Segment Information

6 Months Ended

Jun. 30, 2019

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 two segments: Connected Home, and SMB:


•	Connected Home: Focused on consumers and consists of high-performance, dependable and easy-to-use WiFi internet networking solutions, 4G/5G mobile products, and smart devices such as Orbi Voice smart speakers and Meural digital canvasses; 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 is focused on 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 expense, restructuring and other charges, interest income, net 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:



	Three Months Ended						Six Months Ended
	June 30, 2019			July 1, 2018			June 30, 2019			July 1, 2018
	(In thousands, except percentage data)
Net revenue:
Connected Home	$	167,495		$	186,424		$	336,860		$	360,739
SMB	63,357			68,852			143,074			139,738
Total net revenue	$	230,852		$	255,276		$	479,934		$	500,477
Contribution income:
Connected Home	$	14,204		$	20,939		$	33,323		$	37,151
Contribution margin	8.5		%	11.2		%	9.9		%	10.3		%
SMB	$	11,420		$	14,635		$	34,105		$	31,157
Contribution margin	18.0		%	21.3		%	23.8		%	22.3		%
Total segment contribution income	$	25,624		$	35,574		$	67,428		$	68,308
Corporate and unallocated costs	(15,576		)	(25,038		)	(34,708		)	(47,336		)
Amortization of intangibles ⁽¹⁾	(1,682		)	(1,966		)	(3,692		)	(4,045		)
Stock-based compensation expense	(6,739		)	(7,246		)	(13,197		)	(14,110		)
Separation expense	—			—			(264		)	—
Restructuring and other charges	(1,291		)	(1,376		)	(1,223		)	(1,367		)
Litigation reserves, net	(10		)	(5		)	(10		)	(5		)
Interest income, net	782			1,073			1,483			1,821
Other income (expense), net	487			788			828			(530		)
Income before income taxes	$	1,595		$	1,804		$	16,645		$	2,736

_________________________


⁽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
	June 30, 2019		July 1, 2018		June 30, 2019		July 1, 2018
	(In thousands)
United States (U.S.)	$	152,785	$	170,427	$	298,576	$	327,573
Americas (excluding U.S.)	4,385		3,987		6,623		6,853
EMEA	43,091		48,209		100,054		95,643
APAC	30,591		32,653		$	74,681	$	70,408
Total net revenue	$	230,852	$	255,276	$	479,934	$	500,477

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
	June 30, 2019		December 31, 2018
	(In thousands)
United States	$	4,994	$	4,993
Canada	4,187		4,359
EMEA	296		95
China	7,264		7,652
APAC (excluding China)	4,333		3,078
Total property and equipment, net	$	21,074	$	20,177