Earnings call transcript Q1 2023

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Operator

Good afternoon, ladies and gentlemen and welcome to the NETGEAR First Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode and please be advised that this call is being recorded. After the speakers' prepared remarks, there will be a question-and-answer session. [Operator Instructions]

And at this time, I will turn things over to Mr. Bylin. Erik Mr. begin. may you Bylin,

Erik Bylin

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

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

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

any questions. for will time We then have

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

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

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

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

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

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

Bryan Murray

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

This in line. in largest was our million well increase experience our to million inventory $X reductions channel anticipated. actual reduction This approximately partner, reduction SMB of an million as reduction in came unexpected by and meaningful we to $XX our quarter resulted CHP inventory challenge partner. SMB largest as the was than While products, forecasting into our due of inventory higher e-commerce both by provider an or a $XX a unprecedented top service

a XX.X% Accordingly, XX.X% came ended our and below down range, was revenue which down guidance the basis. for year-over-year million, end sequential in April low our on quarter XXXX $XXX.X Xnd, the of net

of user and driven However, premium strong, sequentially normal X and Orbi products products outperformed quad-band products double-digits CHP end seasonal manage and market mesh WiFi switches of sales SMB our remain growing growing mobile broader again line the our despite hotspots, X of and tri year-on-year, our patterns. ProAV our by XG consisting

While the not our dramatically gross to improved top leverage it the during was from margin reduced enough quarter, line. offset a

low non-GAAP we and a As was range, operating at non-GAAP basis of our which guidance year the points in delivered to period to XX came decline million up prior the and result, compared of a operating compared end $X.X loss negative ago X.X% quarter. XXX margin of below basis the points

increase first and an net the the quarter X.X% of million, million, XX.X% net Americas a and revenue down EMEA down was was decline for $XX.X XX.X% revenue quarter-over-quarter. XX.X% of For of basis. sequential XXXX, $XXX.X year-over-year, year-over-year of

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

slowdown in Our last market Kong, saw APAC Korea. at of which sudden China, surge outside of China declines Hong into the end this COVID caused a year, QX to the year due in and revenue significant and

total and wired of XXX,XXX of Shipments combined for were wireless For XXXX. routers shipped wireless gateways of XXXX, about quarter the first of nodes products. million the first XXX,XXX X.X including all of quarter we and units, approximately units

respectively. XX%, products respectively. XX%, business about XX% and between and home between split was revenue products The wireless about split net net wired revenue was The XX% and and

quarter last the XX% in our introduced of about shipments. constituted Products months XX first

about our last months XX the first products quarter contribute introduced in XX% shipments. While of

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

to year products, experienced which compared QX higher both period and revenue, our premium both of as mix improved of well we XXXX, as the margins. As SMB mix prior CHP higher carry the of an

Additionally, improved was cost higher to as decreased supply determined lower we inventory due picture. experienced use and sea the freight an freight of when costs air purchased our

which and operating year-over-year Total up in sequentially. QX is down non-GAAP X.X% million, at came expenses $XX.X X.X%

was XXX quarter, up of end QX. slightly XXX headcount as the Our of for the in

where managed in switches, areas XG we our hiring believe WiFi premium business We profitability, and future invest such subscription will services. mobile deliver and and mesh Orbi hotspots, to we'll key growth continue strategically ProAV as systems,

However, to a basis of the other cost drive and regular business to plan we continue areas evaluate further efficiencies. on

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

was in non-GAAP of the a benefit quarter of tax $XX,XXX expense first Our XXXX.

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

up of investments, $XXX.X and quarter. prior Turning cash XXXX million the balance We short-term the the to million sheet. with ended $XX.X from quarter first in

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

which for demand at partners. experiencing the the Brands higher turning million and the service Nighthawk and channel we're Home XX.X% elevated and for Armor, both basis, carrying Gaming, sequentially. first Connected channels, our year Pro in relatively segments. year-over-year a The product levels experienced a includes generated industry decline and on period leading year-over-year results the as segment, of revenue down ago XX.X% Meural quarter other inventory Nighthawk, We quarter, retail still $XXX.X our Orbi, our down Now net to during

Orbi Despite materially a market and that year-over-year and double-digit our market outperform WiFi consumer period. the QX, hotspots X premium X in the mobile mesh decline same in in networking XG overall

strategy. Importantly, CHP these in line growth clear help profit end higher as an despite top is compared of to profitability long-term QX in business core lower potential the offset the improved year lost the period contribution and leverage products XXXX and revenue. our margin high This and result validation of the ago

On the end user SMB to the strong a year-on-year. in continued and garner products grew double-digits reception our side, market sales

million year reduction drastic of continue the sales with anticipated line. channel of compared basis, our reductions in However, inventory inventory net some and scattered SMB X.X% investments in also and products, a levels at in e-commerce the in which Demand to quarter, end turning decline constrained SMB ProAV Accordingly, while to unanticipated had over quarter, our at prior on XX.X% our our XX% we remains switch sequentially. partner, products, largest for pay as off. user channel came first a the experienced we in exceptionally this year-over-year strong a revenue area $XX.X managed growing our as top year

environment look broad-based still inflationary across quarter, Consequently, As to the first year, while the macroeconomic and the materially of uncertain all partners the pressures channel we our mind remainder inventory we channels. to SMB expect for we lower remain line both channel partners to headwinds top QX impact and of of in to projections. an levels CHP constrain with similar unprecedented continue as our products our top carrying of magnitude inventory top line continue a to to levels, on continue

premium business. more the the on due when reductions challenge our SMB positive inventory underlying for our end top guidance products indicator to quarter CHP expect growth, touch products we term, to continue covering of line our remaining this sales to the Despite deliver the our of near XXXX. I'll for second and in a market

commentary. the to I'll Patrick his for now turn over call

Patrick Lo

pandemic, macroeconomic are broad-based years Thank world. affecting pressures industries consumers you, inflationary After Bryan. an amid three the uncertain environment of around in the

in quarter, leverage. the than constrained In in operating original order first parts inventory of line carrying and resulting to their our reduce lost all more partners impacting levels business our estimates, aggressively top our channel sharply

market for behavior are clearly However, our of users. performance the the edge on trends products leading and to we consumers strategy have our high technologically differentiated evident in end businesses features pay will that overarching based delivering that

on XXXX. up our second profitable, achieved market our the first non-GAAP delivered We margin believe the of strategy NETGEAR where in and of we products year-over-year, beginning strong profitability gross the validation since premium to gross points XX.X%, this a consistently has basis and as stronger. margin quarter, XXX from of highest the Importantly, serves focus lower points away move sequentially, basis end been XXX of less

long-term core and macroeconomic when margin by margin growth gross impressive periods in levels quarter through confidence expansion potential even longevity inventory result of sustainability renewed uncertainty, gives stabilize. the our unlocked The us the strategy, especially channel of of this

premium X and QX CHP mesh Now holiday actually end turning on later are performance to update Orbi Orbi from inflection is the in in an this X we sales and our normal decline margin best-selling cycle even point. and poised these the enabled business. contribute period. remained grew improvement significant X coming upgrade WiFi face technological user year, The of strong, to for products a of to WiFi solid sequentially, another seasonal capitalize our products margin higher on to gross the Demand our CHP The quarter.

the attached to speeds launched rates high introduces second, from This to performance WiFi that we than to end router, key recently is As X we and tri-band improve NETGEAR's in again should antenna powerful new deliver the a share the growth generations. WiFi tandem the that our of transition router X service first are gigabits progresses, of capable ASPs, to up WiFi RSXXX. spearheading per long-term at double Innovation delivering the design, I'm as next mix inflection, and of our technology more and XX end the Nighthawk and and margins high success, is previous of of the revolution portfolio profitability. excited forefront low

modern land of features requirements the gigabit Nighthawk attain ports gigabit the four flexible and wired hyper-connected connections. port for fast, Optimized for RSXXX internet homes, also

our proof product even the retailing market begin this networks. their first $XXX mover already The at consumers' the quarter. expect to space, we Nighthawk is and addressable shipping as As further future for in will WiFi RSXXX pre-order X this available expand

followed our Nighthawk be X will our further X us QX, between putting distance and competitors. introduction by WiFi WiFi in offering Our Orbi

Pro and quarter-over-quarter. strong, sales MX reliability, and XX quarter unlocked remained user Europe. the fourth to hotspots hotspots MX the devices The and in retail up for speeds and just grew simultaneously, channel recently customer these to the Nighthawk It extremely MX gigabits in their X.X grow also year-over-year offers MX location Capable connecting unlocked flexibility unparalleled our mobile in for carrier. and portability, end the Pro customers sequentially. the XG security, of version products unique second XG to of Demand up saw and of Pro double-digits mobile launched unlocked the of customization the of delivering category appealing version the accommodate to per and

launch time. levels improve it our products ASPs and over inventory in the U.S. unlocked XG roaming. support with to next and month, version carriers for mobile growth retail key new At for These exciting be our will the will expand We growth year $XXX, of of international channel second three strongest domestic expect further it the market unit Pro Nighthawk seasonally the along will to half bottom all top of MSRP greatly line major with uplift hotspot contributors and addressable CHP we stabilize. when expect an MX margins

Armor top solution and Armor we most We are quarter, with only our ending for first improved security as are first with available quarter into these built protection year-over-year, the In days, consumers grew cybersecurity directly XX.X% the seeing the comprehensive NETGEAR our router mind paid XXX,XXX. is for and by today. demand subscribers the of the service privacy

Service and XX.X% up million, to sequentially. revenue $X.X up grew X.X% year-over-year

clearly NETGEAR is by paid only end our around are and we subscribers with customers, goal resonating messaging working that services of of XXX,XXX the steadily Our the towards can offer XXXX.

market as with would further online great opportunity highly value-added has the A the Increased a and the customers tandem. in our margin grow Together, base a to to Germany, channel, to NETGEAR.com guide helps these helped channel key these profitability and the of shopping have ongoing strategy U.K., premium element experience. our can we the services through traction accelerate operating traction. our this approach and drive is experience of deliver to in expansion. This Benelux, create our of expansion France, segment improvement grow our in in profitable through CHP growth premium subscriber Australia,

drove our growth, Turning up fueled differentiation of end to business. our and customer ProAV customer XX% manufacturer entire doubling in technological over inherent switch NETGEAR's over increasing partnerships business. ProAV the have made and SMB managed year-over-year, partnerships, The sales year-over-year XXX. in that for end inroads manufacturing XX% products substantial Ethernet has SMB growth great number our the of conjunction, we integrator In to nearly also year-over-year ProAV

to of the gigabyte are and by power opportunity building second on will poised our introduction Ethernet MXXXX with quarter, XX more the per success MXXXX over We which the the over more enable IP AV our ports. expand of budget switches this

transitions As fully momentum IP, verticals. ultra-high to analog markets the make and greater opportunities expanding available over we this resolution routes on capitalize cumbersome digital even from continue unlock new our across solutions in industry market to to intelligent new progress to AV

IP. from industry's our studio years the new broadcast industry protocol And to will by all accelerate SMPTE move digital that this support ProAV and will on in. We the MXXXX for analog switches only

the the of SMB revenue resume mix, operating highly expand and become a market, to its to channel inventory in trajectory stabilizes we half expect we part our greater and business margin and our As gross expand addressable well. second as profitable thereby our

also focus as market, Day, analog relentless rapidly digital the at we becoming a based continued the on well leader our segment Analyst transition capitalize [ph] integral to and has of categories accelerating premium high-end over the and on growing positions from subscriber discussed paid momentum our A recent innovation to in trends XP Ethernet market to behind NETGEAR our growth fully the additions connections. AV been the IP

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

Bryan Murray

Thank Patrick. you,

expect to macroeconomic in product uncertain premium even to and portion an We of the business the the ongoing broad-based face the portfolio, strong experience demand pressures underlying SMB and environment. CHP continue in of inflationary

as these to second quarter work the to and businesses a $XXX continue levels, will from expect in channel be of range at both similar efforts our revenue our partners the impact net million million. in a inventory to We revenue Accordingly, first experienced level with to we $XXX carrying their across quarter. to optimize expect be

in negative in quarter second And of to to be expect negative XX.X% the margin We range expected to negative GAAP operating is non-GAAP be XX.X%. the X%. X% margin operating to range negative of

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

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

Operator

Mr. you, Murray. [Operator Instructions] Thank

afternoon this Khorsand at And BWS Financial. we go first Hamed to

Hamed Khorsand

Hi.

the handling as It what's as imbalance? been like this been my inventory biggest So, comes you issue quarter, first question seems there's demand is, every challenge for that far an about.

Patrick Lo

Yeah.

they're the earlier, you're I think it in noted on think, I environment. seen and factor. surprise think different they're this as the a account was quarter I mentioned that of noted cash impact service the from the free extreme circumstances the some side. earlier from feeling I particular, companies, provider of is publicly challenges they've seeing And they're And The responding flow accordingly. in number I

So, I the that. factor it's to think surprise

in the they channel destocking about what means really I sell happen replenish our just same is to that the noted, that quarter. it rate. partners to of remind everybody, $XX And through, as expected million we won't As just

is But unprecedented. be strict both have, we we service amount So, said account implementing being tight e-commerce sizeable side, the guidelines inventory haven't largest some These before. we provider a expected expected to as and management and surprise we we across partner very on it the SMB seen factor levels the really earlier, the businesses.

that, for expected and QX. preparing now we're so, And into continue to

Hamed Khorsand

that the you offset you advertising can at retail And going more on are premium least front? to going business? consumer? try direct you balancing to then time CHP what's at how you are the the Are so about How spending

Patrick Lo

premium all online direct as despite of response the our decline. you're most those seeing of are CP on positive performance online, marketing focusing consumers the And right. market are marketings I products. who kinds from is we focusing are a premium on using right, high mean, and sequential of see of looking to product capabilities. for we our the market, increasing we Generally, marketing the You're products, we're do mix we continuous growth

and provide using web to NETGEAR.com give them our experience. to the also service concierge best direct We shopping our them stores own into website,

media as go of So, to Tom's partners, others Hardware we outlet believe our working our sites lot that partners some like types such with channel would as also of of also and the such and a we in channel technical customers the Report. Robb lifestyle

we're yeah, targeting So, doing them. a of marketing online lot

the way a best The Nighthawk on want the Orbi our any our one if we the at because offering is customers mobile mesh do are have solution is thing and and products, home only absolute very high-end our we we don't WiFi on the or offerings. competitors' promotions discount and go, of experience, these above either unique routers. then And

Hamed Khorsand

you question what's there? inventory last just where and how is, My managing plan is given the revenue are

Patrick Lo

cannot to we absolutely, do. channel what Well, control wants the

estimate So, in And are to return, very we putting down the in inventory our in. factories are inventory the slow surprises. coming rate given we conservative in slowing production channel also all these

manage it. that's we So how

certainly we is viewpoint estimate, a ahead and able standpoint get of in surprise conservative to believe warehouse. why and QX, in our an very the in QX, in than own from we taking inventory we that Now, balance would the QX higher what curve we're that's be

Hamed Khorsand

you. Thank Okay.

Patrick Lo

Sure.

Operator

next Thank at Raymond you. Norrison now Jake James. We to go

Jake Norrison

One, let of fiscal just Hey, hoping targets? and target year? service margin touch what operating your confidence the can non-GAAP you just half underpinning And I'm if could in us thanks made that, XXXX to here. guys. have back this load the beyond any on then changes revenue year you few a is provider the know you points sort

Bryan Murray

certainly, our the to guidance mean, channel put I has in terms times in surprise as for being we're of off right? the our we where the here and Yeah. back hold cautious, I'll there willingness that QX their this Patrick December year. to QX from environment start unprecedented dealing out guidance point, with we're with of We're Day. of kind a pace Analyst couple outlook the said from here, At seeing an of responses we're inventory. partners to

the we point, this gets then the lift. retail at that be CHP that that of So, the think And both that half year half. to second first is year the total destocking the year the typical back the expect the of half we that seasonal a the we things level the One of would moderate based of And on by the of -- to over index those half business second in expect will half two likely factors, secondarily, factors. revenues in XX%. second will driving XX%

So that with And in certainly margins suppressed. likely operating be non-GAAP that you'd seeing with guidance that is operating outlook out level, than different that that back put before. mid I digit we revenue half, level. lower annual there been have single to margins low think revenue the But in the

Jake Norrison

from one the last then around and me. And Has capital of any any going thinking and there allocation thinking here? forward Perfect. Okay. or changes sort any repurchases been share

Bryan Murray

Yeah.

said We're We're cash our it. always looking our balances, for buyers looking before, cash obviously our we're at outlay at planned opportunistic of we As stock. operational purposes.

all to ongoing so, allocation. And into regards with things capital are factored those conversations

Jake Norrison

Thank Okay. you. Perfect.

Operator

for you. Thank have things I'll Lo, appears this further Mr. hand to And questions you we no afternoon. it gentlemen, closing comments. any back

Patrick Lo

Okay.

proud we joining the NETGEAR of our you strategy. product made everybody reduction in confident impact thank And segment. inventory progress has partners, shifting our us while remain the that team for the long-term we are to high-end certainly and today. of disappointed by channel I premium mean, mix I'm our the So growth

a we to short-term, potential will top environment business seeing inventory and uncertain full the premium headwind our the these Although, are the line compression achieve of macroeconomic as continue related in confidence products more the portfolio margin our services, broader NETGEAR's unwavering. market. redone the with the outperform trajectory and and of with on high is consistently Armed growth in products long-term way

sharing forward I to our progress at on an our look update earnings next call.

Operator

wish We XXXX Ladies and all like of conclude your so conference the and great you to will NETGEAR Mr. a you thank first you, remainder Lo. would joining call. Thank day. gentlemen, Good-bye. that results much us, all for quarter

NETGEAR (NTGR) 26 Apr 232023 Q1 Earnings call transcript