly of our iTero scanner. Our digital treatment plans using a sophisticated, internally developed computer-modeling program are located in multiple international locations to support our customers within the regions. Our reliance on international operations exposes us to related risks and uncertainties, including difficulties in staffing and managing international operations such as hiring and retaining qualified personnel; controlling production volume and quality of manufacture; political, social and economic instability; interruptions and limitations in telecommunication services; product and material transportation delays or disruption; trade restrictions and changes in tariffs; import and export license requirements and restrictions; fluctuations in foreign currency exchange rates; and potential adverse tax consequences. If any of these risks materialize, our international manufacturing operations, as well as our operating results, may be harmed.

We purchase certain inventory from sole suppliers. Additionally, we rely on a limited number of hardware manufacturers. The inability of any supplier or manufacturer to fulfill our supply requirements could materially and adversely impact our future operating results.

Inventories

Inventories are valued at the lower of cost or net realizable value, with cost computed using either standard cost, which approximates actual cost, or average cost on a first-in-first-out basis. Excess and obsolete inventories are determined primarily based on future demand forecasts, and write-downs of excess and obsolete inventories are recorded as a component of cost of net revenues.

Property, Plant and Equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. Construction in progress ("CIP") is related to the construction or development of property (including land) and equipment that have not yet been placed in service for their intended use. Upon sale or retirement, the asset’s cost and related accumulated depreciation are removed from the balance sheet and any related gains or losses are reflected in income from operations. Maintenance and repairs are expensed as incurred. Refer to Note 3 "Balance Sheet Components" of the Notes of Consolidated Financial Statements for details on estimated useful lives.

Goodwill and Finite-Lived Acquired Intangible Assets

Goodwill represents the excess of the purchase price paid over the fair value of tangible and identifiable intangible net assets acquired in business combinations and is allocated to the respective reporting units based on relative synergies generated.

Our intangible assets primarily consist of intangible assets acquired as part of our acquisitions. These assets are amortized using the straight-line method over their estimated useful lives ranging from one to fifteen years, reflecting the period in which the economic benefits of the assets are expected to be realized.

Impairment of Goodwill and Long-Lived Assets

Goodwill

We evaluate goodwill for impairment at least annually on November 30th or more frequently if indicators are present, an event occurs or changes in circumstances suggest an impairment may exist and that it would more likely than not reduce the fair value of a reporting unit below its carrying amount. The allocation of goodwill to the respective reporting units is based on relative synergies generated as a result of an acquisition.

We perform an initial assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In performing the qualitative assessment, we identify and consider the significance of relevant key factors, events, and circumstances that affect the fair value of our reporting units. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as our actual and planned financial performance. We also give consideration to the difference between the reporting unit fair value and carrying value as of the most recent date a fair value measurement was performed. If, after assessing the totality of relevant events and circumstances, we determine that it is more likely than not that the fair value of the reporting unit exceeds its carrying value and there is no indication of impairment, no further testing is performed; however, if we conclude otherwise, the first step of the two-step impairment test is performed by estimating the fair value of the reporting unit and comparing it with its carrying value, including goodwill.

Step one of the goodwill impairment test consists of a comparison of the fair value of a reporting unit against its carrying amount, including the goodwill allocated to each reporting unit. We determine the fair value of our reporting units based on the present value of estimated future cash flows under the income approach of the reporting units as well as various price or market multiples applied to the reporting unit's operating results along with the appropriate control premium under the marketing approach, both of which are classified as level 3 within the fair value hierarchy as described in Note 2 "Marketable Securities and Fair Value Measurements" of the Notes of Consolidated Financial Statements. If the carrying amount of the reporting unit is in excess of its fair value, step two requires the comparison of the implied fair value of the reporting unit’s goodwill against the carrying amount of the reporting unit’s goodwill. Any excess of the carrying value of the reporting unit’s goodwill over the implied fair value of the reporting unit’s goodwill is recorded as an impairment loss in the Consolidated Statements of Operations.

Finite-Lived Intangible Assets and Long-Lived Assets

We evaluate long-lived assets (including finite-lived intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. An asset or asset group is considered impaired if its carrying amount exceeds the future undiscounted net cash flows that the asset or asset group is expected to generate. Factors we consider important which could trigger an impairment review include significant negative industry or economic trends, significant loss of customers and changes in the competitive environment. If an asset or asset group is considered to be impaired, the impairment to be recognized is calculated as the amount by which the carrying amount of the asset or asset group exceeds its fair market value. Our estimates of future cash flows attributable to our long-lived assets require significant judgment based on our historical and anticipated results and are subject to many assumptions. The estimation of fair value utilizing a discounted cash flow approach includes numerous uncertainties which require our significant judgment when making assumptions of expected growth rates and the selection of discount rates, as well as assumptions regarding general economic and business conditions, and the structure that would yield the highest economic value, among other factors. Refer to Note 6 "Goodwill and Intangible Assets" of the Notes of Consolidated Financial Statements for details on intangible long-lived assets.

Development Costs for Internal Use Software

Internally developed software includes enterprise-level business software that we customize to meet our specific operational needs. Such capitalized costs include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related costs for employees, who are directly associated with the development of the applications. During the year ended December 31, 2018, we capitalized approximately $2.7 million of internally developed software costs. Internally developed software costs capitalized during the year ended December 31, 2017 was not material.

The costs to develop software that is marketed externally have not been capitalized as we believe our current software development process is essentially completed concurrent with the establishment of technological feasibility. As such, all related software development costs are expensed as incurred and included in research and development expense in our Consolidated Statement of Operations.

Product Warranty

Clear Aligner

We warrant our Invisalign products against material defects until the treatment plan is complete. We warrant clear aligners manufactured for SmileDirectClub, LLC (“SDC”) against material defects for one year. We accrue for warranty costs in cost of net revenues upon shipment of products. The estimated warranty costs liability is primarily based on historical experience as to product failures as well as current information on replacement costs. Actual warranty costs could differ materially from the estimated amounts. We regularly review our warranty liability and update these balances based on historical warranty cost trends.

Scanners and Services

We warrant our intraoral scanners for a period of one year, which include materials and labor. We accrue for these warranty costs based on average historical repair costs. An extended warranty may be purchased for additional fees.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for customers that are not able to make payments. We periodically review these balances, including an analysis of the customers’ payment history and information regarding the customers’ creditworthiness. Actual write-offs have not materially differed from the estimated allowances.

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 (the number of times a customer is expected to order additional aligners), 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. Further, our process for estimating usages rates require significant judgment and evaluation of inputs, including historical data and forecasted usages. 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 Express 10, Invisalign Express 5, Express Package, Lite Package and Invisalign Assist products include optional additional aligners at no charge for a certain period of time ranging 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 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 the respective SSPs of the scanner and the subscription service. 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.

Accrued Sales Return Reserve

We accrue for sales return reserve based on historical sales returns as a percentage of revenue.

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 December 31, 2018 and the estimated revenues expected to be recognized in the future related to these performance obligations are $431.8 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 support, and contracted deliveries of additional scanners, 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 our Consolidated Balance Sheet. For both aligners and scanners, we usually collect the total consideration owed prior to all performance obligations being performed with payment terms varying 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.

Shipping and Handling Costs

Shipping and handling charges to customers are included in net revenues, and the associated costs incurred are recorded in cost of net revenues.

Legal Proceedings and Litigations

We are involved in legal proceedings on an ongoing basis. If we believe that a loss arising from such matters is probable and can be reasonably estimated, we accrue the estimated loss in our consolidated financial statements. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range.

Research and Development

Research and development expense is expensed as incurred and includes the costs associated with the research and development of new products and enhancements to existing products. These costs primarily include personnel-related costs, including payroll and stock-based compensation, outside consulting expenses and allocations of corporate overhead expenses including facilities and information technology (“IT”).

Advertising Costs

The cost of advertising and media is expensed as incurred. For the year ended December 31, 2018, 2017 and 2016, we incurred advertising costs of $88.4 million, $70.1 million and $36.0 million, respectively.

Common Stock Repurchase

We repurchase our own common stock from time to time in the open market when our Board of Directors approve a stock repurchase program. We account for these repurchases under the accounting guidance for equity where we allocate the total repurchase value that is in excess over par value between additional paid-in capital and retained earnings. All shares repurchased are retired.

Operating Leases

We lease office spaces, vehicles and equipment under operating leases with original lease periods of up to 10 years. Certain of these leases have free or escalating rent payment provisions and lease incentives provided by the landlord. We recognize rent expense under such leases on a straight-line basis over the term of the lease.

Income Taxes

We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our current tax exposure under the applicable tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities which are included in our Consolidated Balance Sheet.

We account for uncertainty in income taxes pursuant to authoritative guidance based on a two-step approach to recognize and measure uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit based on its technical merits, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit or refinement of estimates due to new information. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will impact our tax provision in our Consolidated Statement of Operation in the period in which such determination is made.

We assess the likelihood that we will be able to realize our deferred tax assets. Should there be a change in our ability to realize our deferred tax assets, our tax provision would increase in the period in which we determine that it is more likely than not that we cannot realize our deferred tax assets. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If it is more likely than not that we will not realize our deferred tax assets, we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be realizable. The available positive evidence at December 31, 2018 included historical operating profits and a projection of future income sufficient to realize most of our remaining deferred tax assets. As of December 31, 2018, it was considered more likely than not that our deferred tax assets would be realized with the exception of certain foreign loss carryovers as we are unable to forecast sufficient future profits to realize the deferred tax assets.

The U.S. Tax Cuts and Jobs Act was enacted into law on December 22, 2017 which included provisions for certain foreign-sourced earnings referred to as Global Intangible Low-Taxed Income (“GILTI”). GILTI imposes a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. FASB guidance issued in January 2018 allows companies to make an accounting policy election to either (i) account for GILTI as a component of tax expense in the period in which the tax is incurred (the “period cost method”), or (ii) account for GILTI in the measurement of deferred taxes (the “deferred method”). We have made the election to record GILTI tax using the period cost method.

Stock-Based Compensation

We recognize stock-based compensation cost for shares expected to vest on a straight-line basis over the requisite service period of the award, net of estimated forfeitures. We use the Black-Scholes option pricing model to determine the fair value of stock awards and employee stock purchase plan shares. We estimate the fair value of market-performance based restricted stock units using a Monte Carlo simulation model which requires the input of assumptions, including expected term, stock price volatility and the risk-free rate of return. In addition, judgment is also required in estimating the number of stock-based awards that are expected to be forfeited. Forfeitures are estimated based on historical experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

Comprehensive Income

Comprehensive income includes all changes in equity during a period from non-owner sources including unrealized gains and losses on investments and foreign currency translation adjustments, net of their related tax effect.

Recent Accounting Pronouncements

(i) New Accounting Updates Recently Adopted

In March 2016, the FASB issued Accounting Standards Update ("ASU") 2016-09, "Improvements to Employee Share-Based Payment Accounting" (Topic 718). We adopted the standard in the first quarter of fiscal year 2017. With this adoption, excess tax benefits related to stock-based compensation expense are reflected in our consolidated statement of operations as a component of the provision for income taxes instead of additional paid-in capital in our consolidated balance sheet. In addition, we elected to continue to estimate expected forfeitures rather than as they occur to determine the amount of compensation cost to be recognized in each period. During the fiscal year ended December 31, 2017, we recognized excess tax benefits of $30.0 million in our provision for income taxes. Excess tax benefits from share-based payment arrangements are classified as an operating activity in our consolidated statement of cash flows.

In May 2014, 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 16 “Segments and Geographical Information.” We elected to take the practical expedient to exclude from the transaction price all taxes assessed by a governmental authority. Prior periods have been retrospectively adjusted, and we recognized a $3.9 million cumulative effect of adopting the guidance as an adjustment to our opening balance of retained earnings as of January 1, 2016 in our Consolidated Statements of Stockholders’ Equity.

The adoption of ASU 2014-09 did not have a material impact on our Consolidated Statement of Operations, Consolidated Statements of Comprehensive Income or Consolidated Statements of Cash Flows. 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 Consolidated Statements of Cash Flows.

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



	December 31, 2017
	As Previously Reported			Adjustment			As Adjusted
Cash Flows from Investing Activities
Other investing activities	$	567		$	(3,164	)	$	(2,597	)
Net cash used in investing activities	(248,313		)	(3,164		)	(251,477		)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash	5,510			34			5,544
Net increase in cash, cash equivalents, and restricted cash	60,236			(3,130		)	57,106
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	$	449,511		$	614		$	450,125



	December 31, 2016
	As Previously Reported			Adjustment		As Adjusted
Cash Flows from Investing Activities
Other investing activities	$	(8,211	)	$	180	$	(8,031	)
Net cash provided by investing activities	72,848			180		73,028
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash	(3,417		)	43		(3,374		)
Net increase in cash, cash equivalents, and restricted cash	221,561			223		221,784
Cash, cash equivalents, and restricted cash at beginning of the period	167,714			3,521		171,235
Cash, cash equivalents, and restricted cash at end of the period	$	389,275		$	3,744	$	393,019

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

(ii) Recent Accounting Updates Not Yet Effective

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The updated guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. 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 will adopt this 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. We are finalizing our implementation efforts related to policies, processes and internal controls to comply with the guidance. Upon adoption, based on our lease portfolio as of December 31, 2018, we anticipate recognizing right-of-use assets in the range of $67 million to $74 million and related lease liabilities in the range of $77 million to $86 million on our Consolidated Balance Sheet, with no material impact to our Consolidated Statement of Operations.

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. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” which clarifies the scope of guidance in the ASU 2016-13. 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 do not expect that the guidance will have a material impact 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.

Marketable Securities and Fair Value Measurements

12 Months Ended

Dec. 31, 2018

Investments, All Other Investments [Abstract]

Marketable Securities and Fair Value Measurements

Investments and Fair Value Measurements

As of December 31, 2018 and 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



December 31, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Commercial paper	$	17,793	$	—	$	—		$	17,793
Corporate bonds	45,100		—		(48		)	45,052
U.S. government agency bonds	19,981		—		(77		)	19,904
U.S. government treasury bonds	15,292		—		(1		)	15,291
Certificates of deposit	420		1		(1		)	420
Total marketable securities, short-term	$	98,586	$	1	$	(127	)	$	98,460

Long-term



December 31, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate bonds	$	4,957	$	5	$	(2	)	$	4,960
U.S. government agency bonds	1,399		8		—			1,407
U.S. government treasury bonds	2,235		9		—			2,244
Certificates of deposit	500		1		—			501
Total marketable securities, long-term	$	9,091	$	23	$	(2	)	$	9,112

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 tables 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 December 31, 2018 and 2017. Amounts reclassified to earnings from accumulated other comprehensive income (loss), net related to unrealized gains or losses were not material in 2018 and 2017. For the year ended December 31, 2018, 2017 and 2016, 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 four months and six months as of December 31, 2018 and 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 December 31, 2018 and 2017 (in thousands):



	December 31,
	2018		2017
One year or less	$	98,460	$	272,031
Due in greater than one year	9,112		39,948
Total marketable securities	$	107,572	$	311,979

Investments in Privately Held Companies

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



	December 31,
	2018		2017
Equity securities under the equity method investment ¹	$	45,913	$	54,606
Equity securities without readily determinable fair values ²	$	9,862	$	—


¹	Refer to Note 4 “Equity Method Investments” of the Notes to 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 Consolidated Balance Sheet. During the year ended December 31, 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 December 31, 2018 and 2017 (in thousands):



Description	Balance as of December 31, 2018		Level 1		Level 2
Cash equivalents:
Money market funds	$	431,081	$	431,081	$	—
Commercial paper	4,681		—		4,681
U.S. government treasury bonds	2,195		2,195		—
Corporate bonds	3,880		—		3,880
Short-term investments:
Commercial paper	17,793		—		17,793
Corporate bonds	45,052		—		45,052
U.S. government agency bonds	19,904		—		19,904
U.S. government treasury bonds	15,291		15,291		—
Certificates of deposit	420		—		420
Long-term investments:
U.S. government agency bonds	1,407		—		1,407
Corporate bonds	4,960		—		4,960
U.S. government treasury bonds	2,244		2,244		—
Certificate of deposit	501		—		501
Prepaid expenses and other current assets:
Israeli funds	3,047		—		3,047
	$	552,456	$	450,811	$	101,645



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 gain from the settlement of foreign currency forward contracts during 2018 was $9.9 million. As of December 31, 2018, the fair value of foreign exchange forward contracts outstanding was not material.

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



	December 31, 2018
	Local Currency Amount	Notional Contract Amount (USD)
Euro	€62,000	$	71,095
Chinese Yuan	¥375,000	54,515
Brazilian Real	R$81,000	20,858
Canadian Dollar	C$27,000	19,808
British Pound	£13,000	16,635
Japanese Yen	¥1,700,000	15,357
Australian Dollar	A$3,000	2,114
		$	200,382

Balance Sheet Components

12 Months Ended

Dec. 31, 2018

Balance Sheet Related Disclosures [Abstract]

Balance Sheet Components

Inventories

Inventories consist of the following (in thousands):



	December 31,
	2018		2017
Raw materials	$	26,119	$	12,721
Work in process	13,784		12,157
Finished goods	15,738		6,810
Total inventories	$	55,641	$	31,688

Other Assets

Other assets consist of the following (in thousands):



	December 31,
	2018		2017
Capitalized commissions ¹	$	9,185	$	5,514
Equity securities	9,862		—
Security deposits	5,162		3,557
Loan receivable from equity investee	—		30,000
Other long-term assets	2,778		4,822
Total other assets	$	26,987	$	43,893

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

Property, Plant and Equipment, Net

Property, plant and equipment consist of the following (in thousands):



		December 31,
	Generally Used Estimated Useful Life	2018			2017
Clinical and manufacturing equipment	Up to 10 years	$	236,179		$	183,392
Computer hardware	3 years	34,297			24,933
Computer software	3 years	59,617			54,756
Furniture and fixtures	5 years	33,436			16,271
Leasehold improvements	Lease term ⁽¹⁾	77,168			37,756
Building	20 years	139,315			63,887
Land	—	17,630			17,630
CIP	—	95,414			85,976
Total		693,056			484,601
Less: Accumulated depreciation and amortization and impairment charges		(171,727		)	(135,808		)
Total property, plant and equipment, net		$	521,329		$	348,793

⁽¹⁾ Shorter of remaining lease term or estimated useful lives of asset

Depreciation and amortization was $54.7 million, $37.7 million and $24.0 million for the year ended December 31, 2018, 2017 and 2016, respectively.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):



	December 31,
	2018		2017
Accrued payroll and benefits	$	127,109	$	103,004
Accrued expenses	39,323		27,318
Accrued customer credits and deposits	12,439		5,373
Accrued warranty	8,551		5,929
Accrued property, plant and equipment	8,193		11,362
Accrued professional fees	6,752		6,316
Accrued sales return reserve ¹	6,534		1,364
Accrued sales tax and value added tax	6,276		5,503
Accrued income taxes	5,752		12,405
Accrued sales rebate	5,668		11,209
Other accrued liabilities	8,082		5,779
Total accrued liabilities	$	234,679	$	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 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 as of December 31, 2018 and 2017 consists of the following activity (in thousands):



Accrued warranty as of December 31, 2016	$	3,841
Charged to cost of net revenues	7,195
Actual warranty expenditures	(5,107		)
Accrued warranty as of December 31, 2017	5,929
Charged to cost of net revenues	15,059
Actual warranty expenditures	(12,437		)
Accrued warranty as of December 31, 2018	$	8,551

Deferred Revenues

Deferred revenues consist of the following (in thousands):



	December 31,
	2018		2017
Deferred revenues - current	$	393,138	$	267,713
Deferred revenues - long-term ¹	17,051		4,588

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

During the year ended December 31, 2018 and 2017, we recognized $2.0 billion and $1.5 billion of revenue, respectively, of which $180.6 million and $119.0 million was included in the deferred revenues balance at December 31, 2017 and December 31, 2016, respectively.

Equity Method Investments	12 Months Ended
Equity Method Investments	Dec. 31, 2018
Equity Method Investments and Joint Ventures [Abstract]
Equity Method Investments	Equity Method Investments On July 25, 2016, we acquired a 17% equity interest¹, on a fully diluted basis, in 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 Consolidated Balance Sheet under equity method investments, and we record our proportional share of SDC's losses within equity in losses of investee, net of tax, in our Consolidated Statement of Operations. On July 24, 2017, we purchased an additional 2% equity interest in SDC for $12.8 million. As of December 31, 2018 and 2017, the balance of our equity method investments was $45.9 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 December 31, 2018 and 2017, the balance of accounts receivable due from SDC was $16.3 million and $14.3 million, respectively. For the year ended December 31, 2018 and 2017, net revenues recognized from SDC were $27.9 million and $24.1 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 advances and related accrued interest were repaid in full, and the Loan Agreement was terminated (Refer to Note 9 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements for information on the Loan and Security Agreement with SDC). ¹ Our ownership percentage may change depending on SDC's equity share activities

Business Combinations	12 Months Ended
Business Combinations	Dec. 31, 2018
Business Combinations [Abstract]
Business Combinations	Business Combinations During the first quarter of 2017, we completed the acquisitions of certain of our distributors for the total estimated 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 year ended December 31, 2017.