Q1 2025 NETGEAR Inc Earnings Call

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Operator: Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode.

Ladies and gentlemen, thank you for standing by at this time all participants are in a listen only mode. Later, we'll conduct a question and answer session at that time. If you have a question you will need to press the far one on your push button forward I would now like to turn the conference over to Eric Violin. Please go ahead Sir.

Operator: Later, we will conduct a question-and-answer session. At that time, if you have a question, you will need to press the star 1 on your push-button phone.

Erik Bylin: I would now like to turn the conference over to Erik Bylin. Please go ahead. Thank you, operator.

Eric Violin: Thank you operator, good afternoon, and welcome to Netgear as first quarter of 2025 financial results Conference call.

C.J. Prober: Good afternoon, and welcome to NETGEAR's first quarter of 2025 financial results conference call. Joining us from the company are Mr. C.J. Prober, CEO, and Mr. Bryan Murray, CFO.

Joining us from the company are Mr. C. J P <unk> CEO and Mr. Bryan Murray CFO.

C.J. Prober: The format of the call will start with commentary on the business provided by CJ, followed by a review of the financials for the first quarter and guidance for the second quarter provided by Bryan. We'll then have time for any questions.

Bryan Murray: The format of the call will start with commentary on the business provided by C. J followed by review of the financials for the first quarter and guidance for the second quarter provided by Bryan will then have time for any questions.

C.J. Prober: If you have not received a copy of today's press release, Please visit NETGEAR's Investor Relations website at www.netgear.com.

Bryan Murray: If you've not received a copy of today's press release.

Bryan Murray: Please visit <unk> Investor Relations website.

Bryan Murray: W. W. W Dot dot com.

C.J. Prober: Before we begin the formal remarks, we advise you that today's conference call contains forward-looking statements. Forward-looking statements include statements regarding our expected revenue, operating margins, tax expense, expenses and future business outlook. Actual results or trends could differ materially from those contemplated by these forward-looking statements.

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

Bryan Murray: Forward looking statements include statements regarding our expected revenue.

Bryan Murray: Operating margins tax expense expenses and future business outlook.

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

C.J. Prober: For more information, please refer to the risk factors discussed in NETGEAR's periodic filings with the SEC, including on the most recent Form 10-K. 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, except as required by law.

Bryan Murray: For more information please refer to the risk factors discussed in that cares periodic filings with the SEC, including on the most recent Form 10-K.

Bryan Murray: 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, except as required by law.

C.J. Prober: 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.

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

Bryan Murray: A reconciliation of the non-GAAP to GAAP measures can be found in today's press release on our Investor Relations website.

C.J. Prober: At this time, I would now like to turn the call over to CJ. Thanks, Erik, and thank you all for joining our call. We had another great quarter, our transformation is gaining momentum, and we are well positioned to navigate the current geopolitical situation given we don't manufacture in China, our products are currently exempt from tariffs, and we're a trusted U.S.-based public company. I'll use my time today to expand on each of these three topics. The team at NETGEAR produced another strong quarter, solidly outperforming our guidance for revenue and operating margin, led by better than expected contributions from our B2B division, NETGEAR for Business.

C. J.: At this time I would now like to turn the call over to C. J.

C. J.: Thanks, Eric and thank you all for joining our call.

C. J.: We had another great quarter, our transformation is gaining momentum and we are well positioned to navigate the current geopolitical situation given we don't manufacture in China. Our products are currently exempt from tariffs and we are a trusted U S based public company.

C. J.: I'll use my time today to expand on each of these three topics.

C. J.: The team at Netgear produced another strong quarter solidly outperforming our guidance for revenue and operating margin led by better than expected contributions from our <unk> Division next year for business as.

C.J. Prober: As we shared last quarter, we focused 2024 on understanding and addressing NETGEAR's foundational challenge. With great execution and agility demonstrated by the team, we entered 2025 as a realigned and reinvigorated organization that was much more focused on the best growth opportunities and capable of stronger execution on the operational front. Our 2024 enhancements enabled us to not only deliver improving results on the top and bottom line, but also set a clean table for us to launch into the next phase of our transformation. Looking to maximize our impact in 2025, we proactively launched a further reorganization in January to ensure we had fully adjusted our team's focus to unlock the value inherent in each business.

C. J.: As we shared last quarter, we focused 2024 and understanding and addressing nikias foundational challenges.

C. J.: With great execution and agility demonstrated by the team we entered 2025 as our realigned and reinvigorated organization. It was much more focused on the best growth opportunities and capable of stronger execution on the operational front.

C. J.: Our 2024 enhancements enabled us to not only deliver improving results on the top and bottom line, but also set a clean table for us to launch into the next phase of our transformation.

C. J.: Looking to maximize our impact in 2025, we proactively launched a further reorganization in January to ensure we had fully adjusted our team's focus to unlock the value inherent in each business.

C.J. Prober: These changes allowed us to free up cash to make bigger bets on what we increasingly see as great growth and profitability opportunities. Backed by a reorganized team and clear goals, our first quarter results are beginning to reflect the progress we've made thus far and the momentum building behind NETGEAR's transformation. We saw broad-based strength across multiple businesses, specifically with stronger-than-expected demand for our ProAV-managed switches. With the team highly focused on delivering on our ProAV potential, we were able to improve our supply position for these highly differentiated products and deliver better performance for NFB. As a company, we combined a stronger NFT mix with better supply chain execution to produce non-gap gross margins of 35%, further underscoring the fact that having a cleaner, more tightly run channel is instrumental to expanding profitability.

C. J.: These changes allowed us to free up cash to make bigger bets on what we increasingly see us great growth and profitability opportunities.

C. J.: Backed by our reorganized team and clear goals. Our first quarter results are beginning to reflect the progress we've made thus far and the momentum building.

C. J.: <unk> transformation.

C. J.: We saw broad based strength across multiple businesses, specifically with stronger than expected demand for our <unk> managed switches.

C. J.: With the team highly focused on delivering on our pro Avi potential we were able to improve our supply position for these highly differentiated products and deliver better performance for NSP.

C. J.: As a company, we can buy into stronger in F. P mix with better supply chain execution to produce non-GAAP gross margins of 35% further underscore the fact that having a leaner more tightening run channel is instrumental to expanding profitability.

C.J. Prober: Coming off our January reorganization, our OPEX spend started the year on the light side, which, combined with the strong revenue and gross margin, produced a strong beat on our operating margin. Underlying this performance, and perhaps most importantly, we saw material year-over-year improvement in the contribution margin of all three businesses, which helped us deliver positive non-GAAP EPS.

C. J.: Coming off our January reorganization, our Opex spend started the year on the light side, which combined with the strong revenue and gross margin produced a strong beat on our operating margin.

C. J.: Underlying this performance and perhaps most importantly, we saw material year over year improvement in the contribution margin of all three businesses, which helped us deliver positive non-GAAP EPS.

C.J. Prober: Bryan will provide more details on the results. The first quarter was great validation of why we see so much potential in our NFB segment. Our revenue was up over 15% from last year, and with the strong gross margin, our contribution profit rose 78% year-over-year. The impetus for our reorganization in January was to further accelerate our investments in NFD and we're more excited than ever about the trajectory of this business. As I noted, the team did a great job navigating supply constraints to over-deliver on our expectations for this segment. We also were able to continue to add to our ecosystem of partners and exited the quarter with more than 400, including many new partners in the broadcast vertical, which we see as the next growth accelerant for ProAV.

Brian: Brian will provide more details on the results.

Speaker Change: The first quarter was great validation of why we see so much potential in our NSP segment, our revenue was up over 15% from last year and with the strong gross margin or contribution profit rose 78% year over year.

Speaker Change: The images for a reorganization in January was to further accelerate our investments in NFC and we're more excited than ever about the trajectory of this business.

Speaker Change: As I noted the team did a great job navigating supply constraints to over deliver on our expectations for this segment.

Speaker Change: We also were able to continue to add to our ecosystem of partners and exited the quarter with more than 400, including many new partners in the broadcast vertical which we see as the next growth accelerant for Pro AB.

C.J. Prober: Most importantly, though, we were able to accelerate the insourcing of our software development capability by acquiring Vog Systems, which is a creator of cutting edge embedded in cloud software solutions based in Chennai, India. This new team brings a wealth of industry expertise with experience from companies such as Qualcomm, HP, NXP, Cisco, and MaxLinear, and will form the foundation of NETGEAR's new Chennai-based software development center. This new team will be focused on leveraging AI to greatly simplify networking for small and medium enterprises. In addition to enabling us to deliver more innovative products to our customers on an accelerated timeline, the insourcing effort will allow us to do more with less given our move away from costly outsourced software development vendors.

Speaker Change: Most importantly, though we were able to accelerate the in sourcing of our software development capability by acquiring <unk> systems, which is a creator of cutting edge embedded in cloud software solutions based in Chennai, India.

Speaker Change: This new team brings a wealth of industry expertise with experience from companies such as Qualcomm HP, NXP, Cisco and Max linear and will form the foundation of next year's New Chennai based software development Center.

Speaker Change: This new team will be focused on leveraging AI to greatly simplify network gains for small and medium enterprises.

Speaker Change: In addition to enabling us to deliver more innovative products to our customers on an accelerated timeline. The in sourcing effort will allow us to do more with less given our move away from costly outsourced software development centers.

C.J. Prober: In our mobile business, better-than-expected end-user demand in the quarter enabled us to beat our expectations. We're still working to expand our product portfolio into a good better best lineup that we feel will better serve the market and improve growth and profitability. Encouragingly, our strategy for this segment is progressing well and we continue to expect these efforts to produce positive results for the rest of the year. In home networking, continuing the positive trend exiting Q4, we were able to gain market share sequentially in our two biggest markets, the U.S. and Europe, even as the market remained highly competitive and contracted slightly year over year.

Speaker Change: And our mobile business better than expected end user demand in the quarter enabled us to beat our expectations.

Speaker Change: We're still working to expand our product portfolio into a good better best lineup.

Speaker Change: We feel will better serve the market and improved growth and profitability Encouragingly. Our strategy for this segment is progressing well and we continue to expect these efforts to produce positive results through the rest of the year.

Speaker Change: In home networking continuing the positive trend exiting Q4, we were able to gain market share sequentially in our two biggest markets. The U S and Europe, even as the market remained highly competitive and contracted slightly year over year.

C.J. Prober: This is a great accomplishment and it's a strong validation of our new strategy for this segment. Buoyed by a combination of better margins from more Wi-Fi 7 offerings, lower cost inventory, and right sized investments, we significantly lowered our contribution loss for this business as compared to the prior year period. Clearly, our efforts to deliver continued product releases, along with steady improvement and heartening of our security offerings, are working as we continue to expand our advantage as the most trusted brand in home networking.

Speaker Change: This is a great accomplishment and is a strong validation of our new strategy for this segment.

Speaker Change: Lloyd by a combination of better margins for more Wi Fi seven offerings lower cost inventory and right sized investments, we significantly lowered our contribution loss for this business as compared to the prior year period.

Speaker Change: Clearly our efforts to deliver continued product releases, along with steady improvement in hurricane of our security offerings are working as we continue to expand our advantage as the most trusted brand in home networking.

C.J. Prober: With regards to the geopolitical situation, while there is a lot of volatility and the macro environment remains uncertain, we are very well positioned to navigate through this successfully for a number of reasons. First, we do not manufacture products in China, which has been the biggest target of the new administration's tariff policy. Second, while this could obviously change, our products are currently almost completely exempt from tariffs. Unlike the 90-day hold on reciprocal tariffs, the tariff exemption that our products are part of is not time-bound. Third, we have limited direct exposure to the DOJ cost-cutting efforts, and in fact, the focus on driving down costs positions our high-value, lower-cost solutions quite well vis-à-vis our competition.

Speaker Change: With regards to the geopolitical situation, while there is a lot of volatility in the macro environment remains uncertain. We are very well positioned to navigate through this successfully for a number of reasons first we do not manufacture products in China, which has been the biggest target of the new administration's tariff policies.

Speaker Change: While this could obviously change our products are currently almost completely exempt from tariffs. Unlike the 90 day hold on reciprocal tariffs the tariff exemption that our products are part of is not time bound.

Speaker Change: Third we have limited direct exposure to the dose cost cutting efforts and in fact, the focus on driving down cost positions are high value lower cost solutions quite well, it's via our competition.

C.J. Prober: Finally, our status as an independent U.S.-based public company positions us well to continue to earn the trust of our consumers and benefit from any administrative action focused on our China-based competition. In that regard, Hooper published an article this week reporting on an apparent DOJ criminal investigation into TP-Link.

Speaker Change: Finally, our status as an independent U S based public company positions us well to continue to earn the trust of our consumers and benefit from any administrative action focused on our China based competition in that regard Uber published an article this week reporting on an apparent Doj criminal investigation into <unk>.

Speaker Change: Inc.

C.J. Prober: So to summarize, we had another quarter of great results, our transformation is working, and the geopolitical winds are blowing in our favor.

Speaker Change: So to summarize we had another quarter of great results. Our transformation is working and the geopolitical winds are blowing in our favor and with that I'll hand, it over to Brian.

Bryan Murray: And with that, I'll hand it over to Bryan. Thank you, CJ, and thank you, everyone, for joining today's call. Thanks to the excellent execution of our team, we began the year with a strong start. delivering a fourth consecutive quarter where we exceeded the high end of our guidance range for revenue and non-GAAP operating margins. The first quarter's outperformance was driven mainly by strong performance in our higher-margin NFB business segment. which grew 15.4% year-over-year. along with demand for our mobile products coming in above our initial expectations. Following the accelerated destocking actions we took last year, and our initiative to broaden our product portfolio in pursuit of a good, better, best strategy, We're continuing to see more predictable performance aligned to the market trends and improved linearity of channel execution.

Brian: Thank you Sanjay and thank you everyone for joining today's call.

Speaker Change: Thanks to the excellent execution of our team.

Brian: Began the year with a strong start.

Brian: Delivering our fourth consecutive quarter, where we exceeded the high end of our guidance range for revenue and non-GAAP operating margin.

Brian: The first quarter's outperformance was driven mainly by strong performance in our higher margin <unk> business segments.

Brian: Which grew 15, 4% year over year.

Brian: Along with demand for our mobile products coming in above our initial expectations.

Brian: Following the accelerated Destocking actions, we took last year.

Brian: Our initiative to broaden our product portfolio in pursuit of a good better best strategy.

Brian: We're continuing to see more predictable performance aligned to the market trends.

Brian: And improved linearity of channel execution.

Bryan Murray: Our DSOs decreased again to 78 days, our best result in over seven years. And user demand for our ProAV Managed Switch products, again, grew in the double digits year over year. And we saw penetration of our broader Wi-Fi 7 portfolio pick up momentum for our home networking and mobile businesses. The leanness and health of our channels and our ability to match cell-in with cell-through. were a significant contributor to our success starting off the year.

Our dsos decreased again to 78 days, our best result in over seven years.

Brian: And user demand for our pro avian managed switch products again grew in the double digits year over year.

Brian: And we saw penetration of our broader Wi Fi seven portfolio pick up momentum for our home networking and mobile businesses.

Brian: The leanest and health of our channels and our ability to match sell in with sell through.

Brian: Were a significant contributor to our success starting off the year.

Bryan Murray: But the quarter ended March 30th, 2025. Revenue was above the high end of our guidance range at $162.1 million. down 11.2% on a sequential basis, largely due to seasonality in our home networking business. and down 1.5% year over year. In Q1, we repurchased $7.5 million of our shares and experienced changes in working capital due to lower accruals, leading to negative free cash flow of $10.1 million. We ended the quarter with nearly $392 million in cash and short-term investment. We delivered $79.2 million of revenue in the NFB segment for the first quarter, down 2% sequentially, and up 15.4% year-over-year.

Brian: For the quarter ended March 32025 reps.

Brian: Revenue was above the high end of our guidance range at $162 $1 million down.

Brian: <unk> 11, 2% on a sequential basis, largely due to seasonality in our home networking business.

Brian: And then one 5% year over year.

Brian: In Q1, we repurchased $7 $5 million of our shares and experienced changes in working capital due to lower accruals, leading to negative free cash flow of $10 $1 million.

Brian: We ended the quarter with nearly $392 million in cash and short term investments.

Brian: We delivered $79 $2 million of revenue in the <unk> segment for the first quarter down 2% sequentially and up 15, 4% year over year.

Bryan Murray: Although we continue to see supply constraints around certain managed switch products in our NFB business. The team executed well and was able to outperform our forecast for the quarter by working closely with key vendors to overcome these headwinds. We do believe that the supply challenge for this category will begin to ease as we exit Q2. And we should be in a healthier position as we enter the second half of the year. Revenue for the mobile business in Q1 was $21.5 million. Higher than our expectations, but down 25.3% year over year, and down 10.9% sequentially. With additional new product introductions planned for release later this year, we expect the full benefits of our good, better, best strategy to build over time.

Brian: Although we continue to see supply constraints around certain minutes switch products.

Brian: This.

Brian: The team executed well and was able to outperform our forecast for the quarter by working closely with key vendors to overcome these headwinds.

Brian: We do believe that the supply challenge for this category will begin to ease as we exit Q2 and.

Brian: And we should be in the healthier position as we enter the second half of the year.

Brian: Revenue for the mobile business in Q1 was $21 5 million.

Brian: Better than our expectations, but down 25, 3% year over year and down 10, 9% sequentially.

Brian: With additional new product introductions planned for release later this year.

Brian: We expect the full benefits of our good better best strategy to build over time.

Bryan Murray: In Q1, the home networking business delivered net revenue of $61.4 million, down 8.7% on a year-over-year basis, and down 20.8% sequentially due to seasonality coming off the Q4 holiday period. Aided by the recently released Wi-Fi 7 offerings that help fill out our good, better, best strategy, we were able to continue the momentum we saw exiting the fourth quarter and gain share in this highly competitive market for the first time in nearly four years. We exited the first quarter with 559,000 recurring subscribers. and generate $8.7 billion in recurring service revenue in the quarter, a year-over-year increase of 19.3%.

Brian: In Q1, the home networking business delivered net revenue of $61 4 million.

Brian: Down eight 7% on a year over year basis, and down 28% sequentially due to seasonality coming off the Q4 holiday period.

Brian: Aided by the recently released Wifi seven offerings that help fill out our good better best strategy.

Brian: We were able to continue the momentum we saw exiting the fourth quarter and gained share in this highly competitive market for the first time in nearly four years.

Brian: We exited the first quarter with 559000 recurring subscribers.

Brian: And generated $8 7 million in recurring service revenue in the quarter or year over year increase of 19, 3%.

Bryan Murray: We continue to see increased emphasis placed by consumers on cybersecurity protection, privacy, and premium support. Further substantiating our belief that focusing on increasing our recurring subscriber base is the optimal strategy to add high margin revenue to the home networking business.

Brian: We continue to see increased emphasis placed by consumers on cyber security protection.

Brian: <unk> and premium support.

Brian: Further substantiates, our belief that focusing on increasing our recurring subscriber base is the optimal strategy to add high margin revenue to the home networking business.

Bryan Murray: From this point on, my discussion points will focus on non-GAAP numbers. The reconciliation from gap to non-gap is detailed in our earnings release distributed earlier today. For the third consecutive quarter, non-GAP gross margin was above 30% in the first quarter of 2025, coming in at 35%. This marked a 550 basis point increase compared to 29.5% in the prior year comparable period. and 220 basis point increase compared to 32.8% in the fourth quarter of 2024. Compared to the prior year period, our profitability in the current period was aided by improved mix of our higher margin NFB business.

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

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

Brian: For the third consecutive quarter non-GAAP gross margin was above 30% in the first quarter of 2025.

Brian: Coming in at 35%.

Brian: This is a 550 basis point increase compared to 29, 5% in the prior year comparable period.

Brian: And 220 basis point increase compared to 32, 8% in the fourth quarter of 2024.

Brian: Compared to the prior year period, our profitability in the current period was aided by improved mix of higher margin and a fee business.

Bryan Murray: As well as success in moving past older, higher-cost inventory, along with other benefits of operating with a channel inventory at leaner levels, and improved forecasting and supply chain management. In addition to the margin expansion unlocked by our NFB products, We also continue to see improved product mix from our Wi-Fi 7 lineup. Drilling down to profitability of our three business segments, NFB gross margin was 46.3%. Up 440 basis points year-over-year. Mobile had the largest improvement in segment gross margin expansion, up 730 basis points year-over-year to 24.6%. For the home networking segment, our improved mix of Wi-Fi 7 product and moving into lower cost inventory, improve our gross margin for this business by 190 basis points.

Brian: As well as success in moving past older higher cost inventory along with other benefits of operating with the channel inventory at leaner levels and improved forecasting and supply chain management.

Brian: In addition to the margin expansion unlocked by our <unk> products.

Brian: We also continue to see improved product mix from a Wi Fi seven lineup.

Brian: Drilling down to profitability of our three business segments in the <unk> gross margin was 46, 3%.

Brian: Up 440 basis points year over year.

Brian: Mobile had the largest improvement in segment gross margin expansion.

Brian: 130 basis points year over year to 24, 6%.

Brian: For the home networking segments, our improved mix of Wi Fi seven products.

Brian: Moving into lower cost inventory improved our gross margin for this business by 190 basis points.

Bryan Murray: to 24.1 percent. The improved gross margin performance, coupled with expense management, propelled all three businesses to meaningful improvement, contribution profitability as well. Total Q1 non-GAAP operating expenses came in at $59.3 million, down 8.2% year-over-year, and down 7.2% sequentially. below our expectations due to delays in our hiring plans, in part from proceeding more cautiously during Q1 due to the uncertain tariff situation. Our headcount was 636 as it ended the quarter, down from 655 in Q4. As a reminder, in January, we enacted a significant restructuring that drove cost reductions throughout the organization. impacting approximately 50 individuals and yielding a reduction in annual operating expenses of approximately $20 million or over 8% of our annual expense in 2024.

Brian: To 24, 1%.

Brian: The improved gross margin performance, coupled with expense management propelled all three businesses to meaningful improvement contribution profitability as well.

Brian: Total Q1, non-GAAP operating expenses came in at $59 3 million down eight 2% year over year and down seven 2% sequentially.

Brian: Below our expectations due to delays in our hiring plans in part from proceeding more cautiously during Q1 due to the uncertain tariff situation.

Brian: Our head count was 636 as it ended the quarter down from 655 in Q4.

Brian: As a reminder, in January we enacted a significant restructuring that drove cost reductions throughout the organization.

Brian: Impacting approximately 50 individuals and yielding a reduction in annual operating expenses of approximately $20 million or over 8% of our annual expense in 2024.

Bryan Murray: We plan to redeploy these savings into opportunities that drive the greatest growth and profitability. And while we got off to a slow start in Q1, we believe we can still achieve our hiring and investment goals for the year. Our non-GAAP R&D expense for the first quarter was 10.9% of net revenue, as compared to 11.9% of net revenue in the prior comparable period, and 10.5% of net revenue in the fourth quarter of 2024. To continue our technology and product leadership, we are committed to continued investment in R&D. such as the opening of our Chennai-based Software Development Center that CJ referenced earlier.

Brian: We plan to redeploy these savings into opportunities that drive the greatest growth and profitability.

Brian: So while we got off to a slow start in Q1, we believe we can still achieve our hiring and investment goals for the year.

Brian: Our non-GAAP R&D expense for the first quarter was 10, 9% of net revenue as compared to 11, 9% of net revenue in the prior year comparable period and 10, 5% of net revenue in the fourth quarter of 2024.

Brian: To continue our technology and product leadership, we are committed to continued investment in R&D.

Such as the opening of our Chennai based software development center that CJ referenced earlier.

Bryan Murray: I'm pleased that we deliver profitability above the high end of our guidance range. Enabled by improved top-line leverage led by our NFB and mobile segment. And compounded by greater efficiency in our channel execution and our expenses coming in lighter than we had projected. Our Q1 non-GAAP operating loss was $2.6 million, resulting in a non-GAAP operating margin of negative 1.6%, an improvement of 810 basis points compared to the prior year period, and an improvement of 70 basis points compared to the prior quarter. Our non-GAAP tax expense was $470,000 in the first quarter of 2025. Looking at the bottom line for Q1, we reported non-GAAP net income of approximately $460,000, resulting in non-GAAP earnings of $0.02 per share.

Brian: I am pleased that we delivered profitability above the high end different guidance range.

Brian: Enabled by improved topline leverage led by our NSP and mobile segments.

Brian: Zinc compounded by greater efficiency in our channel execution.

Brian: And our expenses coming in lighter than we had projected.

Brian: Our Q1, non-GAAP operating loss was $2 $6 million, resulting in a non-GAAP operating margin of negative one 6% an improvement of 810 basis points compared to the prior year period, and an improvement of 70 basis points compared to the prior quarter.

Brian: Our non-GAAP tax expense was $470000 in the first quarter of 2025.

Brian: Looking at the bottom line for Q1, we reported non-GAAP net income of approximately $460000, resulting in non-GAAP earnings of <unk> <unk> per share.

Bryan Murray: Turning to the balance sheet, we ended the first quarter of 2025 with $391.9 million in cash in short-term investment. down $16.8 million from the prior quarter and equating to $12.95 per share. During the quarter, $8.7 million of cash was used by operations, which brings their total cash provided by operations of the trailing 12 months to $138.9 million. We use $1.4 million in purchases of property and equipment during the quarter, which brings our total cash use for capital expenditures over the trailing 12 months to $7.9 million. In Q1, we spent $7.5 million to repurchase approximately 254,000 shares of NETGEAR common stock at an average price of $29.55 per share.

Brian: Turning to the balance sheet. We ended the first quarter of 2025 with $391 $9 million in cash and short term investments.

Brian: Down $16 $8 million from the prior quarter and equating to $12 95 per share.

Brian: During the quarter $8 7 million of cash was used by operations, which brings our total cash provided by operations over the trailing 12 months to $138 $9 million.

Brian: We used $1 4 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 $7 9 million.

Brian: In Q1, we spent $7 5 million to repurchase approximately 254000 shares of netgear common stock.

Brian: At an average price of $29 55 per share.

Bryan Murray: We have approximately 3.1 million shares reserved in our current authorization and our fully diluted share count is approximately 30.2 million shares as of the end of the first quarter. We're committed to returning value to our shareholders and plan to continue to opportunistically repurchase shares in future periods.

We have approximately $3 1 million shares reserved in our current authorization and our fully diluted share count is approximately $30 2 million shares as of the end of the first quarter.

Brian: We're committed to returning value to our shareholders and plan to continue to opportunistically repurchase shares in future periods.

Bryan Murray: Now, I'll cover, I'll look for Q2 2025. We expect to continue to see more predictable performance that is aligned with the market for all of our businesses.

Now I'll cover our outlook for Q2 2025.

Brian: We expect to continue to see more predictable performance that is aligned with the market for all of our businesses.

Bryan Murray: Within NFB, end-user demand for our ProAV line of managed switches is expected to remain strong, and although we expect to continue to make improvements in our supply position, We expect to continue to chase supply throughout the quarter, which may limit our ability to capture the full top-line potential of this growing business. On the home networking side, we are seeing signs of the benefit of our broader product portfolio to address the market and expect to experience normal seasonality in this business. On the mobile side, we expect revenue to be in line with Q1 as we await our new product introductions to round out the portfolio later this year.

Brian: Within the SP and user demand for our pro line of minutes, which is expected to remain strong and although we expect to continue to make improvements in our supply position.

Brian: We expect to continue to chase supply throughout the quarter, which may limit our ability to capture the full top line potential of this growing business.

Brian: On the home networking side, we are seeing signs of the benefit of our broader product portfolio to address the market and expect to experience normal seasonality in this business.

Brian: On the mobile side, we expect revenue to be in line with Q1, as we await our new product introductions to round out the portfolio later this year.

Bryan Murray: Accordingly, we expect second quarter net revenue to be in the range of $155 million to $170 million. In the second quarter, we expect our gross margin to be in line or decreased slightly from the first quarter level. And we expect to ramp our planned investments with focus on insourcing software development capabilities and enhancing our go-to-market capability supporting our NFB business.

Brian: Accordingly, we expect second quarter net revenue to be in the range of $155 million to $170 million.

Brian: In the second quarter, we expect gross margin to be in line or decreased slightly from the first quarter level and.

Brian: And we expect to ramp our planned investments will focus on in sourcing software development capabilities.

Brian: And enhancing our go to market capabilities supporting our NSE business.

Bryan Murray: Accordingly, we expect our second quarter gap operating margin to be in the range of negative 10.4 percent to negative 7.4 percent. and non-GAP operating margin to be in the range of negative 6.5% to negative 3.5%.

Brian: Accordingly, we expect our second quarter GAAP operating margin to be in the range of negative 10, 4% to negative seven 4%.

Brian: And non-GAAP operating margin to be in the range of negative six 5% to negative three 5%.

Bryan Murray: Our GAAP tax expense is expected to be in the range of half a million dollars to 1.5 million dollars. And our non-GAAP tax expense is expected to be in the range of $1 million to $2 million for the second quarter of 2025.

Brian: Our GAAP tax expense is expected to be in the range of $5 million to $1 $5 million.

Brian: And our non-GAAP tax expense is expected to be in the range of 1 million to $2 million for the second quarter of 2025.

Operator: And with that, we can now open it up for questions. Ladies and gentlemen, we will now begin the Q&A session. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for a moment to compile the Q&A roster. Thank you.

Brian: And with that we can now open it up for questions.

Speaker Change: Ladies and gentlemen, we will now begin the Q&A session. At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

Brian: For a moment to compile the Q&A roster. Thank you.

Adam Tindle: Your first question comes from the line of Adam Tindle with Raymond James. Please go ahead. Okay, thanks.

Speaker Change: Your first question comes from the line of Adam Tindle with Raymond James. Please go ahead.

Adam Tindle: Okay. Thanks, good afternoon, and congrats on the much better than expected results.

C.J. Prober: Good afternoon, and congrats on the much better than expected results. CJ, I just maybe wanted to start on competitive dynamics. You mentioned no manufacturing in China, your trusted U.S. company. How are those things impacting competitive dynamics in your core market? And if you could maybe rope in some of the TP-Link stuff. I know you mentioned a couple things in the prepared remarks, but if you could maybe double-click on what you're waiting for there and some of the timelines. Thanks. Yeah, hey, Adam, good questions. So competitively, the tariff landscape has, you know, worked out in our favor.

Speaker Change: T J I, just maybe wanted to start on competitive dynamics, you mentioned no manufacturing in China are trusted U S company.

Speaker Change: How are those things impacting competitive dynamics in your core market and if you could maybe rope in some of the TP link stuff I know you mentioned a couple of things in the prepared remarks, but if you could maybe double click on what youre waiting for there and some of the timelines. Thanks.

Adam Tindle: Yeah, Hey, Adam good questions. So.

Adam Tindle: Competitively the tariff landscape is worked out in our favor currently there's been a lot of volatility there, but because we don't manufacture in China and.

C.J. Prober: Currently, there's been a lot of volatility there. But because we don't manufacture in China, and some of our competitors do, we benefit from the fact that we have the tariff exemption that doesn't apply to some of the China tariffs. I would say That benefit is somewhat limited because if you look at If you look at our competitive mix and the numbers that competitors that manufacture in China, it's very much a mix and people have figured out a way to avoid paying those tariffs rightly or wrongly.

Speaker Change: Some of our competitors do.

Adam Tindle: We benefit from the fact that we have.

Adam Tindle: The tariff exemption that doesn't apply to some of the.

Adam Tindle: The China tariffs I would say.

Adam Tindle: That benefit.

Adam Tindle: It's somewhat limited because if you look at it.

Adam Tindle: If you look at our competitive mix in the numbers that are competitors that manufacturer in China.

Adam Tindle: <unk>.

Adam Tindle: It's very much a mix and people have figured out a way to avoid paying those tariffs rightly or wrongly.

C.J. Prober: But on the broader point around kind of our posture as a trusted US-based public company, there's obviously been a bunch of developments on the TP-Link side of things since our last call. So there's a big congressional hearing that I don't think was intended to focus on TP-Link, but that ended up being the focus of the conversation there with some fairly impassioned perspectives on the right action to be taken. And then a couple of Bloomberg articles dropped over the last month or so. One was kind of debunking the position that's being taken there that they've separated the companies and are now a US-based company.

Adam Tindle: But on the broader point around kind of our posture is.

Adam Tindle: Trusted U S based public company Theres, obviously been a bunch of developments on the <unk> side of things since our last call. So theres a big congressional hearing.

Adam Tindle: I don't think it was intended to focus on GP link, but that ended up being the focus of the conversation there with some fairly impassioned perspectives on the right action to be taken and then a couple of Bloomberg articles.

Adam Tindle: Over the last month or so one was in a debunking the position that.

Adam Tindle: Being taken there.

Adam Tindle: <unk> separated the company.

Adam Tindle: Or now a U S based.

Adam Tindle: The company and the other was.

C.J. Prober: And the other was... you know, revealing the fact that there's a DOJ investigation, that's a criminal investigation focused on their pricing practices. So I would say, you know, to summarize it on the tariffs, some competitive benefit there. But the real benefit is that we're not subject to the tariffs. And so we're moving full speed ahead with our strategy and transformation. And then, you know, preparing if tariffs were to reemerge for us, in terms of cost sharing with our partners, and potential price increases.

Adam Tindle: Revealing the fact that there is a Doj investigation.

Adam Tindle: That's a criminal investigation focused on their pricing practices, so I would say.

Adam Tindle: To summarize it on the tariffs some competitive benefit there, but the real benefit is that we're not subject to the tariffs and so we're moving full speed ahead with our strategy and transformation and then preparing if tariffs were to re emerge for us in terms of cost sharing with our partners and potential <unk>.

Adam Tindle: This increases.

Adam Tindle: Got it. And maybe a good way to dovetail to Bryan, how should we think about revenue for the rest of the year? If you can maybe just provide a little bit more color. I look at all the things going on that CJ talked about. It sounds like, you know, a lot of tailwinds. Your Q2 guidance is showing double-digit growth year-over-year. Granted, a little bit of an easier comparison, so not getting ahead of ourselves too much on that. But it does look like some acceleration in growth. And just wanted to see if you could double-click on how you're thinking about revenue for the rest of the year.

Adam Tindle: Got it.

Adam Tindle: And maybe a good way to dovetail to Brian how should we think about revenue for the rest of the year. If you can maybe just provide a little bit more color I look at.

Adam Tindle: All the things going on that T. J talked about it sounds like you know a lot of tailwind. Your Q2 guidance is showing double digit growth year over year granted a little bit of an easier comparison, so not getting ahead of ourselves too much on that but it does look like some acceleration in growth and just wanted to see if you could double click on how youre thinking about revenue for rest of the year.

Bryan Murray: Sure, yeah. I guess you already kind of hit on it, but the comp obviously with Q2 last year, as you recall, was an aggressive action to clean up the channel. And so the comp is a bit easier in Q2. If I look to the three businesses, you know, if I start with NFB, there's not really a seasonal pattern to that business. We've got great momentum. We keep referring to the double end-user momentum on the ProEB side of things, deliver 15% growth in Q1 on the top line. We are still going to face some supply challenges in Q2, but we think those will largely alleviate as we start to exit Q2.

Adam Tindle: Sure Yeah, I guess, you already kind of hit on the comp obviously with Q2 last year as you'll recall was an aggressive.

Adam Tindle: Action to clean up the channel.

Adam Tindle: So the comp is a bit easier in Q2.

Adam Tindle: Look to the three businesses I start with NSV.

Adam Tindle: There is not really a seasonal patterns that business, we've got great momentum.

Adam Tindle: Turning to the double digit and user momentum on the <unk> side of things deliver 15% growth in Q1 on.

Adam Tindle: The top line, we are still going to face some supply challenges in Q2, but we think those will largely alleviate as we start to exit Q2.

Bryan Murray: So we are kind of constrained a bit in Q2 as we go into the back half of the year and get an easing in the supply. We certainly think that growth momentum we're seeing on ProEV will just continue. And you're probably thinking about something like a mid-single-digit sequential growth profile once we start to bring that supply in. And it will be, you know, progressive as we go through Q3, but we think we'll be in good shape for the second half of the year.

Adam Tindle: So we are kind of.

Adam Tindle: Constrained a bit in Q2 as we go into the back half of the year.

Adam Tindle: An easing in the supply we certainly think that growth momentum, we're seeing and probably we will just continue.

Adam Tindle: And you're probably thinking about something like mid single digits.

Adam Tindle: Sequential growth profile once we start to bring that supply and then it will be.

Adam Tindle: Progressive as we go through Q3, but we think we'll be in good shape for the second half of the year.

Bryan Murray: For home networking, you know, at this point we see it operating in kind of normal seasonal patterns. Q2 typically is relatively flat to Q1. And then as you go into the back half of the year, Q3 is usually an uptick in the low to mid-teens percentage increase. And then Q4 would be kind of flat to up mid-single digits in Q4, seasonally speaking. Mobile, I think we've talked about this a couple of cycles now that, you know, the level you saw in Q1 is likely the level we expect to see for most of this year, certainly through Q3.

Adam Tindle: Home networking at this point, we see it operating at kind of normal seasonal patterns Q2, typically is relatively flat to Q1.

Adam Tindle: And then as you go into the back half of the year Q3 is usually an uptick in the low to mid teens percentage increase and then Q4 would be kind of flat to up mid single digits in Q4 seasonally speaking.

Speaker Change: Mobile I think we've talked about this a couple of cycles now.

Speaker Change: The level you saw in Q1 is likely the level, we expect to see for most of this year or certainly through Q3 and as we get into Q4, we've got some some products that we're working on we'll broaden that portfolio.

Bryan Murray: And as we get into Q4, we've got some some products that we're working on that will broaden that portfolio. Mobile is a little bit behind where the home networking business is in terms of broadening that portfolio and the good, better, best strategy. But we do feel good about where where those efforts are going into Q4. So those are kind of the trends, I think, by view that you would expect to see. And of course, what we've said in terms of we expect double digit growth for NFB, that all this still holds true.

Mobile is a little bit behind where home home.

Speaker Change: Home networking business is in terms of broadening that portfolio in the good better best strategy, but.

Speaker Change: But we do feel good about where those efforts are going into Q4. So those are kind of the trends I think by Bu that you would expect to see and of course, what we've said in terms of we expect double digit growth for NFC that oldest still holds true.

Adam Tindle: very helpful. Maybe just on the point of margins, obviously gross margin was very, very strong in Q1 in particular. If you could first touch on the sustainability of gross margin at sort of this mid-30s level, and then also walk through the trajectory of operating margin from here. You've got the, you know, further reorg in January. It sounds like a good portion or maybe all of it is going to be reinvested. I'm just trying to, you know, figure out, you know, should we think about sustaining gross margin at these levels and what does that mean for the walk of operating margins for the rest of the year?

Speaker Change: Very helpful. Maybe just on the point of margins. Obviously gross margin was very very strong in Q1 in particular, if you could first touch on the sustainability of gross margin that's sort of the Smith <unk> level and then also walk through the trajectory of operating margin from here.

Speaker Change: Got to further re org in January it sounds like.

Speaker Change: A good portion or maybe all of it is going to be reinvested I'm just trying to figure out.

Speaker Change: Should we think about sustaining gross margin at these levels and what does that mean for the work of operating margins for rest of year.

Bryan Murray: Yeah, I'll start with the gross margin piece. I definitely believe that gross margin is sustainable given the current fixed trends. Like the growth trajectory of NFB is really what's lifting the Q1 performance. We expect that to be sustainable. We've kind of moved past some of the aged inventory challenges that we had last year and the aggressive actions we took to clean that up in 2024. So we're seeing that benefit. That should continue as we go forward. Q2, in particular, we're going to spend some on air freight. As I touched on the supply challenges that we still have during the quarter, we're going to supplement that with air freight.

Speaker Change: Yes, I'll start with the gross margin piece.

Speaker Change: I definitely believe that gross margin is sustainable given the current mix trends like the growth trajectory of NSP is really what's lifting the.

Speaker Change: Our Q1 performance, we expect that to be sustainable.

Speaker Change: We've kind of moved past some of the aged inventory challenges that we had last year and the aggressive actions, we took to clean that up in 2024. So we're seeing that benefit that should continue as we go forward.

Speaker Change: Q2 in particular, we're going to spend some on air freights as I touched on the supply challenges that we still have during the quarter, we're going to supplement that with air freight.

Bryan Murray: But that should start to diminish as we get into the back half of the year. So again, I think keeping that mix of business and the trajectory NFB is on, the current gross margin level is sustainable. From an operating margin standpoint, you can see in the Q2 guidance, we are going to start to ramp our investments. We were a little bit slow out of the gates in Q1, obviously getting the full benefit of the restructuring actions, given we took those actions pretty early. But we are moving forward in terms of the investments that we plan for the year.

Speaker Change: But that should start to diminish as we get into the back half of the year. So again, I think keeping those that mix of business and the trajectory and if he is on that does the current gross margin level is sustainable.

Speaker Change: From an operating margin standpoint, you can see in the Q2 guidance, we are going to start to ramp our investments.

Speaker Change: We were a little bit slow out of the gates in Q1, obviously getting the full benefit of the restructuring actions given we took those actions pretty early.

Speaker Change: But we are moving forward in terms of the investments that we plan for the year and those will build as the year progresses.

Bryan Murray: And those will build as the year progresses. I still think you're probably. To getting to an operating margin, you know, above break even, you know, you're probably looking to get the top line to nearly $200 million. It's probably that that tipping point for us. But the investments in OPEX will build, as you can see in the Q2 guidance. Does that mean operating margin then would be further challenged in Q3 and Q4 from this minus 5% midpoint in Q2, or because of the leverage in the model, does Q2 maybe represent the low point on operating margin?

Speaker Change: I still think Youre probably.

Speaker Change: So getting to an operating margin.

Speaker Change: Above breakeven youre, probably looking to get the topline two to nearly $200 million, it's probably that tipping point for us, but with the investments in Opex will build as you can see in the Q2 guidance.

Speaker Change: Does that mean operating margin than wood.

Speaker Change: Would be.

Speaker Change: The further challenged in Q3 and Q4 from this.

Speaker Change: The minus 5% midpoint in Q2 or because of the leverage in the model does does Q2, maybe represent the low point on operating margin.

Bryan Murray: Yeah, the latter, as we talked about the kind of seasonality in the business with the lift that you would expect in the second half of the year, that would certainly help from a top line leverage standpoint.

Speaker Change: Yes.

Speaker Change: The latter as we've talked about the kind of seasonality in the business with the lift that you would expect in the second half of the year that would certainly helps from a topline leverage standpoint.

Speaker Change: Got it Okay, and then last one for me.

C.J. Prober: Okay, and then last one for me, the VOG acquisition, CJ, maybe if you could just touch on strategic rationale on that, and also any color on the size of that deal, and Bryan, if you could maybe just wrap that point by talking about expectations on free cash flow for the year. Yeah, so as you'll recall, Adam, we recast our purpose as a company to power extraordinary experiences a couple quarters ago, and in order to do that, we need to deliver great software. In order to deliver great software, we need great software teams. And so we've been pursuing our transformation of insourcing our software development capability, Promote, who leads the NFB business, Identified Chennai is a perfect location given the networking talent there.

Speaker Change: The Borg acquisition C. J, maybe if you could just touch on strategic rationale on on that and also.

Speaker Change: Any color on the size of that deal and Brian If you could maybe just wrap that point by talking about.

Speaker Change: The expectations on free cash flow for the year. Thanks.

Speaker Change: Yes, so as Youll recall.

Speaker Change: We recast our purpose as a company into power ordinary experience.

Speaker Change: Power extraordinary experiences a couple quarters ago and in order to do that we need to deliver great software in order to deliver great software, we need great software teams and so we.

Speaker Change: <unk> bin.

Speaker Change: Pursuing our transformation of in sourcing our software development capability promote who leads the NFC business identified Chennai is a perfect location given the networking talent there, we're going down the path of kind.

C.J. Prober: We're going down the path of, you know, kind of build, hire. open an office, build an office. And the VOG team presented itself. These are people that had worked with Promote in the past, very well known, very well respected in the networking industry. They were early in their journey at VOG. And they're just excited about what we're doing here. And they wanted to join NETGEAR and be part of the transformation and be part of leading the software development, team building, and capability building for Promote. And so we got lucky on top of bringing this team on board.

Speaker Change: Build higher.

Speaker Change: Opened an office building office in Nevada team.

Speaker Change: Presented itself. These are people that had worked with promote in the past very well known very well respected in the networking industry. They were early in their journey it Bob.

Speaker Change: And they're just excited about what we're doing here and they wanted to join neck gear.

Speaker Change: <unk> be part of the transformation and be part of leading the software development team building capability building for promote and so we got lucky on top of.

Speaker Change: Bringing bringing this team on board there is another Chennai based.

C.J. Prober: There was another Chennai-based wireless office that was shut down. We were able to cherry pick the top engineers from that group. And so we're really well positioned. And the best part about this is it comes with an overall lower cost profile. So there is some transition costs as we insource from the expensive outsource developers. But overall, we'll be able to do more with less, as I said in our opening remarks. And it's just a great foundation of a team to build off of. It was very much an acquihire. And even even then much more on the higher side of an acquirer, but it was just a win-win all around.

Speaker Change: And wireless office that was shut down we were able to cherry pick the top engineers from that group and so we're really well positioned in the best part about this as it comes.

Speaker Change: With an overall lower cost profile. So there is some transition costs as we in source from the expensive outsourced developers, but overall, we will be able to do more with less as I said in our opening remarks, and it's just a great foundation of a team to build off of it was very much.

Speaker Change: And Aqua hire so.

Speaker Change: <unk>.

Speaker Change: And even even then much more on the higher side of an echo here, but it was just a win win all around so we're excited to welcome that team.

C.J. Prober: So we're excited to welcome that team.

Bryan Murray: And on the free cash flow, we still expect that will will over the long term over the full year would be in the range of 85 to 100% of non gap net income is the The rate that we would correlate from a free cash flow standpoint, and Q1, we saw a little bit of swings from working capital with regards to liabilities coming down off the back of the seasonal. Got it. Thank you.

Speaker Change: And on the free cash flow, we still expect that we will over the long term over full year would be in the range of <unk>, 85% to 100% of non-GAAP net income is the.

Speaker Change: The rate that we would correlate from a free cash flow standpoint in Q1, we saw a little bit of swings from working capital with regards to liabilities coming down after the backup the seasonal.

Speaker Change: Trend with regards to revenue, but over the full year, we would expect in that range.

Speaker Change: Got it thank you.

Operator: There are no further questions at this time.

Speaker Change: There are no further questions at this time I would now like to turn the conference back over to Mr. <unk> for closing remarks.

C.J. Prober: I would now like to turn the conference back over to Mr. C.J. Prober for closing remarks. Yeah, I just want to thank the Global NETGEAR team for driving the progress that we're seeing on the transformation and delivering another great quarter.

Speaker Change: Yes, I just want to thank the global net <unk> team for driving the progress that we're seeing on the transformation and delivering.

Speaker Change: Great quarter.

Operator: This concludes today's conference, you may now disconnect your lines. Thank you for your participation.

This concludes today's conference you may now disconnect your lines. Thank you for your participation.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Okay.

Okay.