[Q1 2024 Financial Performance and Management Commentary](index=1&type=section&id=Q1%202024%20Financial%20Performance%20and%20Management%20Commentary) This section presents NETGEAR's Q1 2024 financial performance and management's strategic commentary on the quarter's results [First Quarter 2024 Financial Highlights](index=1&type=section&id=First%20Quarter%202024%20Financial%20Highlights) NETGEAR reported a 9.0% year-over-year revenue decrease in Q1 2024, alongside wider operating losses, despite strong service revenue growth and improved cash flow from operations Q1 2024 Key Financial Results (vs. Q1 2023) | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Net Revenue | $164.6M | $180.9M | -9.0% | | GAAP Operating Loss | $(21.6)M | $(12.0)M | -80.0% | | Non-GAAP Operating Loss | $(16.0)M | $(7.1)M | -125.4% | | GAAP Net Loss per Diluted Share | $(0.63) | $(0.33) | -90.9% | | Non-GAAP Net Loss per Diluted Share | $(0.28) | $(0.19) | -47.4% | - Service revenue grew **21.2%** year over year, indicating strength in the company's subscription-based offerings[1](index=1&type=chunk) - Cash flow from operations was **$17.2 million**, an increase of **88.4%** year over year, demonstrating improved working capital management[1](index=1&type=chunk) - The company repurchased approximately **783,000 shares** of its common stock during the quarter[1](index=1&type=chunk) [Management Commentary](index=1&type=section&id=Management%20Commentary) Management attributed Q1 challenges to macroeconomic pressures and channel destocking, outlining a plan to expedite destocking in Q2 while highlighting progress in inventory reduction and cash generation - Performance was pressured by a challenging macroeconomic environment, high inflation, and interest rates, leading channel partners to reduce inventory to historical lows[3](index=3&type=chunk) - A plan is in place to expedite remaining channel destocking in Q2, which is expected to create a near-term financial challenge but benefit the long-term health of the business[3](index=3&type=chunk) - The company is focused on aligning its revenue with channel sell-through to become more predictable and profitable in subsequent quarters[3](index=3&type=chunk) - NETGEAR's own inventory levels were reduced by **$37.6 million** in Q1, and the company generated strong cash from operations while repurchasing **783,000 shares**[4](index=4&type=chunk) [Business Outlook for Q2 2024](index=2&type=section&id=Business%20Outlook) This section outlines NETGEAR's financial guidance for Q2 2024, including revenue and operating margin projections, and reconciles GAAP to non-GAAP outlook [Q2 2024 Guidance](index=2&type=section&id=Q2%202024%20Guidance) The company projects Q2 2024 net revenue between $125 million and $140 million, anticipating deeply negative operating margins due to accelerated channel destocking and inventory actions Q2 2024 Financial Guidance | Metric | Guidance Range | | :--- | :--- | | Net Revenue | $125M - $140M | | GAAP Operating Margin | (30.9)% - (27.9)% | | Non-GAAP Operating Margin | (25.0)% - (22.0)% | | GAAP Tax Expense | $1.0M - $2.0M | | Non-GAAP Tax Benefit | $(8.0)M - $(7.0)M | - Accelerated destocking activities are expected to create a topline headwind of **$25 million to $30 million** in Q2[5](index=5&type=chunk) - Revenue from the service provider channel is expected to be approximately **$15 million** in Q2, pending the launch of next-generation 5G mobile hotspots in the second half of the year[5](index=5&type=chunk) [GAAP to Non-GAAP Outlook Reconciliation](index=2&type=section&id=GAAP%20to%20Non-GAAP%20Outlook%20Reconciliation) This section reconciles NETGEAR's Q2 2024 forward-looking GAAP guidance to non-GAAP figures by adjusting for estimated stock-based compensation, restructuring charges, and tax-related items Q2 2024 GAAP to Non-GAAP Outlook Reconciliation | Metric | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | **Operating Margin** | (30.9)% - (27.9)% | | (25.0)% - (22.0)% | | Stock-based compensation | | 4.0% | | | Restructuring and other charges | | 1.9% | | | **Tax Expense (Benefit)** | $1.0M - $2.0M | | $(8.0)M - $(7.0)M | | Non-GAAP tax adjustments | | $(9.0)M | | [Use of Non-GAAP Financial Information](index=4&type=section&id=Non-GAAP%20Financial%20Information) This section explains the rationale and application of non-GAAP financial measures to provide a clearer understanding of the company's operational performance [Explanation of Non-GAAP Measures](index=4&type=section&id=Explanation%20of%20Non-GAAP%20Measures) The company utilizes non-GAAP financial measures to supplement GAAP results, excluding specific charges to enhance understanding of ongoing operational performance for internal evaluation and investor comparison - Non-GAAP measures exclude charges such as amortization of intangibles, stock-based compensation, restructuring charges, and litigation reserves to facilitate a review of comparable operating performance[11](index=11&type=chunk)[12](index=12&type=chunk) - Management uses these non-GAAP measures internally to evaluate business performance, for strategic planning, and for benchmarking against competitors[12](index=12&type=chunk) - The company believes these measures help investors by enabling more meaningful period-to-period comparisons, identifying underlying business trends, and showing results 'through the eyes' of management[12](index=12&type=chunk)[15](index=15&type=chunk) [Financial Statements and GAAP to Non-GAAP Reconciliation](index=6&type=section&id=Financial%20Statements%20and%20GAAP%20to%20Non-GAAP%20Reconciliation) This section provides NETGEAR's condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, alongside detailed GAAP to non-GAAP reconciliations [Condensed Consolidated Balance Sheets](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) As of March 31, 2024, total assets decreased to **$801.3 million**, primarily due to a **$37.6 million** reduction in inventories, with corresponding decreases in total liabilities and stockholders' equity Selected Balance Sheet Items (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $172,656 | $176,717 | | Short-term investments | $116,765 | $106,931 | | Inventories | $211,270 | $248,851 | | **Total assets** | **$801,279** | **$847,142** | | **Total liabilities** | **$289,917** | **$311,647** | | **Total stockholders' equity** | **$511,362** | **$535,495** | [Condensed Consolidated Statements of Operations](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) In Q1 2024, NETGEAR reported a net loss of **$18.7 million** on **$164.6 million** net revenue, with gross margin declining to **29.3%** and operating loss widening to **$21.6 million** Statement of Operations Highlights (in thousands, except per share data) | Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Net revenue | $164,586 | $188,674 | $180,908 | | Gross profit | $48,237 | $65,636 | $60,382 | | Gross margin | 29.3% | 34.8% | 33.4% | | Loss from operations | $(21,648) | $(2,874) | $(11,975) | | Net loss | $(18,650) | $(1,669) | $(9,712) | | Diluted net loss per share | $(0.63) | $(0.06) | $(0.33) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) In Q1 2024, the company generated **$17.2 million** in cash from operating activities, primarily due to a **$36.4 million** inventory reduction, while using **$9.9 million** in financing activities for share repurchases Cash Flow Summary (in thousands) | Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,190 | $9,122 | | Net cash used in investing activities | $(11,339) | $(14,597) | | Net cash provided by (used in) financing activities | $(9,912) | $2,166 | | **Net decrease in cash and cash equivalents** | **$(4,061)** | **$(3,309)** | [Reconciliations of GAAP to Non-GAAP Measures](index=9&type=section&id=RECONCILIATIONS%20OF%20GAAP%20MEASURES%20TO%20NON-GAAP%20MEASURES) This section provides detailed reconciliations of Q1 2024 GAAP results to non-GAAP metrics, adjusting for items such as stock-based compensation and restructuring charges to derive non-GAAP operating and net losses Q1 2024 GAAP to Non-GAAP Operating Loss Reconciliation (in thousands) | Description | Amount | | :--- | :--- | | **GAAP operating loss** | **$(21,648)** | | Stock-based compensation expense | $4,544 | | Restructuring and other charges | $1,032 | | Litigation reserves, net | $30 | | **Non-GAAP operating loss** | **$(16,042)** | Q1 2024 GAAP to Non-GAAP Net Loss Reconciliation (in thousands) | Description | Amount | | :--- | :--- | | **GAAP net loss** | **$(18,650)** | | Stock-based compensation expense | $4,544 | | Restructuring and other charges | $1,032 | | Litigation reserves, net | $30 | | Gain/loss on investments, net | $101 | | Non-GAAP tax adjustments | $4,588 | | **Non-GAAP net loss** | **$(8,355)** | [Supplemental Financial Information](index=12&type=section&id=SUPPLEMENTAL%20FINANCIAL%20INFORMATION) This section provides additional financial details, including key operating metrics, net revenue breakdown by geography, and segment performance [Key Operating Metrics](index=12&type=section&id=Key%20Operating%20Metrics) Key operating metrics indicate continued inventory reduction to **$211.3 million**, improved inventory turns to **2.2**, reduced headcount to **628**, and decreased channel inventory weeks across several regions Key Metrics Trend | Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Inventories | $211,270K | $248,851K | $337,187K | | Ending inventory turns | 2.2 | 2.0 | 1.4 | | Headcount | 628 | 635 | 702 | Weeks of Channel Inventory | Channel | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | U.S. retail | 11.2 | 10.8 | 12.7 | | U.S. distribution | 4.0 | 7.9 | 4.4 | | EMEA distribution | 5.9 | 6.4 | 8.5 | | APAC distribution | 8.0 | 10.0 | 14.0 | [Net Revenue by Geography](index=12&type=section&id=NET%20REVENUE%20BY%20GEOGRAPHY) In Q1 2024, the Americas remained the largest market at **67%** of net revenue, while EMEA's contribution decreased to **19%** and APAC's share grew to **14%** Net Revenue by Geography (in thousands) | Region | Q1 2024 Revenue | Q1 2024 % | Q1 2023 Revenue | Q1 2023 % | | :--- | :--- | :--- | :--- | :--- | | Americas | $109,928 | 67% | $121,922 | 67% | | EMEA | $31,187 | 19% | $39,178 | 22% | | APAC | $23,471 | 14% | $19,808 | 11% | | **Total** | **$164,586** | **100%** | **$180,908** | **100%** | [Net Revenue by Segment](index=13&type=section&id=NET%20REVENUE%20BY%20SEGMENT) In Q1 2024, Connected Home segment revenue was **$96.0 million**, while NETGEAR for Business segment revenue was **$68.6 million**, both showing year-over-year declines Net Revenue by Segment (in thousands) | Segment | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Connected Home | $95,963 | $118,378 | $102,746 | | NETGEAR for Business | $68,623 | $70,296 | $78,162 | | **Total net revenue** | **$164,586** | **$188,674** | **$180,908** | [Service Provider Net Revenue](index=13&type=section&id=SERVICE%20PROVIDER%20NET%20REVENUE) Total service provider net revenue nearly doubled year-over-year to **$27.8 million** in Q1 2024, primarily driven by the Connected Home segment's growth to **$27.6 million** Service Provider Net Revenue (in thousands) | Segment | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Connected Home | $27,553 | $27,313 | $14,027 | | NETGEAR for Business | $243 | $152 | $190 | | **Total service provider net revenue** | **$27,796** | **$27,465** | **$14,217** |

Revenue and Financial Performance - Net revenue for the year ended December 31, 2023, was $740.84 million, a decrease of 20.5% compared to $932.47 million in 2022[341]. - The total revenue for the year ended December 31, 2023, is $740.840 million, a decrease from $932.472 million in 2022, representing a decline of approximately 20.5%[414]. - Revenue from the United States decreased to $489,968,000 in 2023, down 18.2% from $598,649,000 in 2022[488]. - The company reported a net loss for 2023 of $104.77 million, compared to a net loss of $68.99 million in 2022, indicating a worsening of 52%[341]. - The company reported a basic net loss per share of $3.57 for 2023, compared to a loss of $2.38 per share in 2022[341]. - The company reported a loss before income taxes of $19.14 million for the year ended December 31, 2023, compared to a loss of $82.02 million in 2022[486]. Assets and Liabilities - Total current assets decreased to $747.98 million in 2023 from $834.29 million in 2022, reflecting a decline of 10.3%[339]. - Total liabilities decreased to $311.65 million in 2023 from $398.93 million in 2022, a reduction of 21.8%[339]. - Total stockholders' equity decreased to $535.50 million in 2023 from $620.86 million in 2022, a decline of 13.7%[339]. - The company's accounts receivable, net, decreased to $185.059 million as of December 31, 2023, from $277.485 million in 2022, indicating a reduction of about 33.3%[409]. - The total amount of unrecognized tax benefits (UTB) as of December 31, 2023, was $8.618 million, with a net UTB of $6.2 million that could affect the effective tax rate if recognized[447]. Cash Flow and Investments - Cash and cash equivalents increased to $176.72 million in 2023 from $146.50 million in 2022, an increase of 20.6%[339]. - Cash flows from operating activities provided $56.85 million in 2023, a significant improvement from a cash outflow of $13.73 million in 2022[350]. - The company reported a net cash used in investing activities of $27.43 million in 2023, a decrease from $79.52 million in 2022[350]. - The company’s available-for-sale investments had an estimated fair value of $98.627 million as of December 31, 2023, compared to $74.152 million in 2022, reflecting an increase of approximately 33%[415]. Research and Development - The company has made substantial investments in software research and development, which could materially adversely affect its business if these investments are unsuccessful[14]. - Research and development expenses for 2023 were $83.30 million, down from $88.44 million in 2022, a decrease of 5%[341]. - The company has invested in research and development for new technologies, including WiFi 7 and audio/video over Ethernet[352]. Inventory and Cost Management - The provision for excess and obsolete inventory was recorded at $3.2 million for the year ended December 31, 2023[334]. - The company recorded provisions for excess and obsolete inventory amounting to $3.2 million for the year ended December 31, 2023, down from $3.7 million in 2022[418]. - The company’s total inventory decreased to $248.851 million as of December 31, 2023, from $299.614 million in 2022, representing a decline of about 17%[418]. Foreign Exchange and Risk Management - As of December 31, 2023, 24% of total net revenue was denominated in currencies other than the U.S. dollar, indicating exposure to foreign currency exchange rate fluctuations[322]. - A hypothetical 10% movement in foreign exchange rates could result in a before-tax impact of approximately $0.7 million on net income as of December 31, 2023[322]. - The company faces risks associated with foreign exchange rate fluctuations due to international sales and operating activities, which could negatively impact financial condition[320]. Customer Concentration and Credit Risk - 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[11]. - As of December 31, 2023, Best Buy, Inc. and affiliates accounted for approximately 21% of total accounts receivable[367]. - The company evaluates its customers' ability to pay based on historical payment experience, financial metrics, and customer credit scores[379]. Stock and Equity Management - As of December 31, 2023, the company has 2.5 million shares authorized for repurchase under its stock repurchase program, but did not repurchase any shares during the year[463]. - The company repurchased approximately 1.0 million and 2.1 million shares at a cost of approximately $24.4 million and $75.0 million during the years ended December 31, 2022 and 2021, respectively[463]. - The total stock-based compensation expense for the year ended December 31, 2023, was $17.94 million, slightly up from $17.73 million in 2022[480]. Taxation and Deferred Taxes - The company recorded a valuation allowance of $99.8 million against U.S. federal and state tax attributes in 2023, indicating uncertainty in the recovery of these assets[442]. - The effective tax rate for 2023 was impacted by a valuation allowance of (474.3)%, significantly affecting the overall tax provision[443]. - The total non-current deferred income taxes decreased from $85.7 million as of December 31, 2022, to $3.3 million as of December 31, 2023[426]. Other Financial Metrics - Total advertising and promotional expenses were $28.9 million, $27.0 million, and $25.2 million for the years ended December 31, 2023, 2022, and 2021 respectively[391]. - The company incurred shipping and handling costs associated with outbound freight totaling $8.8 million, $16.9 million, and $16.4 million for the years ended December 31, 2023, 2022, and 2021 respectively[389]. - The company recognized revenue from contracts with customers when control of the promised goods or services is transferred, primarily from product sales and subscriptions[378][379].

Financial Data and Key Metrics Changes - For Q4 2023, revenue was $188.7 million, down 4.6% sequentially and down 24.3% year-over-year [8] - Full year 2023 net revenues were $740.8 million, a decline of 20.6% compared to 2022 [20] - Non-GAAP gross margin for Q4 was 35%, up 1,010 basis points from the prior year [64] - Non-GAAP operating income for Q4 was $2.7 million, with a non-GAAP operating margin of 1.4% [23] Business Line Data and Key Metrics Changes - The Connected Homes segment generated net revenue of $118.4 million for Q4, down 20.6% year-over-year [40] - SMB net revenue was $70.3 million in Q4, slightly above expectations, but faced challenges from high interest rates and stagnant growth in major markets [10] - Service revenue for Q4 was $11.4 million, a year-over-year increase of 27.7% [69] Market Data and Key Metrics Changes - Americas net revenue for Q4 was $124.8 million, down 21.6% year-over-year [36] - EMEA net revenue was $37.9 million, a decrease of 28.1% year-over-year [36] - APAC net revenue was $26 million, down 30.2% from the prior year [36] Company Strategy and Development Direction - The company aims to strengthen its core business and focus on premium, higher-margin products [18] - There is a strategic emphasis on the Pro AV market, leveraging partnerships and unique solutions to drive growth [71] - The company plans to capitalize on the WiFi 7 upgrade cycle and the growing demand for connectivity solutions [35] Management's Comments on Operating Environment and Future Outlook - Management noted that macroeconomic conditions, including elevated interest rates, continue to impact growth prospects [20] - The company expects first quarter net revenue to be in the range of $155 million to $170 million, reflecting seasonal declines [45] - Management expressed confidence in the stabilization of the retail market and the potential for growth as new WiFi 7 devices are launched [49] Other Important Information - The company ended Q4 2023 with $283.7 million in cash, up $55.6 million from the prior year [39] - The company is committed to continued investment in R&D, with non-GAAP R&D expense at 9.9% of net revenue for Q4 [65] - The company has a stock repurchase program with 2.5 million shares remaining [82] Q&A Session Summary Question: What organizational shift will enable from a strategy and capital allocation perspective long term? - Management indicated that they are exploring growth adjacencies and will provide more details in future calls [46] Question: What gives confidence that the retail market will stabilize? - Management noted a return to normal seasonal behavior and the upcoming WiFi 7 product launches as factors contributing to stabilization [48][80] Question: How does the company reconcile the guidance for Q1 with the stabilization comment? - Management explained that the seasonal decline is typical and does not contradict the stabilization narrative, as they expect a return to growth later in the year [50][81]

Financial Performance - NETGEAR's quarterly revenue was $173.4 million[6] - The company had 804,000 service subscribers[6] - Non-GAAP operating margin was negative -6.2%[80] - Non-GAAP net loss per diluted share was -$0.16[95] Market Position - NETGEAR holds a 37% share in the U S Retail WiFi Market[6] Products and Technologies - The company emphasizes premium WiFi solutions, including WiFi 6E and 5G technologies[17, 18] - Nighthawk WiFi 7 Tri-Band Router offers WiFi 7 speeds up to 19Gbps[25] Business Segments - NETGEAR is focused on Connected Home and Business solutions[9, 57] - The company offers AV switches engineered for AV over IP[52] Subscription Services - NETGEAR provides value-added subscription services, including security (Armor), parental controls, and ProSupport[30, 32, 33]

Financial Data and Key Metrics Changes - For Q2 2023, the company reported revenue of $173.4 million, a decrease of 22.3% year-over-year and down 4.1% sequentially [16] - Non-GAAP operating loss was $10.7 million, with a non-GAAP operating margin of negative 6.2%, down 430 basis points year-over-year and 230 basis points sequentially [18] - Non-GAAP gross margin improved to 31.6%, up 390 basis points year-over-year but down 200 basis points compared to Q1 2023 [20] Business Line Data and Key Metrics Changes - The Connected Home segment generated net revenue of $98.4 million, down 23.6% year-over-year and down 4.2% sequentially [47] - The SMB segment reported net revenue of $75 million, with strong demand for ProAV managed switch products, showing high single-digit year-over-year growth [48] - Service revenue grew to $10.3 million, up 29.6% year-over-year and 7.2% sequentially [30] Market Data and Key Metrics Changes - Net revenue for the Americas was $116.6 million, a decline of 19% year-over-year and down 4.4% sequentially [43] - EMEA net revenue was $36.2 million, a decrease of 19.6% year-over-year and down 7.7% quarter-over-quarter [43] - APAC net revenue was $20.6 million, down 39.7% year-over-year but up 4.2% sequentially, with significant declines attributed to Greater China and Korea [43] Company Strategy and Development Direction - The company is focusing on premium WiFi mesh systems, 5G mobile hotspots, and paid service subscriptions as key growth areas [51] - Strategic investments in the ProAV market are expected to yield long-term growth and profitability [56] - The company anticipates a return to positive free cash flow in the second half of the year as inventory levels are reduced [22] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing inflationary pressures and an uncertain macroeconomic environment but expressed confidence in strong underlying demand for SMB and premium CHP products [2] - There are signs of stabilization in the broader consumer retail networking market, which is expected to improve predictability in business [27] - The company expects third quarter net revenue to be in the range of $175 million to $190 million [33] Other Important Information - The company ended Q2 2023 with $202.8 million in cash and short-term investments, down $36.4 million from the prior quarter [22] - The company shipped approximately 1.6 million units in Q2 2023, with a revenue split of 57% home products and 43% business products [19] - The company is committed to continued investment in R&D, with non-GAAP R&D expense at 11.4% of net revenue [21] Q&A Session Summary Question: Could you talk about the service provider order and its impact on revenue outlook? - Management indicated that the service provider order contributed positively, with expectations for service provider revenue to stabilize around $25 million per quarter moving forward [60][71] Question: What are the expectations for operating margins in Q4? - Management expects a step-up in Q4, likely leading to non-GAAP profitability in the low single-digit margin level [74] Question: Can you provide insights on the stabilization of the retail networking market? - Management noted that the market is stabilizing relative to pre-pandemic levels, with expectations for normal seasonality to return [76]

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]