NTGR - Earnings call transcript Q2 2018

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Operator

Good evening. My name is Kim and I will be your conference operator today. At this time, I would like to welcome everyone to the NETGEAR Second Quarter 2018 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator may conference. you begin Genualdi, your Chris

Christopher Genualdi

Thank second conference quarter Good afternoon call. to NETGEAR's and welcome of you, operator. XXXX financial results

third and and the call and business will of Joining Patrick provided with by a quarter Gorjanc, company details the the start finish provided The CEO, financials provided by by of Chairman followed for CFO. the us the Christine quarter guidance and by commentary of are format with on review Patrick Ms. second from XXXX Lo, Christine. Mr. Christine,

time We will any then have for questions.

a If you have of please not Web www.netgear.com. received visit Relations NETGEAR's site at copy Investor release, today's

the conference remarks, statements. forward-looking Before advise you formal call we contains that today's begin we

expenses, differ business trends Forward-looking results or from and materially Actual statements these statements tax future expected include outlook. forward-looking could regarding contemplated revenue, those by operating statements. rates, margins,

risk that please filings forward-looking recent no information, statements to NETGEAR with refer assumptions events. result based undertakes on these as of future as of SEC, obligation on a more Form including the information periodic today new statements For discussed most and we call this the or the update in are to NETGEAR's Any make XX-K. factors

call mentioned several this time, be to I'd now on In will to Relations to the At Christine site. over press the Investor Ms. Web in call. measures non-GAAP release of addition, today's GAAP A reconciliation financial found Gorjanc. this can be non-GAAP measures on turn our like

Christine Gorjanc

all second NETGEAR the Orbi, for net XX.X% on gateways, X, modems revenue quarter SMB X.X% and cable America in $XXX.X Thank switching three return end our the a XXXX million, the the quarter. net driven is line. business by year-over-year above which the is again strength regions you, call. by growth as net came high up Router, EMEA sequential up net joining Overall, well revenue ended X.X% $XX.X our today's basis Results $XXX.X once year-over-year up for We basis. is across Chris, growth. geography up North NETGEAR was the thank XXXX, of Gaming and as July which revenue segments million, continued a success on Net saw the basis. to EMEA XX.X% and was revenue during XX.X% XX.X% quarter and Pro the was our quarter-over-quarter. a second for on year-over-year sequential and and which you Arlo, revenue everyone of for Nighthawk year-over-year, up of guidance up million, reflects Americas in

million year-over-year weakness to down in channel provider quarter of net XX.X% quarter-over-quarter grow. the APAC the in provider revenue down non-service quarter-over-quarter. in prior service the which quarter Australia. and $XX.X for The XXXX, second channel is Asia-Pacific to are declines comparable was Our XX.X% The continues from and year due

quarter about For gateways second a was units of quarter of in XX% XX% of approximately X.X XX%, shipped months Shipments and XX last including wired were revenue about million the between XX%, and net split the and about wireless XXXX, and routers The we home our our products quarter million nodes for total wireless XXXX. introduced was Products between The split XX% business of respectively. constituted respectively. second revenue and net products shipments. and wireless second of wired X.X of units, the X.X about combined million products.

comparable compared in quarter the XXXX. quarter distributed XXXX from non-GAAP GAAP detailed introduced of our the this our of products to last The prior gross in From of non-GAAP today. second XX.X% XX.X% in to quarter about The will reconciliation non-GAAP focus constituted shipments. year discussion on earnings margin my and earlier XX XX% first months is release on numbers. the the second While quarter in in XX.X% point points was

$XX.X the foreign CHP from expenses of is XX.X% business. sequentially. exchange in benefiting Total non-GAAP and certain with at XX.X% up in especially operating which year-over-year are came our higher rates product We million, and categories, margins up improvement year-over-year

call, setup separate are standalone we Arlo adding costs prior discussed be As a we to as duplicate Technologies our public on earnings company.

we expensed activities due During $X.X during more costs than such QX, of originally million duplicate of acceleration had the certain quarter. we the to incurred separation planned with costs

to net of increased headcount Our quarter. heads during by a X,XXX XX people the

we We stand of a third quarter company to resources to our continue Technologies addition as of adding resources are areas the key business, growth public and up during additional to XXXX. adding expect in to the Arlo add headcount as

expense of well revenue net in for as year as continue and compared subscription all across heavily Arlo, revenue X.X% R&D net comparable the prior the to of prior three R&D opportunities X% for to segments. non-GAAP is R&D quarter the and net business in our we as the of revenue critical quarter. was in invest to second Our X.X% service period

the quarter XXXX. in second Our non-GAAP XX.X% tax of rate was

non-GAAP line reported income and the $X.XX non-GAAP we share earnings share. net million bottom at $XX.X QX, Looking diluted diluted for of per of per

of the million balance to second we Turning sheet, in XXXX cash. $XXX.X the with quarter ended

During cash we to flow flow million. XX our the cash trailing quarter, over generated used which $XXX.X brings total months from $XX.X operations, the in million

for and used we $XX.X our XX trailing brings purchases quarter, expenditures during Additionally, cash million. the million the equipment $XX.X property used capital in to over months of which

levels remain cash. in meaningful to to of ability generate our very continue We confident

Now at segments. year-over-year up X.X% or of is turning prior for the to the quarter This $XX net for The our about second Arlo and $XXX.X revenue the million million XX.X% a up XXXX. in includes results came product Connected from The segments quarter of gaming $XXX.X on Orbi which revenue Pro Nighthawk, on net which and generated million basis quarter, segment, sequentially. leading the up year-over-year is during X.X% X.X% a basis. brands, and sequential the three Nighthawk up Home industry

revenue is up growth returning weak year-over-year SMB the which XXXX, revenue a Modem leading quarter market seasonally we’re Gaming year-over-year Nighthawk sequential on The Cable about excited particularly to is sequentially. and during in uptick the X.X% are Pro Gateway growth. down share. X.X% gaining of router We net second and a The million the and basis QX of quarter. segment for generated The is $XX.X

on the focus categories continues results. POE and switches to Our multi-gig drive XX-gig,

to successful three from Finally, I'll services After commentary. focus XXXX. I provide as as we all over NETGEAR our the will on Arlo for strategy well quarter for for the the turn subscription third the business his separation now driving segments. Patrick continue of of to call which, guidance

Patrick Lo

Christine, you, Thank hello, everyone. and

second are revenue. guidance We XXXX. the quarter came We in our in results net our range with of above pleased for

to the impressive the representing all line resulting Pro business X sound Arlo Starting can that excited motion full battery-operated to XXX two-way night of siren is as a capabilities quarter power compatible and three Wi-Fi or are our video USB year-over-year the we line in for again, detection revenue We three of growth segments growth audio, an optional detection, XX.X% It $XXX.X and of in which overall. was the the includes our successfully we delivered triggered has posted recording top sound year-over-year the top quarter, year-over-year quarter, driven advancements capture as any a Arlo and back segment, continuous with drive. of report station plus plugged success XXXXp, in IPXX-rated base Pro or Arlo's resistant vision, remotely backup quality, well the by that generation be is Pro million decibel video HD weather currently Arlo X in X, video growth latest when growth. during a second into cameras. Arlo Once on storage motion our camera. by XX.X% outlet. flagship look local during including

that provides is cameras. access to When Light, launched is Security Arlo display customized streamlined user Light intelligence elimination and also computer real-time just Security intelligently the Its algorithms, our the camera used to when by cameras the scheduled paid Through the emergency During on enhance and different also weather and start subscription itself patterns personalized situations, lighting our Arlo and we added vision in U.S responsive Security more in with market. batteries. Smart family. to be be which delivers can a an can resistant experience, in activity also actions artificial second a wire experience. service Security senses with motion, users Arlo both automatically Arlo for take fun. urgent services to or camera IPXX into powerful, our capabilities can contacting rechargeable adds QX, detective is paired off rated for quarter, and to we the product was Security recording. insights Arlo local turn free during known first that as colors or deep such Arlo powerful Smart to protection, which Arlo be launched Arlo Arlo Light trigger Arlo The Light works the Arlo design

notifications. which The Some Arlo the and Chime, Doorbell include new least, pair app Arlo call subscription emergency solution camera, Arlo visitors to an complete connected designed Doorbell with users flexibility of activity or work Arlo service latest app, together service, Arlo Arlo cloud paired camera's Arlo's with smart detect Audio they Chime access all Smart and intelligently and key from any can the identification, close saving with the Last an Audio but and DIY EXXX EXXX emergency Arlo to smartphone use door to person morning and can interact view this entryway. features zones time. services in are Audio camera not if their valuable a And audio for ecosystem. call more additions a with bell also Arlo we the Arlo Using Arlo announced as smart The to simplicity can the Doorbell location the Doorbell mind. the tablet. people; plan Arlo of rich

expect later at retailers Arlo Chime this fall. Audio arrive and Doorbell We nationwide to the

marked and top gateways. by the QX segment, cable return Home Gaming Nighthawk our growth to Connected driven Pro Orbi, Router the to Turning modems a line and

additional quarter, from and gateway cable return been competitors. the to market our year-over-year to retail had able and gain we modem During share the growth

we Charter for products completion growth lineup we’re cable the products, free With rest service of modem strong the the year. rollout and new momentum cabled positioned of that of the spectrum in bundled continued throughout believe our

carries we announced cable we FastLaneX of which the the system cable up technology. mesh MSRP applied in QX, This launched systems. groundbreaking Wi-Fi whole app our built and cable modem a first line system, to product Wi-Fi We is that home mesh industry's expertise mesh with an $XXX. Orbi performance Wi-Fi DOCSIS modem, the award-winning patented, of Orbi high tri-band tri-band During have tri-band set

mesh of the our Wi-Fi latest powerful extenders a of Wi-Fi primary mesh It Tri-Band Additionally, data between family we extenders. extender also the join whole of family, creates a a existing for using Nighthawk Wi-Fi the XX router the mesh, existing mesh extending Nighthawk extenders. the link home family new Wi-Fi the FastLaneX Mesh your flow Nighthawk Wi-Fi is of to dedicated an patented to Extender mesh XX launched Nighthawk provide the joins employ The existing Nighthawk and your coverage uninterrupted router technology. member which

products earnings and portfolio we As rapidly expand releases, ahead mesh built highlighted in. our our two two portfolios, continue delivering our maybe with the new Wi-Fi or the Wi-Fi the most product market, demonstrated to competition the one prior by the we innovate only mesh on these offer by on of competitors product Meanwhile Wi-Fi continue in and performance features stay category. call that best innovative to within

XX smart software the the which With display powered tag and satisfy Turning the this introduced $XX,XXX. PoE+ again the switch in XX-port success quarter, success XX-port more managed prior price a successful anticipated XX-port needs models on the posted XX [indiscernible] riding with are we new over which unmanaged of growth. configuration Ethernet, highly AV. revenue XX-port and to business areas SMB managed IoT, we switches AV second These visual innovative IP and customers our digital professional once lines, segment, known surveillance X sophisticated Pro quarter the same in categories we year, another day of commonly our and configurations. on modern of Along as switches, communications, of with more introduced and was switches, year-over-year our and defined web during Pro

multi-device businesses. of iteration the in half launched is our It its Insight having We simplified its a enables paradigm business access remote SMB been to rich organizations currently monitoring from the application, ecosystem platform. anywhere, network simple, manage are and their which empowers fifth-generation is unified despite time. cloud-based continuing last year. devices to saves from them and insight innovate valuable anywhere. to which small rapidly changes on IT users for feature with This Insight configuration management NETGEAR of second

population. a DIY We mobile tool are first pioneering the management network for business expanding manager

of are company's at Maiorino we in Earlier announced one the initiatives As managing Brad compliance a Hamilton, and Directors. but is three recurring Currently that governance, mentioned Maiorino Booz on revenue segments. Mr. month, cyber, service of a at issues. to NETGEAR this business Allen senior noted undertaking in is prior all the several calls, this we expert risk executive Board appointment across

like to us Jose not you organization all today's his course Financial Security such extensive sought-after, on and will investor least, ever-changing benefiting prior companies, can X valuable look large and Information track our career, of for insight back you for to I Over will San Analysts for more NETGEAR he navigate NETGEAR or netgear.com three level and out if we contemplated what record would dynamic is and NETGEAR security highest IR call turn after to please like of Internet from complex at trusted that Officer as of He Motors Brad's Arlo reach the I made undoubtedly join which separation. details. the during industry Investors acumen hope of the of Target has Electric attend to government. at as us look Directors our landscape. in the Christine layout a site adviser the Analyst has guidance. operations to like as with I XXXX at Day, invite forward visit join Web the to in the global a the will but successfully NETGEAR the We General the him we Chief QX now of relations Last to XX-year Fortune that. Board the General our addition September role would XX held vision headquarters last our and to with years,

Christine Gorjanc

Patrick. you, Thank

For of we million. in range approximately be $XXX the third $XXX of quarter anticipate million XXXX, to the revenue will

with range to X% X.X%, margin the various service separation of which for audit operating certain includes including in in created, talent margin related negative duplicate to of which and advisory operating range $XX GAAP one-time includes associated to with the of the quarter the to of stands be the business Arlo X.X% million million hiring separation including on of associated professional and Third approximately expected be $XX as X%, corresponding expected costs its is negative costs Non-GAAP up to dissynergies costs. the fees roles own. that approximately is

rate approximately to our now the and is expected for tax quarter be take questions. XXX% Operator, approximately that expected GAAP Our rate XXXX. to third XX.X% comments be tax of the non-GAAP is can concludes and we

Operator

[Operator Intelligence. of Instructions] Your comes the line from first question Woo Jin Ho from Bloomberg

Your line is open.

Woo Jin Ho

Thank taking Arlo. Great. couple for on you my A questions question.

Arlo Arlo Pro channel a and how You about X, United introduced States you’ve Pro And mix you bit if Arlo little the Standard, for was just middle X had between last just Can Arlo of Light on the quarters Light? Arlo the -- in please? you Arlo quarter, fill Pro couple now. a product the of talk curious and for

Patrick Lo

Arlo model, top we’re products Well, a pleased product with And so is growth flagship the be the the clearly of as generally this our line X newer we Pro that’s just would performance. driving very preference customers. mentioned,

and Pro generally Pro revenue the composition X of bigger So for portion are Arlo's a sure. of

we now On gradually hand, entering is major Light, channel the expect the fill the all will partners, continue all Lights yet out and channels. of Lights other channel. all two the in fill our we’ve We're to channels. available out other to that

done that expect be QX. We to in

We the it are the of have channels so from available. that the we customer pleased with support very feedback far

Woo Jin Ho

Understood.

channel third quarter for the the and I the quarter, on a about into both fill healthy what Christine, in just Arlo think looking looking but and are third looks into I'm can the the given you portfolio you or QX, talk expecting QX? the about the little going the vein guidance It was when right if seasonality relative growth more, lines. product about bit the Arlo going I based to of for think for now, broadening business, especially the sequential I at you connected a So, that in fill to home that Patrick, channel the have

Patrick Lo

you QX, I Well, if the already mean, it defied seasonality. has look at

year exceptionally this strong. QX So was

that you seasonality a year. little with tells the this it traditional it's So changed bit

QX, think QX very good, right. is So given guidance gave I strong for that very the a we

If strength, not then you it's QX, take the the to and shabby QX out all. the from QX traditional at

So we’re very to of we’re but all pleased, course, the do time. trying I mean, better

Woo Jin Ho

the combined Understood. full-year And guidance companies? then, sticking last one to still the one last thing, are we for --

Patrick Lo

we mean, CHP in that getting think overall, a we And I last the year think yes. and are single-digit I we well mean. I mean, we the all growth, towards in there, low -- talked Oh, as yes. the still be demonstrated I XX% about to I that will QX, as are mid which SMB we working

Woo Jin Ho

I the will you. Thank call. Understood. cede

Operator

question [Operator from Instructions] Chowdhry from Your Trip comes next Global Equity.

open. is line Your

Trip Chowdhry

Thank you. Arlo, A have regarding very the of registered so on was update wondering I solid far? we do quarter. have we users number any

Patrick Lo

quiet that I I our in mean, And you could just from by period better we if bit mean, underwriters, look much roadshow the we get little we how at because details, obtained more fact the it's be bound given prospectus Well, a yes. a IPO the like say. which would could we’re launched I are to to think

Trip Chowdhry

million? do But will you I do Understood. X that. think directionally, have we reached

Patrick Lo

Again, period. a we’re in quiet

I think yes. it's really period, to in a quiet prospectus, look are at the better we

Trip Chowdhry

a person No offering you have of think since a where gifting another product Do worries. be to subscription may one could person. worries. customer be another you I big question related myself I’m No I Arlo. service, a

say, their to default want buy they seven citizens, do vice -- that example, kids be a where, situations research who think you in an kids the that services, the is Arlo days think our someone But XX possible storage. from their get -- Do showing like to you some senior product may by is offering may days gifting may say, you or for have services days ecosystem elite XX versa. are their like parents parents the For future? and near or in

Patrick Lo

I one I’m of how take managers be work sure will get that you this Well, see with our product and could constructive.. to to offline it

Trip Chowdhry

think this Arlo wait regarding more IPO we talk probably do will to have or Doorbell, after the bit you little And on over? is Beautiful. can we

Patrick Lo

I as No, it. can no, concerned, about I as are features the talk far mean, product

Trip Chowdhry

Beautiful.

think I ecosystem, customer or all it's where the work? a station we to Arlo Camera, I very -- you’ve I’m station together. if Arlo into gets is same Doorbell taken Now different approach the Arlo because think it a base the Chime ecosystem, at Do looking the the and way Arlo need commonsensical the work you may base think Doorbell, for that

Patrick Lo

No, the off station. existing Arlo base Arlo Doorbell of the will work

Trip Chowdhry

Excellent. a separate Chime, and it if somebody Arlo or then, an Doorbell, come Chime Arlo And product Doorbell is together? both buys

Patrick Lo

all products, certainly they’re but combinations. we thinking in mean, Well, of different I different are bundling

Trip Chowdhry

be would pricing, somewhere similar between Pro And Cameras? Arlo regarding the directionally it to Arlo Arlo or Light priced and Light

Patrick Lo

we We -- haven't the to want for announced haven't yet. know. competitive competitors reasons, don’t our We pricing

Trip Chowdhry

Excellent. Beautiful.

I Smart, accuracy is -- identifies versus currently a as the XX%. using I’m mean has Arlo I well. above Regarding the think pretty it, product better a reached person where product date, It to and

or mean, the region. The the are well, I alerts think Regarding only the increase people on that battery using the life zones reason specific to zones, rechargeable of is you do time. they’re Arlo zones -- to the get using motion you the based target

regarding research are is subscribing to Smart? Arlo telling people what why your So

Patrick Lo

well accurate because Well, would a EXXX response as identification through give friend activity notifications that and more of notification. as the call that people [ph] a what [rich] right happening give very well you what’s zone, or notification person them the Arlo a fast rich believe like to clearly, Smart we subscribe on much features, mentioned, them as they

battery really cloud done the streamed really doesn't has the activities it. the Regarding all means to let cloud analyze these video saving, the up it cloud. in matter because were and That been

life really battery affect way the other. one So or it doesn’t the

Trip Chowdhry

a congratulations That on strong lot and solves. Beautiful. a Thanks very quarter.

Patrick Lo

Thanks. Great.

Christine Gorjanc

Thank you.

Operator

next from comes -- from Financial. BWS Hamed Instructions] Your [Operator question BMW Khorsand

open. is Your line

Hamed Khorsand

morning. good Hey,

off First …

Christine Gorjanc

Hamed. Hi,

Hamed Khorsand

new because guys of you growth ASP says goes, picking second retail like was could was just because so was rising this that quarter as retail back-to-school the talk you quarter expecting orders -- or are because more up about far routers? up it guiding for QX, of as softness the in that QX, of and guide or because early, some of for … is the this what in you’re

Patrick Lo

No, I rise. mean, ASP has to continued

And the I Router think a thing the Gaming is entered cable in market big the growth. biggest to the way. that Pro markets QX in returned

seasonality. really a boost the QX countered So to these significant give add two together which

will So the strength of extra see I previous then course, versus the in but as this prominent so growth continue because as -- QX, growth QX QX but we years. mean, into be QX, of not

Hamed Khorsand

Got it.

gaming gaming is to. router, the the to towards all the up, of Okay. bell curve prices been like end Is trying of price as And the a or seeing ASP, that the that product with speakers]? the happening router get more you’ve you points higher [multiple a as moving far are

Patrick Lo

the yes, set specialized routers we No, in gaming what -- opening selling router of [ph]. our try is rich mean, call the software I

look if you speed is [technical So difficulty] at gaming cheaper. router the purely

we special You subsequently. call what to [technical continue coming [technical feature routers difficulty] software difficulty] oriented out

we is you routers another speaking, say class are that generally of new can introducing. So this

do to, So would such of to control. various software features continue as want parental you such see to us that of lines more security, will as those yes, people along

Hamed Khorsand

features. a also than what's it's go where you to trying you out it's figure you last you wanted security or talk the little that I different to guys to And Arlo differentiating the about now what’s right. you it's the All about and with but want factor because product this like Amazon's before, just between vision introduction, -- could thing seems it have new talk about,

Patrick Lo

Well, in right now. previous mentioned period in discussion, just we’re as quiet I a

from vision the into prospectus discuss cannot look the would at much be too obtained you I encourage to the So underwriters. details. strategy Arlo's and the we could prospectus

Hamed Khorsand

not and vision, going about and the guys you though? to you’re announcing But product new road, going you’re on the -- talk a are

Patrick Lo

look prospectus the tells a said, I you so at I As to lot, encourage mean, would prospectus. the we

Hamed Khorsand

Okay. All Thank right. you.

Operator

There call I turn Patrick are no questions. further Lo. the to back now

Patrick Lo

again, we I exciting products you Thank Great. a we of announced that of all really happening. I you that news you. And lot Jose really about that everybody September everybody. hope because Analyst join to on look going excited very and updating more and of on you things all just all with can our and once introduced forward San And you joining thank appreciate its as headquarter. these know exciting our in NETGEAR's Thank And us again new day forward I early I’m in course, Day today today’s products as and, call. well of strategy.

Operator

conference conclude This call. today’s

You may now disconnect.

NETGEAR (NTGR) 23 Jul 182018 Q2 Earnings call transcript