Segment Information and Operations By Geographic Area

6 Months Ended

Jun. 28, 2015

Segment Reporting [Abstract]

Segment Information and Operations By Geographic Area

Segment Information and Operations by Geographic Area

Operating segments are components of an enterprise about which separate financial information is available and is regularly evaluated by management, namely the Chief Operating Decision Maker (“CODM”) of an organization, in order to determine operating and resource allocation decisions. By this definition, the Company operates in three specific business units: retail, commercial, and service provider. The retail business unit consists of high performance, dependable and easy-to-use home networking, home security automation and storage products. The commercial business unit consists of business networking, storage and security solutions that bring enterprise class functionality down to the small and medium-sized business at an affordable price. The service provider business unit consists of made-to-order and retail proven, whole home networking hardware and software solutions as well as 4G LTE hotspots sold to service providers for sale to their subscribers. The Company believes this structure enables it to better focus its efforts on the Company's core customer segments and allows it to be more nimble and opportunistic as a company overall.

The Company's CEO began temporarily serving as interim general manager of the retail business unit in March 2014 and as interim general manager of the service provider business unit in February 2015, due to the previous general managers' departures from the Company. As of June 28, 2015, the CEO continued to serve as interim general manager of both business units and will do so until replacements for the positions are appointed.

The results of the reportable segments are derived directly from the Company’s management reporting system. The results are based on the Company’s method of internal reporting and are not necessarily in conformity with accounting principles generally accepted in the United States. Management measures the performance of each segment based on several metrics, including contribution income. Segment contribution income includes all product line segment revenues less the related cost of sales, research and development and sales and marketing costs. Contribution income 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 indirect costs include corporate costs, such as corporate research and development, corporate marketing expense and general and administrative costs, amortization of intangibles, stock-based compensation expense, restructuring and other charges, acquisition-related expense, losses on inventory commitments due to restructuring, litigation reserves, net, and interest and other income (expense), net. The Company does not evaluate operating segments using discrete asset information.

Financial information for each reportable segment and a reconciliation of segment contribution income to income before income taxes is as follows (in thousands, except percentage data):

	Three Months Ended						Six Months Ended
	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014
Net revenue:
Retail	$	131,809		$	110,663		$	252,766		$	228,895
Commercial	63,017			75,447			135,748			154,310
Service provider	93,956			151,494			209,425			303,790
Total net revenue	288,782			337,604			597,939			686,995
Contribution income:
Retail	$	16,247		$	14,726		$	32,566		$	29,409
Retail contribution margin	12.3		%	13.3		%	12.9		%	12.8		%
Commercial	12,564			17,129			28,807			36,669
Commercial contribution margin	19.9		%	22.7		%	21.2		%	23.8		%
Service Provider	3,895			15,235			12,653			28,754
Service Provider contribution margin	4.1		%	10.1		%	6.0		%	9.5		%
Total segment contribution income	32,706			47,090			74,026			94,832
Corporate and unallocated costs	(12,230		)	(13,128		)	(25,196		)	(26,884		)
Amortization of intangibles (1)	(4,243		)	(4,391		)	(8,639		)	(8,781		)
Stock-based compensation expense	(4,058		)	(4,934		)	(8,406		)	(10,064		)
Restructuring and other charges	(974		)	12			(5,368		)	(830		)
Acquisition-related expense	—			—			—			(8		)
Losses on inventory commitments due to restructuring	—			—			(407		)	—
Litigation reserves, net	—			(68		)	2,690			(185		)
Interest income	67			49			119			106
Other income (expense), net	(343		)	(227		)	132			(335		)
Income before income taxes	$	10,925		$	24,403		$	28,951		$	47,851

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(1) Amount excludes amortization expense related to patents included in cost of revenue.

The Company conducts business across three geographic regions: Americas, Europe, Middle-East and Africa (“EMEA”) and Asia Pacific ("APAC"). Net revenue by geography comprises gross revenue less such items as end-user customer rebates and other sales incentives deemed to be a reduction of net revenue per the authoritative guidance for revenue recognition, sales returns and price protection. For reporting purposes revenue is attributed to each geographic region based on the location of the customer. The following table shows net revenue by geography for the periods indicated (in thousands):

	Three Months Ended				Six Months Ended
	June 28, 2015		June 29, 2014		June 28, 2015		June 29, 2014
United States (U.S.)	$	168,282	$	182,222	$	338,874	$	372,498
Americas (excluding U.S.)	4,177		5,312		7,371		9,815
United Kingdom (U.K.)	21,750		42,574		53,115		83,774
EMEA (excluding U.K.)	46,243		57,862		103,987		123,455
Australia	31,008		33,473		60,661		63,873
APAC (excluding Australia)	17,322		16,161		33,931		33,580
Total net revenue	$	288,782	$	337,604	$	597,939	$	686,995

Property and equipment by geographic location are as follows (in thousands):

	As of
	June 28, 2015		December 31, 2014
United States	$	10,730	$	12,453
Canada	4,258		4,375
EMEA	559		657
China	8,682		10,786
APAC (excluding China)	1,362		1,423
	$	25,591	$	29,694