Q2 2021 NETGEAR Inc Earnings Call

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 at that time. If you have a question you will need to press Star and then the number 1 on your push button phones.

I would now like to turn the conference over to Eric by them. Please go ahead Sir.

Thank you Rachel good afternoon, and welcome to debt to your second quarter 2021 financial results conference call.

Joining us from the company on Mr. Patrick Lo Chairman and CEO.

And Mr. Bryan Murray CFO.

The format of the call will start with a review of the financials for the second quarter.

Hi, Bryan followed by details and commentary on the business provided by Patrick and finish with third quarter 2021 guidance provided by Bryan.

Well then have time for any questions.

If you have not received a copy of today's press release. Please visit Netgear Investor Relations Web site at Www Dot net dot com.

Before we begin the formal remarks, we advise you that todays conference call contains forward looking statements.

Forward looking statements include statements regarding expected revenue.

Operating margins.

Tax rates.

Benches and future business outlook.

Actual results or trends could differ materially from those contemplated by these forward looking statements.

For more information please refer to the risk factors discussed in next year's periodic filings with the SEC, including the most recent form 10-Q.

Any forward looking statements that we make on this call are based on assumptions as of today.

And Netgear undertakes no obligation to update these statements as a result of new information or future events.

In addition, several non-GAAP financial measures will be mentioned on this call.

Reconciliation of the non-GAAP to GAAP measures can be found in today's press release on our Investor Relations website.

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

Okay.

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

Net revenue for the quarter ended June 27, 2021, with $308.8 million up 10, 3% year over year.

Driven primarily by strong F&B growth and growth from the retail portion of C. H P.

With offset coming from the expected decline in service provider revenue relative to last year.

While our team managed to deliver double digit year over year gross.

With net revenue within our guidance range.

Our top line results came in below our expectations.

It's worldwide supply chain constraints limited what could have been even better performance in particular on the SMB side of the business.

As we continue to navigate through a dynamic environment.

We remain confident in our long term strategy.

Providing premium Wifi products to drive the growth of the consumer networking market.

And our paid subscriber base.

Even with employees returning to the office.

Need for pervasive high speed wireless connectivity in the home remains strong.

It's hybrid and remote work models become the norm.

And we now see the U S consumer networking market suddenly in at about 20% higher from where it was in 2019.

With our improved supply position of CHP products in the channel entering the quarter.

And performance led by our premium mass portfolio.

We added another 3 points towards U S consumer Wifi market share in the quarter.

The clear validation of our strategy.

This translated into mid single digit growth year over year, and the retail portion of the CHP business.

While our service provider business performed to our expectations.

Declining from a year ago, when we experienced opportunistic demand brought about by the pandemic.

Meanwhile, our F&B business is riding the wave of businesses reopening worldwide.

Growing 58 per cent year over year.

Bearing the fruit of investments made over the last couple of years in areas such as per <unk>.

And our leadership in moving F&B wireless products Wi Fi 6.

Despite being held in check by the aforementioned supply constraints.

Well, we have to navigate from top line challenges for the rest of 'twenty 'twenty 1 we.

We do expect to achieve the full year non-GAAP operating margin guidance that we provided at last year's analyst day.

Okay.

In the second quarter, we generated non-GAAP operating income of $26.5 million.

This translated into non-GAAP operating margin of 8.6%.

Slightly below our guidance range.

Which was an improvement of 110 basis points over the second quarter of 2020.

Component shortages elongated delivery times and unforeseen factory closures due to COVID-19.

All of which we've navigated successfully at varying times over the past year.

Came together in a way that we could not overcome the hindering our ability to drive our F&B top line higher.

And correspondingly improve our margin performance.

We delivered year over year revenue growth in all geographies with meaningful F&B growth globally.

For the second quarter of 2021 net revenue for the Americas was $212.6 million, which is up $5.1 per cent year over year.

The down 3% on a sequential basis.

EMEA net revenue was $61.8 million, which is up 27, 7% year over year and up 1.1 per cent quarter over quarter.

Our APAC net revenue was $34.4 million, which is up 16, 8% from the prior year comparable quarter and down 8.7% sequentially.

For the second quarter on 2021 we shipped a total of approximately $3.9 million units, including $2.6 million nodes of wireless products.

Shipments of all wired and wireless routers and gateways combined were about 1.4 million units for the second quarter of 2021.

The net revenue split between home and business products was about 74 per cent and 26% respectively.

The net revenue split between wireless and wired products was about 65 per cent from 35 per cent respectively.

Products introduced in the last 15 months constitutes about 32% of our second quarter shipments.

While products introduced in the last 12 months contributed about 27 per cent of our second quarter shipments.

From this point on my discussion points will focus on non-GAAP numbers.

The reconciliation from GAAP to non-GAAP is detailed in our earnings release distributed earlier today.

The non-GAAP gross margin in the second quarter of 2020, 1 was $30.4 per cent.

Which is up 80 basis points compared to 29, 6% from the prior year comparable quarter.

And down to 480 basis points compared to 35, 2% from the first quarter of 2021.

Primarily a result of our planned increased promotional activity.

Total Q2, non-GAAP operating expenses came in at $67.4 million.

Which is up 8.7% year over year and down 3.2% sequentially.

Our head count was 769 until the end of the quarter.

Down from 775 in Q1.

We can continue to manage our head count, but we'll continue to add resources and invest in areas that we believe will deliver future growth.

Our non-GAAP R&D expense for the second quarter was 6.9% of net revenue.

As compared to 6.9% of net revenue in the prior year comparable period.

7.1% of net revenue in the first quarter of 2020.1.

To continue our technology and subscription service leadership, who you are.

Committed to continued investment in R&D.

Our non-GAAP tax rate was $23.4 per cent from the second quarter of 2021.

Looking at the bottom line for Q2, we reported non-GAAP net income of $28 million.

And non-GAAP diluted EPS from 66 cents, each more than 20 per cent higher than the prior year comparable period.

Turning to the balance sheet, we ended the second quarter of 2021 with $335.3 million in cash from short term investments.

On $35.3 million from the prior quarter.

We've made substantial progress replenishing our inventory on the CHP side of the business in recent quarters.

But expect supply to remain constrained on SMB products.

During the quarter $5.2 million of cash was used by operations.

Which brings our total cash provided from operations over the trailing 12 months to $97.5 million.

We used $3 million on purchases of property and equipment during the quarter.

Which brings our total cash used for capital expenditures of the trailing 12 months to $11.2 million.

In Q2, we spent $25 million to repurchase approximately 654000 shares of netgear common stock.

At an average price of $38.21 per share.

Since the start of our repurchase activity in Q4.2013.

We have spent $577.5 million to repurchased 16.3 million shares.

Our fully diluted share count was approximately 31.5 million shares as it ended the second quarter.

With a meaningful portion of our targeted inventory position established we plan to continue to produce to opportunistically repurchase shares in the future quarters.

Now turning to the second quarter results from the product segment.

The connected home segment, which includes the industry, leading Nighthawk for me now.

You talked pro gaming and neuro brands.

Generated net revenue of $229.9 million during the quarter.

She was flat on a year over year basis, and down 4.6% sequentially.

The year over year performance was driven by growth in the retail business being offset by service provider returning to anticipated levels.

With our premium mass segment, leading the way our leadership position in the U S consumer Wifi market improved again up 3 percentage points to 46 per cent.

What's the progress we've made and we're punching CHP inventory, we fully expect we can grow our share further in Q3.

The SMB segment executed well against supply constrained environment and generated net revenue of $78.9 million for the second quarter of 'twenty 'twenty 1.

Which was up 57, 8% on a year over year basis, and up 2.5% sequentially.

This is the highest quarterly revenue level for our SMB business in 2 years.

The growth was driven primarily by exceptionally strong demand buoyed by new business formations businesses reopening and demand for flexible working environments.

We continue to see our S&P wireless solutions from low port Count switch is performing very well.

We also continued to gain traction in our <unk> business, which experienced meaningful year over year gross as we see activities resumed me across venues such as those focused on sports and entertainment.

Our market share in switches sold through the U S. Retail channel grew 5 percentage points to 61 per cent in Q2.

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

After which I'll provide guidance for the third quarter of 'twenty or 'twenty 1.

Thank you Bryan.

As we enter the second half of 2020, 1, albeit with the specter of the Delta Varian now raising of debt.

We are seeing the signs of a return to normal.

As portions of the well begin to reopen.

Businesses small and large are opening the doors to the public once again.

And new businesses are being created at a higher pace than before the pandemic.

Both offices and homes continue the transition to a flexible working environment.

Embracing a new hybrid work from everywhere.

They carries a multitude.

Offices are reopening accommodate varying levels of capacity.

Our employees continue to outfit their homes the function export spaces for the day, they work from home and the new normal.

This means that employees, joining our video conference call from home.

Bandwidth must be able to handle the capacity at least as well as his day.

They were in the office.

This home office requirements together with an increase in a myriad of activities.

Being performed virtually.

The need for highest speed well base if mesh networks.

These other solutions cable.

Offering greater bandwidth capacity faster internet speeds and wider coverage.

This continues to drive unprecedented bandwidth demands in the home and accommodate this we're the only company focused on delivering premium Wi Fi solutions to the market.

Defined by Wi Fi 6 matched with Tri band architecture.

He is premium mass products on the cornerstone of this rapidly growing market.

Mark.

And we continue to draw more consumers into this.

As it grew from 30% of the mass market, each 1% to 34% in Q2.

Impaired to only 8% a year ago.

Clearly this is where the marketing and it.

So our strategy all day.

Handing the market with premium Tri band Wifi together with strong attach of our value added subscription services is sound.

Additionally.

Our nighthawk or a 505 and Wi Fi 6 <unk>.

That was introduced last quarter.

Has 1 of the claim from experts that gets modal Tom's guide Android Central digital trends does it flow.

<unk> and <unk>.

Who have referred to the R E F E.

S. The fastest Wi Fi 6 E voucher.

Best performing Wi Fi 6 E voucher and the fastest router on the path we're.

We are honored by this outstanding reception and believe there's incredible validation of the superior design and best in class experience offered by the leading edge.

This $599 of that is part of our premium Wifi 6 router segment.

Which provides the technical features mihawk followers right.

These high end offerings will fuel the continued expansion of our recurring revenue business.

Yes, we are more likely to see those purchasing premium Wi Fi products also buying services company.

I'm pleased to share that a smartphone and a control service line.

Our colleagues at CES earlier. This year is now available on select Nighthawk, Wi Fi routers and with availability on Wi Fi 6 Ob mesh Wi Fi systems coming this month.

It's rolled out enables us to make continued progress in paid subscriber acquisition.

And from a drive towards our goal of 650000 subscribers by year end.

We reached a significant milestone in this journey in Q2 ex we surpassed half a million subscribers ending the second quarter with 514000 paid subscribers.

We remain excited about the long term ability impact that this way.

We also plan to bring the features of our gaming router lineup to the market through our service offering later this year for the online game button customers a premium Wifi 6.5 inc or beat system.

Turning to an update on our F&B business.

Manish searching and has surpassed pre pandemic levels in a more traditional channel as businesses reopen and new business stock at the fastest pace in recent years.

Again this is validating our strategy of providing premium business Wi Fi solutions for home and small offices as the hybrid working model is becoming the norm.

Also our focus on pro Avi, meaning audio video over IP is paying dividends as the AG industry is reopening and accelerating the transition from analog to digital AAV over IP.

We are limited by what we can supply.

Component shortages.

And COVID-19 induced limitations certain factories compounded by transport the transportation delays have all conspired constrained revenue.

Despite these challenges the team executed well to deliver strong 58% year over year gross debt.

Other than by a saturation in a Wi Fi 6 access points and our low port count switches, but small and home offices and continued progress in pro <unk>.

In Q2, we further expanded our SMB Wifi 6 product portfolio with several new additions.

We released both dual band and Tri band Insight managed Wi Fi 6 multi gate at this points the.

<unk> 620, and W ex hurry respectively.

Optimized for businesses and home offices that have a growing need to offer faster more reliable internet, while supporting our multi channel of debate of devices over greater coverage areas and secured debt the legs.

These are available now so just $229.329 respectively.

The price points for the industry's highest performing duo and Tri band Wi Fi 6 access points.

We also announced the Wi Fi 6 many dual band mesh system model S. K 30.

And other Wifi 6 edition to our all the pro ecosystem.

This latest mesh system is available now from $299 and is well suited for users who want to upgrade to the latest Wi Fi Technology, Inc.

We continue to see our investments in pro 80 paying dividend.

With growth continuing to accelerate.

Our efforts to certify our associated products. The most important audio and video standards in the industry, including S. E V O E ex E Bay's AVB Dante Lisa and N V continues to pave the way holds a transition that is underway.

To upgrade the way audio and video play.

Accordingly, we're now doing business with all.

Of the top 50 professional 80 integrators in North America.

Before I hand, it back to Bryan I would also like to take a moment to welcome Dave Henry to the Netgear Board of directors and congratulate him on his promotion to President and general manager of connected home products and services.

David in person channel.

Has proven him to be extraordinary strategies meter.

<unk> continuous focus on driving services revenue will be amplified by closer collaboration with the full board.

I would also like to thank Gregory ROSSMANN, who will transition off our board in December after nearly 20 years of service on the board.

Has been an instrumental part of our leadership, a very long time, and we wish him the best.

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

Thank you Patrick.

We expect SMB to continue to be limited by supply in the third quarter.

With hindsight, the first half of 2021 so the U S consumer networking market grow 40% over the same periods in 2019.

Well, a very strong showing there has turned out to be 10% flow or expectations.

As such we plan to proactively work with our channel partners to optimize their inventory levels in the third quarter.

Looking ahead to the second half of 2020, 1 we've seen market growth moderating further to approximately 20% above second half of 2019 levels.

Accordingly, our net revenue from third quarter is expected to be in the range of $285 million to $300 million.

Primarily as a result of this loss of leverage from the top line.

GAAP operating margin is expected to be in the range of $2.1 per cent to $3.1 per cent.

And non-GAAP operating margin is expected to be in the range of 5 per cent to 6%.

Our GAAP tax rate is expected to be approximately 27.5 per cent.

And our non-GAAP tax rate is expected to be $24.5 per cent for the third quarter of 2021.

Well, we now believe our second half revenue performance will be roughly flat relative to the first half of the year.

We do believe our full year non-GAAP operating margin guidance of 9% to 10% for the full year provided at last year's analyst day remains intact.

While we are confident in our ability to provide guidance at this time, we do so with the caveat the considerable uncertainty remains in the market due to the COVID-19 pandemic.

It shouldn't unforeseen events occur in particular challenges related to closure of our manufacturer manufacturing partners operations.

Well transportation delays into any of our regional distribution centers, our actual results could differ from the foregoing guidance.

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

Yeah.

Thank you at this time I would like to remind everyone in order to ask a question Krish. Sorry, then the number 1 on your telephone keypad again, just press Star then the number 1 on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

Yeah.

Our first question comes from the line of Adam Tindle from Raymond James Your line is open.

Good afternoon, I just wanted to start Patrick on the inventory clear out in CHP in the coming quarter could you maybe just give us some more color on what's being cleared out because I think previously you said you were focused on Wifi 6 while others were focused on Wi Fi 5 and that's why you're losing share but that would come around as the market shifts to Wi Fi 6 so.

I presume CHP inventory as Wifi, 6 heavy and why would you need to optimize that versus just waiting for it to sell through was there any ASP degradation in Wifi, 6 or just a little bit more color on what's going on there. Thanks.

Yes so.

Every channel partner has their own financial metrics.

And open to buy is based on debt financial metrics.

Even on Wi Fi 6 we have new products coming online very soon in the second half involving some Wifi 6 products.

Walking somewhat new.

Cable products, so we need to make way for new products that come into the channel. So that we could continue to improve on our margin profile as you probably know that I mean component cost has been going up. So this continuous IOL product lineup is very important for us to improve.

On a margin profile.

That's why to prepare for these new products coming into the channel, especially for the very important Christmas season.

We intend to adjusted channel inventory of our partners. So they will have a better open to block 2 by for the Christmas season for these new products.

Okay, and I guess, maybe as a follow up if Bryan wants to take it you talked about expecting to achieve the analyst day operating margin for the fiscal year and that's going to imply a big uptick in Q4, what gives you the confidence to go out that far right now given what youre unexpectedly experiencing here in Q3, and maybe you can unpack the key drivers.

To that uptick I would imagine this channel inventory optimization is a big part of that so if you could help us quantify that that would be helpful. Thanks.

Yes, you got it right there I mean.

At this point, we said supply is still going to be limited per SMB. So we're expecting very modest uptick from what you saw on Q2.

And we still reiterate that will we will deliver the $440 million per service provider revenue for the full year, So it's down to CHP and.

Patrick It's just kind of walk through the logic of why the channel needs to be optimized from an inventory standpoint in Q3, we think that's a Q3 phenomenon.

And as I said earlier is going to certainly put some.

Top line leverage pressure on the Q3 result.

With that being corrected in the Q3 periods moving on to Q4, we expect that we'll regain some of that top line leverage. So that's why we believe that we'll hit that full year 90 to 10 per cent operating margin guidance.

Okay, and just to clarify on capital allocation, yes, I mean, it looks like you're clearing out inventory. That's typically generates cash you already have over 10 Bucks a share on cash.

And there's going to be pretty significant downside volatility on the stock given a forecast here you had quarters in the past, where you did like $50 million of buyback would you consider that sort of super sized type of buyback level to defend the stock down here. Thanks.

Well, we're going to continue to be opportunistic buyers of our stock and will factor a number of things and I think from from this point for the balance of this year will probably be free cash flow neutral.

Given the timing of revenue and in the.

The implied moved from Q3 to Q4 income over a seasonal dating programs that occurred in that fourth quarter.

So I think we'll be free cash flow neutral more or less be about where we're at today.

But yes, we're going to continue to evaluate all of these factors in terms of how we allocate our cash.

Okay. Thank you.

Thank you. Your next question comes from the line of Jeffrey Rand from Deutsche Bank. Your line is open.

Hi, Thanks for taking the question it seems like the demand environment on the consumer side has changed a lot in the past quarter can you give us some insight on what you think changed and what gives you the confidence that there wasn't a lot of demand pull in during kind of the the main part of the pandemic.

Yes, what we saw in the first half, especially in the second quarter when we have <unk>.

Optically a huge supply of the CHP products into the channel, what's the real market demand. So in the first half the market grew about 40% over the pre pandemic level now as we know in the first half theres still quite a few of them.

Covid restrictions and people cannot travel so in our planning we were planning debt it would be a 50% growth of the 28.19 price.

So that is you know certainly I mean, because of the vaccine and all that so lower than on 50% it turns out to be 40%.

So the GAAP become extra channel inventory that we need to help on partners to optimize.

Optimize.

Now going forward, we see the vaccine inoculation has significant good positive effect on the reopening.

Originally we anticipated in the second half of the share the growth will moderate because we factor that into the reopening Trey.

We were thinking that in the second half.

Market will grow about 35% to 40% over 2019 free level now a few weeks into the second half of the market seems to be pointing to roughly about 20% opened up pre pandemic level.

Really we see a lot of people in the developed well, especially in the U K as well as from the U S getting vaccinated and they are getting on the road to trap and to see the families as well as to occasions.

As a result on the demand for the home networking is now.

Not as high as what we originally thought at 40% over pre pandemic.

So that's why we also adjusting the.

Go ongoing CHP in market sales expectation this fall.

But then the remote is true the reverses because of the reopening is on the big wave.

On all these thoughts so the F&B business side gave us a positive surprise on the strength.

As we all probably surprised by the pace of new business startup opening I mean, we've read in many new support.

The business start ups in the U S is the fastest in many many years on the history and they all set up Wi Fi as well as networking on the buying on.

Products in your list and the same thing when the reopening tray stopped going we are seeing a lot of the sports as west entertainment venues.

Revolutionizing their audio video systems with our IP technology, rather than the old analog technology. So for example, a lot of sports events like 1 Bud light NFL on now using our <unk> solutions to do on hiring. So so these are on the positive upside there.

And B is actually offsetting some of the downside.

All of the grossly I'll be CHP. So overall, so we got pushing takes and Thats, how we see the second half is shaping up.

Great. Thank you and just as my follow up as you try to optimize your inventory levels on the channel. How do you think about about the increasing promotional activity and how that will impact your margins.

Yeah, we're going to continue to be promotional we talked about this heading into Q2, we see as an opportunity to continue to gain back share.

Which is important in terms of keeping that in mind share with their channel partners.

But more importantly for now and in the long run.

It's a means for acquiring subscribers and aggressively pursuing the first major milestone being the end of this year hitting 650000.

Quickly after chasing that million Mark and then.

Follow on to the $2 million long term target that we put out there.

Great. Thank you.

Thank you. Your next question comes from the line of Hamad <unk> from Beautiful, Yes financial your line is open.

Hi, So first off I just wanted to.

Ask about inventory just given that you've increased it so much on the demand has dropped.

Dropped off more than you thought what kind of obligations do you have as far as the components that you were pre ordering earlier on this year and last year and does that.

Cause any kind of bloating as to Wifi 6 when the market's going to Wi Fi 6 E.

Well, we believe that Wi Fi 6 he's got to last for a long time at least another 3 or 4 years and Wi Fi 6 he is at the very high end of that so we don't believe that our.

Booking of compounds will be wasted so with putting cost. So that's why we were the first to get rid of the Wi Fi 5 products and we do believe that Wifi 6 will continue to have a pretty long life from here on out.

Okay and then.

If the market was slowing down so much why werent you more aggressive with promotions in Q2 and are you going to be a little bit more proactive or promotions in Q3 to just.

Clear out some inventory.

We actually debt I mean as.

As you probably know.

Still today about.

75%, 80% of products sold in physical venues.

Brick and mortar stores and those promotion plans work planned way ahead, you just cannot turn on a dime and make it happen.

So I mean, we execute on our plan in Q2 as far as promotion is concerned and then in Q3 of course and as you heard from Bryan We continued to aggressively from out in order to acquire more users attached services and when they purchase.

Are you seeing any competitive pressures.

Given the slowdown in demand.

Well I mean, we don't see any change of behavior from any of our competitors as a matter of fact through ALDA pandemics all competitors have been promoting Wi Fi products heavily.

And that's why we have we have been losing share until just the last few quarters that we've been gaining share and when we have debt of supply and in a better position to promote as well. So so on the reverse you could argue that our competitors are seeing our behavior change.

Stop promoting for a lot now with Beckman litigation.

And last question on the SMB side.

Are you a beneficiary of some of your larger competitors not having stock or is this a clear cut better product youre seeing natural.

The transition to the Netgear brand in SMB.

So there are 2 big growth area on the SMB side, 1 is to work from home solutions.

So we're not really directly.

Heating with American vendors, because they are more focused on enterprise.

So in this work from from environment, the only competitors on Asia.

When you're trying to run on business.

How are you Julien.

Work at home.

Bryan carriers.

So that's why on April.

Switching gears.

<unk> switches wireless access price a robust land base.

Network is superior.

Suppliers.

Certainly on the market because of that.

Net cash solution. So that's 1 area.

Other areas.

Basically is Aviall, Inc.

Major competitors offering so.

On a very unique position to capitalize on this industry transition.

From from.

From the interest me Simon fish on from analog to IP video.

Okay.

Okay. Thank you.

Sure.

Thank you once again, if he would like to ask a question Press Star then the number 1 on your telephone keypad. Your next question comes from the line of policy regime of Cowen. Your line is open.

Thanks, guys I appreciate you taking the question since the quarter doesn't offer strongest finish support from overall market pieces. Let me ask from the obvious question. If I look at the del Oro market numbers, Theyre projected mark to $200 million of growth over the 5 year period from 2022.

<unk> 25 for Soho Wi Fi coming from 8.0 going into a point to volume, that's where the 5 million unit decline over the 5 year period.

And I recognize it's still early on I recognize each iteration on Wi Fi is different and perhaps with a different iterations Wi Fi 6 will be truly define in terms of more expansive and duration and magnitude, but thats certainly not on.

On prominent SRAM will seems to believe we can build on our numbers now the question.

Patrick you are on the <unk>.

Trenches, given what youre seeing.

Why do you believe I mean, 1 would think you've spent this quarter was.

Appointment when we're still independent I understand things are improving I understand there's been some return to work.

But.

1 would think debt if in fact, the number is going to be meaningfully better when with doors projecting.

You should have seen better growth from what you saw what informs your view debt.

The market, putting aside competitive factors, Google Amazon et cetera.

Market is going to be stronger than what it appears to be in.

To be clear over a longer duration.

Yes, I mean, the major difference is that we're really putting a lot of on efforts in a segment that is created by US which is what we call the premium Wi Fi. So you look at the whole network.

Either you going down the traditional consumer App, which is easy setup.

And just purely mash or you go for on a more serious.

Business route, which is a switch or router plus a bunch of access points. So there are 2 paths, but either way we are providing systems.

$500, plus the email <unk> thousand dollars plus and debt.

That is a very unique space.

And then we basically targeting to a very unique segment, which is away from Google and from the Amazon on the Asian vendors, who on all focusing on the 2 to $300 ordinary market. So our gross is given the confidence in our.

Our confidence of the growth is basically see how that segment ex expanding and that's why it is interesting a year ago net segment of $500 plus mash.

<unk> systems on the 8% of the market.

And now it's become 34% from the market so selling so that gives us a unique position its just like on the SMB side.

As I mentioned just now.

Going after the home office.

Switch and access point mashed access points is not anything our American competitors to <unk>.

And going off the pro Avi is none of our competitors do so we are kind of just on different segment.

That is very unique to our position.

Patrick Let me play Devil's advocate the mesh market goes from 8% to 34% year over year. It goes up 4 percentage points sequentially.

So your point.

Recognizing that there's always the risk of significant Miss extrapolation from 1 quarter's results.

But.

A vacuum.

Why might logically why shouldn't this quarter. It did not it was bad but why shouldn't have been that which better for you given your focus on premium melt. While you continue to expand new products that you already have a rich offering of premium products. Given the fact that there is limited competition at the premium into the market.

The percentage of the total market continues to shift towards premium Washington numbers have been better than what you say is an accurate view.

Well first let me clarify debt, 34% is not of the total market.

34% represents the premium segment of the total on mass market sales.

So and that's the same point yeah. So so that's the same so 34% of a smaller pie is still less than 34% of our big pipe I mean, that's basically what kind of.

Difference that we're seeing and as is.

Bryan mentioned in Q2 actually on the <unk> suppliers on constrained on the SMB side, we would definitely have a much better results both from a top line and from a bottom bottom line perspective, So we think that debt.

Debt on the CPE side, we're definitely on off the Mark on the overall market sizing.

And then within that market a smaller market size. However, the shift towards the high end towards the premium man is on track.

Alright, and just to clarify there was a bit of a dead horse here you have a supply constraint, which restrained F&B revenue would have been that much stronger but for supply constraint, but on the other hand with respect to 75 per some of your revenue from consumer.

That was from a supply constraint issue all of the disappointment is simply demand not being as strong as you would expect in the quarter and as we look forward into the second half of the year.

That is correct now so so again I mean, 1 thing I would like to point out range, we have a pretty lofty.

Spectators at a 40% growth over 2019 and it's Stuart.

On a year growth on a very big first half of 'twenty 'twenty is still respectable alright. So so of course, it's not as highest light. It is still a very strong growth off the market and it's all driven by this premium segment.

Yes.

Is there other growth yes.

The average selling price and we see that trend.

Okay I appreciate the responses. Thank you.

Sure.

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

Thank you for joining us today everybody.

Confident that the team will definitely navigated ongoing market challenges and then next year remains well positioned to steadily capture market share. Thanks to our strong brand presence and innovative on what winning product line.

With that kind of work environments in Alberta.

Addressable market on Rytary.

Hi.

Hi.

Early on.

Products from that.

Elevator.

That will conclude reader market vishal.

Yes.

So thank you so much talk to you ex.

Thank you. This concludes today's conference call you may now disconnect.

Yes.

Okay.

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Non-GAAP.

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