Q3 2022 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 one on your push buttons Don.
I would now like to turn the conference over to Eric Island. Please go ahead Sir.
Thank you Josh Good afternoon, and welcome to next year's third quarter of 2022 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 a review of the financials for the third quarter provided by Bryan.
Followed by details and commentary on the business provided by Patrick and.
Finish with fourth quarter of 2022 guidance provided by Bryan.
Well then have time for any questions.
If you have not received a copy of today's press release.
Does it get curious Investor Relations web site at 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.
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.
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 October <unk> 2022.
It was $249 6 million.
Bush was above the midpoint of our guidance range.
11, 8% sequentially.
And down 14% year over year.
Across our entire business demand for innovative highly differentiated premium products remained strong.
These higher margin products, including it'd probably be minutes switches <unk>.
<unk> mobile hotspot.
10 gig try and quad band Wi Fi mesh products.
But the key to delivering growth and expanding our profitability in the long term.
In the third quarter, despite supply challenges the team worked around the clock to deliver as much of these key products as possible to our channel partners and end customers.
This resulted in record quarterly revenue for our SMB segment.
And strong sequential growth of our <unk> mobile hotspots for our service provider partners.
Yes.
Despite these tremendous efforts we were still short of supply in total for our high end products.
It resulted in a less favorable mix of revenue.
And lower overall non-GAAP operating margin is expected.
As we look to the fourth quarter broad.
Broad based inflationary pressures and the uncertain macroeconomic environment, we are top of mind for many retail channel partners.
As a result.
While we made progress and destocking in the third quarter.
Retail partners continue to right size inventory.
And we expect that to continue in the fourth quarter and into 2023.
We returned to non-GAAP operating profitability in the third quarter.
Delivering non-GAAP operating income of $1 8 million.
And non-GAAP operating margin of 7%.
Stronger SMB performance helped us improved non-GAAP operating margin by 260 basis points as compared to the prior quarter.
With that said, we still ended the quarter with a significant backlog on the SMB side.
Particularly pro AAV managed switches.
The HP side, with our <unk> and <unk> Pro <unk> mobile hotspot.
For the third quarter of 2022 net revenue for the Americas was $169 4 million.
And an increase of 17, 6% on a sequential basis.
EMEA net revenue was $44 8 million.
Which is down 21, 3% year over year.
And flat quarter over quarter.
Our APAC net revenue was $35 4 million.
Which is down seven 1% from the prior year comparable period.
And up three 4% sequentially.
Year over year revenue declines were principally driven by market softness in the retail portion of the CHP business.
Partially offset by our SMB business, where we saw strong year over year growth across all three regions despite supply constraints.
In general the strengthening of the U S dollar over the past year has had a meaningful negative impact on our international revenue.
And our profitability.
On a constant currency basis, our EMEA and APAC revenue would have only declined 9% and 1% year on year respectively.
Yes.
For the third quarter of 2022, we shipped a total of approximately $2 4 million units, including $1 5 million nodes of wireless products.
Shipments of all wired and wireless routers and gateways combined were about 786000 units for the third quarter of 2022.
Yeah.
The net revenue split between home and business products was about 60% and 40% respectively.
The net revenue split between wireless and wired products was about 61% and 39% respectively.
Products introduced in the last 15 months constituted about 28% from the third 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 third quarter of 2022 was 27, 6%, which.
Which is down 250 basis points as compared to 31% in the prior year comparable period.
And then 10 basis points compared to 27, 7% in the second quarter of 2022.
As compared to the prior year, the higher cost of components and transportation.
And the strengthened U S dollar were the primary drivers for the reduction.
Total Q3, non-GAAP operating expenses came in at $67 2 million.
Which is down one 1% year over year and up one 6% sequentially.
Our head count was 731 as at end of the quarter down from 740 in Q2.
We evaluate our business priorities on a regular basis to.
To make structural adjustments accordingly, and areas that are not aligned with our strategic focus.
We will continue to invest in our business and higher in key areas, we believe will deliver future growth and profitability.
Such as pro Avi.
Super premium or be Wi Fi systems.
LNG mobile hotspots.
And subscription services.
Our non-GAAP R&D expense for the third quarter was eight 5% of net revenue as.
As compared to seven 6% of net revenue in the prior year comparable period.
At nine 5% of net revenue in the second quarter of 2022.
To continue our technology and subscription service leadership, we are committed to continued investment in R&D.
Yes.
Our non-GAAP tax was a benefit of $3 6 million in the third quarter of 2022.
The benefit came as a result of revisions to current year to date estimates as well as a onetime revision to previous.
Previous year tax estimates.
Looking at the bottom line for Q3, we reported non-GAAP net income of $6 million and non-GAAP diluted net income per share of <unk> 21.
Turning to the balance sheet.
We ended the third quarter of 2022 with $233 2 million in cash and short term investments.
Down $16 $9 million from the prior quarter.
During the quarter $15 2 million of cash was used by operations, which brings our total cash used by operations over the trailing 12 months to $4 9 million.
We used $2 1 million in purchases of property and equipment during the quarter.
Which brings our total cash used for capital expenditures over the trailing 12 months to $7 1 million.
Great.
Although we did not repurchase any shares of netgear common stock in the third quarter, we are committed to returning value to our shareholders.
And plan to continue to repurchase shares in future periods.
Since the start of our repurchase activity in Q4, 2013, we have spent $651 $9 million to repurchase $18 9 million shares.
Our fully diluted share count is approximately 29 million shares as of data in the third quarter.
Now turning to the third quarter results for our product segments.
This connected home segment, which includes our industry, leading RB Nighthawk Nighthawk Pro gaming and <unk> brands generated net revenue of $156 million during the quarter.
Which is down 27, 8% on a year over year basis, and up 16, 9% sequentially.
We experienced a year over year decline in the retail side is as the year ago period was still experiencing relatively elevated demand.
Despite a double digit decline in the CHP retail market overall year over year, our Super premium Wi Fi mesh category grew in the same period.
We also saw continued strong demand for our leading <unk> mobile hotspots in both the retail and service provider channels in the third quarter.
But we were limited by supply of these higher margin products.
We remain confident that the super Super premium Wifi market.
<unk> pioneered and led by Netgear and <unk> mobile hotspots will continue to deliver growth into 2023.
I am excited to share the SMB once again generated record net revenue of $99 million for the third quarter of 2022, which is up 21, 3% on a year over year basis and up four 9% sequentially.
We made incremental progress navigating the supply chain challenges facing our SMB business in the quarter and are managed switch products led the way with 80% growth as compared to the prior year.
This again demonstrates the strategic importance of our lessors in the rapidly growing <unk> market.
Importantly, we continue to see strong growth across all geographies, despite significant FX headwinds.
On a constant currency basis, our F&B business would have grown and even more impressive 29% year over year.
I'll now turn the call over to Patrick for his commentary.
For which I'll provide guidance for the fourth quarter of 2022.
Thank you Brian .
I am proud of our team's execution and navigating the ongoing supply chain challenges in the third quarter.
Across a number of strategic growth product categories.
On the SMB side, our pro <unk> managed switch line of products continued its strong performance and helped drive our SMB topline to record results in Q3.
On the CHP side, our unique quad band or be nine and our <unk> millimeter wave mobile hotspots.
<unk> with a strong quarter on quarter growth.
In turn the growth of these new strategic product categories returned a net geared to non-GAAP profitability and enabled us to deliver revenue in the top half of our guidance.
As these new product categories, continuing to grow and become a more significant portion of our overall business in 2023 and beyond we expect to see both our top and bottom lines improve.
Our pro AAV line was the driving force, which kept our SMB momentum on.
On an upward trajectory.
Spansion of our pro <unk> business drove our family of managed Ethernet switch products to another record revenue levels.
It is clear that the industry transition from analog to digital AAV over IP is accelerating and netgear with products, specifically tailored to the unique needs of the AAV industry.
Is poised to capitalize on this transition.
We continued to benefit from our differentiated software.
<unk> enables all major equipment manufacturers and system integrators.
Form efficient and trouble free installation and management.
Cross a plethora of applications.
To expand our advantage here, we are introducing new windows and Mac OS based pro avian network configuration and management software to great reception, among the avian installer community.
Additionally, we continue to expand an already broad portfolio of products.
Wow maximum flexibility in configuration, depending on the application.
Ranging from small video conference rooms to digital signage networks that spans thousands of locations.
All with our global Pro Avi design consulting team, which we are working to double in size ready to happen.
Meanwhile, our operations team continues to secure additional supply to enable our SMB business to capitalize on his considerable backlog.
And produce even stronger performance in this category moving forward.
On the CHP side, our super premium or be eight and nine Wi Fi mesh products demonstrated growth in end market sales, even as the broader consumer Wi Fi market at large has declined.
We continue to execute on our strategy to shift more of our consumer CHP product sales towards meeting the needs of premium residential customers.
Who live in properties with large footprints.
Vast array of connected devices and demand the best Internet security.
We pioneered this best in class wireless performance sparing no expenses to deliver an uncompromising experience.
And I'm pleased with the enthusiastic reception from this customer segment.
We believe we have a huge lead in radio frequency analog antenna and system design over our competition and intend to use this to capitalize on future technology inflections.
With the impending arrival of Wi Fi seven and extensive deployment of millimeter wave <unk>. We believe we can expand our lead and continue to grow the market with higher asp's and deeper penetration of this unique user assessment.
To continue this latest leadership, we're doubling down on our product investments and our high end mesh and mobile hotspot products.
To update our best selling <unk> five zero series, we recently introduced the Obi 860 series.
Our new or the 10 gig Tri band Wi Fi six mesh system.
This exciting new product features attain gigabit Ethernet port.
With support for multi gig internet connections and upgraded antenna design for greater Wi Fi performance.
And Ah one year bundle of Netgear armor, which protects all connected devices on the home network from incoming attacks and outgoing anomalies.
This new <unk> hundred 60 mesh product is ideally suited for the latest iphones and Max which demand the best Wi Fi Wi Fi six performance.
While the skip the interim step of Wi Fi six E support.
Our patented Tri band and Quad band antenna designs are the only choice for homeowners, who want the absolute best performance and most secure Wi Fi experience.
<unk> is and always will be committed to providing homeowners with the best Wi Fi coverage to up level their connected home ecosystem.
We are seeing improved supply of our latest <unk> mobile hotspots Nighthawk <unk> six and <unk>.
As a result, we are forecasting $15 million in service provider revenue in Q4.
We are also introducing these exciting new products into the retail channel and unlocked versions.
For many rural customers with no high speed wired Internet connectivity, the Nighthawk <unk> six and <unk> are the only high speed Internet options.
To enhance the customer experience, we introduced the industry's first in home mode for our Nighthawk <unk>, six and <unk> Pro mobile hotspots.
In the in home mode Wi Fi signal is boosted in the battery can be taken out while the mobile hotspot is plopped into an AC power source.
For many traveling business professionals getting gigabit download speed on the ROE, while keeping the connection private with our Nighthawk <unk> pro is priceless.
<unk> six is retailed at $7 99, while <unk> pro will be retailed at $9 99.
We remain confident we can continue to build on the success of these three high end categories.
<unk> Super premium RBA, denying Wi Fi mesh and <unk> mobile hotspots.
Even amid challenging macro economic conditions. These higher margin segments continue to grow.
The key to next year's market leadership has always been our focus on offering consumers and businesses. The best in class technology to boost their productivity by providing the fastest and most reliable connectivity solutions.
It is clearer than ever that our most innovative offerings are the key to our long term growth and margin expansion.
As a result of the shift away from the lower end of Wi Fi market, we are able to focus on the customers that demand the very best to net gear that means higher asps and revenue improved margins and a better service revenue opportunity.
Last but not the least on the services side revenue was $8 5 million for the third quarter up six 4% sequentially and up 14, 7% year over year.
Affluent residential customers of our <unk> eight and nine are more likely to adopt our value added subscription services.
Smart parental control and Poe support.
For the RB and Nighthawk mobile hotspots.
We are also seeing more of our SMB channel partners, including Pro AAV system integrators wireless Lan Vos and even large scale commercial mobile hotspot deployment enterprises, adopting our insight remote management of subscription services.
We continue to make progress growing our service business ending the quarter with 666000 paid subscribers.
And expect to meaningfully expand this in the fourth quarter and beyond.
The core value proposition of our subscription services is resonating with customers and we expect service revenue both in <unk> and SMB. It will be a key driver of our margin and top line expansion effort in the medium and long term.
And with that I'll turn it back over to Bryan to comment on our opportunities and obstacles in the coming quarter and year.
While we expect to continue to experience strong underlying demand for the SMB business and the premium portion of our CHP product portfolio.
We're facing near term headwinds.
We expect the SMB business will remain supply constrained and we will continue to use higher cost airfreight is a means to partially mitigate.
We are also continuing to work with our retail channel partners in the coming quarters to reduce their inventory levels.
Furthermore, as roughly 50% of our SMB revenue is important currency, we're seeing significant foreign exchange headwinds going from Q3 into Q4.
On the positive side, we do expect fourth quarter revenue from our service provider channels to increase to approximately $50 million.
Together these factors lead us to expect our fourth quarter net revenue to be in the range of $235 million to $250 million.
As a result of these factors our GAAP operating margin in the fourth quarter is expected to be in the range of negative four 2% to negative three 2%.
non-GAAP operating margin is expected to be in the range of negative 2% to negative 1%.
Our GAAP tax rate is expected to be approximately 20% and our non-GAAP tax rate is expected to be 23% for the fourth quarter of 2022.
While we are confident in our ability to provide guidance at this time, we do so with the caveat that considerable uncertainty remains in the market due to the COVID-19 pandemic.
And supply chain conditions continue to remain challenged.
Sure unforeseen events occur in particular challenges related to closures of our manufacturing partners operations, Inc.
Kris transportation delays into any of our regional distribution centers.
Were greater than expected freighter component, where actual results could differ from the foregoing guidance.
We would now like to answer any questions from the audience.
Yeah.
At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Your first question comes from Amit <unk> with BWXT. Your line is open.
Hi.
First off could you just talk about your supply chain constraints.
Because the headlines are suggesting that your you know everyone's seeing some alleviation of this.
Constraints, but you were talking about that Youre still seeing some problems there.
And if youre able to source from other areas to help meet your demand.
No actually the.
For example on the SMB side on a pro AAV switches.
The main chips are primarily coming from one single supplier.
And they are still under severe constrain of supplying those chips because those chips are primarily on older technologies, all 55 nanometers and evolve.
We're going to roll over into newer technologies of 18 nanometers by the end of next year in the meantime, the capacity of providing those chips are still competing against the auto industries.
And other data center switches. So we don't expect that to be alleviated until we roll over to the newer technology by the end of next year.
And on the CHP side at the high end or the <unk> as well as to premium.
Mobile hotspots.
Interesting enough it.
It is not the main chip supplier that is really choking our supply is more the salary components. For example item mobile hotspot is the LCD displays a little LCD display screens.
Batteries.
And then on the albeit at nine or some of the antenna components in the Pcbs.
Unfortunately, these components are all steel manufactured exclusively in China.
We are desperately trying to find alternatives outside of China, but is very difficult.
And with all the Covid Lockdowns here and there and we're in various cities in China and is still doing it right now as we speak as your property now in the biggest city wed <unk> and Meda under Lockdown situation. This engine is also certain districts are under lockdown. So we have disruptions in all of these little component supplies.
Which showed Dallas, our supply of high end mobile hotspots as well as Youll have the Ada NOI.
As long as China continued to follow the Covid zero strategy and as long as we can find alternatives outside of China. We will continue to face this headwind as we go forward.
Okay and then my other question was.
What is the target inventory level in your retail channel and are you considering broadening out your product.
Product availability to the retail channel beyond just the unlocked hotspot, maybe including some of the Super premium.
Wireless routers.
First and foremost as you probably know all the retail channel people talking about recession and getting prepared for a recession.
And they all want to lower the channel inventory.
To have a lower level.
Traditionally our retail channel inventory when the market is going up is somewhere between 12 weeks.
And then.
When the market is kind of neutral they will I can take it down to a 10 weeks.
And now I mean, they say they want to go all the way down to six weeks.
And so the goalposts being moved all the time by our retail partners.
Primarily related to our legacy products of the mid to low end.
The premium products.
Mostly sold online the affluent customers tend not to go into shops to buy them they buy online so.
It is a difference in terms of our channel presence.
The mobile hotspots.
And our <unk> and nine are mostly sold through our own web stores, Amazon and best buy Dot Com. Those are the three major places we don't intend to broaden the availability of these products into more physical shelf space into more retail stores, because it's just a different set of clientele.
Great. That's it for me thank you.
Your next question comes from the line of Adam Tindle with Raymond James Your line is open.
Okay. Thanks, Good afternoon, I just wanted to talk about the comments, where you talked about being well positioned to return to growth in 2023, and kind of giving us some green shoots going forward.
At the same time, you talked about that retail destocking continuing into 'twenty. Three it was helpful to hear the weeks that you just mentioned, but maybe you can talk about how much time, you think is left on retail destocking and what gives you confidence to talk about returning to growth in 2023, giving you still have destocking happening.
In that year. Thanks, well the first thing that is working to our favor is this year 2022 is probably going to shape up as one of.
The lower revenue year. So the bar is lower to begin with.
And secondly, we expect a crossover point alright, the destocking.
Amount is going to be superseded by the growth amount of our other businesses. So.
If you look at that.
Our growth off of the F&B revenue, alright is pretty significant and as the base gets bigger that actually the growth percentage is staying the same will be bigger and the same thing is for the premium RV as well as mobile hotspot.
<unk> Big a portion of our revenue and its growth rate continues to keep up that they will be able to offset the.
The decline in the legacy products channel inventory Destocking.
So we believe that the crossover point.
Is going to arrive next year and for the whole year.
Confident that is going to have that.
It gives you an idea the SMB business in Q3 is running at $100 million a quarter.
$330 million bigger than what it used to be.
If you just assume it stays constant alright.
$120 million growth in.
In a year.
That's why the bigger than any destocking that.
That you could add there is not $120 million of channel inventory, if they want to go down to zero.
Which is not going to happen.
Alright.
So just to clarify so when you talk about returning to growth does that mean 2023 for the full year is a growth year or are you seeing in a single quarter at some point you will return to growth, yes, it will be for the full year, yes.
Okay great.
And then Brian this is going to be a tough one because I feel like there's so many moving parts here.
On one hand, when im talking about margin you've got a number of headwinds to gross margin I'm wondering if you could maybe bucket size. Some of those and then you've got some tailwind on Opex, where you did some cost savings, particularly focused on the CHP business.
Are those done and fully reflected in this quarter or is there anything incremental so it goes the question would really be just kind of unpack the best you can.
Drivers moving forward.
Gross margin that might ultimately reverse temporary air freight et cetera, as well as any opex benefits moving forward. Thank you.
Yes, I'll start with the Opex side, yes, we have taken some actions, but I do expect that we're going to continue.
Earlier in my comments that we're going to continue to look at the business in the areas that are not aligned with the strategic growth.
We're going to continue to look at right sizing those so that we can fund the investments in the other areas whether it be for ov.
The Super premium mesh the <unk> mobile hotspots and services.
So I expect that exercise to continue as we've always done that.
And we won't stop on the gross margin side of the business.
<unk> as you said there are a lot of puts and takes obviously.
<unk> is a material.
Headwinds that were facing I would say the impact to us primarily in the gross margin loan year on year is about 350 basis points. So significant headwind there obviously as we grow the SMB business and it becomes a bigger portion of the mix. It will help the overall gross margins.
Is it does carry a meaningfully higher gross margin.
So those are probably some of the bigger factors airfreight is still elevated in terms of volume and usage.
As such it was touching on the <unk> supply chain challenges, we're expecting that's going to continue on that we're not going to stop doing that because we want to fuel the growth.
The good news is that we have seen those rates subsided.
Subsided a bit I think from an airframe standpoint, we are.
Getting close to the levels pre pandemic levels in terms of a rate for air freight which is great.
See freight dramatic.
The improvement I would say in the third quarter.
But it's still above pre pandemic, probably in neighborhood of two to three times, what those rates were.
But that is very promising for us the short term challenges because we have about six months of inventory. It takes us a while to burn through that and start to realize those cost benefits.
So those are probably the most significant levers that will kind of shape what are the gross margin moves from here.
Thank you.
As a reminder, if you would like to ask a question at this time. Please press Star then the number one on your telephone keypad.
Your next question comes from Paul Silverstein with Cowen Your line is open.
Yes, Patrick Brian appreciate you all taking the questions and I apologize because I've got multiple calls Tonight, if you've already answered my questions I'm happy to take them offline or worst.
Other folks' time on the call.
First off have you all I know you haven't done historically Youtube. This go round of breakout in terms of revenue contribution bookings contribution between premium Super high end or whatever monitoring using these days and the mass market.
No traditionally we have not broken out revenue by product categories of product line other than the two segments.
So we havent.
No Patrick I'm aware of.
And I'm not talking booked product line, obviously, sorry about would probably be.
<unk>.
Required mesh, etc. Mr. Brian I know you haven't broken out historically.
The answer is we're still not breaking it out correct no because essentially.
Sensitive youre, saying is if you break it out you are forced to do segment reporting on it.
And it would be quite a bit of effort.
And so I think that.
As I've said, it last time and actually in previous calls the best way to measure how big the pro business is see the incremental growth.
SMB business, that's all pro AAV, so you can pretty much.
How big it is alright, I just mentioned our SMB business grew from $70 million a quarter at a $100 million in quarter. So you can deduce what it means.
No.
Good questions.
And then for the premium.
The CHP products right we.
We haven't really.
Broken that down, but I think to see meaningful effect of that will be reflected in the contribution margin of the products and once you see our contribution margin starting to increase significantly then that you could use that it becomes a very material for us.
<unk> of our business.
Alright.
Well, so perhaps let me try to get out the question. The other way I appreciate your comments about the contribution margin.
Putting aside the exact dollar contribution from a revenue perspective.
Broker business and broadly margins protein.
Ultra high end segment, where you're having growth.
Powder differentiation, good pricing good margins et cetera.
Looking at that collectively.
Yes, the growth rate.
Growth rates for the Ultra high end products is your expectation that those.
We'll continue to grow in Q4 and beyond or are you seeing.
Yes.
The ultra volume.
It means that one that one is pretty public alright, because NPD reported.
Reported by price band of Wi Fi mesh, so those $650 plus which makes a group the more into one price band is growing about 10% to 15%.
Every quarter.
Alright so.
That is pretty much Josh.
Nobody else.
So thats the growth rate that you can see it and.
That piece you could easily get it from NPD and so NPD report in that particular segment alright, they actually dollarized, how big the market.
Is that segment, which as you know.
Roughly about $40 million a year.
<unk> is <unk> SaaS, while the rest of the market is shrinking.
Now thats only the <unk> at the high end <unk> and then you have the mobile hotspots.
In the mobile hotspots in retail we are the only game in town.
Alright so.
And of course, the bulk of our mobile hotspot sales today is still in the service provider.
And then we did $50 million.
I mean, we did 35.
At $40 42 way this quarter right Brian .
<unk> 42, and then next quarter. We ended of 50, so that's pretty much all of these high end mobile hotspots.
Yes.
So Patrick voters sooner directly your ultra high units growing roughly 10% to 15% and correct.
Didn't directly respond, but I trust, you're saying there has been no indication.
All of the macro related or for that matter any other factor thats driving a moderation sort out of the market youre not seeing macro factors FX.
Bruce.
Because most of the sales of this category is about $1500 alright.
And that those people.
Is the least affected by the macroeconomic situation is pretty much the same as the Rolex watches to Ahmed backs and Porsche and that kind of consumers.
No I understand but at some point even that segment.
Hello, Patrick at some point and I recognize you've had a nice reversal to the upside the bus route but when.
Stock prices are going down and going down dramatically and well, there's a wealth effect wealth effect works in both directions, even among the super rich and wealthy through tends to be a pullback of material consumption.
Not totally immune I'm, just trying to understand to what degree, but I hear youre, saying youre not seeing the impacted present unexpected sweetie Peck.
Alright.
Property redesigned do.
In the last few weeks on Wall Street, Bloomberg everything they say this time little bit different.
Because.
All the central banks around the world, including China have printers, so much money in the last three years is to pandemic.
And guess, what all that money goes to these people.
Alright, so the wealth is still pretty big and the articles after articles reporting on how they spend.
In the current environment.
One last question if I may along the same lines, but looking at the mass market.
If we look through the revenue.
<unk>.
Linear perspective, including the past.
All three plus weeks of October .
In mass market has no impact on the mass market of macro is the decline you're seeing is that.
The decline youre expecting or seeing is deteriorating as we speak has there been a progression of deterioration.
It gets worse before it stabilizes or wherever it's at now.
Think that it's stabilizing at that level.
While the mass market is definitely deteriorating.
So the decline of the mass market in the first three weeks of the Cortez, we see it we read from NPD is actually worse than that.
First three weeks of Q3.
Doubt about it.
But we're not seeing that with our <unk> or our <unk> and <unk> pro.
Okay greatly appreciate the responses. Thank you sure.
And there are no further questions I'd like to turn the call back to Mr. Patrick <unk> for closing remarks.
Thank you everyone for joining us today are the strong demand of our differentiated technologically advanced products gives us the confidence about the long term future in both the SMB and CHP businesses in terms of top and bottom line expansion we.
We're at the forefront of the pro AAV market transition and we will continue to make inroads in expanding our presence in the market.
Although our CHP channel inventory reduction will continue into 2023.
Our long term growth trajectories on track supported by our highly differentiated <unk> eight or nine Wi Fi mesh systems, and our <unk> mobile hotspots.
All of which are in high demand and I look forward to sharing more on this at our upcoming analyst days set for early December .
After all of that.
This concludes today's conference call you may now disconnect.
Okay.
Okay.
Yes.