Segment Information

6 Months Ended

Jun. 27, 2021

Segment Reporting [Abstract]

Segment Information

Note 11. 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 6 Tri Band mesh systems, routers, 4G/5G mobile products, smart devices such as Meural digital canvasses, and subscription services, offering consumers a range of value added services, including 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, video over Ethernet for Pro AV applications, security and remote management 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 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, change in fair value of contingent consideration, restructuring and other charges, 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:

	Three Months Ended						Six Months Ended
	June 27, 2021			June 28, 2020			June 27, 2021			June 28, 2020
Net Revenue:
Connected Home	$	229,863		$	230,017		$	470,781		$	394,680
SMB		78,948			50,035			155,955			115,335
Total net revenue	$	308,811		$	280,052		$	626,736		$	510,015
Contribution Income:
Connected Home	$	31,328		$	36,187		$	78,631		$	49,774
Contribution margin		13.6	%		15.7	%		16.7	%		12.6	%
SMB	$	16,410		$	4,285		$	32,694		$	17,852
Contribution margin		20.8	%		8.6	%		21.0	%		15.5	%
Total segment contribution income	$	47,738		$	40,472		$	111,325		$	67,626
Corporate and unallocated costs		(21,251	)		(19,489	)		(42,541	)		(38,451	)
Amortization of intangibles (1)		(178	)		(1,519	)		(1,623	)		(3,038	)
Stock-based compensation expense		(6,902	)		(9,172	)		(13,862	)		(15,508	)
Change in fair value of contingent consideration		3,003			(311	)		3,003			(89	)
Restructuring and other charges		(886	)		(1,117	)		(3,156	)		(982	)
Litigation reserves, net		(20	)		3			(315	)		(22	)
Interest income		3			49			13			311
Other income (expense), net (2)		696			314			134			(4,272	)
Income before income taxes	$	22,203		$	9,230		$	52,978		$	5,575

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

⁽²⁾ Amounts included gain/loss on investments, net, of $41,000 and $(8,000) for the three and six months ended June 27, 2021, respectively, and $0 and $(4.5) million for the three and six months ended June 28, 2020, respectively.

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 periods indicated:

	Three Months Ended				Six Months Ended
	June 27, 2021		June 28, 2020		June 27, 2021		June 28, 2020
	(In thousands)
United States (U.S.)	$	205,108	$	197,833	$	418,726	$	352,638
Americas (excluding U.S.)		7,526		4,413		13,058		7,798
EMEA		61,772		48,359		122,862		90,507
APAC		34,405		29,447		72,090		59,072
Total net revenue	$	308,811	$	280,052	$	626,736	$	510,015

Long-lived assets by Geographic Region

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

	As of
	June 27, 2021		December 31, 2020
	(In thousands)
United States (U.S.)	$	16,683	$	19,173
Americas (excluding U.S.)		2,207		2,845
EMEA		2,901		3,215
Singapore		5,322		5,964
APAC (excluding Singapore) (1)		12,902		14,294
Total	$	40,015	$	45,491

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