Segment Information

12 Months Ended

Dec. 31, 2020

Segment Reporting [Abstract]

Segment Information

Note 13. Segment Information

Operating segments are components of an enterprise about which separate financial information is available and is evaluated quarterly 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 and value added services, offering consumers cyber security, parental controls, extended warranty and support for their home networks and products; and

• SMB: Focused on home based, small and medium-sized businesses consisting of business networking, wireless LAN, storage, security solutions and valued added services, such as remote Cloud management and support bringing 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 that it 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, gain/(loss) on investments, net, litigation reserves, net, interest income and other income (expense), net.

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,
	2020			2019			2018
	(In thousands, except percentage data)
Net Revenue:
Connected Home	$	1,007,545		$	711,391		$	771,060
SMB		247,657			287,372			287,756
Total net revenue	$	1,255,202		$	998,763		$	1,058,816
Contribution Income:
Connected Home	$	152,512		$	67,775		$	96,340
Contribution margin		15.1	%		9.5	%		12.5	%
SMB	$	42,174		$	67,282		$	70,142
Contribution margin		17.0	%		23.4	%		24.4	%
Total segment contribution income	$	194,686		$	135,057		$	166,482
Corporate and unallocated costs		(77,645	)		(70,301	)		(89,325	)
Amortization of intangibles (1)		(5,952	)		(6,731	)		(7,979	)
Stock-based compensation expense		(30,505	)		(29,137	)		(26,461	)
Separation expense		—			(264	)		(929	)
Change in fair value of contingent consideration		2,928			25			—
Restructuring and other charges		(1,702	)		(2,077	)		(2,198	)
Gain/(loss) on investments, net		(6,222	)		(224	)		(861	)
Litigation reserves, net		(44	)		(160	)		(15	)
Interest income		436			2,539			3,980
Other income (expense), net		(5,177	)		844			510
Income before income taxes	$	70,803		$	29,571		$	43,204

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

The CODM does not evaluate operating segments using discrete asset information.

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, 2020, 2019 and 2018:

	Year Ended December 31,
	2020		2019		2018
	(In thousands)
United States (U.S.)	$	866,161	$	637,566	$	686,145
Americas (excluding U.S.)		31,810		15,440		14,548
EMEA		221,665		200,099		207,599
APAC		135,566		145,658		150,524
Total net revenue	$	1,255,202	$	998,763	$	1,058,816

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,
	2020		2019
	(In thousands)
United States	$	19,173	$	23,137
Americas (excluding U.S.)		2,845		3,954
EMEA		3,215		3,782
Singapore		5,964		—
China		3,959		5,040
APAC (excluding Singapore and China) (1)		10,335		10,687
Total	$	45,491	$	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.}

Significant Customers

For the year ended December 31, 2020, the Company had two customers, primarily within the Connected Home segment, that each individually accounted for 15% and 14% of net revenue, respectively. The Company had two customers, primarily within the Connected Home segment, that each individually accounted for 16% of net revenue for the year ended December 31, 2019, and 17% and 15% of net revenue for the year ended December 31, 2018, respectively.