NETGEAR(US:NTGR)2025-04-30 20:17Financial & Operational Highlights (Q1 2025) NETGEAR demonstrated improved profitability in Q1 2025, driven by strategic initiatives, efficient operations, and strong segment performance, despite a slight revenue decline Q1 2025 Financial Performance In Q1 2025, NETGEAR's net revenue was $162.1 million, a slight decrease of 1.5% year-over-year, while profitability significantly improved with GAAP gross margin increasing by 550 basis points to 34.8% and non-GAAP EPS turning positive at $0.02 Q1 2025 Financial Performance Summary | Financial Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Net Revenue | $162.1M | $164.6M | -1.5% | | GAAP Gross Margin | 34.8% | 29.3% | +550 bps | | Non-GAAP Gross Margin | 35.0% | 29.5% | +550 bps | | GAAP Operating Income | $(12.8)M | $(21.6)M | Improvement | | Non-GAAP Operating Income | $(2.6)M | $(16.0)M | Improvement | | GAAP EPS | $(0.21) | $(0.63) | Improvement | | Non-GAAP EPS | $0.02 | $(0.28) | Improvement | - Q1 revenue and operating margin were above the high end of the company's guidance1 Management Commentary & Strategic Initiatives Management highlighted successful business transformation through strong ProAV demand, supply chain efficiency, and expense control, including a strategic acquisition and restructuring for future reinvestment - Completed an acquisition involving VAAG Systems to establish a new software development center in Chennai, India, reducing reliance on expensive outsourced partners4 - A Q1 business restructuring is expected to generate over $20 million in annual operating expense savings, which will be reinvested to enhance competitive advantage4 - All business units delivered over 400 basis points of year-over-year contribution margin improvement14 - Days Sales Outstanding (DSO) reached a seven-year low of 78 days, reflecting improved linearity and better matching of sell-in with sell-through435 - The company repurchased approximately $7.5 million of common stock during the quarter4 Segment Performance NETGEAR's Q1 2025 segment performance was characterized by strong growth in NFB, sequential share gains in Home Networking despite revenue decline, and improved profitability across all segments NETGEAR For Business (NFB) Segment The NFB segment was the primary growth driver, with revenue increasing 15.4% year-over-year to $79.2 million, fueled by strong ProAV demand and supply chain execution, leading to a 790 basis point improvement in non-GAAP contribution margin NFB Segment Performance | NFB Segment | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $79.2M | $68.6M | +15.4% | | Non-GAAP Gross Margin | 46.3% | 41.9% | +440 bps | | Non-GAAP Contribution Margin | 22.3% | 14.4% | +790 bps | - Performance was driven by better-than-expected supply and strong demand for differentiated ProAV products6 - The company added new manufacturing partners, bringing the total to over 4006 Home Networking Segment The Home Networking segment experienced an 8.7% revenue decline to $61.4 million, yet achieved sequential market share gains in the U.S. and Europe, with a 490 basis point improvement in contribution margin driven by higher-margin WiFi 7 offerings Home Networking Segment Performance | Home Networking Segment | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $61.4M | $67.2M | -8.7% | | Non-GAAP Gross Margin | 24.1% | 22.2% | +190 bps | | Non-GAAP Contribution Margin | (2.8)% | (7.7)% | +490 bps | - Drove sequential share gain in its two biggest markets, the U.S. and Europe8 - Share gain was driven by better sales across higher-margin WiFi 7 offerings8 Mobile Segment The Mobile segment's revenue decreased by 25.3% year-over-year to $21.5 million, but end-user demand was better than expected, leading to a significant 730 basis point improvement in non-GAAP gross margin and a positive contribution margin of 1.2% Mobile Segment Performance | Mobile Segment | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $21.5M | $28.7M | -25.3% | | Non-GAAP Gross Margin | 24.6% | 17.3% | +730 bps | | Non-GAAP Contribution Margin | 1.2% | (3.4)% | +460 bps | - The company is positioning to better serve the market with a 'good-better-best' strategy and new products planned for later in the year7 Business Outlook (Q2 2025) NETGEAR provides Q2 2025 guidance anticipating stable revenue and improved operating margins, supported by strong ProAV demand and no expected tariff impact Q2 2025 Guidance For Q2 2025, NETGEAR expects net revenue between $155 million and $170 million, with GAAP operating margin ranging from (10.4)% to (7.4)% and non-GAAP operating margin between (6.5)% and (3.5)%, reflecting planned investments in software development and NFB go-to-market capabilities Q2 2025 Guidance | Q2 2025 Guidance | Range | | :--- | :--- | | Net Revenue | $155M - $170M | | GAAP Operating Margin | (10.4)% - (7.4)% | | Non-GAAP Operating Margin | (6.5)% - (3.5)% | | GAAP Tax Expense | $0.5M - $1.5M | | Non-GAAP Tax Expense | $1.0M - $2.0M | Key Assumptions and Factors The Q2 outlook is based on continued strong demand for ProAV switches, normal seasonality in Home Networking, Mobile revenue in line with Q1, and no expected impact from recently announced tariffs - NFB: End-user demand for ProAV switches is expected to remain strong, but lengthy lead times for supply may limit the ability to capture full topline potential9 - Home Networking: The company expects to experience normal seasonality in this business9 - Mobile: Revenue is expected to be in line with Q1, pending new product introductions later in the year9 - The vast majority of NETGEAR products are exempt from recently announced tariffs, and no associated financial impact is expected in Q213 Financial Statements NETGEAR's Q1 2025 financial statements reflect improved profitability with a reduced net loss, decreased total assets and liabilities, and strategic cash flow management Condensed Consolidated Balance Sheets As of March 30, 2025, NETGEAR reported total assets of $814.2 million, a decrease from $850.2 million at year-end 2024, with cash and short-term investments at $391.9 million, and total liabilities decreasing to $280.0 million Condensed Consolidated Balance Sheets (In thousands) | Balance Sheet (In thousands) | March 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $269,811 | $286,444 | | Short-term investments | $122,116 | $122,246 | | Inventories | $157,898 | $162,539 | | Total Assets | $814,196 | $850,230 | | Total current liabilities | $241,964 | $270,083 | | Total Liabilities | $279,953 | $309,164 | | Total Stockholders' Equity | $534,243 | $541,066 | Condensed Consolidated Statements of Operations For Q1 2025, NETGEAR reported a net loss of $6.0 million, or $(0.21) per share, a significant improvement from the $18.7 million net loss in Q1 2024, driven by a higher gross margin of 34.8% Condensed Consolidated Statements of Operations (In thousands) | Statement of Operations (In thousands) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net revenue | $162,060 | $164,586 | | Gross profit | $56,326 | $48,237 | | Gross margin | 34.8% | 29.3% | | Loss from operations | $(12,799) | $(21,648) | | Net loss | $(6,034) | $(18,650) | | Net loss per share, diluted | $(0.21) | $(0.63) | Condensed Consolidated Statements of Cash Flows In Q1 2025, net cash used in operating activities was $8.7 million, a shift from cash provided in Q1 2024, primarily due to working capital movements, with total cash and cash equivalents decreasing by $16.6 million Condensed Consolidated Statements of Cash Flows (In thousands) | Cash Flows (In thousands) | Three Months Ended Mar 30, 2025 | Three Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(8,749) | $17,190 | | Net cash used in investing activities | $(1,260) | $(11,339) | | Net cash used in financing activities | $(6,624) | $(9,912) | | Net decrease in cash and cash equivalents | $(16,633) | $(4,061) | | Cash and cash equivalents, at end of period | $269,811 | $172,656 | Supplemental Financial Information Key operational metrics for Q1 2025 show improved efficiency with lower DSO and higher inventory turns, while geographic revenue distribution remained stable Key Operational Metrics Operational metrics showed improvement in Q1 2025, with Days Sales Outstanding (DSO) decreasing to a seven-year low of 78 days and ending inventory turns increasing to 2.7, alongside a year-over-year decrease in channel inventory levels Key Operational Metrics | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Days sales outstanding (DSO) | 78 | 96 | | Ending inventory turns | 2.7 | 2.2 | | Weeks of channel inventory (U.S. retail) | 10.1 | 11.2 | | Weeks of channel inventory (U.S. distribution) | 2.4 | 4.0 | Net Revenue by Geography The geographic distribution of revenue remained stable in Q1 2025 compared to the prior year, with the Americas accounting for 66% of total net revenue, followed by EMEA at 20% and APAC at 14% Net Revenue by Geography (In thousands) | Geography (In thousands) | Q1 2025 Revenue | % of Total | Q1 2024 Revenue | % of Total | | :--- | :--- | :--- | :--- | :--- | | Americas | $107,761 | 66% | $109,928 | 67% | | EMEA | $32,129 | 20% | $31,187 | 19% | | APAC | $22,170 | 14% | $23,471 | 14% | | Total | $162,060 | 100% | $164,586 | 100% | Reconciliation of GAAP to Non-GAAP Measures NETGEAR's Q1 2025 reconciliation highlights a significant improvement in non-GAAP net income, driven by adjustments for non-cash and one-time charges Reconciliation of Net Loss NETGEAR reported a GAAP net loss of $6.0 million for Q1 2025, which, after adjusting for non-cash items and restructuring charges, resulted in a non-GAAP net income of $0.5 million, a significant improvement from the prior year's non-GAAP net loss Reconciliation of Net Loss (In thousands) | Reconciliation (In thousands) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | GAAP net loss | $(6,034) | $(18,650) | | Stock-based compensation expense | 5,496 | 4,544 | | Restructuring and other charges | 4,742 | 1,032 | | Litigation reserves, net | (37) | 30 | | Gain/loss on investments and others | (4,642) | 101 | | Non-GAAP tax adjustments | 936 | 4,588 | | Non-GAAP net income (loss) | $461 | $(8,355) |