NETGEAR, INC. Q4 FY2024 earnings call

• Organization: Restructured to focus on key market and growth opportunities, brought new leadership for NFB, revamped values, and hired executives in various teams.
• Inventory: Eliminated excess channel inventory, reduced DSO to 80 days (lowest in over 7 years) with receivables down ~$29M (16% year-over-year), and reduced finished goods inventory by ~$86M (35% from prior year) to 3 months of supply.
• Patent and Cash: Settled patent dispute with TP-Link, adding over $100M in cash, monitoring TP-Link's U.S. market situation; bought back over $33M in stock.
• Strategy: Developed new North Star, shifted home networking strategy to simplification, invested in NFB's go-to-market gaps, completed 3-year strategic review focusing on software and recurring revenue.
• Q4 Highlights: Surpassed revenue and operating margin guidance, recurring revenue up 25% YOY, Pro AV managed switches grew, Insight platform updated, M7 Pro well-received, Jan 2025 restructuring to cut costs ($20M annual savings) and redeploy to NFB.

NETGEAR for Business (NFB): In the fourth quarter, revenue was $80.8 million, up 2.9% sequentially and 14.9% year-over-year. Pro AV managed switch products saw double-digit year-over-year growth in end-user demand. For the full year 2024, NFB's revenue contribution isn't explicitly stated, but in Q4, it was $80.8M out of total revenue of $182.4M, representing approximately 44.3% of Q4 revenue. CHP (Consumer Home Products): Q4 revenue was $101.6 million, down 14.2% year-over-year. In Q4, it was $101.6M out of $182.4M total revenue, approximately 55.7% of Q4 revenue. Full year 2024 net revenues were $673.8 million, with CHP being a significant portion.

• Q1 2025: Expected revenue $145M - $160M. GAAP operating margin expected -16.4% to -13.4%, non-GAAP -10% to -7%. Restructuring cut ~$20M in annual operating expenses, reallocating savings to NFB for profitable growth.
• 2025: Plan to grow net revenue, expand gross margin, significantly reduce loss position, invest in NFB for profitable growth, focusing on B2B go-to-market, software in-sourcing, and product gap filling.

• Supply Constraints: Pro AV managed switch supply constraints in Q1 due to long lead times and ODM operational challenges, expected to recover in Q2.
• Tariffs: Potential tariffs on imports from China, Canada, Mexico, but currently not materially affecting the business.
• TP-Link Impact: Government scrutiny of TP-Link could affect its U.S. market participation, monitoring the situation closely.

Q: Can you touch more on supply constraints in the NFB side?

A: Supply constraints in NFB's managed switches for Pro AV started before, due to lower optimism exiting 2023 leading to lower forecast, then accelerated demand, causing supply chase. ODM commitments didn't materialize, but on track to recover in Q2.

Q: How do you see revenue seasonality playing out in 2025?

A: NFB has supply constraints, CHP retail seasonally down, service provider revenue ~$15M in Q1, relief in Q2, sequential uptick later in the year.

Q: How are you prepping operationally for a potential TP-Link ban?

A: Monitoring news, considering small investment in supply to be prepared if exclusion happens, may see slight increase in finished goods inventory in anticipation.

Q: What are your investment priorities in 2025?

A: Focus on building world-class B2B go-to-market capability, in-sourcing software, and filling product gaps in NFB.

Q: Any updates to capital allocation priorities?

A: Continue organic investments, share repurchases, and evaluate acquisition opportunities for software, product adjacencies, and scale.