Financial Data and Key Metrics Changes - For Q1 2023, net revenue was $180.9 million, down 14.1% year-over-year and down 27.4% sequentially [2][9] - Non-GAAP gross margin improved to 33.6%, up 540 basis points year-over-year and 870 basis points sequentially, marking the second highest gross margin since 2019 [12][28] - Non-GAAP operating loss was $7.1 million, with an operating margin of negative 3.9%, below the low end of guidance [21] Business Line Data and Key Metrics Changes - The Connected Home segment generated net revenue of $102.7 million, down 21.2% year-over-year and down 31.1% sequentially [17] - SMB net revenue was $78.2 million, a decline of 2.6% year-over-year and 21.9% sequentially, despite strong end-user sales growth in ProAV managed switch products [18] - Service revenue grew to $9.6 million, up 26.3% year-over-year and 7.9% sequentially [49] Market Data and Key Metrics Changes - Americas net revenue was $121.9 million, down 15.7% year-over-year and down 23.4% sequentially [9] - EMEA net revenue was $39.2 million, up 6.3% year-over-year but down 25.7% quarter-over-quarter [9] - APAC net revenue was $19.8 million, down 31.8% year-over-year and down 46.8% sequentially, impacted by a COVID surge in China [9] Company Strategy and Development Direction - The company is focusing on premium products to improve profitability, moving away from less profitable lower-end products [28] - Continued investment in R&D is emphasized, with non-GAAP R&D expense at 11.6% of net revenue [16] - The introduction of WiFi 7 products is expected to capitalize on technological advancements and expand the addressable market [30] Management's Comments on Operating Environment and Future Outlook - Management noted broad-based inflationary pressures and an uncertain macroeconomic environment affecting consumers [27] - Despite challenges, there is confidence in the long-term growth strategy, particularly in the premium segment [62] - The company expects second quarter net revenue to be in the range of $150 million to $165 million [35] Other Important Information - The company ended Q1 2023 with $239.2 million in cash and short-term investments, up $11.8 million from the prior quarter [23] - The net revenue split between home and business products was approximately 57% and 43%, respectively [22] Q&A Session Summary Question: What has been the biggest challenge regarding inventory demand imbalance? - Management highlighted the surprise factor in inventory reductions from channel partners, particularly from a major service provider [39][45] Question: How is the company managing inventory given current revenue levels? - The company is taking a conservative approach to inventory estimates and slowing down production rates to balance inventory levels [57] Question: Any changes regarding share repurchases and capital allocation? - Management stated they are opportunistic buyers of stock and are considering cash balances and operational cash outlays in their capital allocation discussions [61]

Revenue and Financial Performance - Netgear reported net revenue of $932.472 million for the year ended December 31, 2022, a decrease of 20.2% compared to $1,168.073 million in 2021[361]. - Total net revenue for the year ended December 31, 2022, was $932.472 million, an increase from $853.472 million in 2021, representing a growth of approximately 9.3%[440]. - Connected Home segment revenue declined to $558,823 in 2022 from $853,472 in 2021, representing a 34.4% decrease[515]. - SMB segment revenue increased to $373,649 in 2022, up 18.7% from $314,601 in 2021[515]. - The U.S. accounted for $598,649 of total net revenue in 2022, down 21.2% from $759,865 in 2021[517]. - Total segment contribution income fell to $67,251 in 2022 from $179,025 in 2021, a decrease of 62.5%[515]. - The company incurred a net loss of $68.987 million in 2022, compared to a net income of $49.387 million in 2021, resulting in a basic and diluted loss per share of $2.38[361]. - Basic net loss per share was $(2.38) for 2022, down from a profit of $1.63 per share in 2021[466]. Assets and Liabilities - Total current assets decreased to $834.291 million as of December 31, 2022, down from $883.093 million in 2021, primarily due to a reduction in cash and cash equivalents[359]. - Total liabilities increased to $398.930 million as of December 31, 2022, compared to $381.716 million in 2021, with current liabilities slightly rising to $345.971 million[359]. - The company's accumulated deficit grew to $324.762 million as of December 31, 2022, compared to $226.591 million in 2021[359]. - Cash and cash equivalents decreased significantly from $263.772 million in 2021 to $146.500 million in 2022, reflecting liquidity challenges[359]. - Total non-current assets increased to $97.793 million from $76.350 million as of December 31, 2021[451]. - Total property and equipment, net, decreased to $9.225 million as of December 31, 2022, from $13.335 million in 2021, a decline of approximately 30.5%[445]. Inventory and Cost Management - The provision for excess and obsolete inventory was recorded at $3.7 million for the year ended December 31, 2022, reflecting management's assessment of future demand[353]. - The Company plans to continue evaluating its inventory management strategies to mitigate excess and obsolete inventory risks in the future[354]. - The Company recorded provisions for excess and obsolete inventory of $3.7 million for the year ended December 31, 2022, compared to $3.9 million in 2021[444]. - The Company’s total inventories decreased to $299.614 million as of December 31, 2022, from $315.667 million in 2021, a reduction of approximately 5.1%[443]. Research and Development - The company has made substantial investments in software research and development, which could materially affect its financial condition if these investments are unsuccessful[17]. - The company plans to continue investing in research and development for new technologies, including WiFi 7 and audio/video over Ethernet[373]. - Operating expenses totaled $333.473 million in 2022, an increase from $299.240 million in 2021, driven by higher research and development costs[361]. Foreign Currency and Exchange Risks - Approximately 24% of total net revenue for the years ended December 31, 2022, 2021, and 2020 was denominated in currencies other than the U.S. dollar, indicating exposure to foreign currency exchange rate fluctuations[341]. - A hypothetical 10% movement in foreign exchange rates could result in a before-tax impact of approximately $1.0 million on net income as of December 31, 2022[341]. - The company experienced a foreign currency transaction loss of $2.335 million in 2022, compared to a loss of $4.848 million in 2021[467]. Legal and Regulatory Matters - The company is involved in numerous litigation matters, which could adversely affect its financial condition and results of operations[17]. - The Company is involved in ongoing litigation matters but does not believe that a material loss has been incurred, thus no loss provisions have been established[488]. Stock and Compensation - Total stock-based compensation expense for the year ended December 31, 2022, was $17.7 million, a decrease from $26.0 million in 2021[510]. - The total fair value of RSUs vested in 2022 was $14.6 million, compared to $24.3 million in 2021[506]. - The Company executed an average of ten forward contracts per quarter with an average USD notional amount of approximately $6.0 million designated as cash flow hedges[458]. - The Company has issued $580.7 million of purchase orders beyond contractual termination periods in anticipation of demand requirements as of December 31, 2022[479]. Customer Concentration - Two customers accounted for 15% and 11% of net revenue in 2022, indicating a reliance on key customers[519]. - The company reported a significant reliance on a limited number of traditional and online retailers, which poses a risk to net revenue if these customers reduce purchases or refuse to pay requested prices[14].

Financial Data and Key Metrics - Net revenue for Q4 2022 was $249.1 million, flat sequentially and down 0.8% YoY [1] - Non-GAAP gross margin in Q4 2022 was 24.9%, down 510 bps YoY and 270 bps QoQ [3] - Non-GAAP operating loss for the full year 2022 was $15.6 million with a non-GAAP operating margin of negative 1.7% [2] - Cash and short-term investments at the end of Q4 2022 were $227.4 million, down $5.8 million from the prior quarter [4] - Non-GAAP R&D expense in Q4 2022 was 7.7% of net revenue, down from 8.7% YoY and 8.5% QoQ [22] Business Line Performance - SMB revenue for the full year outperformed expectations, with managed switch products growing 65% YoY [5] - Connected Home segment revenue in Q4 2022 was $149 million, down 14.4% YoY and 1% sequentially [64] - Service revenue in Q4 2022 was $8.9 million, up 23.9% YoY and 5.3% sequentially [10] - Premium products, including ProAV managed switches, 5G mobile hotspots, and WiFi mesh products, experienced strong demand [1][26] Market Performance - Americas net revenue in Q4 2022 was $159.2 million, flat YoY and down 6% sequentially [62] - EMEA net revenue in Q4 2022 was $52.7 million, up 5.4% YoY and 17.6% QoQ [62] - APAC net revenue in Q4 2022 was $37.2 million, down 10.8% YoY and up 5.1% sequentially [62] - On a constant currency basis, EMEA revenue would have grown 21% YoY, and APAC revenue would have declined only 5% [21] Company Strategy and Industry Competition - The company is focusing on premium, high-margin products such as ProAV managed switches, premium WiFi mesh systems, and 5G mobile products [63][66] - The company is investing in R&D for AV over IP products to target the TV broadcast industry and residential custom integration market [67] - The company plans to expand its service offerings, including security, privacy, and support, to drive higher conversion and retention rates [11][29] - The company is leveraging its premium product portfolio to outperform the broader market, which declined by approximately 25% in 2022 [61] Management Commentary on Operating Environment and Future Outlook - The company faced challenges in 2022, including supply chain disruptions, foreign exchange headwinds, and elevated transportation costs [6][83] - The company expects Q1 2023 net revenue to be in the range of $185 million to $200 million, with service provider revenue expected to decrease to approximately $25 million [13][116] - The company anticipates improved supply chain conditions in the second half of 2023, particularly for SMB products [44][111] - The company remains confident in its long-term growth potential, driven by its premium product strategy and market leadership in ProAV and WiFi mesh systems [6][94] Other Important Information - The company shipped approximately 2.2 million units in Q4 2022, including 1.4 million nodes of wireless products [85] - The company's paid subscriber count reached 747,000, up 27.9% YoY, with a target of 875,000 paid subscribers by the end of 2023 [70] - The company received three CES 2023 Innovation Awards for its premium products, including the Orbi 860 Series and Insight Managed WiFi 6E Tri-Band Access Point [71][30] Q&A Session Summary Question: Supply chain improvement timeline for SMB and CHP businesses [101] - The company expects slight improvement in Q2 2023, with more significant improvements in the second half of the year, particularly for SMB products [101][111] - The reopening of China is expected to help with supply chain issues, particularly for key components like power supplies [110] Question: Gross margin decline in Q4 2022 [104] - The decline was driven by the strengthening U.S. dollar, higher freight costs, and elevated inventory levels [115] Question: Service provider revenue guidance [105] - The company expects service provider revenue to be around $25 million per quarter in the first half of 2023, with full-year revenue still expected to reach $140 million [116] Question: Cash flow and inventory management [46] - The company expects to generate free cash flow at a rate of about 200% of non-GAAP net income for 2023, with Q1 2023 expected to show improved cash flow conversion [47]

Financial Data and Key Metrics Changes - Net revenue for Q3 2022 was $249.6 million, up 11.8% sequentially but down 14% year-over-year [8] - Non-GAAP operating income was $1.8 million with a non-GAAP operating margin of 0.7%, showing a 250 basis point improvement from the prior quarter [11] - Non-GAAP gross margin decreased to 27.6%, down 250 basis points year-over-year and down 10 basis points sequentially [17] Business Line Data and Key Metrics Changes - The SMB segment generated record net revenue of $99 million, up 21.3% year-over-year and up 4.9% sequentially [26] - The disconnected home segment generated net revenue of $150.6 million, down 27.8% year-over-year but up 16.9% sequentially [24] - Revenue from services was $8.5 million, up 6.4% sequentially and up 14.7% year-over-year [43] Market Data and Key Metrics Changes - Net revenue for the Americas was $169.4 million, down 13.2% year-over-year but up 17.6% sequentially [12] - EMEA net revenue was $44.8 million, down 21.3% year-over-year and flat quarter-over-quarter [13] - APAC net revenue was $35.4 million, down 7.1% year-over-year but up 3.4% sequentially [13] Company Strategy and Development Direction - The company is focused on investing in high-margin products such as ProAV managed switches, 5G mobile hotspots, and premium WiFi systems to drive long-term growth [8][19] - The strategic shift towards premium products is expected to enhance revenue and margin opportunities, particularly in the SMB and CHP segments [30][42] - The company plans to continue expanding its service offerings, with a focus on subscription services to drive future revenue growth [45] Management's Comments on Operating Environment and Future Outlook - Management highlighted ongoing supply chain challenges, particularly in sourcing components from China, which may continue to impact supply [58] - Despite these challenges, management expressed confidence in returning to growth in 2023, driven by strong demand in the SMB segment and premium product lines [68][70] - The company anticipates fourth quarter revenue to be in the range of $235 million to $250 million, with a focus on mitigating supply constraints [49] Other Important Information - The company ended Q3 2022 with $73.2 million in cash and short-term investments, down $16.9 million from the prior quarter [21] - The company has a significant backlog in the SMB segment, particularly for ProAV managed switches and 5G mobile hotspots [12][34] - The company is committed to returning value to shareholders through share repurchases in future periods [23] Q&A Session Summary Question: Supply chain constraints and sourcing alternatives - Management indicated that supply chain issues persist, particularly with older technology chips and ancillary components sourced primarily from China [54][56][58] Question: Target inventory levels in retail channels - Management noted that retail partners are reducing inventory levels to as low as six weeks due to recession concerns, impacting product availability [60][62] Question: Confidence in returning to growth in 2023 amidst destocking - Management believes that the growth in SMB revenue will offset the impact of destocking, with expectations for a crossover point in 2023 [68][70] Question: Drivers of gross margin moving forward - Management discussed various headwinds affecting gross margin, including foreign exchange impacts and elevated airfreight costs, while also noting potential improvements as the SMB business grows [74][76] Question: Revenue contribution from premium products - Management confirmed that while they do not break out revenue by product categories, the growth in the SMB segment reflects the success of their ProAV business [80][82] Question: Impact of macroeconomic factors on mass market - Management acknowledged deterioration in the mass market but noted that premium products like Orbi 8 and 9 are not experiencing the same decline [93]

Financial Performance - NETGEAR's Q3'22 quarterly revenue was $249.6 million[4] - The Non-GAAP operating margin for Q3'22 was 0.7%[65, 75] - The Non-GAAP net loss per diluted share for Q3'22 was $0.19[68, 76] - NETGEAR's cash balance as of Q3'22 was $233 million[70, 71] Market Position and Growth - NETGEAR held a 42% share in the U S Retail WiFi Market in Q3'22[4] - The SMB segment experienced 21% year-over-year growth, achieving record revenue[4] - NETGEAR has 22 2 million registered users worldwide[4] - NETGEAR has 15 5 million registered app users worldwide[4] - NETGEAR has 666,000 service subscribers[4] Products and Technology - NETGEAR is introducing the Orbi Quad-Band WiFi 6E Mesh System, offering combined WiFi speeds up to 10 8Gbps[15]

prol NETGEAR NETGEAR orbi | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |-------|-------|-------|-----------------|---------------------------|-------|---------------|-------|-------|-----------------------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | NETGEAR INVESTOR OVERVIEW | | | | | | | | | | | J U L Y 2 0 2 2 | | | | | | | | | | | | | | | NETOEAR | 은 다 | | ... .. . | | | | (3) | (b) | | | | NETGEAR 日 日 | | o | &&&&&&&&&&&&&&& | | | | | ...

NETGEAR, Inc. (NASDAQ:NTGR) Q2 2022 Earnings Conference Call July 27, 2022 5:00 PM ET Company Participants Erik Bylin ??? Investor Relations Bryan Murray ??? Chief Financial Officer Patrick Lo ??? Chairman and Chief Executive Officer Conference Call Participants Adam Tindle ??? Raymond James Hamed Khorsand ??? BWS Financial Jared Jungjohann ??? Cowen and Company Paul Silverstein ??? Cowen Operator Ladies and gentlemen, thank you for standing by. At this time all participants are in a listen-only mode. Later ...

prol NETGEAR NETGEAR orbi | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |-------|-------|-------|-------|---------------------|---------------------------|-----------|-------|-------|-------|-----------------------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | NETGEAR INVESTOR OVERVIEW | | | | | | | | | | | | A P R I L 2 0 2 2 | | | | | | | | | | | | | | | NETOEAR | | 은 다 | | ... .. . | | | | (3) | (b) | | | | NETGEAR | 日 日 | o ...

Financial Data and Key Metrics Changes - Net revenue for Q1 2022 was $210.6 million, down 33.8% year-over-year and within the revised guidance range [7] - Non-GAAP operating loss was $9.3 million with a non-GAAP operating margin of negative 4.4% due to loss of top-line leverage [10] - Non-GAAP gross margins decreased to 28.2%, down 700 basis points year-over-year and down 180 basis points sequentially [15] - Non-GAAP net loss was $8.1 million, with a diluted net loss per share of $0.28 [19] Business Line Data and Key Metrics Changes - Connected Home segment generated net revenue of $130.3 million, down 45.9% year-over-year and down 25.2% sequentially [23] - SMB segment generated net revenue of $80.2 million, up 4.2% year-over-year and up 4.1% sequentially [25] - The revenue split between home and business products was approximately 62% and 38%, respectively [13] Market Data and Key Metrics Changes - U.S. consumer WiFi market contracted to roughly flat with pre-pandemic levels, negatively impacting sales of lower-end products [9] - Market share in the U.S. consumer WiFi market remained steady at 44% [9] - EMEA net revenue was $36.9 million, down 39.7% year-over-year and down 26.3% quarter-over-quarter [12] Company Strategy and Development Direction - The company plans to reduce resources in declining areas while investing in growth areas like Orbi 8 and 9 products and subscription services [10] - Focus on the super-premium segment of the market, with strong demand for high-margin products [24][36] - Strategy to increase prices for certain SMB products to counterbalance rising material and transportation costs [16] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain disruptions impacting the ability to meet demand, particularly in the SMB business [28] - Expectation of improved supply conditions later in 2022, which will benefit SMB and mobile hotspot sales [30] - Anticipated second quarter net revenue in the range of $205 million to $220 million, with a focus on aligning cost structure with projected revenue levels [41] Other Important Information - The company ended Q1 2022 with $263.8 million in cash and short-term investments, down $7.7 million from the prior quarter [20] - The company repurchased approximately 354,000 shares at an average price of $26.50 per share [22] - Service revenue grew over 47% year-over-year to reach $7.6 million, with 627,000 paid subscribers [31] Q&A Session Summary Question: Impact of supply constraints on SMB business - Management indicated that the backlog is at a historical high, suggesting customers are waiting for products rather than switching to competitors [47] Question: Full-year outlook amidst weaker first half - Management expects improvement in the second half of the year, projecting a 25% increase in top-line revenue compared to the first half [49][50] Question: Cost actions due to elevated supply chain costs - Management noted a 400 basis point impact on operating margins from component cost increases and a 200 basis point impact from transportation costs [54] Question: Component purchasing strategy in the current market - Management plans to focus on purchasing components for high-end products while reducing purchases for declining categories [61] Question: Goodwill write-off explanation - The write-off was triggered by a reassessment of the business due to the current market dynamics, resulting in a non-cash charge [64] Question: Super-premium market growth and competition - Management emphasized the importance of continuously raising the bar in the super-premium segment to maintain market leadership [77]

Supply Chain Risks - The company reported a significant reliance on a limited number of third-party manufacturers for its manufacturing needs, which poses risks to its supply chain[13] - The company relies on a limited number of third-party manufacturers, which poses risks to its supply chain and production capabilities[381] - As of December 31, 2021, the Company had $94.8 million in short-term non-cancelable purchase commitments with suppliers, reflecting supply chain disruptions due to the COVID-19 pandemic[470] Financial Performance - Net revenue for the year ended December 31, 2021, was $1,168,073 thousand, a decrease of 6.9% compared to $1,255,202 thousand in 2020[358] - Gross profit for 2021 was $365,837 thousand, down from $372,152 thousand in 2020, reflecting a gross margin of approximately 31.3%[358] - Net income for 2021 was $49,387 thousand, a decrease of 15.3% from $58,293 thousand in 2020[358] - Basic net income per share for 2021 was $1.63, down from $1.95 in 2020[358] - Cash flows from operating activities resulted in a net cash used of $4.579 million in 2021, compared to a net cash provided of $181.150 million in 2020[367] - Total cash and cash equivalents at the end of 2021 were $263.772 million, down from $346.460 million at the end of 2020, reflecting a decrease of 23.8%[367] - The net income for the year ended December 31, 2021 was $49,387,000, compared to $58,293,000 in 2020, reflecting a decrease of approximately 15.2%[459] - Basic net income per share decreased from $1.95 in 2020 to $1.63 in 2021, a decline of about 16.4%[459] - Total income before income taxes decreased from $70,803,000 in 2020 to $65,504,000 in 2021, a decrease of approximately 7.3%[461] Research and Development - The company has been investing in additional in-house resources for software research and development, which may disrupt its historically hardware-centric business[17] - Research and development expenses for 2021 were $92,967 thousand, an increase from $88,788 thousand in 2020[358] - The company continues to invest in research and development to capitalize on trends such as WiFi 6, WiFi 6E, and 5G technologies[369] - Research and development costs are charged to expense as incurred, reflecting ongoing investment in new product development[414] Foreign Exchange and Currency Risks - Approximately 24% of total net revenue for the year ended December 31, 2021, was denominated in currencies other than the U.S. dollar, exposing the company to foreign currency exchange rate fluctuations[339] - The company is exposed to risks associated with foreign exchange rate fluctuations due to its international sales and operations, which could negatively impact its financial condition[337] - The company reported a foreign currency transaction loss of $4,848,000 in 2021, compared to a gain of $4,420,000 in 2020[460] - The company is exposed to credit loss from foreign currency forward contracts but believes its counterparties are financially sound institutions[387] Competition and Market Position - The company faces competition from rivals with substantially greater resources, which may require it to lower prices or increase sales and marketing expenses to remain competitive[13] - The company’s user growth and monetization of subscription services depend on effective operation with mobile operating systems and technologies that it does not control[17] Inventory and Asset Management - The provision for excess and obsolete inventory was recorded at $3.9 million for the year ended December 31, 2021[351] - Accounts receivable increased by $75.894 million in 2021, compared to a decrease of $59.885 million in 2020, indicating a significant change in working capital dynamics[367] - Inventory levels rose to $315.7 million as of December 31, 2021, from $172.1 million in 2020, indicating potential overstocking issues[439] - The carrying amount of goodwill for Connected Home and SMB was $44.4 million and $36.3 million respectively as of December 31, 2021, with accumulated goodwill impairment charges of $74.2 million[397] Tax and Legal Matters - The Company recorded a valuation allowance of $3.5 million against certain deferred tax assets as of December 31, 2021, up from $2.9 million in 2020[463] - The total amount of unrecognized tax benefits (UTB) as of December 31, 2021, was $9.20 million, with a net UTB of $7.3 million that would affect the effective tax rate if recognized[467] - The Company is currently involved in multiple appeals regarding tax assessments for the years 2004 to 2012, with ongoing litigation against the Inland Revenue Agency[479][483]. - The Company is facing litigation from XR Communications regarding alleged patent infringements related to WiFi technology, with claims involving three patents[485][486]. Acquisitions and Growth Strategy - The company has made and expects to continue making acquisitions to grow its business, but failure to effectively select, execute, or integrate these acquisitions could harm its operating results[17] Advertising and Promotional Expenses - Total advertising and promotional expenses were $25.2 million, $20.6 million, and $21.3 million for the years ended December 31, 2021, 2020, and 2019 respectively[415] Shipping and Handling Costs - Shipping and handling costs associated with outbound freight totaled $16.4 million, $15.5 million, and $8.7 million for the years ended December 31, 2021, 2020, and 2019 respectively[413]