Q4 2021 NETGEAR Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to next year's fourth quarter 2021 Conference call.
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 one on your telephone keypad.
I would now like to turn the conference over to Eric violent. Please go ahead Sir.
Thank you operator, good afternoon, and welcome to <unk> fourth quarter.
In full year 2021 financial results conference call.
Joining us from the company are Mr. Patrick Lo Chairman and CEO and Mr. Bryan Murray CFO .
The format of the call will start with review of the financials for the fourth quarter and full year provided by Bryan.
Followed by details and commentary on the business provided by Patrick.
I'll finish with first quarter of 2022 .
Provided by Bryan.
We will then have time for any questions.
If you've not received a copy of todays release, please visit <unk> Investor Relations website.
Www Dot net gear dotcom.
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 expenses 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 for most recent Form 10-Q .
Any forward looking statements that we make on this call are based on assumptions as of today.
Your 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.
A 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.
Thank you Eric and thank you everyone for joining today's call.
Net revenue for the quarter ended December 31, 2021 was $251 2 million.
Down 31, 6% year over year.
And within our guidance range.
We were able to achieve non-GAAP operating margin of two 7%.
Above the midpoint of our guidance range.
Despite the difficult global supply chain conditions that purchase persisted in the quarter.
Although demand for our higher margin SMB products were being quite strong.
We were limited in our ability to meet the demand due to broad supply chain challenges.
Exacerbated by a temporary factory closure caused by the omicron variant.
On the CHP side I'm pleased to share that are planned channel inventory optimization efforts, we're materially materially completed in the fourth quarter.
For the full year of 2021 Nicky.
Nick year net revenues were 1.1 dollars $7 billion.
Down six 9% compared to the year ended December 31 2020.
Our efforts in the past year to refocus our products towards the higher ASP premium segments of the market.
In the winter than both <unk> and our F&B wireless offerings.
Helped deliver revenue at 17% above pre pandemic levels.
In addition, the CHP consumer Wifi market seems to have stabilized at 15% above 2019 levels.
As we execute on our strategy to shift a portion of the U S consumer Wifi market towards the premium end.
We remain confident that the trends we discussed at our recent analyst day, we will continue to accelerate and expand the available market opportunity for next year.
In the fourth quarter.
We generated non-GAAP operating income of $6 $9 million.
This translated into a non-GAAP operating margin of two 7%.
Which is 830 basis points below the prior year period.
As a reminder, in the prior year period.
Able to pass along considerable leverage to the bottom line due to the surge in demand include.
Including opportunistic demand from our service provider partners directly tied to the pandemic.
Yeah.
However, as previously mentioned supply constraints hindered our higher margin SMB business in Q4, 2021 from reaching its full topline and bottomline potential in the quarter.
Due to component and material scarcity.
Increased freight costs and the added challenge of a temporary factory closures due to the AUM of crime variant.
On the CHP side, we executed our plan to optimize our retail channel partners' inventory positions.
Which added further pressure on our ability to leverage the top line.
Additionally, as part of our core strategy to shift away from the lower end of the market we promoted less.
Although our full year F&B revenue outperformed our expectations at the beginning of the year.
Not enough to offset the lost top line leverage from our CHP business.
Well, we saw the market settle in at about 15% larger than pre pandemic levels.
And although our team adjusted as quickly as possible.
The challenging supply chain environment throughout the year.
Compounded by elevated freight cost and higher component costs impacted our bottom line.
With full year non-GAAP operating income of $95 1 million.
And the non-GAAP operating margin of eight 1%.
Below the low end of our annual guidance provided at our 2020 analyst day.
For the fourth quarter of 2021.
Net revenue for the Americas was $159 4 million.
Decline of 38, 6% year over year.
Down 18, 3% on a sequential basis.
EMEA net revenue was $50 million, which is down 25, 8% year over year and down 12, 1% quarter over quarter.
Our APAC net revenue was $41 $7 million, which is up four 4% from the prior year comparable quarter.
And up nine 6% sequentially.
All three regions saw growth year over year in our SMB business.
However, in the Americas and EMEA it was not enough to offset the declines in CHP for both the retail and service provider channels.
In part due to our efforts to optimize channel partner inventory positions.
For the fourth quarter of 2021.
We shipped a total of approximately $2 7 million units.
Including 2 million nodes of wireless products.
Shipments of all wired and wireless routers and gateways combined were about 900000 units for the fourth quarter of 2021.
The net revenue split between home and business products was about 69% and 31% respectively.
The net revenue split.
Between wireless and wired products was about 68% and 32% respectively.
Products introduced in the last 15 months constituted about 33% of our fourth quarter shipments.
While products introduced in the last 12 months contributed about 22% of our fourth 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.
non-GAAP gross margin in the fourth quarter of 2021 was 30%, which is down 60 basis points as compared to 36% in the prior year comparable quarter.
And down 10 basis points compared to 31% in the third quarter of 2021.
Total Q4, non-GAAP operating expenses came in at $68 $4 million.
Which is down 5% year over year.
<unk>, 8% sequentially.
Our head count was 771 as it ended the quarter down.
Down from 780 in Q3.
We continue to manage our head count, but we'll add resources and invest in areas that we believe will deliver future growth.
And software development and apps and services.
Our non-GAAP R&D expense for the fourth quarter was eight 7% of net revenue.
As compared to 6% of net revenue in the prior year comparable period.
Seven 6% of net revenue in the third quarter of 2021.
To continue our technology and subscription service leadership.
We are committed to continued investment in R&D.
Okay.
Our non-GAAP tax rate was negative $16, 9% in the fourth quarter of 2021.
The current quarter tax rate benefited from revisions to certain estimates the impact the full year tax expense.
Looking at the bottom line for Q4, we.
We reported non-GAAP net income of $8 1 million and non-GAAP diluted EPS of <unk> 27.
Turning to the balance sheet, we ended the fourth quarter of 2021 with 271 $5 million in cash and short term investments.
Down $20 7 million from the prior quarter.
During the quarter $3 9 million of cash was provided by operations, which brings our total cash used by operations over the trailing 12 months to $4 $6 million.
We used $2 $9 million in purchases of property and equipment during the quarter.
This brings our total cash used for capital expenditures over the trailing 12 months to $9 $9 million.
In Q4, we spent $17 $5 million to repurchase approximately 539000 shares of netgear common stock.
At an average price of $32 52 per share.
Since the start of our repurchase activity in Q4, 2013, we have spent $627 $5 million to repurchased $17 8 million shares.
We are committed to returning value to our shareholders and plan to continue to opportunistically repurchase shares in future quarters.
Our fully diluted share count is approximately $29 8 million shares as of the fourth quarter.
Okay.
Now turning to the fourth quarter results for our product segments.
The connected home segment, which includes our industry, leading nighthawk orby Ned.
Nighthawk Pro gaming and Merrell brands.
Generated net revenue of $174 $2 million during the quarter.
Which is down 41, 2% on a year over year basis.
Now at 16, 5% sequentially.
We experienced a year over year decline in both retail and service provider channels.
With the prior year comparative period being boosted by heightened consumer demand and response to the pandemic.
Along with stocking of depleted channel to meet heightened demand.
Additionally, we took actions to optimize our retail channel partners' inventory levels in the current year period.
Aligned them to our current demand expectations.
Our strategy to focus on the premium higher margin products with higher service attach rates.
Physicians netgear for long term profitable growth.
And we are seeing exceptional demand for these premium products.
In concert with our goal to shift our product mix towards the premium segment, we push fewer promotions and planned for lower priced products in the fourth quarter.
Consequently, our share in U S consumer Wi Fi declined two percentage points sequentially to 44%.
Our service provider business performed largely in line with expectations.
The SMB segment continued to execute and face the supply challenges.
We generated net revenue of $77 million for the fourth quarter of 2021, which.
Which is up eight 6% on a year over year basis, and down five 6% sequentially.
Driven by supply chain challenges, we increased spend in airfreight to compensate for shipping and production delays.
Offsetting the higher margin contribution from this business.
We continue to see exceptional momentum for our managed switch products driven by further inroads to develop the <unk> market.
We also continue to see strong demand for SMB wireless offerings led by our Wi Fi six cloud managed mesh wireless access points.
Thanks to increased adoption of the hybrid remote work environment and increases in new business is being established.
Encouragingly, our market share in switches sold through the U S. Retail channel remained strong at 52% in Q4.
Okay.
I'll now turn the call over to Patrick for his commentary after which I will provide guidance for the first quarter of 2022.
Thank you Brian .
As we enter the third year of this pandemic.
It is undeniable that 2021 was a challenging year.
Continuation.
Or is it in good times.
In order to adapt to this new environment.
Owners and businesses need the ability to quickly transition from in person to virtual interactions.
Yes.
Making reliable high speed, Wi Fi and indispensable utility rather than a nice to have.
Our team has worked hard to overcome significant supply challenge to deliver revenue of 1.17 billion for the full year.
Six 9% decrease year over year.
Although our typical typically a higher margin SMB business helped to partially offset the leverage cost from lower revenue on the <unk> side we.
We were impacted by a number of headwinds, including elevated component and freight costs.
Factory closure and the year with non-GAAP operating profit of $95 1 million a decrease of 14, 1% year over year.
As we shared in our recent analyst day. It is clear the hybrid remote work is here to stay and along with it.
This requirement is for better Wi Fi coverage connection speed and bandwidth capability.
With each connected device added to the household and each upgrade of an older connected device.
Ordinary Wi Fi router becomes less and less equipped to her.
Handle bandwidth intensive applications like streaming video conferencing and virtual reality game.
This mix of Wifi mesh system much more appealing than a simple router with someone looking to improve the connected home experience.
Customers, who are focused on a best in class.
Premium experience and unparalleled Wi Fi performance.
A rapidly growing segment of the market.
And we have retooled our portfolio of products and services accordingly to capture and grow our share in this premium segment.
Which we saw expand sequentially in the fourth quarter to 38% of the total growing Wi Fi mesh market.
As the leader of the premium Wifi retail market.
<unk> is focused on seizing the on bringing cutting edge.
High performance products.
Services to market.
Our strategy of focusing on the premium segment of the market is paying off.
And we are seeing strong uptick.
Our recently released or be quad band.
Wifi six E systems.
The world's first quad band Wi Fi six <unk> system the <unk>.
Or benign that mixed a newly available six gigahertz Wi Fi channel assessable to homeowners.
Believed this and the rest of our portfolio of our products and the Super premium portion of the market.
Whereas systems exceed the 1000 $1000 Mark will continue with strong growth in units sold.
Asps.
Profitability and service attach rates as well as expanding the market.
They all be quad band mesh Wi Fi <unk> system or benign is already the top so we are now online direct stores.
To deliver an uncompromised experience from start to finish.
We have laid out online store shopping experience is a key part of our strategy.
Offering an improved curated.
Premium experience with features such as rich content products selected our live check Concierge service unique offers and installation service.
Especially when purchasing directly from Netgear dot com buyers in the premium segment of the market. This very impressive brand loyalty.
I'm much more likely to subscribe to one of our value added services.
<unk> more per order, increasing our profitability.
We plan to expand our sales through netgear dotcom stores through 2022 and beyond.
We continue to innovate to deliver the best products to our valued customers.
You did share that industry analysts and experts at this year's CES awards named type of offerings as 2022 Innovation Award honoree.
Further cementing our leadership in the premium segment of the market.
Our recently released all be Quad band managed Wi Fi six <unk> system was the first or beyond.
The remaining awards one went to our newly released <unk> five G. Wi Fi six system.
It will be pro Wi Fi six mesh system Nighthawk Tri band Wi Fi six <unk> router.
And insight business Vpns.
With clearly demonstrate.
Excellence across our portfolio of products.
Now, let me share more on these exciting new product directions.
On the CHP side, a leak in the premium Wifi mesh systems market continued to strengthen.
In court by Tri band and Quad band Wi Fi six flash offerings.
Even though we saw a reduced market share on the lower end.
Our sales in the premium category.
11% sequentially.
We will continue to expand the premium segment.
Introducing new differentiated products throughout 2022.
The demands of these ultra connected homes.
This market leading performance is not by accident.
I'm proud of our team for their success in pivoting to meet the needs of this premium market.
As we rounded out our high performance or B product line. This quarter with the addition of the <unk> five <unk> Tri band Wifi six mesh system.
This system combines widely available superfast <unk> mobile connectivity with our award winning or be Wi Fi mesh system.
To enable blazing fast speeds and unsurpassed performance without low latency and no downtime.
Available now when they get a dot com and the retail price of about $1100. This product comes with a free 30 day trial period of Netgear armor.
Advanced multilayer cyber security solutions.
And a key part of our strategy to grow our paid subscriber base.
Our relentless focus on innovation to provide best in class offerings for our valued customers has been and continues to be a key driver in the acquisition about paid subscribers.
The proliferation of devices and transformation of close into essentially branch offices, securing these new who walk. This networks is paramount to services like Netgear armor, all becoming indispensable.
<unk> closed out the year with 584000 subscribers.
Passing out end of year projections of 575000 subscribers for year over year growth of 33, 6%.
With the growth of the ultra premium segment.
And a higher attach rate, we remain positive about the long term profitability impact on our business.
Our ability to reach 750000 subscribers by the end of the current year.
Turning to our SMB business.
The team delivered full year growth of 27% over 2020.
And nine 5% over pre pandemic levels using 2019 as a reference point.
Despite continuous supply constraint.
New businesses are forming faster than ever.
At the highest level since 2004 in the United States.
New and reopening businesses wants to upgrade their technology enhanced.
Enhanced productivity security and performance.
This momentum drove strong demand for.
For our Wi Fi six cloud managed.
Wireless access points.
Also the investment in the pro business is paying dividends with continued momentum of sales.
Managed switches.
We entered the market just a few years ago.
We have made substantial progress thanks to the strategic development of our family of managed Ethernet switch products.
Specifically tailored to the unique needs of the AAV industry.
The industry's transition from analog to digital Avi over IP is without a doubt accelerate.
Used cases are bound.
Endless list of video and audio reach applications.
Whether it's a next generation recording studios Roby.
The robot assisted surgical procedures.
Ultra high definition video walls.
Signage.
Automation and <unk> Entertainment.
Gaming lounges.
Digital classrooms in places of worship.
Data visualization with sporting and other events and more.
In the fourth quarter, we added a significant number of pro Avi OEM partnerships.
And Gartner that marquee wins with the largest avi integrators worldwide.
Finally, as mentioned last quarter.
We expanded our service offerings for SMB business with the Netgear insight business VPN.
Which also received a recognition at CES.
Insight business VPN connects branch offices and work from home employees to the corporate Wi Fi network through an encrypted trusted and persistent VPN connections.
Inside business VPN makes cloud enabled network control of managed switches.
Wireless access points and routers effortless and seats.
Oh, and interactive price point of $9 99 per device.
Yes.
And with that I'll turn it back over to Bryan to comment on our opportunities and obstacles in the coming quarter.
Yes.
Yeah.
Thank you Patrick.
U S consumer Wifi market seems to have stabilized.
And with the material efforts to optimize our retail channel partners' inventory levels in Q4 2021 completed.
We expect the normal decline of the first quarter of CHP revenue from the retail channels.
First is the fourth quarter of the prior year to be muted.
Normal seasonality of the retail portion of the CHP business is expected to resume from the second quarter onwards.
Due to the lumpy nature of our service provider business, we expect first quarter revenue from this channel will be approximately $20 million.
In addition revenue for our SMB business will continue to face supply constraints.
Limiting our ability to achieve its full top line potential.
Together these factors lead us to expect our first quarter net revenue to be in the range of $225 million to $240 million.
We continue to face a number of near term headwinds.
Starting with elongated transit times due to numerous disruptions on the logistics front.
We are also expecting to see transportation costs will remain significantly elevated through the first half of 2022.
And we will continue to spend on air transportation to maximize supply of our SMB products.
Additionally.
The impact of higher component costs will take full effect.
We are selectively increasing prices to offset higher sea transportation and component cost over time.
Starting in the first quarter, but the margin benefit of these price increases will increase as the year progresses.
As a result of these factors plus reduced leverage from our top line.
Our GAAP operating margin in the first quarter is expected to be in the range of negative one 5% to negative <unk>, 5%.
non-GAAP operating margin is expected to be in the range of 1% to 2%.
Our GAAP tax rate is expected to be approximately negative 29%.
And our non-GAAP tax rate is expected to be 29% for the first quarter of 2022.
We remain hopeful that see transportation costs will ease and our F&B supply will improve in the second half of the year. Thus.
Thus, creating a much more favorable environment for us and our top and bottom lines.
While we are confident in our ability to provide guidance at this time, we do see what the caveat the considerable uncertainty remains in the market due to the COVID-19, pandemic and supply chain conditions continuing to remain challenged.
Shouldn't unforeseen events occur in particular challenges related to closure of our manufacturing partner operations increased.
Transportation delays into any of our regional distribution centers.
A greater than expected freight or component costs, our actual results could differ from the forward looking guidance.
We would now like to answer any questions from the audience.
At this time I would like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad.
Your first question comes from the line of Adam Tindle with Raymond James Your line is open.
Okay. Thanks, Good afternoon, I just wanted to start on CHP nice to see the end of optimizing channel inventory in market stabilizing is definitely a positive today, you're announcing attempt to raise prices there and I guess in light of Groundhogs day.
Wanted to ask a question to make how to think about making sure. We don't end up in the same situation, where we need to optimize channel inventory again, a year from now or so due to demand decline on pricing increases. So I guess the question would be maybe for Patrick the process that you went through to get confident on pulling the trigger on the price hike and Brian If you could add.
Any color on the magnitude and impact to the model that would be helpful. Thanks.
Yeah, I mean, certainly we look at the market.
One other products, we believe that we would be able to command more price power primarily in the products that we own unique technology with much less competition.
For example, like the cable products.
So very few competition in cable gateways, which you have to combine the DOCSIS cable technology with the latest Wi Fi six technology. That's one example, an example of the <unk>.
<unk> mobile hotspots were among a lot of competition over there, especially on the premium end.
So we are pretty confident that with those price increases that will help us to offset.
Some of the component cost as well as transportation cost.
And we select the the increase in the prices.
In anticipation of what.
The market market take up rate will be so I don't think we're going to be in a situation, where we will have excess inventory in the market because the products, we pick a list price.
Sensitive.
Secondly, the other things that we're doing is actually introducing newer products to replace older products and when we introduced our newer products the old products already out of the inventory position in the channel and the newer products actually carry both a slightly higher prices as was the margin. So.
What we are doing so you would expect us to refresh quite a bit of a product lines throughout the year. So that's the strategy going forward to make sure that.
We don't have another.
No requirement to do channel inventory optimization now to be exact the lost time.
We have to go through the channel optimization for inventories because it was hard for us to read and even for the for the channel partners.
The COVID-19 is going to affect the.
The purchase behavior of consumers. So Ed is the height is about 50% about pre pandemic level and is very difficult to predict how is it going to settle in is it 15 or 20 or 25%. So it's kind of a once in a lifetime next one event.
And we don't believe that it will repeat that easily so Brian .
Oh.
Yes, I think Patrick you covered most of it I would say in terms of the magnitude and the impact that we're projecting it's probably in that.
Low to mid single digit in percentage terms, if youre comparing to 2021.
There is certainly some segments of the market.
Not the focal point over a lot of our price increases that we will see some loss of share, but we're okay with that as we've been saying consistently where we're focused on moving towards the premium end.
Which should be a lot less price sensitive.
Okay. That's helpful and Brian maybe just as a quick follow up you gave a lot of really good detail at the analyst day on how to think about 2022 for the full year from a quarterly perspective, both revenue and margins. Just wondering now with Q1 guidance out in a little bit more visibility is there anything that you would update as we.
Think about our models for the cadence throughout 2022 for the full year or even on a quarterly basis. Thank you.
Yeah, I think we maintained the guidance that we put out there for the full year, we're still we're still.
So thinking.
Path forward here I think with regards to the Q1 guidance, we are certainly facing a little bit of a lumpy service provider topline impact which.
Which we expect in Q2 that we will see that improve dramatically.
I would expect service shredder roughly to double in the second quarter. So so theyre alone you can see.
The impact to our top line, we leveraged just from that.
Seasonality as I said, we expect to return to normal seasonality for the retail portion of the CHP.
Seasonality for the second quarter can range anywhere from flat to up 5% to 6% as we saw in 2019 2018 period.
We will probably see it up towards the top end of that range.
And as our price increases start to take a bigger impact.
But again, we reiterate our full year guidance.
And and believe that second half will paint a much more optimistic environment for for us to achieve a higher margin.
Understood I think we're all looking forward to that thank you very much.
Your next question comes from the line of Jeffrey Rand with Deutsche Bank. Your line is open.
Hi, Thanks for taking my question on the pro ABB side do you think there is pent up demand that had been delayed during the pandemic and should this drive stronger growth going forward and what are some of the dynamics youre seeing in this market right now.
Yes.
Actually has you know moves that pro AAV market forward.
For example.
The digital classroom as well as the Digitization of the events and places of worship.
Really open up significant amount of pro gaming business.
And recording studios as you probably know the popularity of a lot of streaming content on various platforms.
They can't afford the traditional studio, which is too expensive to setup with the pro AAV equipment with newer.
Digital.
IP camera they can do it cheaply and Thats also propelled propelling the pro Avi.
And with or without the high definition LCD display panel coming up.
You have seen a lot of signage as well as video walls being.
We are pleased with pro Amy driven.
The COVID-19 actually definitely push along the pro market is a completely new we don't live in no way would take us.
Together with the Digitization of the reporting count are we actually seeing a lot of sporting events.
Making use of these cameras to do umpiring using outgrow Avi switches to drive it. So so you know we don't even know where is the limit because.
We have only limited by the ability to supply.
Our order books as long and then we just we just supplying as much as we can from the factory output and from the chips that we can get a handle so I think there's still a lot of runway and there'll be new applications popping up.
Every day.
And we're seeing a lot of.
Equipment manufacturers are moving into.
Into digital into IP. So for example, we are seeing some really high end, hi Fi audio vendors switching over from from <unk>.
Video cables into wireless connection so we.
We don't see the end of it yet and it will still keep getting invented every day.
Great. How are you guys thinking about operating expenses trending through the year as more traditional business travel hopefully returns, but you potentially have less COVID-19 safety cost.
It is completely and.
Unpredictable.
Because just when we think that we're done with Delta. We are we have undergone and just when we think the omicron Pks is reached and you were talking about your own omicron Varian for now, we and our customers and our suppliers or bearing on the safety side avoiding face to face meetings.
<unk>.
And we don't know when that's going to and I don't have a crystal ball, but clearly I don't think in the first half of this year, we will resume any business traveler at all and.
Probably will gradually restart in the second half if we don't see another big wave.
<unk>.
Omicron, Unlike a variance.
Great. Thank you.
As a reminder, if you would like to ask a question at this time. Please press star followed by the number one on your telephone keypad.
And your next question comes from the line of Hamed <unk> with BW <unk> financial your line is open.
The first question I had was just in regards to inventory if if the channels going down why is your inventory balance is still going up.
This all finished goods product.
Yes, Youre right all of our inventory is finished goods with some very very few exceptions, we have procured some components to really kind of buffer a bit given the environment that we're in but the vast majority is finished goods.
It's going up as transit times have elongated we've been saying this pretty consistently for at least the past year, but I would say that they've actually probably degraded a bit even in the fourth quarter.
I think the average transit time, we saw forgets going through southeast Asia too.
West Coast of the U S, which is where we have our U S. Distribution center is averaging about 70 days so right off the bat, we're having to own more than two months of inventory that's sitting out on the water.
We do want to compress that a bit, but it's really going to be driven on <unk>.
When we can see those transit times return to something closer to the norm I don't know when that will be but.
Bear in mind that the.
The pre pandemic trends.
Times of about 28 days to go that same route so significantly elevated.
And what's gonna be the method of gist.
Closing down some of the inventory and selling it through is it going to be the retail channel or is it going to be just through Nike com.
Our inventory our inventory is going to go through all channels.
The retail and service provider on the CHP side and direct to consumer.
But in terms of compressing at that will be just kind of.
Getting the ability of production and timing of when that goes ex factory two.
To arrive in time for the match demand will compress with transit times, hopefully coming down from the 70 days that we see today.
And the last question was on the paid subscribers going up by about 32000 from the September quarter was that predominantly from.
The hardware being sold off on Nick your Dot com or are you getting traction from the retail channel.
Well, we haven't both I mean, clearly on the on the attach rate basis that means 100 units sold.
Is stronger attach rate on netgear dot com, but on the other channels. We're also seeing quite a good uptake of net ads of paid subscribers.
Okay. Thank you.
Sure.
There are no further questions at this time I'll turn the call back to CEO , Patrick Lowe for closing remarks.
Thank you.
Thank you for joining us today.
Although we encountered a number of headwinds in the past year.
Relentless innovation and first to market strategy, clearly differentiate us from our competition.
Clearly, making inroads in our long term strategy of leading the premium Wi Fi movement into consumer networking market.
Expanding our paid service subscriber base and helping businesses navigate the analog to digital over IP transition.
Our robust portfolio positions us well to continue our profitable growth in the rapidly expanding premium Wifi market segment and capitalize on the ongoing transformation hybrid work environments and I'll be talking to you in our next.
Earnings call in April the report more on the progress on all these fronts and looking forward to a very productive year.
Thank you.
Okay.
This concludes today's conference call. Thank you for your participation and you may now disconnect.
[music].
Okay.
[music].