NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. 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 six
months ended
June 30, 2019
and
2018
, our comprehensive income for the
three and six
months ended
June 30, 2019
and
2018
, our financial position as of
June 30, 2019
, our stockholders’ equity for the
three and six
months ended
June 30, 2019
and
2018
, and our cash flows for the
six
months ended
June 30, 2019
and
2018
. The Condensed Consolidated Balance Sheet as of
December 31, 2018
was derived from the
December 31, 2018
audited financial statements. It does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.”).
We adopted Accounting Standards Update (“
ASU”) 2016-02, “
Leases
” (Topic 842)
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.
The standard had a material impact on our Condensed Consolidated Balance Sheet as we recognized assets and liabilities related to our leases. The adoption did not have an impact to prior periods.
The results of operations for the
three and six
months ended
June 30, 2019
are not necessarily indicative of the results that may be expected for the year ending
December 31, 2019
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, 2018
.
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 Lease policy is discussed below:
Lease
We lease office and retail spaces, vehicles and office equipment with original lease periods of up to 10 years. We determine if an arrangement is a lease at inception under ASC 842. Operating lease right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. If a lease arrangement does not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Our lease terms may include options to extend or terminate the lease which we include in our lease term when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components which are accounted for as a single lease component. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
Recent Accounting Pronouncements
(i) New Accounting Updates Recently Adopted
In February 2016, the Financial Accounting Standards Board (“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 p
rovides 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 adopted the guidance 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.
The standard had a material impact on our Condensed Consolidated Balance Sheet as we recognized assets and liabilities related to our leases. The adoption did not have an impact to prior periods.
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 adopted the standard in the first quarter of fiscal year 2019 which did not have a material impact on our consolidated financial statements and related disclosures. The TCJA did not affect our accumulated other comprehensive income (loss), net, and therefore we did not reclassify any income tax effects from accumulated other comprehensive income (loss), net to our retained earnings.
(ii) Recent Accounting Updates Not Yet Effective
In June 2016, the FASB issued ASU 2016-13, “
Financial Instruments - Credit Losses
” (Topic 326) 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 in this update, an entity will recognize an impairment charge for the amount by which the carrying value exceeds the fair value. The updated guidance is 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 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 updated guidance is 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 in this update, 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 updated guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019 either on a retrospective or prospective basis and early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements and related disclosures.
Note 2. Investments and Fair Value Measurements
Marketable Securities
As of
June 30, 2019
and
December 31, 2018
, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
Commercial paper
|
|
$
|
29,556
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29,556
|
|
Corporate bonds
|
|
125,299
|
|
|
74
|
|
|
(8
|
)
|
|
125,365
|
|
U.S. government agency bonds
|
|
20,507
|
|
|
2
|
|
|
(13
|
)
|
|
20,496
|
|
U.S. government treasury bonds
|
|
108,945
|
|
|
56
|
|
|
(6
|
)
|
|
108,995
|
|
Foreign bonds
|
|
12,976
|
|
|
14
|
|
|
—
|
|
|
12,990
|
|
Certificates of deposit
|
|
20
|
|
|
—
|
|
|
—
|
|
|
20
|
|
Total marketable securities, short-term
|
|
$
|
297,303
|
|
|
$
|
146
|
|
|
$
|
(27
|
)
|
|
$
|
297,422
|
|
Long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
Corporate bonds
|
|
$
|
23,879
|
|
|
$
|
40
|
|
|
$
|
(1
|
)
|
|
$
|
23,918
|
|
U.S. government treasury bonds
|
|
21,038
|
|
|
16
|
|
|
(3
|
)
|
|
21,051
|
|
Total marketable securities, long-term
|
|
$
|
44,917
|
|
|
$
|
56
|
|
|
$
|
(4
|
)
|
|
$
|
44,969
|
|
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
|
|
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
June 30, 2019
and
December 31, 2018
. Amounts reclassified to earnings from accumulated other comprehensive income (loss), net related to unrealized gains or losses were not material for the
three and six
months ended
June 30, 2019
and
2018
. For the
three and six
months ended
June 30, 2019
and
2018
, realized gains or losses were not material.
Our fixed-income securities investment portfolio consists of investments that can have a maximum effective maturity of up to
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 primarily due to changes in interest rates and credit spreads. 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
seven months
and
four months
as of
June 30, 2019
and
December 31, 2018
, 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
June 30, 2019
and
December 31, 2018
(in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
One year or less
|
$
|
297,422
|
|
|
$
|
98,460
|
|
Due in greater than one year
|
44,969
|
|
|
9,112
|
|
Total available for sale short-term and long-term marketable securities
|
$
|
342,391
|
|
|
$
|
107,572
|
|
Investments in Privately Held Companies
Our investments in privately held companies as of
June 30, 2019
and
December 31, 2018
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
Equity securities under the equity method investment
1
|
$
|
—
|
|
|
$
|
45,913
|
|
Equity securities without readily determinable fair values
2
|
$
|
5,887
|
|
|
$
|
9,862
|
|
|
|
1
|
Refer to Note 5 “Equity Method Investments” of the Notes to Condensed Consolidated Financial Statements
for more information.
|
|
|
2
|
The equity securities are reported as a nonrecurring investment within other assets in our Condensed Consolidated Balance Sheet. During the
six
months ended
June 30, 2019
, there was approximately
$4.0 million
of impairment resulting from an observable price change.
|
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
June 30, 2019
and
December 31, 2018
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance as of
June 30, 2019
|
|
Level 1
|
|
Level 2
|
Cash equivalents:
|
|
|
|
|
|
|
Money market funds
|
|
$
|
193,390
|
|
|
$
|
193,390
|
|
|
$
|
—
|
|
Commercial paper
|
|
15,993
|
|
|
—
|
|
|
15,993
|
|
Corporate bonds
|
|
3,716
|
|
|
—
|
|
|
3,716
|
|
U.S. government treasury bonds
|
|
8,505
|
|
|
8,505
|
|
|
—
|
|
Short-term investments:
|
|
|
|
|
|
|
Commercial paper
|
|
29,556
|
|
|
—
|
|
|
29,556
|
|
Corporate bonds
|
|
125,365
|
|
|
—
|
|
|
125,365
|
|
U.S. government agency bonds
|
|
20,496
|
|
|
—
|
|
|
20,496
|
|
U.S. government treasury bonds
|
|
108,995
|
|
|
108,995
|
|
|
—
|
|
Foreign bonds
|
|
12,990
|
|
|
—
|
|
|
12,990
|
|
Certificates of deposit
|
|
20
|
|
|
—
|
|
|
20
|
|
Long-term investments:
|
|
|
|
|
|
|
Corporate bonds
|
|
23,918
|
|
|
—
|
|
|
23,918
|
|
U.S. government treasury bonds
|
|
21,051
|
|
|
21,051
|
|
|
—
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
Israeli funds
|
|
2,983
|
|
|
—
|
|
|
2,983
|
|
|
|
$
|
566,978
|
|
|
$
|
331,941
|
|
|
$
|
235,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Corporate bonds
|
|
3,880
|
|
|
—
|
|
|
3,880
|
|
U.S. government treasury bonds
|
|
2,195
|
|
|
2,195
|
|
|
—
|
|
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:
|
|
|
|
|
|
|
Corporate bonds
|
|
4,960
|
|
|
—
|
|
|
4,960
|
|
U.S. government agency bonds
|
|
1,407
|
|
|
—
|
|
|
1,407
|
|
U.S. government treasury bonds
|
|
2,244
|
|
|
2,244
|
|
|
—
|
|
Certificates of deposit
|
|
501
|
|
|
—
|
|
|
501
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
Israeli funds
|
|
3,047
|
|
|
—
|
|
|
3,047
|
|
|
|
$
|
552,456
|
|
|
$
|
450,811
|
|
|
$
|
101,645
|
|
Derivative Financial Instruments
We enter 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 net gain (loss) from the settlement of foreign currency forward contracts during the three and six months ended June 30, 2019 was not material and the net gain from the settlement of foreign currency forward contracts during
both the three and six months ended June 30, 2018 was $5.4 million. As of
June 30, 2019
and
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
June 30, 2019
and
December 31, 2018
(in thousands):
|
|
|
|
|
|
|
|
June 30, 2019
|
|
Local Currency Amount
|
|
Notional Contract Amount (USD)
|
Euro
|
€92,000
|
|
$
|
104,871
|
|
Chinese Yuan
|
¥465,000
|
|
67,626
|
|
British Pound
|
£21,000
|
|
26,702
|
|
Canadian Dollar
|
C$31,000
|
|
23,706
|
|
Brazilian Real
|
R$83,000
|
|
21,581
|
|
Japanese Yen
|
¥1,800,000
|
|
16,716
|
|
Mexican Peso
|
M$140,000
|
|
7,263
|
|
Australian Dollar
|
A$3,000
|
|
2,104
|
|
Israeli Shekel
|
ILS74,500
|
|
20,928
|
|
|
|
|
$
|
291,497
|
|
|
|
|
|
|
|
|
|
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
|
|
Note 3. Balance Sheet Components
Inventories
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
Raw materials
|
|
$
|
37,094
|
|
|
$
|
26,119
|
|
Work in process
|
|
25,752
|
|
|
13,784
|
|
Finished goods
|
|
18,278
|
|
|
15,738
|
|
Total inventories
|
|
$
|
81,124
|
|
|
$
|
55,641
|
|
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
Tax related receivables
|
|
$
|
54,059
|
|
|
$
|
36,794
|
|
Current promissory note receivable
1
|
|
26,699
|
|
|
—
|
|
Other current receivables
2
|
|
18,826
|
|
|
6,511
|
|
Prepaid software and maintenance
|
|
16,682
|
|
|
5,938
|
|
Other prepaid expenses and current assets
|
|
18,968
|
|
|
23,227
|
|
Total prepaid expenses and other current assets
|
|
$
|
135,234
|
|
|
$
|
72,470
|
|
|
|
1
|
Current portion of unsecured promissory note receivable (
Refer to Note 5“Equity Method Investments” of the Notes to Condensed Consolidated Financial Statements
for more information).
|
|
|
2
|
Includes
$16.0 million
receivable from litigation settlement (
Refer to Note 9“Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements
for more information).
|
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
Accrued payroll and benefits
|
|
$
|
111,831
|
|
|
$
|
127,109
|
|
Accrued expenses
|
|
52,791
|
|
|
39,323
|
|
Current operating lease liabilities
|
|
16,144
|
|
|
—
|
|
Accrued warranty
|
|
10,499
|
|
|
8,551
|
|
Accrued property, plant and equipment
|
|
9,969
|
|
|
8,193
|
|
Accrued sales return reserve
|
|
9,217
|
|
|
6,534
|
|
Accrued customer credits and deposits
|
|
8,796
|
|
|
12,439
|
|
Accrued sales tax and value added tax
|
|
6,864
|
|
|
6,276
|
|
Accrued professional fees
|
|
6,454
|
|
|
6,752
|
|
Accrued income taxes
|
|
4,407
|
|
|
5,752
|
|
Accrued sales rebate
|
|
4,210
|
|
|
5,668
|
|
Other accrued liabilities
|
|
4,452
|
|
|
8,082
|
|
Total accrued liabilities
|
|
$
|
245,634
|
|
|
$
|
234,679
|
|
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 consists of the following activity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
2019
|
|
2018
|
Balance at beginning of period
|
|
$
|
8,551
|
|
|
$
|
5,929
|
|
Charged to cost of net revenues
|
|
6,000
|
|
|
5,728
|
|
Actual warranty expenditures
|
|
(4,052
|
)
|
|
(4,371
|
)
|
Balance at end of period
|
|
$
|
10,499
|
|
|
$
|
7,286
|
|
Deferred Revenues
Deferred revenues consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
Deferred revenues - current
|
|
$
|
481,462
|
|
|
$
|
393,138
|
|
Deferred revenues - long-term
1
|
|
$
|
23,902
|
|
|
$
|
17,051
|
|
1
Included in other long-term liabilities within our Condensed Consolidated Balance Sheet
During the
three
months ended
June 30, 2019
and 2018, we recognized
$600.7 million
and
$490.3 million
of revenue, respectively, of which
$68.6 million
and
$52.6 million
was included in the deferred revenues balance at
December 31, 2018
and 2017, respectively.
During the
six
months ended
June 30, 2019
and
June 30, 2018
, we recognized
$1.1 billion
and
$927.2 million
of revenue, respectively, of which
$137.0 million
and
$99.9 million
was included in the deferred revenues balance at
December 31, 2018
and 2017, respectively.
Our unfilled performance obligations as of
June 30, 2019
were
$521.4 million
. These performance obligations are expected to be recognized over the next
one
to
five years
.
Align has revised certain previously disclosed amounts within this footnote. These revisions did not impact current or prior period financial statements.
Note 4. Leases
Lessee
We have operating leases for office and retail spaces, vehicles and office equipment. In April 2019, we purchased the building located in Morrisville, North Carolina which we previously leased and classified as a finance lease. We no longer have any finance leases as of June 30, 2019 (
Refer to Note 10 “Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements
for more information).
The supplemental balance sheet information for our operating leases consist of following (in thousands):
|
|
|
|
|
|
Balance Sheet Location
|
|
June 30,
2019
|
Operating lease right-of-use assets
1
|
|
$
|
57,269
|
|
|
|
|
Accrued liabilities
|
|
$
|
16,144
|
|
Operating lease liabilities
|
|
59,140
|
|
Total operating lease liabilities
|
|
$
|
75,284
|
|
|
|
1
|
The balance is net of impairment charges recorded in the first quarter of 2019.
Refer to Note 8“Impairments and Other Charges” of the Notes to Condensed Consolidated Financial Statements
for more information.
|
The components of lease expenses consist of following (in thousands):
|
|
|
|
|
|
|
|
|
|
Lease Cost
|
|
Three Months Ended June 30, 2019
|
|
Six Months Ended
June 30, 2019
|
Operating lease cost
1
|
|
$
|
5,498
|
|
|
$
|
10,799
|
|
Variable lease cost
|
|
690
|
|
|
1,107
|
|
Total lease cost
2
|
|
$
|
6,188
|
|
|
$
|
11,906
|
|
|
|
1
|
Includes short-term lease expense which are not material for the periods.
|
|
|
2
|
Included in operating expenses on our Condensed Consolidated Statement of Operations.
|
The following table provides a summary of our operating lease terms and discount rates:
|
|
|
|
|
Remaining Lease Term and Discount Rate
|
|
June 30,
2019
|
|
|
|
Weighted average remaining lease term (in years)
|
|
6.1
|
|
Weighted average discount rate
|
|
4.5
|
%
|
Maturities of operating lease liabilities as of
June 30, 2019
are as follows (in thousands):
|
|
|
|
|
|
Fiscal Year Ending December 31,
|
|
Operating Leases
|
Remainder of 2019
|
|
$
|
10,334
|
|
2020
|
|
20,373
|
|
2021
|
|
18,381
|
|
2022
|
|
13,157
|
|
2023
|
|
9,323
|
|
Thereafter
|
|
13,081
|
|
Total lease payments
|
|
$
|
84,649
|
|
Less: Interest
|
|
(9,365
|
)
|
Total lease liabilities
|
|
$
|
75,284
|
|
As of
June 30, 2019
, we had additional operating leases that have not yet commenced of
$12.9 million
. These operating leases will commence between the remainder of fiscal year 2019 to 2021 with lease terms of
3 years
to
5 years
.
Minimum future lease payments previously disclosed under ASC 840 in our Annual Report on Form 10-K for the year ended December 31, 2018 are as follows (in thousands):
|
|
|
|
|
|
Fiscal Year Ending December 31,
|
|
Operating Leases
|
2019
|
|
$
|
21,429
|
|
2020
|
|
20,483
|
|
2021
|
|
18,897
|
|
2022
|
|
15,096
|
|
2023
|
|
12,400
|
|
Thereafter
|
|
18,371
|
|
Total minimum lease payments
|
|
$
|
106,676
|
|
Lessor
In April 2019, as part of the purchase of a building located in Morrisville, North Carolina, we assumed an existing lease with a third-party for a portion of the building which is classified as an operating lease.
Lease payments due to Align as of
June 30, 2019
are as follows (in thousands):
|
|
|
|
|
|
Fiscal Year Ending December 31,
|
|
Operating Lease
|
Remainder of 2019
|
|
$
|
423
|
|
2020
|
|
859
|
|
2021
|
|
1,145
|
|
2022
|
|
1,199
|
|
2023
|
|
1,229
|
|
Thereafter
|
|
7,441
|
|
Total minimum lease payments
|
|
$
|
12,296
|
|
For the
three and six
months ended
June 30, 2019
, operating lease income was not material.
Note 5. 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
. On July 24, 2017, we purchased an additional
2%
equity interest in SDC for
$12.8 million
. The investment was accounted for as an equity method investment and recorded in our Condensed Consolidated Balance Sheet. We recorded our proportional share of SDC’s losses within equity in losses of investee, net of tax, in our Condensed Consolidated Statement of Operations.
As a result of the arbitrator’s decision regarding SDC announced on March 5, 2019, we were ordered to tender our SDC equity interest by April 3, 2019 for a purchase price equal to the “capital account” balance as of October 31, 2017 under the terms of the investment. In April 2019, based on the “capital account” value provided by SDC, we entered into an unsecured promissory note with SDC to receive
$54.2 million
through February 1, 2021 in exchange for the tender of our membership interests. As a result, we derecognized the equity method investments balance of
$38.4 million
in exchange for an unsecured promissory note of
$54.2 million
which we recorded in our Condensed Consolidated Balance Sheets as of June 30, 2019. We recorded the difference of
$15.8 million
as a gain in the second quarter of 2019 as other income in our Condensed Consolidated Statement of Operation. Although we tendered our membership interests pursuant to the arbitrator’s decision, the parties did not agree on the amount of the “capital account” balance as of October 31, 2017 or the appropriate repurchase price for the membership units. On July 3, 2019, we filed a demand for arbitration regarding SDC’s calculation of the “capital account” balance (
Refer to Note 9 “Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements
for SDC legal proceedings discussion).
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. The sale of aligners to SDC and the income from the supply agreement are reported in our Clear Aligner business segment.
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.
Note 6. Goodwill and Intangible Assets
Goodwill
The change in the carrying value of goodwill for the
six
months ended
June 30, 2019
, all attributable to our Clear Aligner reporting unit, is as follows (in thousands):
|
|
|
|
|
|
Total
|
Balance as of December 31, 2018
|
$
|
64,029
|
|
Adjustments
1
|
(6
|
)
|
Balance as of June 30, 2019
|
$
|
64,023
|
|
1
The adjustments to goodwill during the period were a result of foreign currency translation.
During the fourth quarter of fiscal
2018
, 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 June 30, 2019
|
|
Accumulated
Amortization
|
|
Accumulated
Impairment Loss
|
|
Net Carrying
Value as of
June 30, 2019
|
Trademarks
|
15
|
|
$
|
7,100
|
|
|
$
|
(1,976
|
)
|
|
$
|
(4,179
|
)
|
|
$
|
945
|
|
Existing technology
|
13
|
|
12,600
|
|
|
(5,549
|
)
|
|
(4,328
|
)
|
|
2,723
|
|
Customer relationships
|
11
|
|
33,500
|
|
|
(17,473
|
)
|
|
(10,751
|
)
|
|
5,276
|
|
Reacquired rights
|
3
|
|
7,500
|
|
|
(5,705
|
)
|
|
—
|
|
|
1,795
|
|
Patents
|
8
|
|
6,796
|
|
|
(2,749
|
)
|
|
—
|
|
|
4,047
|
|
Other
|
2
|
|
618
|
|
|
(575
|
)
|
|
—
|
|
|
43
|
|
Total intangible assets
|
|
|
$
|
68,114
|
|
|
$
|
(34,027
|
)
|
|
$
|
(19,258
|
)
|
|
$
|
14,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Amortization Period (in years)
|
|
Gross Carrying
Amount as of
December 31, 2018
|
|
Accumulated
Amortization
|
|
Accumulated Impairment Loss
|
|
Net Carrying
Value as of
December 31, 2018
|
Trademarks
|
15
|
|
$
|
7,100
|
|
|
$
|
(1,907
|
)
|
|
$
|
(4,179
|
)
|
|
$
|
1,014
|
|
Existing technology
|
13
|
|
12,600
|
|
|
(5,268
|
)
|
|
(4,328
|
)
|
|
3,004
|
|
Customer relationships
|
11
|
|
33,500
|
|
|
(16,542
|
)
|
|
(10,751
|
)
|
|
6,207
|
|
Reacquired rights
|
3
|
|
7,500
|
|
|
(4,341
|
)
|
|
—
|
|
|
3,159
|
|
Patents
|
8
|
|
6,796
|
|
|
(2,334
|
)
|
|
—
|
|
|
4,462
|
|
Other
|
2
|
|
618
|
|
|
(544
|
)
|
|
—
|
|
|
74
|
|
Total intangible assets
|
|
|
$
|
68,114
|
|
|
$
|
(30,936
|
)
|
|
$
|
(19,258
|
)
|
|
$
|
17,920
|
|
The total estimated annual future amortization expense for these acquired intangible assets as of
June 30, 2019
is as follows (in thousands):
|
|
|
|
|
|
Fiscal Year Ending December 31,
|
|
Amortization
|
Remainder of 2019
|
|
$
|
3,045
|
|
2020
|
|
3,844
|
|
2021
|
|
3,389
|
|
2022
|
|
2,116
|
|
2023
|
|
1,495
|
|
Thereafter
|
|
940
|
|
Total
|
|
$
|
14,829
|
|
Amortization expense for both the three months ended
June 30, 2019
and
2018
was
$1.5 million
and amortization expense for both the
six
months ended
June 30, 2019
and
2018
was
$3.0 million
.
Note 7. Credit Facilities
On February 27, 2018, we entered into a 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. 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
June 30, 2019
, we had
no
outstanding borrowings under this credit facility and were in compliance with the conditions and performance requirements.
Note 8. Impairments and Other Charges
On March 5, 2019, we announced the outcome of the arbitration regarding SDC (
Refer to Note 9 “Legal Proceedings” of the Notes to Condensed Consolidated Financial Statements
for SDC legal proceedings discussion) which required Align to close its Invisalign stores and tender Align’s equity interest in SDC by April 3, 2019. Accordingly, Align evaluated the ongoing value of the Invisalign stores’ operating lease right-of-use assets and related leasehold improvements and other fixed assets in accordance with ASC 360,
Property, Plant and Equipment
. Based on the evaluation, Align determined that the carrying value of these assets were not recoverable. Align evaluated the fair value of these assets in accordance with ASC 820,
Fair Value Measurement,
and we considered the market participant’s ability to generate economic benefits by using these assets in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
As a result, in the first quarter of 2019, we recorded impairment losses of
$14.2 million
for operating lease right-of-use assets and
$14.3 million
of leasehold improvements and other fixed assets. In addition, we also recorded
$1.3 million
of employee severance costs and other charges.
Note 9. Legal Proceedings
Securities Class Action Lawsuit
On November 5, 2018, a class action lawsuit against Align, and three of our executive officers, was filed in the U.S. District Court for the Northern District of California on behalf of a purported class of purchasers of our common stock between July 25, 2018 and October 24, 2018. The complaint generally alleges claims under the federal securities laws and seeks monetary damages in an unspecified amount and costs and expenses incurred in the litigation. On December 12, 2018, a similar lawsuit was filed in the same court on behalf of a purported class of purchasers of our common stock between April 25, 2018 and October 24, 2018 (together with the first lawsuit, the “Securities Actions”). On May 10, 2019, the lead plaintiff filed a consolidated complaint against Align and four of our executive officers alleging similar claims as the initial complaints on behalf of a purported class of purchasers of our common stock between April 25, 2018 and October 24, 2018. On June 24, 2019, defendants filed a motion to dismiss the consolidated complaint. A hearing on that motion is scheduled for October 27, 2019. Align believes these claims are without merit and intends to vigorously defend itself. Align is currently unable to predict the outcome of these lawsuits and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.
Shareholder Derivative Lawsuit
In January 2019, three derivative lawsuits were also filed in the U.S. District Court for the Northern District of California, purportedly on behalf of Align, naming as defendants the members of our Board of Directors along with certain of our executive officers. The allegations in the complaints are similar to those presented in the Securities Action, but the complaints assert various state law causes of action, including for breaches of fiduciary duty, insider trading, and unjust enrichment, among others. The complaints seek unspecified monetary damages on behalf of Align, which is named solely as a nominal defendant against whom no recovery is sought, as well as disgorgement and the costs and expenses associated with the litigation, including attorneys’ fees. On February 26, 2019, the three lawsuits were consolidated. On April 10, 2019, the court stayed the consolidated action pending final disposition of the Securities Action.
On April 12, 2019, a derivative lawsuit was also filed in California Superior Court for Santa Clara County, purportedly on behalf of Align, naming as defendants the members of our Board of Directors along with certain of our executive officers. The allegations in this complaint are similar to those in the derivative suits described above. On May 16, 2019, the court stayed this action pending final disposition of the Securities Action.
On February 22, 2019, a purported stockholder sent a letter to Align pursuant to 8 Del. C. § 220 demanding certain books and records for the stated purpose of investigating potential breaches of duty, corporate mismanagement, and alleged wrongdoing by fiduciaries of the Company. On April 16, 2019, Align responded and refused the demand on several legal grounds. On June 10, 2019, the purported stockholder petitioned the Superior Court of the State of California, County of Santa Clara, to issue a writ of mandate commanding Align to provide the books and records requested. Align believes the petition is without merit and intends to oppose the petition.
Align is currently unable to predict the outcome of this demand or of these lawsuits and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.
3Shape Litigation
On November 14, 2017, Align filed
six
patent infringement lawsuits asserting
26
patents against 3Shape, 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 U.S. District Court for the District of Delaware alleging patent infringement by 3Shape’s Trios intraoral scanning system and Dental System software. Two of those cases are stayed pending the ITC determinations, and the other two cases are currently active in discovery and pretrial proceedings, with trial dates in April and June 2020. The ITC conducted hearings in the Section 337 investigations in September and November 2018. On March 1, 2019, the Administrative Law Judge issued an Initial Determination in one of the Section 337 investigations, finding no violation of Section 337 by 3Shape. On April 26, 2019, the Administrative Law Judge issued an Initial Determination in the second Section 337 investigations, finding no violation of Section 337 by 3Shape. Align and 3Shape each petitioned the Commission for review of the Initial Determinations. On July 18 and July 19, 2019, the Commission determined to review each Initial Determination, and sought additional briefing by the parties with respect to one of the Section 337 investigations. The current target dates for completion of the investigations are August 26 and October 8, 2019.
On May 9, 2018, 3Shape filed a complaint in the U.S. District Court for the District of Delaware alleging patent infringement by Align’s iTero Element scanner of a single 3Shape patent; the court stayed the case and it is not currently active. On June 14, 2018, 3Shape filed another complaint in the U.S. District Court for the District of Delaware alleging patent infringement by Align’s iTero Element scanner of a single 3Shape patent, which remains an active case in the early discovery phase.
On August 28, 2018, 3Shape filed a complaint against Align in the U.S. District Court for the District of Delaware alleging antitrust violations and seeking monetary damages and injunctive relief relating to Align’s alleged market activities, including Align’s assertion of its patent portfolio, in alleged clear aligner and intraoral scanning markets. Align filed a motion to dismiss 3Shape’s complaint on October 17, 2018, and the court recently set August 1, 2019 as the hearing date for Align’s motion to dismiss. Align also moved to stay the litigation pending the outcome of its motion to dismiss. The court granted Align’s motion to stay, and thus no activity is expected until the court decides Align’s motion to dismiss at some time on or after August 1, 2019.
On December 10, 2018, Align filed
three
additional patent infringement lawsuits asserting
10
additional patents against 3Shape. Align filed one Section 337 complaint with the ITC alleging that 3Shape violates U.S. trade laws through unfair competition by selling for importation and importing the infringing TRIOS intraoral scanning system, Trios Lab Scanners and TRIOS software, TRIOS Module software, Dental System software, and Ortho System Software. On December 11, 2018, Align filed
two
separate complaints in the U.S. District Court for the District of Delaware alleging patent infringement by 3Shape's Trios intraoral scanning system, Lab Scanners and Dental and Ortho System Software. The ITC instituted the investigation, and one of the District Court cases was stayed pending the ITC determination. The remaining District Court cases are in the very early stages of discovery and pretrial proceedings. The ITC investigation is set for an evidentiary hearing on October 24, 2019.
3Shape has sought to invalidate certain of Align’s patents through petitions for inter partes review proceedings. Align disputes 3Shape’s positions and intends to vigorously defend the validity of its patent rights.
Each of the District Court patent infringement complaints seek monetary damages and injunctive relief against further infringement. 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.
Simon & Simon
On March 14, 2019, a dental practice named Simon and Simon, PC d/b/a City Smiles brought an antitrust action on behalf of itself and a putative class of similarly-situated practices seeking monetary damages and injunctive relief relating to Align’s alleged market activities in alleged clear aligner and intraoral scanning markets. Align filed a motion to dismiss the complaint on April 5, 2019, and the court recently set August 1, 2019 as the hearing date for Align’s motion to dismiss. Align believes the plaintiffs’ claims are without merit and intends to vigorously defend itself in both cases.
SDC Dispute
In February 2018, we received a communication on behalf of SDC Financial LLC, SmileDirectClub LLC, and the Members of SDC Financial LLC other than the Company (collectively, the SDC Entities) alleging that the launch and operation of the Invisalign store pilot program constituted a breach of non-compete provisions applicable to the members of SDC Financial LLC,
including Align. As a result of this alleged breach, SDC Financial LLC notified us that its members (other than Align) sought 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 of Align. The SDC Entities’ communication also alleged that Align breached confidentiality provisions applicable to the SDC Financial LLC members and demanded that Align cease all activities related to the Invisalign store pilot project, close existing Invisalign stores and cease using SDC’s confidential information. In April 2018, the SDC Entities instigated confidential arbitration proceedings and filed a complaint in the Chancery Court of Davidson County, State of Tennessee that sought, among other forms of relief, to preliminarily and permanently enjoin all activities related to the Invisalign store pilot project, require Align to close existing Invisalign stores, prohibit Align from opening any additional stores, and allow the SDC Entities to exercise a right to repurchase all of Align's SDC Financial LLC membership interests for a purchase price equal to Align's current “capital account” balance.
On June 29, 2018, the Chancery Court of Davidson County, State of Tennessee denied the SDC Entities’ request for a temporary injunction to prevent Align from opening additional Invisalign stores. During December 2018, the parties participated in binding arbitration proceedings and presented closing arguments on January 23, 2019. The arbitrator issued his decision on March 4, 2019. The arbitrator found that Align breached the non-compete provision applicable to the members of SDC Financial LLC and that Align misused the SDC Entities’ confidential information and violated fiduciary duties to SDC Financial LLC. The arbitrator ordered Align to close its Invisalign stores by April 3, 2019, and enjoined Align from opening new Invisalign stores or providing certain services in physical retail establishments in connection with the marketing and sale of clear aligners, and enjoined Align from using the SDC Entities’ confidential information. The arbitrator extended the expiration date of the non-compete provision to August 18, 2022. The arbitrator also ordered Align to tender its SDC Financial LLC membership interests to the SDC Entities for a purchase price equal to the “capital account” balance as of October 31, 2017, a price which is significantly below the current fair market value of such investment. No financial damages were awarded to the SDC Entities. The SDC Entities filed a motion to confirm the Award, which Align did not oppose, in the Circuit Court for Cook County, Illinois. The motion to confirm the Award was granted on April 29, 2019.
As required by the Award, on April 3, 2019, Align had closed its Invisalign stores, returned SDC’s alleged confidential information, and tendered its membership interests for a purchase price that SDC claims to be Align’s “capital account” balance as of October 31, 2017. Align disputes the “capital account” balance as of October 31, 2017 as provided by the SDC Entities. Align has filed a demand for arbitration regarding the SDC Entities’ calculation of that balance and the SDC Entities have filed a contempt motion with the Illinois court regarding the proper calculation of the amount.
Straumann Group Litigation Settlement
In March 2019, we entered into an agreement with Straumann Group to settle all outstanding patent disputes in the U.S., the U.K., and Brazil, including those involving ClearCorrect, a subsidiary of Straumann Group. Under the terms of the settlement, Straumann Group paid Align
$35.0 million
on March 29, 2019. In addition, we also signed a non-binding letter of intent with Straumann Group for a
5
-year global development and distribution agreement whereby Straumann would distribute
5,000
iTero Element scanners which would be fully integrated into the Straumann/Dental Wings CARES®/DWOS® workflow. The agreement provided that if for any reason the companies chose not to enter into the development and distribution agreement by July 2, 2019 or by a mutually agreed extended date, Straumann Group would pay Align an additional
$16.0 million
in lieu of the development and distribution agreement. In June 2019, the parties terminated the discussions regarding a possible development and distribution agreement and, as a result, Straumann owed us the additional
$16.0 million
as of June 30, 2019, which was subsequently paid in July 2019. In the second quarter of 2019, we recognized a litigation settlement gain of
$51.0 million
.
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.
Note 10. Commitments and Contingencies
Other Commitments
On January 15, 2019, we entered into a Purchase Agreement to purchase
five
floors of a building under construction in Petach Tivka, Israel (the "Property") for a purchase price of approximately
$27.0 million
with an option to purchase additional
three
floors. The purchase price will be paid in
six
installments according to construction milestones and the delivery of the Property will be throughout 2019 and 2020.
On January 29, 2019, we entered into a Purchase and Sale Agreement to purchase a building located in Morrisville, North Carolina, which we previously leased as a finance lease, for a purchase price of
$58.1 million
subject to adjustments. The purchase was closed in April 2019.
Off-Balance Sheet Arrangements
As of
June 30, 2019
, 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
June 30, 2019
, we did not have any material indemnification claims that were probable or reasonably possible.
Note 11. Stockholders’ Equity
Summary of Stock-Based Compensation Expense
As of
June 30, 2019
, the 2005 Incentive Plan (as amended) has a total reserve of
27,783,379
shares of which
5,315,116
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 six
months ended
June 30, 2019
and
2018
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Cost of net revenues
|
|
$
|
1,278
|
|
|
$
|
900
|
|
|
$
|
2,390
|
|
|
$
|
1,781
|
|
Selling, general and administrative
|
|
18,037
|
|
|
13,216
|
|
|
34,927
|
|
|
25,794
|
|
Research and development
|
|
3,152
|
|
|
2,774
|
|
|
6,194
|
|
|
5,145
|
|
Total stock-based compensation
|
|
$
|
22,467
|
|
|
$
|
16,890
|
|
|
$
|
43,511
|
|
|
$
|
32,720
|
|
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. During the
six
months ended
June 30, 2019
,
8,187
stock options were exercised at a weighted average exercise price of
$8.07
per share. As of
June 30, 2019
, there were no options outstanding and exercisable.
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
six
months ended
June 30, 2019
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
Underlying RSUs
(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, 2018
|
931
|
|
|
$
|
129.39
|
|
|
|
|
|
Granted
|
269
|
|
|
256.81
|
|
|
|
|
|
Vested and released
|
(391
|
)
|
|
100.51
|
|
|
|
|
|
Forfeited
|
(43
|
)
|
|
171.64
|
|
|
|
|
|
Nonvested as of June 30, 2019
|
766
|
|
|
$
|
186.47
|
|
|
1.5
|
|
$
|
209,599
|
|
As of
June 30, 2019
, we expect to recognize
$114.2 million
of total unamortized compensation cost, net of estimated forfeitures, related to RSUs over a weighted average period of
2.4
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
six
months ended
June 30, 2019
, the maximum number of MSUs which will be eligible to vest are
250%
of the MSUs initially granted.
A summary for the
six
months ended
June 30, 2019
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2018
|
324
|
|
|
$
|
215.07
|
|
|
|
|
|
Granted
|
133
|
|
|
245.69
|
|
|
|
|
|
Vested and released
|
(179
|
)
|
|
72.74
|
|
|
|
|
|
Forfeited
|
(5
|
)
|
|
265.42
|
|
|
|
|
|
Nonvested as of June 30, 2019
|
273
|
|
|
$
|
322.53
|
|
|
1.6
|
|
$
|
74,615
|
|
As of
June 30, 2019
, we expect to recognize
$51.9 million
of total unamortized compensation cost, net of estimated forfeitures, related to MSUs over a weighted average period of
1.6
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
June 30, 2019
, we have
490,417
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:
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
2019
|
|
2018
|
Expected term (in years)
|
|
1.4
|
|
|
1.3
|
|
Expected volatility
|
|
48.6
|
%
|
|
35.7
|
%
|
Risk-free interest rate
|
|
2.5
|
%
|
|
1.9
|
%
|
Expected dividends
|
|
—
|
|
|
—
|
|
Weighted average fair value at grant date
|
|
$
|
90.36
|
|
|
$
|
78.38
|
|
As of
June 30, 2019
, there was
$7.5 million
of total unamortized compensation costs related to employee stock purchases which we expect to be recognized over a weighted average period of
0.8
year.
Note 12. Common Stock Repurchase Programs
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 2017, we entered into an accelerated share repurchase agreement ("2017 ASR") to repurchase
$50.0 million
of our common stock which was completed in August 2017. We received a total of approximately
0.4 million
shares for an average share price of
$146.48
. During 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 2018, we repurchased on the open market approximately
0.7 million
shares of our common stock at an average price of
$293.21
per share, including commissions, for an aggregate purchase price of approximately
$200.0 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 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
. In 2018, we entered into an accelerated stock repurchase agreement (“2018 ASR”) to repurchase
$50.0 million
of our common stock which was completed in December 2018. We received a total of approximately
0.2 million
shares for an average share price of
$213.18
.
In February 2019, we repurchased on the open market approximately
0.2 million
shares of our common stock at an average price of
$243.42
per share, including commission for an aggregate purchase price of
$50.0 million
. In May 2019, we repurchased on the open market approximately
0.2 million
shares of our common stock at an average price of
$307.48
per share, including commission for an aggregate price of
$49.5 million
. As of
June 30, 2019
, we have
$400.5 million
available for repurchase under the May 2018 Repurchase Program. On July 30, 2019, we entered into an accelerated stock repurchase agreement (“2019 ASR”) to repurchase
$200.0 million
of our common stock. We paid
$200.0 million
on July 31, 2019 and received an initial delivery of approximately
0.7 million
shares based on current market prices. The final number of shares to be repurchased will be based on our volume-weighted average stock price under the term of the 2019 ASR, less an agreed upon discount.
Note 13. Accounting for Income Taxes
Our provision for income taxes was
$43.1 million
and
$7.7 million
for the
three
months ended
June 30, 2019
and
2018
, respectively, representing effective tax rates of
22.2%
and
6.6%
, respectively. Our provision for income taxes was
$51.9 million
and
$10.6 million
for the six months ended
June 30, 2019
and
2018
, respectively, representing effective tax rates of
18.6%
and
4.9%
, respectively. Our effective tax rate differs from the statutory federal income tax rate of
21%
for the
three and six
months ended
June 30, 2019
and
2018
, respectively, mainly as a result of the recognition of excess tax benefits related to stock-based compensation and certain foreign earnings, primarily from the Netherlands and Costa Rica, being taxed at lower tax rates.
The increase in effective tax rate for the
three and six
months ended
June 30, 2019
compared to the same periods in
2018
is primarily attributable to reduction in excess tax benefits related to stock-based compensation resulting from the unfavorable tax impact of Internal Revenue Service (“IRS”) Notice 2018-68 issued in August 2018, which limited our officers’ stock compensation deductions. For the
three and six
months ended
June 30, 2019
, we recognized excess tax benefits of
$1.2 million
and
$13.1 million
, respectively, in our provision for income taxes.
We exercise significant judgment in regards to estimates of future market growth, forecasted earnings and projected taxable income in determining the provision for income taxes and for purposes of assessing our ability to utilize any future benefit from deferred tax assets.
We file U.S. federal, U.S. state, and non-U.S. income tax returns. Our major tax jurisdictions include U.S. federal, the State of California and the Netherlands. For U.S. federal and state tax returns, we are no longer subject to tax examinations for years before
2015
. We are currently under examination by the IRS for tax years 2015 and 2016. With few exceptions, we are no longer subject to examination by foreign tax authorities for years before
2011
.
Our total gross unrecognized tax benefits, excluding interest and penalties, was
$42.7 million
and
$33.3 million
as of
June 30, 2019
and
December 31, 2018
, respectively, a material amount of which would impact our effective tax rate if recognized. Our total interest and penalties accrued as of
June 30, 2019
was
no
t material. 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.
As of
December 31, 2018
, our undistributed earnings of our foreign subsidiaries totaled
$533.5 million
. As a result of the TCJA, during the year ended December 31, 2017, we provided for U.S. income taxes on undistributed foreign earnings through December 31, 2017, and we have reassessed our capital needs and investment strategy with regard to the indefinite reinvestment, determining that certain of those are no longer indefinitely reinvested. Of the total undistributed foreign earnings as of December 31, 2018, the amount that is not indefinitely reinvested is
$239.2 million
. The remaining amount of undistributed foreign earnings of approximately
$294.3 million
continues to be indefinitely reinvested in our international operations. Since U.S. income taxes have already been provided under the Global Intangible Low-Taxed Income (“GILTI”) provisions of the TCJA, the additional tax impact of the distribution of such foreign earnings to the U.S. parent company would be limited to withholding taxes and is not significant.
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 2019 and 2018. For the
three and six
months ended
June 30, 2019
, the reduction in income taxes due to the reduced tax rate was minimal.
Note 14. 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 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
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
147,142
|
|
|
$
|
106,105
|
|
|
$
|
218,990
|
|
|
$
|
201,971
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
79,943
|
|
|
80,216
|
|
|
79,901
|
|
|
80,127
|
|
Dilutive effect of potential common stock
|
|
647
|
|
|
1,255
|
|
|
764
|
|
|
1,448
|
|
Total shares, diluted
|
|
80,590
|
|
|
81,471
|
|
|
80,665
|
|
|
81,575
|
|
|
|
|
|
|
|
|
|
|
Net income per share, basic
|
|
$
|
1.84
|
|
|
$
|
1.32
|
|
|
$
|
2.74
|
|
|
$
|
2.52
|
|
Net income per share, diluted
|
|
$
|
1.83
|
|
|
$
|
1.30
|
|
|
$
|
2.71
|
|
|
$
|
2.48
|
|
For the
three and six
months ended
June 30, 2019
and
2018
, potentially anti-dilutive shares excluded from diluted net income per share related to RSUs, MSUs and ESPP were not material.
Note 15. Supplemental Cash Flow Information
The supplemental cash flow information consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
2019
|
|
2018
|
Non-cash investing and financing activities:
|
|
|
|
|
Fixed assets acquired with accounts payable or accrued liabilities
|
|
$
|
12,202
|
|
|
$
|
20,854
|
|
Conversion of convertible notes receivable into equity securities
|
|
$
|
—
|
|
|
$
|
4,862
|
|
Issuance of promissory note in exchange for sale of equity method investment
|
|
$
|
54,154
|
|
|
$
|
—
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
9,020
|
|
|
$
|
—
|
|
Investing cash flows from finance leases
1
|
|
$
|
10,896
|
|
|
$
|
—
|
|
Financing cash flows from finance leases
|
|
$
|
45,773
|
|
|
$
|
—
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
|
$
|
21,066
|
|
|
$
|
—
|
|
Finance leases
|
|
$
|
51,064
|
|
|
$
|
—
|
|
|
|
1
|
A
portion of finance lease purchase payment relates to leasing a part of the building to a third party as a lessor. This amount is included in Other Investing Activities in our Condensed Consolidated Statements of Cash Flows (
Refer to Note 4 “Leases” of the Notes to Condensed Consolidated Financial Statements
for more information).
|
Note 16. Segments and Geographical Information
Segment Information
Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is our Chief Executive Officer. We report segment information based on the management approach. The management approach designates the internal reporting used by CODM for decision making and performance assessment as the basis for determining our reportable segments. The performance measures of our reportable segments include net revenues, gross profit and income from operations. Income from operations for each segment includes all geographic revenues, related cost of net revenues and operating expenses directly attributable to the segment. Certain operating expenses are attributable to operating segments and each allocation is measured differently based on the specific facts and circumstances of the costs being allocated. Costs not specifically allocated to segment income from operations include various corporate expenses such
as stock-based compensation and costs related to IT, facilities, human resources, accounting and finance, legal and regulatory, and other separately managed general and administrative costs outside the operating segments.
We group our operations into
two
reportable segments: Clear Aligner segment and Scanner segment.
|
|
•
|
Our Clear Aligner segment consists of Comprehensive Products, Non-Comprehensive Products and Non-Case revenues as defined below:
|
|
|
•
|
Comprehensive Products include, but not limited to, our Invisalign Comprehensive (formerly known as Invisalign Full and Invisalign Teen), Invisalign Assist and Invisalign First.
|
|
|
•
|
Non-Comprehensive Products include, Invisalign Express 10, Invisalign Express 5, Express Package, Lite Package and Invisalign Go products in addition to revenues from the sale of aligners to SDC under our supply agreement.
|
|
|
•
|
Non-Case includes, but not limited to, Vivera retainers along with our training and ancillary products for treating malocclusion.
|
|
|
•
|
Our Scanner segment consists of intraoral scanning systems, additional services and ancillary products available with the intraoral scanners that provide digital alternatives to the traditional cast models. This segment includes our iTero scanner and OrthoCAD services.
|
These reportable operating segments are based on how our CODM views and evaluates our operations as well as allocation of resources. The following information relates to these segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
Net revenues
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Clear Aligner
|
|
$
|
496,702
|
|
|
$
|
433,241
|
|
|
$
|
965,907
|
|
|
$
|
818,746
|
|
Scanner
|
|
103,995
|
|
|
57,018
|
|
|
183,761
|
|
|
108,437
|
|
Total net revenues
|
|
$
|
600,697
|
|
|
$
|
490,259
|
|
|
$
|
1,149,668
|
|
|
$
|
927,183
|
|
Gross profit
|
|
|
|
|
|
|
|
|
Clear Aligner
|
|
$
|
366,142
|
|
|
$
|
331,612
|
|
|
$
|
717,500
|
|
|
$
|
628,588
|
|
Scanner
|
|
66,147
|
|
|
33,970
|
|
|
116,885
|
|
|
64,402
|
|
Total gross profit
|
|
$
|
432,289
|
|
|
$
|
365,582
|
|
|
$
|
834,385
|
|
|
$
|
692,990
|
|
Income from operations
|
|
|
|
|
|
|
|
|
Clear Aligner
|
|
$
|
244,029
|
|
|
$
|
190,287
|
|
|
$
|
402,670
|
|
|
$
|
351,741
|
|
Scanner
|
|
39,267
|
|
|
17,670
|
|
|
67,526
|
|
|
33,752
|
|
Unallocated corporate expenses
|
|
(106,806
|
)
|
|
(85,266
|
)
|
|
(206,005
|
)
|
|
(164,610
|
)
|
Total income from operations
|
|
$
|
176,490
|
|
|
$
|
122,691
|
|
|
$
|
264,191
|
|
|
$
|
220,883
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
Clear Aligner
|
|
$
|
11,277
|
|
|
$
|
6,759
|
|
|
$
|
22,412
|
|
|
$
|
13,143
|
|
Scanner
|
|
2,451
|
|
|
1,169
|
|
|
4,548
|
|
|
2,273
|
|
Unallocated corporate depreciation and amortization
|
|
9,763
|
|
|
4,704
|
|
|
19,209
|
|
|
8,650
|
|
Total depreciation and amortization
|
|
$
|
23,491
|
|
|
$
|
12,632
|
|
|
$
|
46,169
|
|
|
$
|
24,066
|
|
Impairments and other charges
|
|
|
|
|
|
|
|
|
Clear Aligner
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29,782
|
|
|
$
|
—
|
|
Scanner
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Unallocated corporate impairments and other charges
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total impairments and other charges
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29,782
|
|
|
$
|
—
|
|
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
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Total segment income from operations
|
|
$
|
283,296
|
|
|
$
|
207,957
|
|
|
$
|
470,196
|
|
|
$
|
385,493
|
|
Unallocated corporate expenses
|
|
(106,806
|
)
|
|
(85,266
|
)
|
|
(206,005
|
)
|
|
(164,610
|
)
|
Total income from operations
|
|
176,490
|
|
|
122,691
|
|
|
264,191
|
|
|
220,883
|
|
Interest income
|
|
3,465
|
|
|
1,917
|
|
|
6,098
|
|
|
4,093
|
|
Other income (expense), net
|
|
13,892
|
|
|
(7,099
|
)
|
|
8,146
|
|
|
(6,922
|
)
|
Net income before provision for income taxes and equity in losses of investee
|
|
$
|
193,847
|
|
|
$
|
117,509
|
|
|
$
|
278,435
|
|
|
$
|
218,054
|
|
Geographical Information
Net revenues are presented below by geographic area (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net revenues
1
:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
296,655
|
|
|
$
|
254,020
|
|
|
$
|
575,660
|
|
|
$
|
491,123
|
|
The Netherlands
|
|
192,188
|
|
|
156,428
|
|
|
366,932
|
|
|
295,959
|
|
China
|
|
44,823
|
|
|
38,431
|
|
|
87,439
|
|
|
64,017
|
|
Other International
|
|
67,031
|
|
|
41,380
|
|
|
119,637
|
|
|
76,084
|
|
Total net revenues
|
|
$
|
600,697
|
|
|
$
|
490,259
|
|
|
$
|
1,149,668
|
|
|
$
|
927,183
|
|
1
Net revenues are attributed to countries based on the location of where revenues are recognized by our legal entities.
Tangible long-lived assets are presented below by geographic area (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31, 2018
|
Long-lived assets
2
:
|
|
|
|
|
The Netherlands
|
|
$
|
226,068
|
|
|
$
|
206,679
|
|
United States
|
|
170,191
|
|
|
139,239
|
|
Costa Rica
|
|
82,186
|
|
|
80,218
|
|
China
|
|
57,176
|
|
|
36,249
|
|
Mexico
|
|
38,094
|
|
|
33,240
|
|
Other International
|
|
83,165
|
|
|
25,704
|
|
Total long-lived assets
|
|
$
|
656,880
|
|
|
$
|
521,329
|
|
2
Long-lived assets are attributed to countries based on the location of our entity that owns or leases the assets.