Segment Information

6 Months Ended

Jun. 28, 2020

Note 11. 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:

•

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 subscription services, offering consumers a range of parental controls and cyber security for their home networks; and

•

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 and service 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 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 28, 2020			June 30, 2019			June 28, 2020			June 30, 2019

Net Revenue:
Connected Home	$	230,017		$	167,495		$	394,680		$	336,860
SMB		50,035			63,357			115,335			143,074
Total net revenue	$	280,052		$	230,852		$	510,015		$	479,934

Contribution Income:
Connected Home	$	36,187		$	14,204		$	49,774		$	33,323
Contribution margin		15.7	%		8.5	%		12.6	%		9.9	%
SMB	$	4,285		$	11,420		$	17,852		$	34,105
Contribution margin		8.6	%		18.0	%		15.5	%		23.8	%
Total segment contribution income	$	40,472		$	25,624		$	67,626		$	67,428
Corporate and unallocated costs		(19,489	)		(15,576	)		(38,451	)		(34,708	)
Amortization of intangibles ⁽¹⁾		(1,519	)		(1,682	)		(3,038	)		(3,692	)
Stock-based compensation expense		(9,172	)		(6,739	)		(15,508	)		(13,197	)
Separation expense		—			—			—			(264	)
Change in fair value of contingent consideration		(311	)		—			(89	)		—
Restructuring and other charges		(1,117	)		(1,291	)		(982	)		(1,223	)
Litigation reserves, net		3			(10	)		(22	)		(10	)
Interest income		49			782			311			1,483
Other income (expense), net		314			487			(4,272	)		828
Income before income taxes	$	9,230		$	1,595		$	5,575		$	16,645

⁽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 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
	(In thousands)
United States (“U.S.”)	$	197,833	$	152,785	$	352,638	$	298,576
Americas (excluding U.S.)		4,413		4,385		7,798		6,623
EMEA		48,359		43,091		90,507		100,054
APAC		29,447		30,591		59,072		74,681
Total net revenue	$	280,052	$	230,852	$	510,015	$	479,934

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
	June 28, 2020		December 31, 2019
	(In thousands)
United States (“U.S.”)	$	20,807	$	23,137
Americas (excluding U.S.)		3,703		4,036
EMEA		3,932		3,782
Singapore		5,999		—
China		3,944		5,040
APAC (excluding Singapore and China) ⁽¹⁾		8,925		10,605
Total	$	47,310	$	46,600

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