Segment Information

12 Months Ended

Dec. 31, 2019

Note 13. 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. The Company operates and reports in two segments: Connected Home, and SMB.

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Connected Home: Focused on consumers and consists of high-performance, dependable and easy-to-use WiFi internet networking solutions such as WiFi mesh systems, routers, 4G/5G mobile products, smart devices such as Meural digital canvasses, and services offering consumers a range of parental controls and cyber security for their home networks; and

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SMB: Focused on small and medium-sized businesses and consists of business networking, wireless LAN, 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. 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, change in fair value of contingent consideration, restructuring and other charges, litigation reserves, net, 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:

	Year ended December 31,
	2019			2018			2017
	(In thousands, except percentage data)
Net Revenue:
Connected Home	$	711,391		$	771,060		$	768,261
SMB		287,372			287,756			270,908
Total net revenue	$	998,763		$	1,058,816		$	1,039,169

Contribution Income:
Connected Home	$	67,775		$	96,340		$	83,870
Contribution margin		9.5	%		12.5	%		10.9	%
SMB	$	67,282		$	70,142		$	63,865
Contribution margin		23.4	%		24.4	%		23.6	%
Total segment contribution income	$	135,057		$	166,482		$	147,735
Corporate and unallocated costs		(70,525	)		(90,186	)		(75,305	)
Amortization of intangibles ⁽¹⁾		(6,731	)		(7,979	)		(10,663	)
Stock-based compensation expense		(29,137	)		(26,461	)		(18,969	)
Separation expense		(264	)		(929	)		—
Change in fair value of contingent consideration		25			—			—
Restructuring and other charges		(2,077	)		(2,198	)		(97	)
Litigation reserves, net		(160	)		(15	)		(148	)
Interest income, net		2,539			3,980			2,114
Other income (expense), net		844			510			1,557
Income before income taxes	$	29,571		$	43,204		$	46,224

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

Operations by Geographic Region

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, 2019, 2018 and 2017:

	Year Ended December 31,
	2019		2018		2017
	(In thousands)
United States (U.S.)	$	637,566	$	686,145	$	648,152
Americas (excluding U.S.)		15,440		14,548		16,937
EMEA		200,099		207,599		197,074
APAC		145,658		150,524		177,006
Total net revenue	$	998,763	$	1,058,816	$	1,039,169

Long-lived assets by Geographic Region

The Company's long-lived assets, which consist of property and equipment, net and operating lease right-of-use assets, net, are located in the following geographic locations:

	As of December 31,
	2019		2018
	(In thousands)
United States	$	23,137	$	4,993
Canada		3,954		4,359
EMEA		3,782		95
China		5,040		7,652
APAC (excluding China) ⁽¹⁾		10,687		3,078
Total	$	46,600	$	20,177

⁽¹⁾	^{No individual country, other than disclosed above, represented more than 10% of the Company’s total long-lived assets in the periods presented.}

Significant Customers

For the year ended December 31, 2019, the Company had two customers, primarily within the Connected Home segment, that each individually accounted for 16% of net revenue. The Company had two customers, primarily within the Connected Home segment, that accounted for 17% and 15% of net revenue for the year ended December 31, 2018, and 16% and 13% of net revenue for the year ended December 31, 2017, respectively.