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.

As of December 31, 2018 upon completion of the Distribution, the Company operates and reports in two segments: Connected Home and SMB:


•	Connected Home: Focused on consumers and consists of high-performance, dependable and easy-to-use 4G/5G mobile, Wi-Fi internet networking solutions and smart devices such as Orbi Voice smart speakers and Meural digital canvas; and


•	SMB: Focused on small and medium-sized businesses and consists of business networking, storage, wireless LAN 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. The leadership team of each segment 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 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 expenses, 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 to income before income taxes is as follows:



	Year Ended December 31,
	2018			2017			2016
	(In thousands, except percentage data)
Net revenue:
Connected Home	771,060			768,261			846,929
SMB	287,756			270,908			296,516
Total net revenue	$	1,058,816		$	1,039,169		$	1,143,445
Contribution income:
Connected Home	96,340			83,870			138,997
Connected Home contribution margin	12.5		%	10.9		%	16.4		%
SMB	70,142			63,865			72,539
SMB contribution margin	24.4		%	23.6		%	24.5		%
Total segment contribution income	166,482			147,735			211,536
Corporate and unallocated costs	(90,186		)	(75,305		)	(69,623		)
Amortization of intangibles ⁽¹⁾	(7,979		)	(10,663		)	(15,361		)
Stock-based compensation expense	(26,461		)	(18,969		)	(17,141		)
Separation expenses	(929		)	—			—
Restructuring and other charges	(2,198		)	(97		)	(3,841		)
Litigation reserves, net	(15		)	(148		)	(73		)
Interest income	3,980			2,114			1,164
Other income (expense), net	510			1,557			(166		)
Income before income taxes	$	43,204		$	46,224		$	106,495

_________________________


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

The following table shows net revenue from service provider customers within each of the reportable segments for the periods indicated:



	Year Ended December 31,
	2018		2017		2016
	(In thousands)
Connected Home	156,671		190,186		249,980
SMB	3,624		3,268		4,175
Total service provider net revenue	$	160,295	$	193,454	$	254,155

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 for stock rotation and warranty, 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 years ended December 31, 2018, 2017 and 2016:



	Year Ended December 31,
	2018		2017		2016
	(In thousands)
United States (U.S.)	$	686,145	$	648,152	$	713,178
Americas (excluding U.S.)	14,548		16,937		21,802
EMEA	207,599		197,074		217,554
APAC	150,524		177,006		190,911
Total net revenue	$	1,058,816	$	1,039,169	$	1,143,445

Long-lived assets by Geographic Area

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
	December 31, 2018		December 31, 2017		December 31, 2016
	(In thousands)
United States	$	4,993	$	7,735	$	9,274
Canada	4,359		1,745		2,745
EMEA	95		140		206
China	7,652		5,130		4,218
APAC (excluding China)	3,078		2,599		1,704
Total property and equipment, net	$	20,177	$	17,349	$	18,147

Significant Customers

Two customers, primarily within the Connected Home segment, accounted for 17% and 15% of net revenue in the year ended December 31, 2018, respectively. Two customers, primarily within the Connected Home segment, accounted for 16% and 13% of net revenue in the year ended December 31, 2017, respectively. Two customers, primarily within the Connected Home segment, accounted for 15% and 12% of net revenue in the year ended December 31, 2016, respectively.