Segment Information and Operations By Geographic Area

9 Months Ended

Oct. 02, 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 and storage 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, losses on inventory commitments due to restructuring, litigation reserves, net, interest income 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
	October 2, 2016			September 27, 2015			October 2, 2016			September 27, 2015
Net revenue:
Retail	$	194,203		$	164,081		$	522,392		$	416,847
Commercial	73,405			65,187			215,508			200,935
Service provider	70,850			112,625			222,469			322,050
Total net revenue	338,458			341,893			960,369			939,832
Contribution income:
Retail	$	23,218		$	21,149		$	73,177		$	53,715
Retail contribution margin	12.0		%	12.9		%	14.0		%	12.9		%
Commercial	20,216			13,700			53,604			42,507
Commercial contribution margin	27.5		%	21.0		%	24.9		%	21.2		%
Service Provider	12,872			14,819			35,582			27,472
Service Provider contribution margin	18.2		%	13.2		%	16.0		%	8.5		%
Total segment contribution income	56,306			49,668			162,363			123,694
Corporate and unallocated costs	(17,532		)	(14,363		)	(50,666		)	(39,559		)
Amortization of intangibles (1)	(4,165		)	(4,165		)	(12,496		)	(12,804		)
Stock-based compensation expense	(4,870		)	(4,111		)	(14,300		)	(12,517		)
Restructuring and other charges	130			(1,016		)	(3,859		)	(6,384		)
Losses on inventory commitments due to restructuring	—			—			—			(407		)
Litigation reserves, net	(13		)	—			(58		)	2,690
Interest income	291			65			804			184
Other income (expense), net	116			(199		)	(582		)	(67		)
Income before income taxes	$	30,263		$	25,879		$	81,206		$	54,830

(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
	October 2, 2016		September 27, 2015		October 2, 2016		September 27, 2015
United States (U.S.)	$	217,631	$	213,913	$	610,505	$	552,787
Americas (excluding U.S.)	7,604		5,823		19,488		13,194
EMEA	60,034		77,725		176,192		234,827
APAC	$	53,189	$	44,432	$	154,184	$	139,024
Total net revenue	$	338,458	$	341,893	$	960,369	$	939,832

Long-lived assets include purchased intangibles, goodwill and property and equipment. The Company's property and equipment are located in the following geographic locations (in thousands):

	As of
	October 2, 2016		December 31, 2015
United States	$	8,992	$	9,832
Canada	3,131		3,586
EMEA	602		468
China	4,725		6,562
APAC (excluding China)	2,026		1,936
	$	19,476	$	22,384