Earnings call transcript Q4 2022

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions]

I would now like to turn the conference over to Erik Bylin. sir. ahead, go Please

Erik Bylin

Good Year welcome Call. XXXX Amanda. Quarter NETGEAR's and Full Financial afternoon you, to and Fourth Thank Results Conference

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

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

We have for questions. any will time then

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

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

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

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

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

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

Bryan Murray

Thank you, call. Eric, and today's everyone thank joining you for

namely switches, highly $XXX.X end experience hotspots, down XX, December and on products, and and was of NETGEAR's sequential flat demand. gig mesh ended million range the year-over-year. came guidance products a Tri quarter the X.X% Quad-band premium XX XXXX our for to XG revenue strong WiFi innovative our in which managed Net at mobile continue high ProAV differentiated basis

overcome for mobile our and led record our in hotspots the for challenges service fourth provider in-demand executed growth of this and of resulted XG partners. quarter strong the business by supply these ProAV another products, effort well to revenue quarter, team In SMB with

range. Our in margin X.X% guidance was our of non-GAAP operating negative the middle

XXXX, million XX, year revenues compared the $XXX.X net year-ended December to NETGEAR For were XXXX. full XX.X% of down the

difficult due supply chain, and on in margin grow the I'm the the was proud progress foreign our to and year challenges made we've we considerable our enjoy differentiation. of XXXX costs, higher transportation strategy transition of executing the While to a business high SMB premium CHP our to market, where segments exchange competitive business from

of the market, decreased premium XX% While digits double the year, for retail the premium market up full the broader U.S. full for focus long-term outperformed materially A approximately year. clear consumer the our segment. strategy products validation to on core our

products both to continue trends at We and the margin delivering expect for expand our growth businesses NETGEAR. the are opportunity These that Analyst we higher the the to for key discussed profitability increasing Day in market term. available that will long

right expect As environment the retail first the in to our uncertain levels continue to in progress XXXX. size partners retail pressures partners. of broad-based quarter, carry that channel inflationary the Consequently, we the we destocking quarter, we for many remain into made inventory to and fourth look while top continue to mind and macroeconomic

results into we material While expect we to XXXX, first as year. improvement of the will the CHP in dampen of move this back half retail see half the

operating the costs due was non-GAAP environment. dollar, XXX quarter prior delivered when compared to basis fourth margin higher $X.X declined This as negative loss more our we strength points operating non-GAAP quarter, and the In the seasonally inventory of purchased, freight X.X%. in promotional of million to and U.S. the

unfavorable overall. negative also of consumer year, foreign to In which at year, margin the than topline the market lost outperformed expected beginning of conjunction operating for led of our the U.S. revenue reduced led SMB further throughout operating million expectations Although the full networking leverage had profitability $XX.X with and the year the loss non-GAAP a challenging contracted exchange X.X%. to full non-GAAP and supply conditions the environment year chain we

quarter on the Americas up was and net a fourth the million flat XXXX, which was basis. revenue million, net sequential decrease of quarter-over-quarter. a $XXX.X up and year-over-year $XX.X revenue for For year-over-year X.X% EMEA is X% XX.X%

XX.X% which APAC Our $XX.X comparable million, sequentially. revenue period and prior-year was net down is from X.X% up the

supply saw for Our all three we securing progress regions growth year-over-year across SMB SMB strong business as made products. additional

profitability. basis the our had revenue meaningful X%. currency have have APAC general in over dollar on would EMEA of revenue would the negative U.S. a grown On our strengthening year the revenue year-over-year, only However, constant our past a and international and declined impact our XX%

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

the months, While about contributed in last XX% of products shipments. quarter XX our introduced fourth

XX% GAAP gross discussion this in quarter our is down the the in which earlier XXXX. compared From as distributed the quarter third margin release XX.X% on, on points in Non-GAAP to non-GAAP in down period, to fourth today. basis XXX XXX will was to XX.X% numbers. non-GAAP point is my basis The focus of comparable earnings points from prior-year compared points XXXX and of reconciliation detailed

decrease. driver at dollar is down expenses million, came was which the sequentially. compared in significant of in X.X% down operating X.X% to year-over-year and As prior $XX.X strength year, non-GAAP the the Total QX U.S. a

end of are focus. quarter was accordingly with evaluate on in make the areas We and of structural XXX from business headcount aligned basis that the XXX QX. regular Our a as in our down not priorities our adjustments strategic

Orbi XG as mobile will believe and future WiFi key such continue we We subscription our business services. growth premium will systems, to and deliver areas, profitability invest in Mesh switches, products managed strategically higher and ProAV

period, in Our quarter non-GAAP continued to revenues year quarter subscription X.X% technology the the prior the net and R&D. expense continue R&D committed service revenue XXXX. of of net compared for was comparable our and we are in in leadership, investment to as X.X% third of revenue of net fourth To X.X%

Our saw non-GAAP tax million a of XXXX. $X benefit fourth the quarter of in

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

fourth to $X.X and million sheet, XXXX the quarter $XXX.X with prior investments the cash million we down the short-term quarter. Turning of in balance ended from

cash the by for was and $X.X brings million. over which brings $X.X XX quarter, the cash by our operations months operations, to $XX.X used used trailing $X.X in months purchases during trailing equipment million the over used expenditures of our the million. to of million We During which capital XX cash total used quarter, total property

the during year-over-year down in sequentially. as segment, Orbi, X% segments, year-over-year Now on turning Connected demand. our our Gaming, $XXX for XX.X% Home and still Nighthawk a period quarter relatively which decline We a to basis of includes Brands industry-leading product elevated the the million experiencing Armor was experienced revenue the Pro and Meural quarter, side Nighthawk, fourth the year-ago retail results generated net

market hotspots is that a growth focusing networking us premium to mesh leading-edge Despite the same category a the to products these consumer mobile the and period, market year-over-year on innovative and outperformed double-digit confidence in key that premium overall XG in decline returning QX, profitability. in WiFi giving

to made year-over-year million excited XX.X% coming of that third tremendous on of growth well share driving despite $XXX.X challenges, we The chain across a in I'm SMB headwinds. revenue quarter record growth Encouragingly, the fourth progress - sequentially. X.X% a FX in consecutive and quarter. see supply strong the generated net at to considerable navigating basis executed geographies and for all year-over-year team continue

switch SMB for to even currency products validating year. full more the our rapidly basis, ProAV have XX% top a strategic nascent business in impressive we've would The our in SMB store which constant grew XX% be growing investments, made Further continues yet of market. line the the On year-over-year. our grown managed

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

Patrick Lo

Bryan. you, Thank

for as on to We and the premium growth margin [ph] market, transportation segment on higher potential. a we the long-term our from of of NETGEAR's while foreign strategy significant was transition elevated strides focus navigating executing strategy voice year XXXX exchange drove growing in headwinds made NETGEAR the environment, our supply during in confidence premium costs. our

in of both WiFi growth premium In our sides challenges. areas at systems, mesh of and supply even chain phase headwinds our ProAV businesses, macroeconomic we hotspots the namely Day, saw discussed momentum the current continued mobile our managed switches and XG Analyst

coming off SMB in business, thrilled a by strong delivered a by of its $XXX.X pandemic of the to levels. steady offset buying revenue continued saturating reflection year-over-year, spearheaded that line year, For our provider XX% our CHP a momentum. decline a the business retail upward business of full share but - business and SMB we service I'm of million, ProAV

And quarter impressive Ethernet us development tailored set apart ProAV specifically we partnerships. to industry delivered commercial products by additional secure supply year grow record and and XX%. strong to competition from of was a third manufacturers demand. record our team's meet Strategic managed steadily revenue This of to consecutive switch for AV result the have allowed our our NETGEAR full for the effort up set integrator revenue a enabled continued to

pandemic. line top we It's SMB strength bottom business testament to the that the improvement the a considerable of of since our have beginning seen and

continues in chain, the build grow momentum. even supply impressive geopolitical, to face demand SMB on economic unprecedented While the and to challenges of

further we to turning the business residential to market Day, Analyst over at propel our market. custom to attention recent integration AV our As our IP mentioned new are we

we're unlock will unique developing In TV transform R&D even available forward. to greater and addition, going over broadcast opportunity investing products the IP market resources in that AV industry

for remains demand WiFi products X CHP our mobile and the strong. Orbi premium X mesh XG hotspots On super Orbi side and

for customers have services mesh suited and needs devices of premium a products properties with position premium market. the connected connectivity the cybersecurity affluent peace a propelled mind, leading large us of in desire residential Our well and value-added of our multitude to for

portion X.X and in This our insensitive. the core more are a further strategy this category higher focus there premium are are price believe substantiates more them the to primarily margin where million also today. We segments households we long-term consumers reaching only on market worldwide than of small of

dramatically outperforming broader despite Orbi flagship products the products market consumer the year-over-year, not surprise. the declining This to broader full outstanding for as mentioned U.S. year retail our best-selling we come our saw market. premium does double-digits a reception grow Bryan As

this the in CHP long-term bolstering confidence Orbi unmatched growth NETGEAR's any by deep our margin business. the is company WiFi the for technological XXXX of we penta-band with mesh are with year, market XXXX the spearhead pioneered the introduction quad-band coming this in to new tri-band introduced completing WiFi advantage NETGEAR in differentiation in and competitive our and mesh rooted XX. market X in opportunity poised other

will the while These products flagship into XG also the building up units continuing up attach service driving We double-digit in Orbi for demand are growth experience to sold, best-selling Nighthawk premium year-over-year. our WiFi mobile and mesh hotspots market, further enable supply succeeded Pro strong rates. MX which in profitability and MX penetration ASP's,

achieved $XX.X provider we since highest the of revenue quarter service XXXX. quarter of This our third million, level

out of our speeds delivers To the mobile Pro portable customers Rolls-Royce of Hotspot in high-speed This X.X call further unlocked to we second. MX the which, per regardless thrilled build hear and market itself Internet unlocked unveiled XG our the distinguishes flexibility recently ultimate believe of also this Routers. connectivity gigabits momentum, up it the and performance carrier. folks, we're product to CHP offers We mobile of hotspots Mobile hotspots,

mobile will Americans reliable primary to unlocked of million Internet options lack hotspots want making XX only thresholds megabits fixed broadband the fixed service speeds connection. who access mobile perfect at second up per a for customers to Over give XX

ASP's, will carriers, market With uplifting the addressable to and provider margins time. across MX customers the our unit the service sell further ability channel, improving beyond greatly over Pro expand multiple growth we expect

mesh the The Premium segment robust resolution market. we leads to potential. undoubtedly and WiFi NETGEAR its of full intend market One already is a the capture

expanding to recent the at premium Analyst strategy begun new segment. have shared we execute acquisition our new marketing and accelerating customer our we for on Day, As

with help begins help campaigns them targeted journey average to extremely and This net value. them our netgear.com new a capture media stores, through lead direct implementing order seamless to online optimized up drive strategy performance highly customers, purchase

plan customer to loyalty, our and programs, leverage their Finally, influence we through membership concierge referral, satisfied upgrade base connections. other to

year-over-year conversion also revenue, trends designed We're new gathered have this fourth focused is past acquisition laser insights on strategy and service the over year quarter around This XX.X% confident the focused we sequentially. X.X% in which on $X.X marketing up ended and up we're and at expanding customer and million our approach.

that paid XX.X% subscriber growth year-over-year. in of XXX,XXX share to the case reached market, our I'm of pleased consumer retail - for contracting count

will premium our end segment subscribers tandem further XXX,XXX subscriber reach expand market, confident that and by ability we in anticipate paid in XXXX. we base remain to of the our the As the of grow

To phishing are devices. attacks highly value that end, these proactively also focusing areas, are own and headlines connected Privacy are namely added homeowners breaches high-end constantly privacy, more days. in And and who products we invest security, on to premium services support. likely our making

the into the that NETGEAR customers in growing growing services. the to our of and offering hotspots. service trial funnel Armor value-added activations, interest - are is we giving armed to built is mobile most only our our solution mind, year are bring this further becoming more IOT And rapidly working peace the a is our Armor of our are channels service. unparalleled trial expand select common Armor service cyber-attacks of router, and one more importantly To

we enhance drive addition, with and rates additional to planning capabilities, are while expect Armor service retention higher ASP's. even we our which conversion In also privacy increasing will

we services the in line revenue medium continue and on strategy, and expand expect we both top As our to bottom will execute long-term. this

I'm best-selling again XXXX and this Series, Award differentiation recently technological One XX update series. Orbi incredible garnered And CES mesh the our offerings and Innovation acknowledging by X system, X tri-band XXX WiFi are analysts our innovation pleased released a award three gigabit named was are Honorees. new our leading Orbi while Awards premium behind at experts of Industry that market year's to once share the products.

The went the router. year. Award last system, our XE award our won named Insight the built quad-band Innovation second A side, mesh on router SMB Managed from final WiFi quad-band Access same the they award Orbi Point XE WiFi WiFi standalone XE to Honoree. the was Tri-Band just And

Ethernet additions upgrade a remain for confident cycle that set growth behind accelerating supply improved XXXX. WiFi the high-end rapidly With an hotspots X and super from digital demand ProAV, over the connections continued categories, for and in X subscriber X Orbi analog our AV, with way, to in for we mobile premium our transition and momentum XG three up upcoming on paid conjunction position us IP-based

customers of products and relentless award-winning believe and services to integral portfolio premium expansion. best-in-class Our long-term with we our innovation and growth is resonating margin is

our year. and over opportunities obstacles And to Bryan, with comment that, coming turn I in to to would the it like and quarter on

Bryan Murray

Thank you, Patrick.

underlying We the of demand expect and our premium to SMB portion continue CHP to business experience strong portfolio. in product the

the However, work channel normal year. to to expect progress improving the CHP lead This their on retail results portion And levels. holiday should the continue optimize of CHP, partners we through period. will a our retail seasonal as decline in we with to coming off inventory we

to Together, first net revenue to supply range fourth Given allowed to to expect the first which the million strong expect $XXX million. $XXX quarter be million. provider quarter, performance our their from improve the service provider our $XX customers positions, we to in to channel approximately of service lead quarter us these in revenue the factors decrease

SMB to which impact freight allow see cost offset supply, continue reduced should completed quarter. business our relative to top the air lower to higher to leverage us reliance expect line the of on recently This spend. improving fourth We should

in Accordingly, our for first operating margin GAAP expected the X.X% negative negative expected negative X% to X.X% and be X%. operating of in is the is margin range negative be to to to non-GAAP of quarter the range

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

chain provide continuing to the remains pandemic confident caveat in due market so our the remain at the in do we COVID-XX guidance conditions are time, and to challenged. considerable that to we this While supply uncertainty with ability

challenges in the expected unforeseen component transportation distribution foregoing into events from than could occur our should centers of results regional partners manufacturing our related of operations, And increased to closure freight particular delays our the actual costs, any or differ guidance. greater or

from We audience. would the any like questions answer to now

Operator

of with question today Financial. first [Operator line Instructions] from Hamed Your the comes BWS Khorsand

is now open. line Your

Hamed Khorsand

going you cash your just with flow. about could talk what's Hi, on

your cash reducing in translating now that's coming You're inventory channel, really XXX. great not but doing into a DSOs job the in

Bryan Murray

Yes, sure, Hamed.

So inventory, of them been the inventory is tied pretty which to of from I we're to the say a things flow be more couple it has The that, NETGEAR, stable. the been relatively cash there. would would own owned obviously cash had a flow inventory customers NETGEAR helping be channel the would impacts by if impact but optimize stable. standpoint inventory which has our

CHP into we've as place a allow on reduce working on to which will are is been we've spend. we the said inventory actually down couple and healthier us getting our times SMB that of freight reliance a there today, side, air Underlying

standpoint we will programs. the some dating programs extend DSOs in holiday AR typically those the tied they were our season, participate terms to our with offer of payment bigger recall an and partners, may QX, From will you and retail in seasonal

it's DSO. So an elevated unusual not to QX see

That flow say QX do I do for do about we of Analyst rate programs. AR at largely we'll we expect ends because said, QX XXX% generate cash this Day, in expect start cash where a net the will I those that dating with flow at free the -- XXXX. did income that see to converting of position of some non-GAAP

feel confident to generate forward. cash ability about still going our we So

Hamed Khorsand

to as then is as as supply this far less chains SMB And commentary saying concerned, because your freight. moment air fixed you of how are your

have imply to of from SMB that sequentially kind increase going does that is So Do you that here. visibility?

Patrick Lo

are of there then still is freight then have still and air prevalent before almost we're high less we I short them. we thing now, but much items spend on and we but single to say here some still need. mean as that We is as air Right the sometimes have are There every demand. freight it's not there, that, would in shortage than popular before. I

So forward mean it's supplies. every by of demand say, still see we hard quarter, course, going the continue unfortunately is how sequential we'll the we're is to the still be situation to limited will uptick, I market what that sure like, supply but that's

Hamed Khorsand

it going is question as And the versus quite what profound I And decline? bit the side, a last How service much you back if can QX. than it levels. to provider seasonally as Okay. number QX far for out, is declined CHP of is on normal 'XX has a more this more be from decline

Patrick Lo

we look XXXX XXXX given is if whopping you and be to all declined to QX range, to hope It say, We QX would situation. worse. mean, QX probably given I market in want a the all it, the XX% hard it or of at it versus of that could layoffs same? is, but the the inflation be XX% the that

Now, premium the we're growth. is not still seeing because affected the at good thing is end

economic our good depending see of is revenue I However, situation. general by the which the on significantly portion low to end, is affected mid

So, big this so is if is see decline. one you huge that decline factors, two because year-on-year whopping of

one because channel inventory then decline to end-market have there Second is, decrease when to channel sales to do a wants work in further. channel is that inventory to we continue reduce the the

that's will side, So a yes. on the why combining revenue these step two, CHP pronounced you in more see down

Hamed Khorsand

Okay, thank you.

Patrick Lo

Sure.

Operator

Jake Your Raymond from line the question comes James. Nordson next with of

open. Your is line now

Jake Nordson

more 'XX get of chain of then back of first half of supply reopening, in maybe was with just I business, improvement supply the in there any CHP on Hi, little be the further expectations in that in 'XX? half half first maybe sort the of hoping and a of can the a improvement more China cadence SMB side chains to is color

Patrick Lo

few those our is especially all is outside China. the supply One the supply, out certainly would have switches, of or no countries moved components help, is supplies, power is of with to the dual would You're our for other most one you sticking and China willing that the point dual that be now many manufacturing power China, do. transformers And though even because components not capable do key to want related to to most our switches. wind people obvious of there either ProAV that still right, already have reopening of

really And coming air especially of freight help, unfortunately, and China with the really we depend has line reopening that much the of and in We get increased Vietnam, those freight on those to this think factories will not to China do probably out of to normal, in components Indonesia. second the Thailand, our expect back in in half we year. things will fly

about So we have it. to don't worry

have our deal first to of of in half will switches are we that ProAV We second supply have the what situation still this we unfettered to. forward year, unfortunately. looking in with the that's But half,

Bryan Murray

Jake, half, will slight said Patrick more improvement if a I expect We there. year. but build improvement just near add back in in focus the the term to may really it through QX happen do the as

slightly. I standpoint, level SMB QX a from factors partners mute. And with the two we're start destocking this retail point expecting so there's will the of And I at our think will think that supply improve to

will two think increase I revenues drive those QX. non-carrier something like provider things in to sequential XX% to X% excluding service

likely further service $XX destocking mark. the will side Again the router will the -- stay will land year second in the full-year still we But do $XXX will million around of million. think drop-off about stay the half QX and

Jake Nordson

thank Perfect, you.

Operator

line Your of the question comes next Jared Jungjohann with from Cowen.

now is line open. Your

Jared Jungjohann

is taking Paul, Hi, Bryan, for this my Patrick question. thanks and for on Jared

Patrick Lo

Sure.

Jared Jungjohann

could us puts 'XX takes bps walk and for specifically curious the I XXX was bps to you decline. about XQ through of some margin if just XXX in gross

Bryan Murray

sequential a are think standpoint, From I factors. really three there

XX be sitting range. point net strengthening about six of to relative I basis to - on basis also dollar was levels, think XX inventory. as the inventory in you probably point our we're U.S. one We're see months It QX.

that So inventory. been has lot CHP of a

costs freight through of in. working if the weren't peak you So ago can we're six imagine, kind we coming near months of that,

well. a go optimized second much we're of at with as should think we on do So as turning we're the XXXX. level corner that the into and that half more that burden We dealing be

the are primary So those drivers.

Jared Jungjohann

movement. to on Thank at you you And very the Analyst your topline guidance much. one Relative then have quarterly Day just provided follow-up. I

that if QX a than little revenue. provide the I'm update service an curious provider is could bit maybe for you Your lower on and guidance new

Bryan Murray

Sure, sure.

biggest the revenue between gave that think I we in the provider right guide we is QX the Analyst what said difference level. service at Day now

point may would but comments in given point to expected ability be execute we bring think little December, and back of be a service bit the year. half in at just provider You it's for the lower a on recall time, little a the of first side reaching timing thought our million for to year we $XX in bit the going the quarter It's half. the supply million this Still in At for the linear, in million that first about year. potential in $XXX we full $XXX its the more QX, it impact. full

December So the that's discussion. primary from the probably difference

Jared Jungjohann

the Perfect. very Appreciate all Thank much. you color.

Operator

are back you. call time. further to There I the over this questions Patrick, at turn no

Patrick Lo

you. thank growth. products long-term we laid Great, to the profitable propel XXXX, a best-in-class for towards In joining our everyone NETGEAR innovative Thanks foundation and today. with us portfolio of services

Orbi Mesh highly inventory the in our channel into continue and long-term us X high or MX and give mobile outperform MX our XX differentiated hotspots market. And XXXX, reduction Pro margin growth and transitory. our continue to soon Orbi CHP the systems X will Although the confidence XG

integrated simultaneously open leader SMB homes fully continue high automated while and are broadcast the transition market, presence as end the ProAV like the ones in of inroads to the TV we the make market side, expanding production in and industry, as segment. up adjacent the market our well On we'll

these at sharing, an talking our our next April. of all earnings forward I to look call. fronts you progress on on to update forward all in you. Look Thank to

Operator

you for concludes attending. conference. This today's Thank

disconnect. may You now

NETGEAR (NTGR) 1 Feb 232022 Q4 Earnings call transcript