Segment Information and Operations By Geographic Area

9 Months Ended

Sep. 27, 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 September 27, 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						Nine Months Ended
	September 27, 2015			September 28, 2014			September 27, 2015			September 28, 2014
Net revenue:
Retail	$	164,081		$	131,341		$	416,847		$	360,236
Commercial	65,187			71,974			200,935			226,284
Service provider	112,625			150,023			322,050			453,813
Total net revenue	341,893			353,338			939,832			1,040,333
Contribution income:
Retail	$	21,149		$	21,813		$	53,715		$	51,222
Retail contribution margin	12.9		%	16.6		%	12.9		%	14.2		%
Commercial	13,700			15,112			42,507			51,781
Commercial contribution margin	21.0		%	21.0		%	21.2		%	22.9		%
Service Provider	14,819			14,164			27,472			42,918
Service Provider contribution margin	13.2		%	9.4		%	8.5		%	9.5		%
Total segment contribution income	49,668			51,089			123,694			145,921
Corporate and unallocated costs	(14,363		)	(13,544		)	(39,559		)	(40,428		)
Amortization of intangibles (1)	(4,165		)	(4,396		)	(12,804		)	(13,177		)
Stock-based compensation expense	(4,111		)	(5,162		)	(12,517		)	(15,226		)
Restructuring and other charges	(1,016		)	(1,360		)	(6,384		)	(2,190		)
Acquisition-related expense	—			—			—			(8		)
Losses on inventory commitments due to restructuring	—			—			(407		)	—
Litigation reserves, net	—			(69		)	2,690			(254		)
Interest income	65			68			184			174
Other income (expense), net	(199		)	2,246			(67		)	1,911
Income before income taxes	$	25,879		$	28,872		$	54,830		$	76,723

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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				Nine Months Ended
	September 27, 2015		September 28, 2014		September 27, 2015		September 28, 2014
United States (U.S.)	$	213,913	$	188,569	$	552,787	$	561,067
Americas (excluding U.S.)	5,823		5,335		13,194		15,150
United Kingdom (U.K.)	27,850		38,933		80,965		122,707
EMEA (excluding U.K.)	49,875		69,488		153,862		192,943
APAC	$	44,432	$	51,013	$	139,024	$	148,466
Total net revenue	$	341,893	$	353,338	$	939,832	$	1,040,333

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

	As of
	September 27, 2015		December 31, 2014
United States	$	10,200	$	12,453
Canada	3,982		4,375
EMEA	506		657
China	7,723		10,786
APAC (excluding China)	1,540		1,423
	$	23,951	$	29,694