NTGR - Earnings call transcript Q2 2019

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Operator

Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the NETGEAR Second Quarter 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be question-and-answer session. you. Thank Instructions] [Operator

Director you Genualdi, conference. begin of Chris may IR, your Mr.

Christopher Genualdi

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

CEO; Mr. us Lo, Joining Company Bryan are the Chairman CFO. from and and Mr. Murray, Patrick

by will the finish XXXX provided the business, quarter with a Bryan, provided on with the followed of by Bryan. by The financials call review provided the and for third format quarter guidance start of commentary Patrick, second by of details and

then will for questions. We have any time

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

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

statements future rates, regarding includes operating revenue, expenses statements business margins, and tax Forward-looking outlook. expected

by statements. Actual these forward-looking could results those or trends differ materially contemplated from

please factors For filings most refer NETGEAR's periodic including risk the XX-Q. recent Form to in the with discussed SEC, the more information,

that statements a future today, forward-looking based of call this as events. update Any statements assumptions to undertakes make on information or we obligation of new these NETGEAR are and on no result as

our In Relations measures in mentioned A call. today's this be non-GAAP will release measures of financial the press on addition, on reconciliation to found be website. GAAP several non-GAAP can Investor

now would At this the to call over Bryan to time, I Murray. like turn Mr.

Bryan Murray

marketing and range improvement the channel was driven Thank the line the of end you, by of in guidance Nighthawk WiFi various today's activities. second Christopher, our in rollout and WiFi joining and above for for thank the which with high the you, for quarter our non-GAAP quarter, Results margin. the came market operating call. everyone, for slightly of XXXX We range saw revenue routers during retail in continued U.S. X

ended basis the down $XXX.X X.X% sequential a Overall, second XXXX year-over-year down is on June net was NETGEAR basis. and X.X% on a for XX, revenue which million, quarter

normalization marketing calls, factors: ahead to reduced U.K. XG rollout; during driven service the channel As following prior QX for increased of QX; channel in a U.S. the the slowdown during discussed decline seasonality. second the was spending XXac EMEA provider on Brexit-driven and market earnings quarter of routers; counter pull-in our a by several sales legacy

Looking we expect year-over-year from QX by headwinds Net I quarter provider seasonality. in mentioned. QX when million, detail for third normal geography a service on benefit decline to basis. revenue more I'll expect sequential X.X% $XXX.X revenue a to ahead, service I and discuss rebound to provide QX and was the revenue net back-to-school levels X.X% guidance. in more provider QX reflects NETGEAR the on driven just revenue which is Americas by down up our

while revenue is quarter-over-quarter. strengthening, following QX. EMEA The a year-over-year Brexit-driven which sequential during in dollar million, is headwinds service due provider with XX.X% of a sales EMEA FX due the XX.X% is U.K. down U.S. net and to normalization to down reduction and decline year-over-year pull-in was revenue decline the $XX.X the channel

and all due was and due in quarter the is net downturn Our provider net Australia, while is and quarter-over-quarter. revenue to the service for from the which million market typical sales the comparable down APAC X.X% down was in The year-over-year both XX.X% quarter of second demand, prior sequential currency to APAC XXXX, decline revenue QX year $XX.X seasonality. reduced decline in

million of second shipped units, approximately quarter X.X total a X.X XXXX, products. nodes of we wireless the For million of including

products was and business XX%, X.X for was and wireless and about XX%, products between quarter and all combined wired routers net and net revenue the XX% split XX% gateways between XXXX. The respectively. and wireless split million home respectively. of second about The were of Shipments units wired about revenue

shipments. about last about the contributed last XX% while shipments, second quarter introduced products of the in XX% XX months quarter constituted second months introduced Products in XX of our our

my focus our on, today. from earnings on point release distributed GAAP detailed will is earlier discussion this in The non-GAAP to From numbers. non-GAAP reconciliation points

the of margin XX.X%, of comparable The to the XXX in basis in second is quarter, which quarter XX.X% XXXX. in prior XXXX and non-GAAP points points down was down the compared year gross compared first XX.X% XXX to quarter basis

year-over-year was by operating Total at marketing well decline the our channel the down year-over-year down an sequentially. activities investments $XX.X The and came in XX.X% in as is U.S. margin gross in which dollar. as of from X.X% million, impact non-GAAP driven strengthening expenses

appropriate expenses have to although our business growth investing they the succeed. As of while prudently, always, our support need portions to resources we manage the also they

to heads of the by four quarter. decreased net of XXX Our end as the of a people headcount

quarters expense of business, year net comparable the X.X% quarter XXXX. of prior revenue in Our to compared period for net the investment as revenue here the X.X% revenue was non-GAAP remains our and R&D X.X% first net of come. the to in in of future invest the to and to will R&D second critical continue success of quarter we

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

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

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

and million. months brings trailing we XX During in used which operations, $X.X used from the to in cash cash $XX.X which total the purchase $XX.X flow expenditures our for continuing in during cash operations quarter, $XX.X the total brings million equipment over of over quarter, trailing capital million million. months to continuing used property our generated XX We the

we generate in meaningful our levels ability As to cash. of confident always, remain

repurchase approximately start $XX XX.X quarter fourth million shares. million approximately Since million NETGEAR repurchase to shares of In per we repurchase $XXX.X common of our XXX,XXX spent stock approximately XXXX, have price the spent average of QX, at in an share. we $XX.XX activity to the of

is approximately million the XX.X of Our of as share diluted count end fully the shares quarter.

authorized outstanding. the for repurchase of the continue on remaining of million X.X total brings stock X Directors Our stock common our our to approximately to or million approximately previous when plan opportunistically including shares in come. shares repurchase We Board our quarters XX.X% repurchase amount shares to to has up our of This the available to authorization.

and industry-leading to during Orbi, Nighthawk XX.X% results down is Nighthawk, quarter, for The Pro year-over-year the generated Connected the million which includes turning on X.X% which down revenue sequentially. Home product basis Meural $XXX.X Gaming the a net Now brands, of segments. and our segment,

service is The provider for Home, Connected to due year-over-year down QX decline reduced revenue XXXX. from which million is $XX.X

for prior Our consumer be improvement the WiFi in share market an continues XX% strong at to which over second is quarter, quarter. the

million SMB year-over-year down basis net second $XX.X for of quarter XX.X% on down is XXXX, revenue a segment X% sequentially. The the which generated of and

scheduled of benefited QX in our deadline. on SMB increased to the shipments Brexit prior originally from mentioned calls, As U.K. the ahead

saw And and of Meanwhile, well into normalization ProAV shipments channel the continue the the market. second expected, a lines we quarter. in perform as switching to in Our PoE+

through switches U.S. also in channel second retail share at for market strong the was XX% quarter. Our sold

of I I'll after for quarter now turn the provide the his for over third which will call guidance commentary, to XXXX. Patrick

Patrick Lo

Thank everyone. you, Bryan, and hello

of U.S. the marketing second continued X we WiFi of was line, While retail improving market Nighthawk were and channel in on with activities. challenging both quarter our XXXX our the in on successful topline the various bottom rollout routers WiFi

seasonal SMB services spending. PoE+. just expect our rolling and remain back-to-school typical provider run to opportunities WiFi installed rate quarter return expect for Bryan ProAV bullish quarterly the consumer base to highlighted, the and service to like gaming, We QX by as in retail third our lift in on revenue normal levels opportunities driven from Additionally, we benefit and our to X, XG, the

to that decline on first approximately moderated market WiFi during our X% earnings the QX, the by we shared That decline XXXX, undertook prior during we the year-over-year. As activity call, second driven the during approximately X saw of quarter. quarter U.S. WiFi consumer X.X%

additional WiFi Orbi We'll be well premium system. Nighthawk WiFi current routers as during releasing quarter a as Mesh X new X the

Nighthawk X the have year, entire the the the lineup expect new furthering by from of to legacy to products. WiFi WiFi refreshed We transition products end

routers online reviews, well-received, can been half year. the the the currently incredibly As very our we're are have products X you second X the of in see additional about available we excited WiFi and building WiFi from

Mesh also base. Armor our Protection We launched Orbi Threat NETGEAR global install recently Cyber WiFi to

the by users. with initial traction We trial very have been encouraged

Orbi For the of limited install available trial Orbi through we're the free now a Armor made app. base, existing offering period

and of year Costco service. seeing Meanwhile, after first of with service renew Armor we to the are these one-year users also selling at Orbi NETGEAR forward look bundled

We are products of new cyber-secured bundled announced recently the WiFi with as to such market category Armor expand Nighthawk router. continuing to new this models ACXXXX coming

environment been where cyber by is data have devices We Armor today's and worldwide, received critical our is that with consumers encouraged the priority. has believe security reception of and in our need solving in-home prevention attack a that solution we

the and continue on the of a we is especially that it initiative future. Armor, both This revenue build with streams. have to our progress expect as impact earnings significant NETGEAR's we bottom important our recurring line will make Beyond in to stability

have install base. represent of users, approximately estimated we million XX.X approximately the At the end second registered our XX% quarter, of which

has registered We million, Our this prior transformative over initiative. count user remain the about app quarter. very opportunity to growth which represents excited value-creation approximately user of XX% grown X.X the sequential

CHP. out Rounding

WiFi mesh lineup WiFi gaming Systems expanded router of tri-band Mesh home. System. gaming experience a Nighthawk extender, Mesh product we WiFi a This gaming high-performance QX, the and pro Gaming During our first a together the with deliver prepared which new for Pro consist throughout gamers

in build We Additionally, continuing both campus, in look these of on most May. consumer our digital come. brands continued rollout debuting the quarters to to it Meural recently the we HSN premium of to forward

Turning SMB to segment. the

that purchased during Bryan QX digest in ahead QX, mentioned, of we Brexit saw the U.K. channel the was As deadline. the inventory anticipated

quarter, healthy had of end the As of to returned U.K. inventory the channel levels.

are continue We we and seeing PoE+ with the ProAV be growth in to pleased switching.

switches U.S. At announced InfoComm in Our that our MXXXX switches in share IP market and complexity eliminate of XXXX, XX% strong suite QX. to are streamline channel in over AV additions retail new specifically year's we at sold was to deployment. AV this designed through

applications HDMI. One industry instead cost, can first all networking, this a wider networks is MXXXX-XXX, XXGBASE-T switches distribution of across distance the And Lower an space. IP AV shifting switch as lead XX-port copper to the in increased leader PoE+ to and range world's in are positioned ports. deliver rapidly of AV Ethernet NETGEAR of these is which over

looking of partnership forward XXXX with XK a the year. switches. in announced broadcast ZeeVee will Olympics, for HDMI the seasonal the a be growth we our at effectively which the to potential half creating usual are video. MXXXX lift navigated very and series module in of especially now back ProAV, an In challenging in connection quarter summary, remain about XXX% we excited the Furthermore, We

back guidance. to I will call the now third quarter the Bryan turn for

Bryan Murray

Thank you, Patrick.

back-to-school be Looking to levels to sequential reflects out of the consumer normal for which $XXX the a to of in return million, for revenue quarter revenue net rebound strong more range to expected and SMB. service is retail, XXXX, the for season $XXX third million a provider

the range and non-GAAP in X.X% to in the be margin be to operating of to of GAAP is expected is X.X% expected range operating margin X.X% X.X%. to

quarter Our to be rate rate our tax expected is for XX%, XXXX. third to expected XX% be approximately the GAAP of tax and non-GAAP is

that comments, Operator, we concludes now our can take questions. and

Operator

Raymond question [Operator Instructions] first the And Adam comes line James. your of Tindle from from

Your line is open.

Adam Tindle

Day I with talked and X, or the follow-up. of good wanted materializes, Can just this this the cadence you I to Is lift just cycles tailwind upgrade Pat, of X profile magnitude Thanks the the WiFi a burst so that cycle you Analyst Okay. afternoon. at to start a it compare and in and cycle. observations question the WiFi have your the milder – high-level previous Thanks. about then mid-single-digit on due maybe magnitude speak a longer, and just cadence? and a this versus growth maybe to as

Patrick Lo

WiFi same freeway. replacing This into the to X-lane from akin And X-lane the XX% is upgrades. cars freeway a X% a believe of the penetration has significantly time, household household. appealing of the previous than upgrade I the X of ownership is this penetration at more with exploded

multilane now believe and You new transition But be we cars, get that the rapid in to a freeway. and is more you're going really, earnest. really welcoming

to the eight eight cycle, transition, I shorter. previous would out is in streams, years normally, we there it but think all take lanes in can up to to cycles, go right. WiFi lanes. it this come only the more X would we So just because way complete the Plus, probably XX five take Theoretically variations about

to things cars, offer with headroom of of lot turbo. protocol, OFMD get a various play can a there's lot that could because the And there's we like to go. you So

one. normal the get You

the get injection. You fuel

Now rig. you light the get

a it's exciting So time. very

Adam Tindle

about provider in ex-service as to XX% And light we're I the Okay. That’s helpful. impact just see Bryan a basis. at in maybe and last for ex-service mean the talked a sequential up QX this. QX CHP follow-up for provider. CHP Day, the had up And seasonality a on XX% Analyst segment, of you in going particularly in

guidance of here, on that. based going north to be think QX is the I

to So given provider seasonality more as can we understand maybe I'm in to and particular ex-service bit and QX. in CHP in QX, little trying see in just XX% think how don't maybe about a QX heavier changes weighted QX there's the we

Just some help there would be helpful.

Bryan Murray

say last Obviously, lift QX a growth XX% a I seasonality, trend would a the includes X for our that look the increase from of But seeing into that actually that that And driving the QX guidance. XX% will typically obviously CHP is with success of from QX, QX. normal sure. continue years, if believe or remain that which at typically that confident, we'll again, Yes, about see about level in think right. see I to is QX. see we that we're provider, believe seasonal provider, WiFi QX, which return about this service five a in the more And we we the you pipeline, both guidance non-service given product we at normal QX year. sequential seen going adoption, we’ve we implied four in some a

Adam Tindle

I'll Okay. assumption up have SMB to tweak my QX Maybe then.

Just last follow-up. one

for Is prepared the that healthy XX% in mentioned you that a had QX. exit a had Because I track? from to also to You in operating still invest Previously, to continue pretty think XXXX would that remarks range. goal jump XX% the in imply on margins you R&D.

buckets the is that Maybe track? assumption. that on in still So

Bryan Murray

we Yes. confident remain that lift that in that we is will XX% see yes, can to seasonal Obviously, that exit in year this the on XX% you QX top and between of do confident We reach. QX XX%. XX% in respect. remain help But

Adam Tindle

much. you Thank Okay. very

Operator

line Bank. Yun question from your from the Deutsche comes of And next Brian

Your line is open.

Brian Yun

you're you question. you're second guys, your channels? SMB Can that broader sales on the segment, aware your any strength and a seeing just of with the of share in of the kind question of from should Hey Where maybe or headwinds what hearing year? we pockets a force sales be half

Patrick Lo

channel. app. as we're of yourself. the especially do strength, It's think added SMB more on products with on Clearly very online small I more for the reseller a And traditional sales, as value business the both well the seeing easy, it now side, are as installation, channel our especially much and pretty insight

online, CDW. and using and And more seen we've So go these apps bring it either just them through more to through it. control Amazon people small or they just buy their business up set to it

good very seeing that on we're one. So strength

that movement IP video, using installers, of the network. audio that a among channels, visual And at of a that broad XK huge our of industry, exactly, over over, lot to mentioned the arrival that, we the HDMI a have there been and focusing things We audio-visual industries to are VARs traditional ProAV is then VAR two swath see huge is servicing few the we on the small liking. moving of that in the market they the because which

a from installers we value-added to mean, to recruit. very of going and that who breed bar, outfit new they I that's installers at maybe would the campus. fragmented, to a resellers they're theater, Apple are And range sports So

that So we they as and in are of specifically before. sizes, they very these installers. the mentioned, vary industry them, to I And with many never engaged in known have InfoComm in and Ethernet tailored

there. So we're very good seeing activity in

DVR and the big I getting is so IP last Again, scarier, I earnings in one surveillance is mean, in I is other I the The a world mean, call, industry. mean, market. unfortunately and the and over IP the time mentioned as surveillance run scarier cameras, And probably you big Ethernet the know, IP through linked cutting of as cameras cutting traditionally, but it was to it's over and cable, over IP. security video more, installers have more and small. you and the

And few Japan, and spans doing doing stores these or retraining able in again, a just would a a mean, I apartment even that coffee everywhere, installers to about apartment cameras be are X-Eleven big we with banks. a to XXX complex who little small units cameras shop

VAR we're very active So seeing activities.

channels momentum than fact, line we the tremendous actually more other of a see second channels. As quarter, so in matter the even VAR in

two going in. us. exciting very those So these believe we're that particular we opportunities for are by encouraged really that And we're offering verticals

Brian Yun

then more you onetime margin of for few event? that channel gross the that Thanks for expand reason Or Great. going for decline the color. quarter? can just last And to it Are the activities is is quarters? on a a this marketing

Patrick Lo

X%. was activities Euro when headwinds year-over-year. marketing the the are driver bit a in primary FX talking of It's of right. margins, roughly down The channel you're You're the that little decline gross

and to In a a we typically on on, to we pull would In range kind quarter. activities of but said do terms were how activities. QX. going of that those in started it activity last is expect think that promotional it back-to-school normal QX to call we we There's I the essentially, we those forward of forward, not be promotional in lot expect go for – the quite QX, in I

Operator

your the BWS from Khorsand And from question line comes Hamed of next Financial.

is open. line Your

Hamed Khorsand

Hi.

off, how you now promotional that the going a about the the the that of could And on gross of year? activity lot half being second talk First into margins trend dependent will in quarter? surely

Bryan Murray

correct mentioned, April the year-over-year We is I've year-over-year. about the impact declining meaningful. talked X% WiFi saw a the QX U.S. which in as need And in market, to we

the then And can what products activities that in with in with lift into we see a period. X we're of QX forward, the push and with those back so market. into holiday expect promotional of see year, back rolling line number go going we half normally activities the which to get we really the And employed our we WiFi back-to-school, the promotional

Hamed Khorsand

promotion considerably up is Its reducing last activity on your for balance? that time topic inventory compared year? And Okay. as essential then to this that well,

Bryan Murray

took the the the we half really out U.S. long-term, production in some of the as China to of especially on for first we from additional year coming the Inventory, some for into chipset goods buffer factories move of

down, new We locations. we've expect that more these back become inventory as work rooted in to

think don't position. is with there I So any inventory concern our

Hamed Khorsand

activity, And points? consumers back products, there higher just that might as push given introduce back you be to with any there price the is new the promotion some concern

Bryan Murray

I so. don't believe

think we've higher WiFi fact, end, in on our very I good In market. reception routers X the seen

there. We've that the higher routers. look at out of are pleased with can priced You very the been market those reviews reception

Hamed Khorsand

Thank Okay. you.

Operator

line next Woo Ho Jin Intelligence. question comes the from from And of Bloomberg your

is line Your open.

Woo Jin Ho

Great. my Thanks for taking questions.

So held and activity the provider better WiFi Home the thought. What ex-service was quarter X and that of point you had because Orbi up single Connected second better routers thought? has in I little bit the the than some you a a access up single Or offsetting than the had little it on guys point? bit the of had softness primarily anticipated access held

Patrick Lo

actually what point $XXX mentioned. ones routers. the is as single augmented you activities Bryan – just WiFi just most by because X definitely the the WiFi a are mean mentioned Well, the we which X, healthy I on popular $XXX contrary routers, QX, were see they

on is all mesh side, from system X at our from nor the there While on X because and SKUs it's competitors. still WiFi no us, WiFi

basis. on wait that market and So is a see

QX, now point fact it's our versus single plan. routers a Yes. mesh system So matter than perform relatively the in of the better

Woo Jin Ho

products? is there relates it typical anything some your terms Or you that else WiFi going is provider anticipating the Okay. service are that then that's normalization, on? fill to And channel as of X in of

Patrick Lo

two, behind. the As years mentioned, service we three providers are

So X anytime going pull-in they soon. are WiFi to not

old XXac, gateways normal WiFi Orbi, stuff. old just same I QX and the XG good no, So the X, is XXac the hotspot, it's mobile mean,

Woo Jin Ho

at be the products X of then your additional driven think half, business came volume in much existing quarter? driven – product CHP how And skew Okay. into second will new versus going and that look driven out of if or that the second WiFi

Patrick Lo

just products is shipped the XX%. we mean, I percentage last months the of mentioned, in that XX right,

a XX% of of So quarter good of so XX%. fluctuate on good that – percentage quarter not

is at We two next that perk now right the So to percentage quarters. expect XX%. in do up

the indication legacy how products? price, good from are how So much these new that's much a from

Woo Jin Ho

second terms retail fairly new coming of And robust given you that of I then think the that, online me, are U.S. the especially lastly that's of that Great. going couple last How been have half? over for into in channel, quarters. should products

Patrick Lo

all Well, has maintain matter performance retail were channel disappointed that. The trend and it's as line. year, even pretty we in to WiFi we U.S. little a still able thought QX we be the QX. will mean, retail market below last flat fact, through I a of And that improved; was bit the by much

we declining even that our WiFi line, including Orbi, portfolio were year-over-year. the single still with in we wrong X strong a extenders across clearly, it's negative including very entire Mesh saw QX, WiFi And including routers, X.X% at

are However, do X decline moderate with coming even will WiFi year, and the slight growth. half first QX, U.S. out back flat the with coming or We of markets second Orbi more routers WiFi even expect the maybe out. X the to or WiFi further

Woo Jin Ho

gentlemen. Okay. Thank you,

Operator

Instructions] over [Operator call there And time. turn remarks. I further back at the for some Lo closing are Patrick no will to this questions

Patrick Lo

of everyone next you forward excited earnings second navigated year. you. second with That's you. updating I you prospect to call. today’s joining Thank half we call across we in look it. in And the to the all about very Thank pleased on of challenging Great. business the are talk our We're and October, how quarter. the for

Operator

today’s call. conference This concludes

You now disconnect. may

NETGEAR (NTGR) 24 Jul 192019 Q2 Earnings call transcript