NTGR - Earnings call transcript Q3 2024

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Operator

Ladies and gentlemen, thank you for standing by. [Operator Instructions] I would now like to turn the conference over to Erik Bylin. Please go ahead, sir.

Erik Bylin

Thank you. Good afternoon, and welcome to NETGEAR's Third Quarter of 2024 Financial Results Conference Call.

company the from us are Mr. Joining C.J. and CEO; Mr. Prober, Bryan Murray, CFO.

for call start of a on Bryan. and We'll financials any provided the time fourth Format for review third commentary the guidance the then by business will by followed with the quarter quarter CJ, provided of for have the questions. by

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

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

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

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

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

Charles Prober

transformation. joining Good speed the and marks my executing afternoon, at and today. call with which for and progress our our X-month on I'm thanks Today the anniversary thrilled with we're NETGEAR,

cash our from transformation second, X long-term shareholder way. Today, heels cash higher-margin strategic transform investors our increased on on topics: We current I'm property. were recently by an plan. we over business, million creating planning through and profitable, will revenue I quarter. results, September. contributed and reward update an increased $XXX shareholders NETGEAR guidance our increased inventory intellectual operating ever are that lowering delivered that focus Our few. growing income There we first, process; factors highlight strong balance will flow we will that our confident cover capital a third, defending excellent along remains our was a our above I'll new these value. our more the in the than and several and and and into completed that QX of generating successfully allocation the on We to following the and QX; highlights attract

plan. to rebalance suppliers and channel aggressively acted behind now and stocking we business. line. year, we're us, team brings the us. behind aggressively sell-through, we proud identifying of also sell-in of this matching how First, more destocking linearity very our issues worked which After get That the implemented to benefit a the top with earlier is successful with of this customers I'm

our inventory is demand Second, end we year. of QX towards inventory to goods to we're executing. X improved challenge. disciplined achieved $XX in and March approach inventory and of stepping million months finished execution, the as This supply supply is of to reducing in We reduction up driving a planning the goal the team by the more

NETGEAR. within opportunities Third, growth we are identifying exciting

quarter. The ProAV APAC, contribution reliability ProAV and return to manufacturing over improving growth another a and increased momentum year-over-year as this that launched generation. Fourth, market-leading of products system overall with both ProAV further vast announced our growing our integration had several use levels Poly driver polish number and of of historical margin. America business for ecosystem. business North in business the a on further to strongly NFB with deep the continued of driven is growth of We gem is solutions. their ease example quarter, Poly grow HP We XX% and great partners line and this XXX, we to Studio flow enabling believe Our ProAV revenue across record this over and can GXX exciting top We strong businesses long-term by cash that to our we're we use and innovating. a

Our that XG QX. was highlight X first WiFi hotspot pull-forward combines the Pro, a key MX mobile and the launch industry's in of

products launched expanding been also several addressable We very our with and by market. X WiFi consumers home received strategy that networking have align of well our

simplifying fact, progress up revenue. offerings recurring to our most the demand. Fifth, businesses. revenue our as consumer and across of recurring strategy In approximately introductions, our BXB keep saw we recurring continues we and We the are ended revenue XX% subscribers, grow we're to implement for priority XXX,XXX quarter make growing new struggling product This our with we of the with subscription year-over-year.

of Finally, we cash. unlocked additional million $XXX

IP resulted given expenses also will us. legal large several G&A lead to with settlement a the lower in litigation between Our TP-Link of proceedings dismissal that

overall, the today, listening Investor employees, these the company my global spring team of product customers, the Internet. after of investors of next to with shift kicked year, mission, I our mission X-year new an So, Internet purpose year. NETGEAR's wowed where truly customers been This on and world. each Fast leader to first businesses. deliver new touch and the forward in partners, this to planning of to NETGEAR. be new a more the earlier efforts. well at innovative to ways interconnected I'm update month culminated quarter. the prior direction topic, our a for the look my purpose such of for connecting discussion the in of second going each by and to has launches the mission I'll values, direction we and connecting world tour to of largely the the great excellent briefly, our in transformation early Day work days this about on to we're was streams a off the future world, plans our accomplished. enthusiastic major half with longer-term In in-depth strategic forward. I'll met now and served a forward This where work an we new milestone from in define of set and ongoing and work around several hit a

through extraordinary the is concerts, We do India, in Our schools experiences. connectivity for this the the that is our in powering purpose for rock extraordinary power and and XX new gaming professional experiences. streaming serve North best-in-class today our Enabling events, will enabling enabling next role sporting us home to years new Star.

Every specifically of solutions new do critical intelligent which though what to with Our we delight unleash this this points. word chosen elaborate to I'll mission, a is connectivity and care, will in more of defines on the just mission potential purpose, statement couple with full was that protect. realize

on AI capturing to our our experiences incredible that NETGEAR's delivering and as customer AI via solutions First, focus delightful will of and part intelligent legacy is play role in the of our importance innovations. software in value customers. delivering is the And delivering be transformation, software devices.

states unsafe, protect becoming battlefield nation Second, a is by element as and by States upon PRC United waging world against cyber launched is critical which recently. the increasingly the complex, our typhoons the evidenced is the war, of mission. are The various

is require an a continue the of U.S.-based, on mind trusted connectivity peace NETGEAR will incredibly well to realm Delivering to we innovate company, core deliver our providers, As promise this consumers, so of publicly-traded is in partner to differentiation service the positioned that independent, businesses. to security, of us and our to part be the customers.

and the We've our and performance, integrating of to innovate We're that There purpose and new the example, business will enable we to differently that. many the of behaviors and for will us transform defined we upcoming I us this Moving business to will Day. deliver our act on responsible think NETGEAR's for on though our new details for about new our values. investors. things are our values values allow mission. transformation will culture customers, Investor for do, into recruit, everything new further our require the that we preserve, great be save manage stewards values will the how to

strategic the was a of this our NETGEAR. X-year first-of-its-kind strategic On for process planning development plans,

new me share of have coming direction this the ahead, did company teams in and I'll and process. opportunity are of the Our clarity incredible taking. Strategy X we analyzing big VP out we our the takeaways for job an across

I'm First, margins, generation. growth, stronger improved see and operating the path is to clear achievable. saw ever into a my opportunity officially role flow that more growth in I long-term stepping than cash confident fully before I

is quality and high a to consumer with market have foothold great with that our and innovation both begin NETGEAR recognized leader a across with because We technology synonymous a is businesses. BXB brand

greater get opportunities lie our with our profitability. added there that Many to significant involve the of NFB share Second, the plans addressing business near-term and our market given NFB benefit have markets the potential these margins is into of investments recurring having also to this highest businesses. side, our expand and the stronger revenue businesses large on has will potential. directing

NFB stabilize Finally, a in and as of further businesses, business XXXX. see the margins revenue we gross NETGEAR path growing growth to overall consumer we and invigorate our expanding our

We do is our at plan. have year. My update next share Investor excited point finalize to an earlier, are more XXXX we're to work half an planning of as our we And the I team. Day last our to first for on transformation mentioned on

are we've As I Law management also us. our new executives capital our expect lead in of too share, front mentioned we financial with and BXB Since generation. I'll product attractive to leaders of for onboarded NETGEAR XX revamping long-time now with better sales business amazing an at incremental to cash executive. Alto capabilities hired to stronger from Cisco BXB in team. opportunity human turn years Badjate and because lead Ruckus. go-to-market All user investment and last quarter, Networks capital our the are these results to our market mostly sales see and the a pedigree joining plan. of deliver experience experience, Eric has we allocation NETGEAR's products, BXB over Palo Eric business. and our they hired in then, this perspective, Pramod help We've operations BXB And

I but early drive including our during differentiation of authorization shareholders, earnings, acquisitions. expect period. From in active can capital balance, these. revenue. confidential plan investments of investment X Since we million to you our the NFB and mostly settlement software completed organic noted our margin in of shares in an an the given QX cash each of potentially repurchase invest covers year, further stronger and With business negotiations with even I'll TP-Link. first we for invigorate us the quarters, growth expanded the market in restricted in of and about areas: joined cover expansion we to the post market plan do Our stock were to briefly previously, as organic the perspective, to an via of recurring and be I each repurchases QX business, in this $XX return X out

this slower investment growing and of be of OpEx business. will Some from incremental pulled be parts will the some

development be experience, that will our accretive QX. opportunities transformation. teams and on leverage brand capabilities consider both core completed us We as consolidation opportunities adjacencies all of our work our is selective include investigating path the forward. improving complementary that closing, the define very current XXXX happening in is we'll could that focus deliver many acquisition margin for earnings. extremely to on recurring want that simply are The to a capitalize expansion, integrated I sides we done the to the transformation or our more had bar opportunities. In our customers evaluate deliver opportunities While customer acquisitions and the revenue; the performance these accelerate focus my on drive great will high, delight thank that our NETGEAR we at incredible NFB be for the primary could business. businesses, much our offering we of of a a hard Having software are differentiation, to that so allow on distribution would our our M&A or product on with work We've to be to fence, footprint;

start an now during to delivering shareholders we're our we Bryan to about questions power excited to and Q&A. it as We hand experiences. I'll and extraordinary transformation, amazing forward over your have for look

Bryan Murray

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

our guidance revenue once provider and this MX execution our both outstanding new above driven are in XG our Nighthawk revenue, team the of higher-than-expected profitability. range, results again to profitability These including mobile pleased Pro quarter a hotspot. the early return WiFi We by buoyed with by by X were delivering launch service

market both quarter destocking aligned position took business for to the reduce the As the volatility. to more trends in of prior decisive the predictable better we a reminder, channel accelerate sides and of performance to action

We benefits this by have already as evidenced plan quarter's begun of this to see results. the

with years, additional XX lowest quarter. over maintain channel also in X improved partners benefit their We saw DSOs, of which inventory the reduced the came days, needing in lean linearity throughout to due level our at the positions to

in record our managed expectations NFB further MX switch Pro portfolio, we in-market market, and performed well were more CHP, of strength in We products. segments delivered we the able a our against products. sales the quarter launch In and once again saw premium segment addressing Our progress in made profitable ProAV our next-generation pull expanding to product other mobile our hotspot. of of continued

declined While year. to QX to compared quarter, third in the in market slow the CHP decline in the retail size continued earlier the

do we market However, promotional due the to part see holiday period. remaining in U.S. the retail quite

For the our XX.X% XXXX, on above basis revenue down sequential quarter guidance. the XX, up end of and year-over-year, ended was million, September a high X.X% $XXX.X

last quarter channel in million the QX XX.X% clearly XX.X% which basis up our continue net sell-through million, NFB's segment growth strategic switch progress the saw market. in for and benefited quarter by products CHP destocking $XX.X behind well cash which drive delivered than positioned outperform reaching Service originally up year-over-year. cash of investments. After sequentially, to the our to year-over-year ProAV delivered grow year-over-year, own nearly the and Led of boosted with a continuing and TP-Link, our in XX.X% XX.X% we million saw settlement our mesh the the mobile with of team. the Consequentially, products, sell-in and by addition, business In hotspots, flow to launch. revenue great partnerships. In $XX.X from because and with our execution us is our short-term by up QX, double release generated the million million $XX ended again partners. continue with by QX MX once was demand also revenue behind successfully $XXX in a with anticipated end-user building Pro entered to we match $XXX quarter, manufacturing sequentially broader down we momentum pulled $XXX.X down and on digits trajectory, managed third into free NFB million, above which approximately revenue putting quarter, by premium our expectations latest We the provider earlier and our inventory make

XXX,XXX this of products broaden third warm in new the expect our time. performing the XXXX, through our for million reach to we Our of well service the customer in we recurring generated strategy and receiving to increase are innovative exited release reviews, our and recently introduced a subscribers, build product additional power the benefits revenue Nighthawk brand market recurring that planned $X.X technology. With testament and over full new a We year-over-year quarter with quarter, XX%. of introductions

We continue premium privacy, cybersecurity by support. to on see and increased protection, emphasis consumers placed

we our grow that strategy focus subscribers, noted forward. to As confident going is are is recurring we quarter, optimal the and that last

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

of revenue progress year was sequentially. second discussion our NFB third quarter is begins to X% was our prior incurred down X.X% points point improved from the the up and by compared we TP-Link the ] Non-GAAP continued XX.X% up products old quarter operate as legal sequentially. From achieved of year QX cost [ up gross year and $XX.X down from and this The in $XX.X the and focus this release impact profitability points This above marks in as inventory quarter the legal comparable Non-GAAP inventory numbers. our points operating XXX adjustment XX.X% the down the net at inventory our today. million, year-over-year million time XXXX non-GAAP begin have XXXX. mix XX% APAC we on aged basis from in actual on, settlement XX.X% to of comparable detailed year period reconciliation the to first prior to use compared of margins from million, period inventory. Compared the margin earlier basis in was XX% earnings prior were XXX quarters. my freight and distributed we gross XX.X%, Our in to to of period, with GAAP is non-GAAP will lessen in which prior working Total benefit to by expenses leaner fee higher expenses to begin levels. impacted air lowered offset at in non-GAAP expenses down came operating the $XX.X our of

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

and strategy make long-term our refining currently our business. to investments, are NFB primarily looking We in

to and areas costs will Some incremental come that growth some deliver will areas the shift be we profitability. of will of this the from as business other and expand long-term

XXXX. the To Our points as in profit non-GAAP quarter as historical X.X%, net of technology R&D. The year points the in compared of improved net having basis in our $X.X continue product This a compared of result down destocking quarter, quarter to million prior committed settlement, third and and revenue to was new the to the legal third compared offset the and XX.X% product partners revenue the end in range. and of of was ago of are of margin costs with the prior to above up combined XXX the third the investment of an quarter guidance enabled leverage period year quarter. operating introductions us deliver channel for our TP-Link high our behind X,XXX revenue operating expense basis with net period non-GAAP we XX% R&D the second of comparable leadership, us our of from to continued XX.X%

expense Our in non-GAAP XXXX. third quarter was of $XX,XXX tax

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

investments, and cash quarter prior settlement. million quarter with balance the the the $XXX.X million We from third $XXX.X is cash and from litigation the equating of XXXX increase in to $XX.XX payment the to short-term TP-Link's sheet. The largely to per share. up Turning due ended

settlement the excluding of our impact, quarter fifth delivered we consecutive even However, generation. cash positive

to working quarter, capital continued the which cash sequentially. convert our in million declined lowering significant and inventory progress We into our made $XX

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

With in of benefit seasonal partners, certain repurchase will in the our legal shares channel quarter, $XX third half approximately the to of QX, with the reduction price expect the NETGEAR to the of share. the at of we generating an stock better-than-expected even combined million restrictions, in cash In average we in cash of of settlement. $X.X to but spent still with be terms trading inventory using of that common QX, range without million of second $XX.XX year the we due per XX,XXX neutral,

XXXX, repurchase reserved million million current spent approximately have shares. X.X We X.X $XXX.X have the under million Since authorization. shares we to beginning of

our during an repurchasing to plan resuming repurchase restricted the and enable be opportunistic will open QX well. we in We window, share program during period as

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

cover Now our QX XXXX I'll outlook.

of is managed market by to QX, in Pro from we our both promotional $XXX our growth range led expect of switches. Within of performance see NFB, provider businesses. million. the revenue activity retail the continue basis. Accordingly, in experience continued net signs MX third in for more recovery, market we CHP, to channel revenue to hotspot the we $XXX slightly experienced within ProAV we line increased the quarter Within After while $XX expect that on we we're QX, As fourth to seeing our expect quarter, of million aligned to expect with service we expect to sequential the be in launch be down million our the approximately business. a of predictable mobile

shipping higher-than-expected inventory and operating variety costs to of efforts be Sea a due continue impacted gross crisis. to by expect margins transportation the and We margins to reduction factors, Red including our

to we We also the holiday GAAP X%. range negative XX.X% our X% to to retail X.X%, due fourth in our the quarter expect the operating non-GAAP expect promotional margin of to increased be business of period. negative CHP range negative activities to Accordingly, part be negative within and margin operating in in

the $X Our is for expected the and to be million, range with $X fourth GAAP be now tax $X million in we benefit for quarter of benefit our of $X of to that, open range up million expected is tax non-GAAP the to XXXX. And to in can questions.

Operator

is Raymond question Tindle from of [Operator Instructions] James. Your Adam line first the with

Adam Tindle

update this. I CJ, potentially start -- congrats the an wanted on just come -- to what's on TP-Link from to settlement

shouldn't the TP-Link there's concerns. at high some security could follow the up that versus out this settlement, things what's are quarter, legislation income potentially some statement, gross investors margin just still and Bryan, I'm at that operating at as particularly I you related and from of Maybe repeating And to just think non-GAAP still on level, this are here look one-timers impact on we national a there, be And the looking potential the permanent. we maybe remind the mainly what more margin. docket.

G&A example, down that permanent. in the through XX% from you to stay So versus Does non-GAAP came just walk if there? more quarter one-timers what X%. any is could For us down

Charles Prober

first Adam, part the of I'll take that.

And and referenced, is lot be there's a cyberattacks from there equipment. around to business networking a related settlement, countries. continues home as around noticed, a election fever the networking you all equipment with foreign bit but of to networking involving by at probably adversarial small and our pitch botnets PRC the -- not you So activity home as of government approaching enabled using

their quote, sent Select the threat our China earnings mentioning, was significant this security TP-Link the the and poses. security for Committee letter, so, "glaring very issue national the worded big Commerce Department of that And since development letter, a is strongly last

the the of company that group the that security software that same is was banned Department Commerce Kaspersky, And so, group And development. from Russia. quite at a

all made and other bit. Senate. developments the already. its in House a So Act, we're the following Obviously, It's relating of to this thing, election, I a targeting number that's the with way ROUTERS of a closely. think slow similar which there's down these little things is And types through the

next be So what watching week. to it after closely interesting will happens see, we're and

Bryan Murray

And your see to to in it's that the X-K on we out may the put Adam, earnings be non-GAAP with the are and fairly the quarter straightforward the items effectively, it's there. in all But recovery onetime about TP-Link. TP-Link that contra in to legal settlement, really would question for regards past easy those as all fees $XX million that period actions They're G&A a quarter. the that offset a have legal expense against And was prior fees. for item the associated with pursuing actually

And add could $XX an basis, so, on back you of million a get OpEx. normalized just that and baseline in established to

Adam Tindle

the of the investment want windfall talk piece this to here I to pick guess capital the allocation I And first. organic CJ, and, want of cash on I priorities. about

As the we of yet. here not model on line quite on see normalized guidance, the more quarter. based just here at this a We're a QX in operating non-GAAP breakeven sustainable

operating of further better non-GAAP to potential how thinking business the model time the line. that the do and structure investments would operating income want you're to in breakeven on current in So I the given about understand what

Charles Prober

question. great No, Yes.

of So top line maybe call, down. we just on just the I can things from reiterate some the mentioned

in nice growth we NFB So this had quarter. past a

opportunity performance excited we're business. that. an of strengthen about to see So We that the

top line overall, we're growth. so, expecting And

path matching our of really board tied invest, products and our work upside as it's opportunities to the the we're we resolves legacy around see all clearing this it across also to itself. And that of want we the investments. mix and spend that's to to at as NFB. margins do as for and to Part gross part just look then increasing breakeven finished and of expect, goods stake long-term there, next the due to reallocating even on top investment not a focused put what be not year. on where year, quarter to though, lot the doing out a there profitable, And the hopefully OpEx, growth. to confident situation incremental we additional us there's We in of up going We're making XXXX. a to to going remain investments that we're really we're but growth but up side, some the opportunities, NFB reallocation to that for -- and is expecting plan that get we're just are We sure we to on those. some taking very year, driving of really I'm clear from expand year Next there. for we make turn see of freight because close get profitable to in inventory demands, relates and at particularly as And or ground ready with set that spending look of much the a come part we're see as businesses setting capture we to

Adam Tindle

I think if million at that this capital at balance was I helpful the you're you on buckets, But And outlined a $XXX about broadly, sheet, allocation, the it answer. and of might be tough cash. look to question

$XXX that to needed you weighting those X to million between us if business, share thinking million this at I cash the general around the investment, wanted organic here. the to think and understanding make somewhere point and confirm or we And repurchase $XXX leaves that's just shareholders, returning run alluded cash sure that still cash the you're so, previously I'm how understand to about categories, If correctly. M&A the just around could view. excess of and with excess

Charles Prober

Great Yes. question.

bit about of the make would than qualification the big asked some addressing a more. more regulatory you million topics outset, requirements a to we've and is one quite shift, to $XXX working capital I'll working capital that So require shift, be if were there at the of there the outlined

we'd aside, But don't at capitalize looking -- a on to we're we return want to that. be priorities, capital position if shareholders. And to our want putting look you obviously to so, just in that definitely then

we're few dollar us. than shareholders than significant expecting planning. this look prior the repurchase our did more is much at priority investments for basis we're quarters. the a portion to And that's we that capital shares an important So of you to quarter organic on a cash returning more think in We if

get in the the our one M&A addressing profitable our business On back priority to as growth side, is and to number core businesses. opportunities said, I the

are going ones outlined stage. However, obviously the around. as turned the we examples. that speculative to one-off this and very at But that's business evaluate I opportunities, focused really on getting We're

hopefully, more context. helps it And that framing into so, put

Operator

At would further Prober, to today's now questions. for CJ no this call over are CEO, time, I remarks. there back closing hand

Charles Prober

joining, our the continuing really I of planning Adam in investors note, December. in for on to partners, team appreciate at we're to Conference open transformation. RJ that support Bryan and the York our look New our the thanks and Well, communication and global and And customers, we forward join on

seeing there, to is look whoever So you. we forward

Operator

This conference concludes call. today's

You disconnect. may now

NETGEAR (NTGR) 30 Oct 242024 Q3 Earnings call transcript