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]

prol NETGEAR NETGEAR orbi | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |-------|-------|-------|--------------------------|-------------------|--------------|-------|-------|-------|--------------------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | NETGEAR | | | | | | | | | | | | ０ＣＴＯＢＥＲ ２０２２ | INVESTOR OVERVIEW | | | | | | | | | | | | | | | | | | | | | | | | | NETOEAR | | 8 | | .................. | | | | (3) | (b) | | | NETGEAR a a | | 0 | | ...

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]

prol NETGEAR NETGEAR orbi | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |-------|-------|-------|-------|----------------------------|-------------------|---------------|-------|-------|-------|-----------------------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | NETGEAR | INVESTOR OVERVIEW | | | | | | | | | | | | ＦＥＢＲＵＡＲＹ ２０２２ | | | | | | | | | | | | | | | NETOEAR | 은 다 | | | . . | | | | 5 | (b) | | | | NETGEAR 日 日 | | 0 | | &&& ...

Financial Data and Key Metrics Changes - Net revenue for Q4 2021 was $251.2 million, down 31.6% year-over-year, and for the full year, net revenues were $1.17 billion, down 6.9% compared to 2020 [6][7] - Non-GAAP operating margin for Q4 was 2.7%, which is 830 basis points lower than the prior year period, while full year non-GAAP operating income was $95.1 million, with a margin of 8.1% [9][11] - Non-GAAP gross margin in Q4 was 30%, down 60 basis points from the prior year [15] Business Line Data and Key Metrics Changes - The Connected Home segment generated net revenue of $174.2 million in Q4, down 41.2% year-over-year, while the SMB segment generated $77 million, up 8.6% year-over-year [21][24] - The net revenue split between home and business products was approximately 69% and 31%, respectively, with wireless products accounting for about 68% of net revenue [14] Market Data and Key Metrics Changes - In Q4, net revenue for the Americas was $159.4 million, down 38.6% year-over-year, while EMEA revenue was $50 million, down 25.8% year-over-year [12] - APAC net revenue was $41.7 million, up 4.4% year-over-year, with all regions seeing growth in the SMB business [13] Company Strategy and Development Direction - The company is focusing on shifting its product mix towards premium, higher-margin products, which is expected to drive long-term profitable growth [22][30] - The strategy includes reducing promotions on lower-priced products and introducing new products to replace older ones, aiming to avoid excess inventory [52] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by supply chain issues and elevated costs but expressed confidence in the long-term growth potential of the premium WiFi market [27][44] - The company anticipates a muted decline in CHP revenue for Q1 2022 and expects to see improvements in service provider revenue in Q2 [42][56] Other Important Information - The company ended Q4 2021 with $271.5 million in cash and short-term investments, down $20.7 million from the prior quarter [18] - The company repurchased approximately 539,000 shares at an average price of $32.52 per share, totaling $17.5 million in Q4 [20] Q&A Session Summary Question: Concerns about channel inventory optimization and price increases - Management discussed their confidence in raising prices for unique technology products with less competition, aiming to offset component and transportation costs [50][51] Question: Trends in operating expenses and business travel - Management indicated that business travel is unpredictable and may not resume until the second half of the year [62] Question: Inventory levels and methods for selling through inventory - Management explained that inventory is primarily finished goods, with increased levels due to elongated transit times, and sales will occur through all channels [65][67] Question: Growth in paid subscribers - Management noted that subscriber growth is coming from both netgear.com and retail channels, with a stronger attach rate on direct sales [68]

Financial Data and Key Metrics Changes - Net revenue for Q3 2021 was $290.2 million, down 23.3% year-over-year, despite supply chain challenges [8] - Non-GAAP operating margin was 6.7%, which is 70 basis points above the top end of guidance [8] - Non-GAAP operating income was $19.5 million, translating to a non-GAAP operating margin of 6.7%, down 420 basis points from the prior year [13][18] - Non-GAAP gross margin was 30.1%, down 20 basis points year-over-year [18] - Non-GAAP net income was $15.3 million with a diluted EPS of $0.50 [20] Business Line Data and Key Metrics Changes - Connected Home segment generated net revenue of $208.5 million, down 34.2% year-over-year [25] - SMB segment generated net revenue of $81.6 million, up 33% year-over-year, marking the highest quarterly revenue in nearly seven years [27][28] - The revenue split between home and business products was approximately 72% and 28%, respectively [16] Market Data and Key Metrics Changes - Net revenue for the Americas was $195.1 million, down 29.8% year-over-year [15] - EMEA net revenue was $56.9 million, down 10.6% year-over-year [15] - APAC net revenue was $38.1 million, up 4.3% year-over-year [15] Company Strategy and Development Direction - The company aims to lead innovation in the consumer networking market and expand its paid service subscriber base [9] - Focus on premium WiFi products, with the introduction of the next generation Orbi quad-band mesh WiFi 6E system [31][32] - Commitment to R&D investment to maintain technology leadership and enhance subscription services [19][40] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain challenges and lower than expected end-user demand [50][52] - Anticipated net revenue for Q4 2021 is projected to be between $250 million and $265 million [54] - Confidence in the long-term strategy despite current challenges, with expectations for strong demand in the SMB sector [52][54] Other Important Information - The company ended Q3 2021 with $292.2 million in cash and short-term investments, down $43.1 million from the prior quarter [21] - The company repurchased approximately 953,000 shares at an average price of $34.07 per share [24] - The introduction of new services like Insight business VPN for SMBs is expected to enhance offerings [47] Q&A Session Summary Question: Supply constraints and destocking dynamics - Management clarified that SMB is facing shortages while destocking is primarily on the Connected Home side, with expectations to continue destocking in Q4 [58][61] Question: Competitive dynamics with cybersecurity firms - Management noted that their target customers differ from those of cybersecurity firms, focusing on the premium segment where they have technological advantages [62][66] Question: Unit shipments and market share - Management confirmed that unit shipments were 3.4 million, with a decrease in market share from 52% in 2019 to 46% [73][74] Question: Growth outlook for premium and super premium segments - Management indicated that the premium segment is growing rapidly, with expectations for it to become a larger portion of total revenue in the next two to three years [86][88]