Segment Information

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 and reports in three segments: Arlo, Connected Home, and SMB:


•	Arlo: Focused on combining an intelligent cloud infrastructure and mobile app with a variety of smart connected devices that transform the way people experience the connected lifestyle;


•	Connected Home: Focused on consumers and consists of high-performance, dependable and easy-to-use LTE and WiFi internet networking solutions; and


•	SMB: Focused on small and medium-sized businesses and consists of business networking, storage and security solutions that bring enterprise-class functionality to small and medium-sized businesses at an affordable price.

The Company believes that this structure reflects its current operational and financial management, and provides the best structure for the Company to focus on growth opportunities while maintaining financial discipline. Each segment contains leadership focused on the product development efforts, both from a product marketing and engineering standpoint, to service the unique needs of their customers.

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 (loss) 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, separation expense, restructuring and other charges, litigation reserves, net, interest income and other income (expense), net. The CODM does not evaluate operating segments using discrete asset information.

Financial information for each reportable segment and a reconciliation of segment contribution income (loss) to income (loss) before income taxes is as follows:



	Three Months Ended						Six Months Ended
	July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017
	(In thousands, except percentage data)
Net revenue:
Arlo	$	104,813		$	78,732		$	201,022		$	139,444
Connected Home	191,164			185,905			368,945			380,266
SMB	70,843			66,086			141,826			134,670
Total net revenue	$	366,820		$	330,723		$	711,793		$	654,380
Contribution income (loss):
Arlo	$	(42	)	$	3,172		$	4,318		$	3,493
Arlo contribution margin	(0.0		)%	4.0		%	2.1		%	2.5		%
Connected Home	$	30,331		$	25,124		$	55,860		$	56,836
Connected Home contribution margin	15.9		%	13.5		%	15.1		%	14.9		%
SMB	$	18,343		$	16,752		$	36,930		$	35,256
SMB contribution margin	25.9		%	25.3		%	26.0		%	26.2		%
Total segment contribution income	$	48,632		$	45,048		$	97,108		$	95,585
Corporate and unallocated costs	(26,946		)	(17,033		)	(49,549		)	(35,234		)
Amortization of intangibles ⁽¹⁾	(2,346		)	(3,146		)	(4,807		)	(7,528		)
Stock-based compensation expense	(8,970		)	(5,701		)	(17,120		)	(10,829		)
Separation expense	(11,984		)	—			(18,768		)	—
Restructuring and other charges	(1,376		)	(22		)	(1,367		)	(59		)
Litigation reserves, net	(5		)	(53		)	(5		)	(53		)
Interest income	1,072			482			1,820			887
Other income (expense), net	1,061			383			(191		)	718
Income (loss) before income taxes	$	(862	)	$	19,958		$	7,121		$	43,487

_________________________


⁽¹⁾	Amount excludes amortization expense related to patents within purchased intangibles in cost of revenue.

Operations by Geographic Region

The Company conducts business across three geographic regions: Americas, EMEA, and APAC. Net revenue consists of gross product shipments and service revenue, less allowances for estimated sales returns, price protection, end-user customer rebates and other channel sales incentives deemed to be a reduction of net revenue per the authoritative guidance for revenue recognition, and net changes in deferred revenue. For reporting purposes, revenue is generally attributed to each geographic region based on the location of the customer.

The following table shows net revenue by geography for the periods indicated:



	Three Months Ended				Six Months Ended
	July 1, 2018		July 2, 2017		July 1, 2018		July 2, 2017
	(In thousands)
United States (U.S.)	$	252,305	$	221,387	$	480,800	$	427,512
Americas (excluding U.S.)	7,521		5,562		12,646		11,066
EMEA	68,681		55,204		135,310		113,649
APAC	38,313		48,570		83,037		102,153
Total net revenue	$	366,820	$	330,723	$	711,793	$	654,380

Long-lived assets by Geographic Region

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



	As of
	July 1, 2018		December 31, 2017
	(In thousands)
United States (U.S.)	$	16,838	$	9,216
Americas (excluding U.S.)	2,219		1,807
EMEA	318		141
China	6,539		6,803
APAC (excluding China)	3,223		2,693
Total property and equipment, net	$	29,137	$	20,660