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Segment Information | 9 Months Ended
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Oct. 01, 2017
Segment Reporting [Abstract] |
Segment Information | 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. In the first quarter of fiscal 2017, the Company's CODM requested changes to the information that he regularly reviews for purposes of allocating resources and assessing performance. The Company reorganized its operating segment structure, resulting in a change to its reportable segments. The former Service Provider segment was integrated into the current segments which are organized by product groups. Beginning fiscal 2017, the Company operates and reports in three segments: Arlo, Connected Home, and Small and Medium Business ("SMB"): •Arlo: Focused on intelligent internet-connected products for consumers and business that provide security and safety;
• | Connected Home: Focused on consumers and consists of high-performance, dependable and easy-to-use LTE and WiFi internet networking solutions; and
• | SMB: Focused on small and medium-sized businesses and consists of business networking, 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. Each segment contains leadership focused on the 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 revenue, research and development and sales and marketing expenses. Contribution income is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. The CODM does not evaluate operating segments using discrete asset information. Certain operating expenses are not allocated to segments because they are separately managed at the corporate level. These unallocated indirect costs include corporate expenses, such as corporate research and development, corporate marketing expense and general and administrative expense, amortization of intangibles, stock-based compensation expense, 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 |  | Nine Months Ended
| October 1, 2017 |  | October 2, 2016* |  | October 1, 2017 |  | October 2, 2016*
| (In thousands, except percentage data)
Net revenue: |  |  |  |  |  |  |
Arlo | $ | 110,460 |  |  | $ | 48,642 |  |  | $ | 249,904 |  |  | $ | 111,492 |
Connected Home | 183,099 |  |  | 215,116 |  |  | 563,365 |  |  | 629,880 |
SMB | 61,924 |  |  | 74,700 |  |  | 196,594 |  |  | 218,997 |
Total net revenue | $ | 355,483 |  |  | $ | 338,458 |  |  | $ | 1,009,863 |  |  | $ | 960,369 |
Contribution income (loss): |  |  |  |  |  |  |
Arlo | $ | 15,230 |  |  | $ | (771 | ) |  | $ | 18,723 |  |  | $ | (4,212 | )
Arlo contribution margin | 13.8 | % |  | (1.6 | )% |  | 7.5 | % |  | (3.8 | )%
Connected Home | $ | 24,546 |  |  | $ | 36,330 |  |  | $ | 81,382 |  |  | $ | 111,587 |
Connected Home contribution margin | 13.4 | % |  | 16.9 | % |  | 14.4 | % |  | 17.7 | %
SMB | $ | 12,583 |  |  | $ | 20,747 |  |  | $ | 47,839 |  |  | $ | 54,988 |
SMB contribution margin | 20.3 | % |  | 27.8 | % |  | 24.3 | % |  | 25.1 | %
Total segment contribution income | $ | 52,359 |  |  | $ | 56,306 |  |  | $ | 147,944 |  |  | $ | 162,363 |
Corporate and unallocated costs | (18,740 | ) |  | (17,532 | ) |  | (53,974 | ) |  | (50,666 | )
Amortization of intangibles (1) | (2,608 | ) |  | (4,165 | ) |  | (10,136 | ) |  | (12,496 | )
Stock-based compensation expense | (5,583 | ) |  | (4,870 | ) |  | (16,412 | ) |  | (14,300 | )
Restructuring and other charges | (19 | ) |  | 130 |  |  | (78 | ) |  | (3,859 | )
Litigation reserves, net | (15 | ) |  | (13 | ) |  | (68 | ) |  | (58 | )
Interest income | 501 |  |  | 291 |  |  | 1,388 |  |  | 804 |
Other income (expense), net | 666 |  |  | 116 |  |  | 1,384 |  |  | (582 | )
Income before income taxes | $ | 26,561 |  |  | $ | 30,263 |  |  | $ | 70,048 |  |  | $ | 81,206 |
_________________________
(1) | Amount excludes amortization expense related to patents within purchased intangibles in cost of revenue.
* Prior year financial information for each reportable segment has been recast to conform to the current reportable segment structure effective on January 1, 2017. The following table shows net revenue from service provider customers within each of the reportable segments for the periods indicated:
| Three Months Ended |  | Nine Months Ended
| October 1, 2017 |  | October 2, 2016 |  | October 1, 2017 |  | October 2, 2016
| (In thousands)
Arlo | $ | 5,794 |  |  | $ | 3,513 |  |  | $ | 15,743 |  |  | $ | 14,730 |
Connected Home | 44,631 |  |  | 66,042 |  |  | 146,309 |  |  | 204,250 |
SMB | 1,114 |  |  | 1,295 |  |  | 2,492 |  |  | 3,489 |
Total service provider net revenue | $ | 51,539 |  |  | $ | 70,850 |  |  | $ | 164,544 |  |  | $ | 222,469 |
The Company conducts business across three geographic regions: Americas, Europe, Middle-East and Africa (“EMEA”) and Asia Pacific ("APAC"). Net revenue consists of gross product shipments, less allowances for estimated sales returns for stock rotation and warranty, 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 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 |  | Nine Months Ended
| October 1, 2017 |  | October 2, 2016 |  | October 1, 2017 |  | October 2, 2016
| (In thousands)
United States (U.S.) | $ | 235,584 |  |  | $ | 217,631 |  |  | $ | 663,096 |  |  | $ | 610,505 |
Americas (excluding U.S.) | 8,804 |  |  | 7,604 |  |  | 19,870 |  |  | 19,488 |
EMEA | 62,161 |  |  | 60,034 |  |  | 175,810 |  |  | 176,192 |
APAC | 48,934 |  |  | 53,189 |  |  | 151,087 |  |  | 154,184 |
Total net revenue | $ | 355,483 |  |  | $ | 338,458 |  |  | $ | 1,009,863 |  |  | $ | 960,369 |
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
| October 1, 2017 |  | December 31, 2016
| (In thousands)
United States | $ | 9,278 |  |  | $ | 9,542 |
Canada | 1,832 |  |  | 2,745 |
EMEA | 172 |  |  | 210 |
China | 6,390 |  |  | 5,219 |
APAC (excluding China) | 2,556 |  |  | 1,757 |
Total property and equipment, net | $ | 20,228 |  |  | $ | 19,473 |

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- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 34 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8981-108599 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 41 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e9038-108599 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 33 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8971-108599 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 12 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8595-108599 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8380-108599 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 32 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8933-108599 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 26 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8844-108599 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 35 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8984-108599 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 40 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e9031-108599 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 42 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e9054-108599 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8538-108599 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 29 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8864-108599 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 31 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8924-108599 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8906-108599 + Details
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