Segment Information and Operations By Geographic Area

3 Months Ended

Apr. 03, 2016

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 has identified its CEO as the CODM and 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 video security, storage and digital media 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. Each business unit contains leadership focused on the product development efforts, both from a product marketing and engineering standpoint, to service the unique needs of these customer segments. 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 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
	April 3, 2016			March 29, 2015
Net revenue:
Retail	$	157,543		$	120,957
Commercial	68,432			72,731
Service provider	84,281			115,469
Total net revenue	310,256			309,157
Contribution income:
Retail	$	24,299		$	16,319
Retail contribution margin	15.4		%	13.5		%
Commercial	14,837			16,243
Commercial contribution margin	21.7		%	22.3		%
Service Provider	14,458			8,758
Service Provider contribution margin	17.2		%	7.6		%
Total segment contribution income	53,594			41,320
Corporate and unallocated costs	(16,716		)	(12,966		)
Amortization of intangibles (1)	(4,165		)	(4,396		)
Stock-based compensation expense	(4,411		)	(4,348		)
Restructuring and other charges	(2,678		)	(4,394		)
Losses on inventory commitments due to restructuring	—			(407		)
Litigation reserves, net	(10		)	2,690
Interest income	234			52
Other income (expense), net	(366		)	475
Income before income taxes	$	25,482		$	18,026

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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
	April 3, 2016		March 29, 2015
United States (U.S.)	$	189,366	$	170,592
Americas (excluding U.S.)	4,484		3,194
United Kingdom (U.K.)	11,540		31,365
EMEA (excluding U.K.)	52,965		57,744
Australia	31,134		29,653
APAC (excluding Australia)	20,767		16,609
Total net revenue	$	310,256	$	309,157

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

	As of
	April 3, 2016		December 31, 2015
United States	$	9,193	$	9,832
Canada	3,169		3,586
EMEA	367		468
China	5,851		6,562
APAC (excluding China)	2,107		1,936
	$	20,687	$	22,384