Business Segment Information

3 Months Ended

Mar. 31, 2016

Segment Reporting [Abstract]

Business Segment Information

16. BUSINESS SEGMENT INFORMATION

The Company conducts its business globally and is managed geographically in three segments: (1) Americas, which consists of North America and Caribbean and Latin America (“CALA”) reporting units, (2) Europe, Middle East and Africa (“EMEA”) and (3) Asia Pacific (“APAC”). The segments are determined in accordance with how management views and evaluates the Company’s business and allocates its resources, and are based on the criteria as outlined in the authoritative guidance.

Segment Revenue and Profit

Segment revenues consist of product and service revenues. Product revenues are attributed to a segment based on the ordering location of the customer. For internal reporting purposes and determination of segment contribution margins, geographic segment product revenues may differ slightly from actual geographic revenues due to internal revenue allocations between the Company’s segments. Service revenues are generally attributed to a segment based on the end-user’s location where services are performed. A significant portion of each segment’s expenses arises from shared services and infrastructure that Polycom has historically allocated to the segments in order to realize economies of scale and to use resources efficiently.

Segment contribution margin includes all geographic segment revenues less the related cost of sales and direct revenues and marketing expenses. Cost of revenues consists of the standard cost of revenues and does not include items such as warranty expense, royalties, and the allocation of overhead expenses, including facilities and IT costs, as well as stock-based compensation costs and amortization of purchased intangible assets. Management allocates some infrastructure costs, such as facilities and IT costs, in determining segment contribution margins. Contribution margin is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. Certain operating expenses are not allocated to segments because they are separately managed at the corporate level. These unallocated costs include corporate manufacturing costs, sales and marketing costs other than direct sales and marketing expenses, research and development expenses, general and administrative costs, such as legal and accounting, stock-based compensation costs, transaction-related costs, amortization of purchased intangibles, restructuring costs and interest and other income (expense), net.

Segment Data

The results of the reportable segments are derived directly from Polycom’s management reporting system. Management measures the performance of each segment based on several metrics, including contribution margin as defined above. Asset data, with the exception of gross accounts receivable, is not reviewed by management at the segment level.

Financial information for each reportable geographical segment as of March 31, 2016 and December 31, 2015 and for the three months ended March 31, 2016 and 2015, based on the Company’s internal management reporting system and as utilized by the Company’s Chief Operating Decision Maker (“CODM”), its Chief Executive Officer, is as follows (in thousands):

	Americas			EMEA			APAC			Total
For the three months ended March 31, 2016:
Revenue	$	155,494		$	73,529		$	61,052		$	290,075
% of total revenue		54	%		25	%		21	%		100	%
Contribution margin	$	62,867		$	26,952		$	27,156		$	116,975
% of segment revenue		40	%		37	%		44	%		40	%
For the three months ended March 31, 2015:
Revenue	$	157,354		$	93,849		$	79,497		$	330,700
% of total revenue		48	%		28	%		24	%		100	%
Contribution margin	$	60,850		$	42,776		$	36,112		$	139,738
% of segment revenue		39	%		46	%		45	%		42	%
As of March 31, 2016: Gross accounts receivable	$	113,315		$	64,110		$	41,125		$	218,550
% of total gross accounts receivable		52	%		29	%		19	%		100	%
As of December 31, 2015: Gross accounts receivable	$	97,742		$	78,726		$	66,443		$	242,911
% of total gross accounts receivable		40	%		33	%		27	%		100	%

During the three months ended March 31, 2016, two channel partners, ScanSource Communications (“ScanSource”) and Westcon Group, Inc (“Westcon”), accounted for 24% and 12% of the Company’s total revenues, respectively. During the three months ended March 31, 2015, one channel partner, ScanSource, accounted for 16% of the Company’s total revenues. ScanSource accounted for 23% and 20%, respectively, of total gross accounts receivable at March 31, 2016 and December 31, 2015.

The reconciliation of segment information to Polycom consolidated totals is as follows (in thousands):

	Three Months Ended
	March 31, 2016			March 31, 2015
Segment contribution margin	$	116,975		$	139,738
Corporate and unallocated costs		(84,103	)		(98,339	)
Stock-based compensation		(11,480	)		(9,232	)
Effect of stock-based compensation cost on warranty expense		(106	)		(53	)
Amortization of purchased intangibles		(2,300	)		(3,074	)
Restructuring costs		(7,502	)		(24	)
Transaction-related costs		(4,244	)		—
Interest and other income (expense), net		(768	)		(1,462	)
Income before provision for income taxes	$	6,472		$	27,554

The following table summarizes the Company’s revenues by groups of similar products and services as follows (in thousands):

	Three Months Ended
	March 31, 2016		March 31, 2015
Revenues:
UC group systems	$	178,904	$	204,651
UC personal devices		67,810		67,465
UC platform		43,361		58,584
Total	$	290,075	$	330,700