| Segment Reporting and Geographic Information | REVENUE AND MAJOR CUSTOMERS The Company designs, manufactures, markets, and sells integrated communications and collaboration solutions that span headsets, open Session Initiation Protocol ("SIP") and native ecosystem desktop phones, conference room phones, video conferencing solutions and peripherals, including cameras, speakers, and microphones, cloud management and analytics software solutions, and services. Major product categories are Headsets, which includes wired and wireless communication headsets; Voice, Video, and Content Sharing Solutions, which includes open Session Initiation Protocol (“SIP”) and native ecosystem desktop phones, conference room phones, and video conferencing solutions and peripherals, including cameras, speakers, and microphones. All of the Company's solutions are designed to integrate seamlessly with the platform and services of our customers choice in a wide range of Unified Communications & Collaboration ("UC&C"), Unified Communication as a Service ("UCaaS"), and Video as a Service ("VaaS") environments. The Company's cloud management and analytics software enables IT administrators to configure and update firmware, monitor device usage, troubleshoot, and gain a deep understanding of user behavior. In addition, the Company has a broad portfolio of Services including video interoperability, support for our solutions and hardware devices, as well as professional, hosted, and managed services that are grounded in our deep expertise aimed at helping customers achieve their goals for collaboration. Product revenue is largely comprised of sales of hardware devices, peripherals, and platform software licenses used in communication and collaboration in offices and contact centers, with mobile devices, cordless phones, and computers. Services revenue primarily includes support on hardware devices, professional, hosted and managed services, and solutions to the Company's customers. The following table disaggregates revenues by major product category for the three months ended June 27, 2020 and June 29, 2019 : Three Months Ended (in thousands) June 27, 2020 June 29, 2019 Net revenues from unaffiliated customers: Headsets 1 174,750 218,650 Voice 2 50,681 103,847 Video 2 66,027 60,248 Services 2 64,262 65,022 Total net revenues $ 355,720 $ 447,767 1 As announced on February 4, 2020, the Company entered into a definitive agreement with Nacon S.A. and closed the transaction on March 19, 2020, completing the sale of the Company's Consumer Gaming assets for a net amount that is not material to the Company's condensed consolidated financial statements. The remaining consumer headsets are included in the Company's Enterprise products and all prior periods have been reclassified to conform to current presentation. 2 Categories were introduced with the acquisition of Polycom on July 2, 2018, and amounts are presented net of purchase accounting adjustments. For reporting purposes, revenue is attributed to each geographic region based on the location of the customer. Other than the U.S., no country accounted for 10% or more of the Company's net revenues for the three months ended June 27, 2020 and June 29, 2019 . The following table presents net revenues by geography: Three Months Ended (in thousands) June 27, 2020 June 29, 2019 Products Net revenues from unaffiliated customers: U.S. $ 144,289 $ 198,781 Europe and Africa 77,618 101,106 Asia Pacific 45,431 57,252 Americas, excluding U.S. 24,120 25,606 Total international net revenues 147,169 183,964 Product net revenues 291,458 382,745 Services Net revenues from unaffiliated customers: U.S. $ 23,992 $ 26,046 Europe and Africa 16,488 15,873 Asia Pacific 18,833 17,596 Americas, excluding U.S. 4,949 5,507 Total international net revenues 40,270 38,976 Service net revenues $ 64,262 $ 65,022 Total net revenues $ 355,720 $ 447,767 Two customers, Ingram Micro Group and ScanSource , accounted for 18.3% and 13.5% , respectively, of net revenues for the three months ended June 27, 2020 . Two customers, ScanSource and Ingram Micro Group, accounted for 17.4% and 16.9% of net revenues for the three months ended June 29, 2019 , respectively. Two customers, Ingram Micro Group and ScanSource accounted for 25.8% and 19.0% , respectively, of total net accounts receivable at June 27, 2020 . Three customers, Ingram Micro Group , ScanSource , and Synnex Group , accounted for 22.2% , 17.3% , and 15.6% , respectively, of total net accounts receivable at March 28, 2020 . Revenue is recognized when obligations under the terms of a contract with the Company's customer are satisfied; generally, this occurs with the transfer of control of its products or services. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The majority of the Company's business relates to physical product shipments, for which revenue is generally recognized once title and risk of loss of the product are transferred to the customer. The Company believes that transfer of title and risk of loss best represent the moment at which the customer’s ability to direct the use of and obtain substantially all the benefits of an asset have been achieved. The Company has elected to account for shipping and handling as fulfillment cost and recognize the related costs when control over products have transferred to the customer as an expense in Cost of Revenues. The Company's service revenue is recognized either over-time or at a point-in-time depending on the nature of the offering. Revenues associated with non-cancelable maintenance and support contracts comprise approximately 90% of the Company's overall service revenue and are recognized ratably over the contract term, which typically ranges between one and three years. The Company believes this recognition period faithfully depicts the pattern of transfer of control for maintenance and support as the services are a series of distinct services available and delivered daily over the term. For certain products, support is provided free of charge without the purchase of a separate maintenance contract. If the support is determined to rise to the level of a performance obligation, the Company allocates a portion of the transaction price to the implied support obligation and recognizes service revenue over the estimated implied support period which can range between one month to several years, depending on the circumstances. Revenues associated with Professional Services are recognized when the Company has objectively determined that the obligation has been satisfied, which is usually upon customer acceptance. The Company's contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. The Company allocates the transaction price of a contract, to each identified performance obligation based on stand-alone selling price (“SSP”). The Company determines if variable consideration is associated with one or many, but not all of the performance obligations and allocates accordingly. Judgment is also required to determine the SSP for each distinct performance obligation. The Company derives SSP for its performance obligations through a stratification methodology and considers a few characteristics including consideration related to different service types, customer and geography characteristics. In instances where SSP is not directly observable, such as when the Company does not sell the product or service separately, the Company determines the SSP using information that may include market conditions and other observable inputs. On occasion, the Company will fulfill only part of a purchase order due to lack of current availability for one or more items requested on an order. Its practice is to ship what is on hand, with the remaining goods shipped once the product is in stock. Shipment generally occurs less than one year from the date of the order. Depending on the terms of the contract or operationally, undelivered or backordered items may be canceled by either party at their discretion. As of June 27, 2020 , the Company's deferred revenue balance was $208.6 million . As of March 28, 2020 , the Company's deferred revenue balance was $208.5 million . During the three months ended June 27, 2020 , the Company recognized $72.4 million in revenues that were reflected in deferred revenue at the beginning of the period. The table below represents aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of June 27, 2020 : June 27, 2020 (in millions) Current Noncurrent Total Performance obligations $ 143.7 $ 66.8 $ 210.5 Upon establishment of creditworthiness, the Company may extend credit terms to its customers which typically ranges between 30 and 90 days from the date of invoice depending on geographic region and type of customer. The Company typically bills upon product hardware shipment, at time of software activation or upon completion of services. Revenue is not generally recognized in advance of billings. The balance of contract assets as of June 27, 2020 was $3.0 million . As of March 28, 2020, the Company's contract assets balance was $3.7 million . None of the Company's contracts are deemed to have significant financing components. Sales, value add, and other taxes collected concurrent with revenue producing activities are excluded from revenue. Commercial distributors and retailers represent the Company's largest sources of net revenues. Sales through its distribution and retail channels are made primarily under agreements allowing for rights of return and include various sales incentive programs, such as back end rebates, discounts, marketing development funds, price protection, and other sales incentives. The Company has an established sales history for these arrangements and the Company records the estimated reserves at the inception of the contract as a reflection of the reduced transaction price. Customer sales returns are estimated based on historical data, relevant current data, and the monitoring of inventory build-up in the distribution channel. Revenue reserves represent a reasonable estimation made by management and are subject to significant judgment. Estimated reserves may differ from actual returns or incentives provided, due to unforeseen customer return or claim patterns or changes in circumstances. For certain customer contracts which have historically demonstrated variability, the Company has considered the likelihood of being under-reserved and has considered a constraint accordingly. Provisions for Sales Returns are presented within accrued liabilities in the Company's condensed consolidated balance sheets. Provisions for promotions, rebates, and other sales incentives are presented as a reduction of accounts receivable unless there is no identifiable right offset, in which case they are presented within accrued liabilities on its condensed consolidated balance sheets. See Note 5 , Details of Certain Balance Sheet Accounts above for additional details. For certain arrangements, the Company pays commissions, bonuses and taxes associated with obtaining the contracts. The Company capitalizes such costs if they are deemed to be incremental and recoverable. The Company has elected to use the practical expedient to record the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. Determining the amortization period of costs related to obtaining a contract involves judgment. Capitalized commissions and related expenses, on hardware sales and services recognized at a point in time generally have an amortization period of less than one year. Maintenance-related performance obligations generally have an amortization period greater than one year when considering renewals. Capitalized commissions are amortized to Sales and Marketing Expense on a straight-line basis. The capitalized amount of incremental and recoverable costs of obtaining contracts with an amortization period of greater than one year are $4.6 million as of June 27, 2020 . Amortization of capitalized contract costs for the three months ended June 27, 2020 The Company's interim Chief Executive Officer is identified as its Chief Operating Decision Maker ("CODM"). The CODM has organized the Company, manages resource allocations and measures performance among its two operating segments — Products and Services. The Products segment includes the Company's Headsets, Voice and Video product lines. The Services segment includes maintenance support on hardware devices as well as professional, managed and cloud services and solutions. In managing the two operating segments the CODM uses information about their revenue and gross margin after adjustments to exclude certain non-cash transactions and activities that are not reflective of the Company's ongoing or core operations as further described below. The CODM does not review asset information by segment. Purchase accounting amortization: Represents the amortization of purchased intangible assets recorded in connection with the Acquisition of Polycom. Deferred revenue purchase accounting: Represents the impact of fair value purchase accounting adjustments related to deferred revenue recorded in connection with the Acquisition of Polycom. The Company's deferred revenue primarily relates to Service revenue associated with non-cancelable maintenance support on hardware devices which are typically billed in advance and recognized ratably over the contract term as those services are delivered. This adjustment represents the amount of additional revenue that would have been recognized during the period absent the write-down to fair value required under purchase accounting guidelines. Acquisition and integration fees: Represents charges incurred in connection with the Acquisition and integration of Polycom such as system implementations, legal and accounting fees. Stock compensation expense: Represents the non-cash expense associated with the Company's issuance of common stock and share-based awards to employees and non-employee directors. The following table presents segments results for revenue and gross margin, as reviewed by the CODM, and their reconciliation to the Company's condensed consolidated GAAP results: Three Months Ended (in thousands) June 27, 2020 June 29, 2019 Segment revenues as reviewed by CODM Products $ 291,786 $ 383,372 Services 69,016 76,554 Total segment revenues as reviewed by CODM $ 360,802 $ 459,926 Segment gross profit as reviewed by CODM Products $ 134,242 $ 206,692 Services 46,243 50,049 Total segment gross profit as reviewed by CODM $ 180,485 $ 256,741 Three Months Ended (in thousands) June 27, 2020 June 29, 2019 Total segment revenues as reviewed by CODM $ 360,802 $ 459,926 Deferred revenue purchase accounting (5,082 ) (12,159 ) Consolidated GAAP net revenues $ 355,720 $ 447,767 Total segment gross profit as reviewed by CODM (1) $ 180,485 $ 256,741 Purchase accounting amortization (18,238 ) (30,000 ) Deferred revenue purchase accounting (5,082 ) (12,159 ) Integration and rebranding costs — (958 ) Stock-based compensation (833 ) (978 ) Consolidated GAAP gross profit $ 156,332 $ 212,646 (1) Includes depreciation expense of $3.3 million and $3.8 million |
