Earnings call transcript Q2 2023

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Operator

Ladies and gentlemen, thank you for standing by. At this time all participants are in a listen-only mode. [Operator Instructions]

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

Erik Bylin

David. you, Thank welcome Results and Second of Quarter Good Call. to Financial Conference XXXX afternoon, NETGEAR’s

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

a any provided the finish quarter will for the of have with quarter Bryan, on third detailed by by of then by provided the time by the format The business second start with provided Bryan. financials review We’ll call questions. for a commentary guidance followed XXXX of Patrick, and

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

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

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

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

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

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

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

Bryan Murray

Thank you, today’s Erik, joining and thank you, call. everyone, for

the We above of end high execution we our of by guidance delivered are our the pleased net team this revenue as range. quarter

broader again our hotspots growing year-over-year the and million, X our products, was WiFi outperformed sequential business, quarter users partner our XX.X% and the expectations. service worldwide sequentially. XG end the premium basis. to demand, For Quad-Band of of once Orbi increased and $XXX.X and original down by X Orbi largest down our portion July which revenue market, sales XXXX, on In Tri-Band CHP our Enabled X, and year-over-year products, X.X% mesh mobile a ended outperformed with retail provider consist

and end user quarter in Europe. market, sales, positive its uncertain stabilizing. signs has by ProAV networking than particularly managed year-over-year, and Asia strong some in behind channel offsetting SMB our impacted been of traditional to the the market line in are the negatively weakness Momentum retail another XX% beginning in which we’re see more Also, macroeconomic up inventory delivered of environment, switches the

While on we inventory QX outperformed $XX to million the expectations channel the of experience top-line, the headwinds during our reductions continue CHP our we across form meaningful both SMB businesses of quarter. and in

gross mix provider our seasonality a of retail margins. service and revenue in affected business CHP Additionally, our higher channel

$XX.X This year the margin basis to high compared delivered we our down with quarter. million of ago operating a of points guidance operating of and in period X.X%, XXX and was of coming basis non-GAAP decline non-GAAP loss prior compared points XXX the Accordingly, negative margin range. the the end at to

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

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

significant due revenue APAC market to saw outsized Greater a declines Korea. and in Our China slowdown

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

focus on, introduced quarter of in while about our XX detailed on our from quarter today. point distributed GAAP From earlier about The is of products XX% non-GAAP the shipments non-GAAP discussion in second introduced numbers. XX% shipments. last earnings second will release points to months this in constituted Products last XX reconciliation the months our contributed my

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

to year compared our improved the period, supply products CHP As for the and drove improvement. total freight premium, considerably lower prior higher-margin costs

of retail experienced As a prior compared channel our impact CHP business. the provider revenue to quarter, service to QX higher seasonal and mix

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

was XXX quarter, down of end from in headcount as the Our of XXX the QX.

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

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

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

of was $X quarter the of tax second million XXXX. a benefit in non-GAAP Our expense

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

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

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

positive We the progress our in expect the further bottom line improves. cash of make we free reducing our year second half as return and inventory flow in to to

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

Despite in and the WiFi the the once in X X to outperformed with period. Orbi our sales consumer mobile to same market retail again a mesh materially year-over-year worldwide overall QX, users over market, hotspots networking decline XG premium double-digit growing end Orbi

long-term Importantly, guidance. to of these profitability core of higher-margin, us with and clear of high our the growth validation high-end This strategy. ASPs allowed revenue end products higher deliver the our potential above is

second net for products. demand continued by On side, revenue the quarter came our at SMB led $XX managed strong switch the million in in ProAV

by inventory compression historically market uncertain the sales of products. up low be ProAV environment, user challenged line year-on-year While partners navigate strong momentum levels to were macroeconomic as single to demonstrating channel we of digits continue end through our SMB high

Despite ProAV rapidly growing these headwinds, this market user end the investments the near-term clear XX% to compared category it’s year. expanding pay with off sales made in as that strategic continue the we’ve in prior to

inventory materially first we rates year remain the elevated lowered While of our businesses, mind interest across the half and channel partners. for both in uncertainty top of macroeconomic

low our CHP of throughout and line the SMB to inventory to historically expect carrying as year the half top partners both levels. channel We headwinds constrained second products continue

to second stabilize than networking the be market as consumer we to move the to see impact should that half beginning the in to year market and expect retail the half. broader remain smaller first we remainder However, indicators revenue is the are Encouragingly, of the the the starting steady of we year.

products product Despite quarter to CHP of appetite a XXXX. underlying covering our and the our line the the on products for customer more ProAV is our third near of which our premium our remaining term, business. remain strong, indicator challenged touch this the top for due I’ll in inventory reduction SMB when guidance positive

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

Patrick Lo

growth premium based switches, mesh that Thank we in remain well the managed NETGEAR our premium are our We about ProAV rising headwinds. you, subscriber clear QX our margin, namely so even the optimizing areas paid It’s came inventory pleased with face base. systems, our and macroeconomic mobile headwinds that help continued lead levels in partners selling our low Despite higher together expansion. a service ASP of will profitability momentum the that strategy historically in products subscriptions, paid on and investment levels, that growth Bryan. guidance. of the strategic XG to well as channel as to I’m these long-term results hotspots higher WiFi have confident

product we margin transition portfolio. year-over-year, Accordingly, the our gross points of high XXX strong delivered non-GAAP XX.X%, increase basis to an and of to end the testament of improving a

channel have the we that hope experience seasonality, business market we signs improved in our abates. which gives continues inventory normal predictability of to reduction begun to stabilize, As us will once see

performance high systems demand our mesh In our speed safety the is for business, WiFi strong. and high

the our X cycle as X mesh Orbi solidifying selling our the user half second Orbi grew year WiFi of in mesh. upgrade with products For and of for year-over-year WiFi imminent confidence sales X rollout X best Orbi WiFi our and roadmap begins the

WiFi expect tandem to service router, RSXXX, long-term will in X new they X quarters. X and profitability. WiFi push growth X cycle We the initial in Orbi recently the new to margin expand in products QX. confident into XXXX. announced ability than to our the look and Other follow We in during WiFi mesh, XXx with our forward form additional and upgrade we’ll to Orbi WiFi beginning X Together coming a WiFi deliver attached rates our ASP’s Nighthawk start our shipping

our Demand domestic remains sequentially. we so and Nighthawk greatly solid along retail NETGEAR’s user XXX the our plan offers MX in is version quarter-over-quarter. XG addressable flexibility and for mobile would new support the add category Traction end of In year-over-year MX countries, in which both mobile solutions truly unlocked market. hotspots our Pro. We carriers unlocked an best sales are grew with products, and demand a MX lineup international of behind QX, Pro all digits hotspots strong expand also grow three and our that roaming with user are and end major class. to international double unmatched hot upgraded refreshing in these remained spots channel The of

worldwide, improve new line year of and back and we the direct-to-consumer CHP the the growth and CHP half of channel abates. stronger time. the will products excited XXXX. margins be sales $XXX, uplift our inventory of At new business top over and are it our will with as on further to seasonally These growth half line prospects into of of an second retail way MSRP bottom With and exciting top in renewed webstore in reduction XXXX bottom key expansion the more further of for unit contributors the ASPs growth products

integral our service, parts TVs the can a and router becoming as smart More and has power only on your protect Outside are Bitdefender every demand Armor devices. we which of cybersecurity device Customers plugs smart our of refuse into home. of protection compromise privacy first of experiencing are growing as the home more our connected setup directly offerings, trusting shown. in and hacked Smart hardware together research are and is NETGEAR the to connected Armor NETGEAR and built who most with line defense. the devices

NETGEAR the second subscribers. quarter Armor available Given subscribers will XX.X% solution that second most quarter, comprehensive the the by today, with in our XXX,XXX paid is quarter, year-over-year, we ending the grew security first

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

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

element worldwide, strong seeing key strategy. also growth which our are direct-to-consumer stores sales remains our a We via online of in premium

less the higher sensitive service attach with maximization Our provides direct and performance improved share the satisfaction to rate. wallet conscious, cater price store platform and to premium customer customers best a of

larger, the behind anticipate the As to our subscription drive and grow with profitable base channel our and segment building the momentum market, channel in but continue our subscriber premium premium to across tandem grows this footprint of strategy. we we’ll growing with this highly invest globe the

with in a that end Turning switch saw products, managed resonating technological to NETGEAR’s our ProAV presence is inherent customer ethernet It switch globe. around is up again business. the solid SMB differentiation once with the year-over-year. clear ProAV products growth managed our ethernet customers strong XX%

market a in worldwide. and is we progress make the our NETGEAR ProAV and integrative growing manufacturer leader partnerships in

the innovation our only are are industry to ProAV excited the IP, transition residential to It’s we the over cumbersome line, with who opportunities such and expanding AV as the analog products needs proactively solutions about not robust and verticals experts specifically As industry’s to available markets. into new market the resolution, broadcast portfolio, from ultra-high even are recognizing our our greater tailored unique was unlock custom integration intelligent designed AV digital customers also partners industry. of of which

We XX of that all Orlando, managed power low IP over even and last our month InfoComm’s low switch transport AV Best Florida. This more switch and second managed introduced enables per AV of are Award Show gigabits honored won recently powerful in jitter the Technology PoE latency, MXXXX AV ProAV budget with more losses ports signals. for

were SMPTE of software support at of the year. later XXXX broadcast Furthermore, this on side, we the protocol, video

a such, and our As to improve into expect business revenue our becoming profitable trajectory of heading in greater our highly mix XXXX. we overall resume SMB its margins part

And I’ll turn year. and the opportunities to over comment our with in that, back to Bryan it and coming challenges quarters on

Bryan Murray

Thank Patrick. you,

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

beginning stabilize. broader retail indicators that see networking is to market to are We the starting consumer

rates to these optimize to of carrying be in businesses lesser million. range Accordingly, experienced a revenue channel inventory quarter levels, expect our expect $XXX with high, as to but will continue in work the across million partners from third level impact However, net be their the at we both our revenue than remain interest quarter. to we $XXX second to a efforts

to to quarter operating non-GAAP negative margin to negative in X% of X% of be margin third range range negative the expect to GAAP in the X%. We be X%, negative operating and

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

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

Operator

Khorsand our with Instructions] Financial. you. Hamed Thank take question first from BWS We’ll [Operator

is open. line Your now

Hamed Khorsand

Hi.

my first change outlook full a was what this service for as was, about look provider does So the order? provider little more service the How total revenue far as it you could talk concerned? just like bit for And your revenue much year? question you as would is

Bryan Murray

Yes.

was from the biggest There in from quarter. I upside service there. we put guess, inventory about partner some, was thought On our I’d carrying majority that levels. the coming million unlocked coming say upside $XX the demand provider, And from quarter, of largely of rational more the into

but million we may level little extremely You – from the were down softened is demand never recall a seen pull-through. before. coming bit, working most that that discussed that inventory incremental low to of They $XX they upside a last quarter that

to the per terms In level outlook guide going the quarter outlook, would $XX at and I is we forward of that million say would that probably people this point.

Hamed Khorsand

as has are been then is would concerned QX far for spot seasonality-wise. not strong Okay. usually, the And in like home a to you you as you retail, What see? seeing that

Patrick Lo

going to we actually Actually, returning. No. see a are seasonality

of seasonality QX. to normal the So we expect uplift that XX%, happen this

Hamed Khorsand

breakeven Okay. positive pricing as reaching are it discounts that’s from and margin? you as And far what concerned, preventing just a or then is operating

Patrick Lo

another channel And still channel destocking. some will quarters. two we there’s that last believe Well, the destocking

bottom market. lot less sold line a hurting actually shipping what the That’s in a perspective. definitely us from We’re than we end-user through basically

Bryan Murray

sizable, to about Patrick Yes. quite was add And destocking million. referring level $XX the if that I QX might there, was

was You million. may $XX recall about that QX

non-GAAP It’s half, the probably to been the the we to level level. continue the level towards pretty loaded in it’s think likely a which of the in reason, first half probably step-up QX. And but in in more we neighborhood front low we a first about us of XX%, we year. meaningful think about saw that in little that for single-digit back of the that going of takes in it’s half think of half So probably QX, what do margin profitability expect would a to at

Hamed Khorsand

you. thank Okay,

Bryan Murray

Sure.

Operator

Raymond Jake James. to Norrison [ph] we’ll go with Next,

Your now line is open.

Unidentified Analyst

you. Thank Perfect.

talking about again. that So just

stabilizing are could to levels going confidence from in on be and margin the fronts seeing going just if said perfect. back would operating XQ, there? you’re network both about you you what in to asking that, lot half just could stabilize, you’ve color that had provide more you channel So signs that you’re the retail the There’s load could a unpack be of the investors that be inventory broader market expectation with seeing

Patrick Lo

seeing is to relative pre-pandemic we’re quarter level, every what the Well, decline stabilizing. is

the market It is level. the deteriorated. last XX% retail three roughly pre-pandemic below for hasn’t each example, For about U.S. size quarters, quarter’s in

what and be normal on is X%. we means So to of then XX%, up. seasonality. That using And the as market QX, a because expect QX we is or down QX then to based up by that’s the mean and it about roughly QX, base following stabilizing, it flat QX be to that, slightly expect QX to we

market So the returning shrinkage to relatively that’s is pre-pandemic normal because the the level. entire seasonality stabilizing

mean. we what that’s So

terms which to In stabilizing, weeks because, channel they inventory of of a this, means carry inventory think market. that of bigger XX about used

XX they XX only to weeks think there. to I the smaller of that would eight right? actually to markets, market, Now shrink like smaller when weeks shrinks, to would We’re the shrink not market weeks getting we’re there the they getting of

to take two Yes. the will about of it there nine think more I to get us quarters weeks smaller market.

Unidentified Analyst

And last Okay. level. for then high a more Perfect. me, one little

X talk Just see if WiFi XXXX opportunity degradation we’ll any for in X ASP devices? the the about WiFi refresh and

Patrick Lo

ASP sales, will X products, the that. XXXX. which go We yet, which you X don’t latency. But WiFi XXXX, of higher But there in towards will when so, of ASP will WiFi of better in because terms weight we – WiFi believe be a clients and and X, ASP. expect the And X. so of is course, any the don’t because a see more speed more yes, into and X be then X erosion WiFi Initially, of significantly technology be we the in many there there higher do aren’t significantly is WiFi than WiFi

to years come. So go mix in will that effect, see, of because ASP to the we up do continue

Unidentified Analyst

all That’s for Perfect. you. me. Thank

Patrick Lo

great. That’s

Operator

the any remarks. time. or Patrick over there And questions closing further are Lo to at additional I call I’ll back that turn this no now show for

Patrick Lo

call. joining Thanks for everybody Great. the

making we in of our pillars year-over-year pleased strategy. quarter-over-quarter and really are We’re the progress continuous four

how products, and side, capitalize early more them will on we on you And really And those side, call. the at SMB three a focusing our On to and of update could we’re XXXX about And CHP things: tremendous we going is the going it’s of it’s elements the be aspects somewhere more in which clearly XXXX. of those the opportunity on into basically December, and more sales. November, earnings end in Day, subscription ProAV. premium the very in direct-to-consumer share excited next we’ll Analyst growth

So you again. to all to look forward talking

Operator

today’s concludes conference This call.

now disconnect. You may

NETGEAR (NTGR) 26 Jul 232023 Q2 Earnings call transcript