NETGEAR, Inc.

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 the star 1 on your push-button phone. I would now like to turn the conference over to Eric Violin. Please go ahead, sir.

Thank you, David. Good afternoon, and welcome to Netgear's fourth quarter and full year 2020 financial results conference call. Joining us from the company are Mr. Patrick Lowe, Chairman and CEO, and Mr. Brian Murray, CFO. The format of the call will start with a review of the financials for the fourth quarter and full year provided by Brian, followed by details and commentary on the business provided by Patrick, and finish with our first quarter of 2021 guidance provided by Brian. We'll then have time for any questions. If you've not received a copy of today's press release, please visit Netgear's investor relations website at www.netgear.com. Before we begin the formal remarks, we advise you that today's conference call contains forward-looking statements. Forward-looking statements include statements regarding expected revenue, operating margins, tax rates, expenses, and future business outlook. Actual results or trends could differ materially from those contemplated by these forward-looking statements. For more information, please refer to the risk factors discussed in Netgear's periodic filings with the SEC, including the most recent Form 10-Q. Any forward-looking statements that we make on this call are based on assumptions as of today, and Netgear undertakes no obligation to update these statements as a result of new information or future events. In addition, several non-GAAP financial measures will be mentioned on this call. Reconciliation of the non-GAAP to GAAP measures can be found in today's press release on our Investor Relations website. At this time, I would now like to turn the call over to Mr. Brian Murray.

Thank you, Eric, and thank you, everyone, for joining today's call. Net revenue for the fourth quarter into December 31, 2020, was $367.1 million, up 45.1% year-over-year and down 2.9% on a sequential basis. The strong demand for our leading Wi-Fi 6 offerings continued in the fourth quarter, which drove exceptional growth in our CHP business. With service provider delivering on our expectations, both the retail and service provider channels of the CHP business grew in excess of 60% in the fourth quarter, as compared to the prior year period. Additionally, The work we've done to focus on the right products in support of the work-from-home networking market led to a strong rebound for our SMB business, with 16% sequential growth and also yielding a return to year-over-year growth. For the full year of 2020, Netgear net revenues were $1.26 billion. which is up 25.7% compared to the full year into December 31, 2019. Our team did an exceptional job navigating the many challenges brought about by COVID-induced lockdowns to deliver strong growth and revenue, while producing leverage in the business model to drive considerable margin expansion. We continue to see the same market growth trends we discussed at our recent analyst day, and expect 2021 revenue to grow in the mid to high single digits off of the strong growth we experienced in 2020. Our non-GAAP operating margin for the fourth quarter came in at 11%, an improvement of 660 basis points over the fourth quarter of 2019. Full-year non-GAAP operating income was $110.8 million. resulting in a non-GAAP operating margin of 8.8%. We adjusted quickly to manage through a complicated supply chain environment to deliver strong leverage on our revenue growth, with non-GAAP operating profit up by more than 70% as compared to the prior year. For the fourth quarter of 2020, net revenue for the Americas was $259.6 million. which is up 53.5% year-over-year and down 6.6% on a sequential basis. Americas, again, benefited from strong year-over-year growth for CHP products from both retail and service provider channels. As expected, the service provider sequential downtick from Q3's lofty levels, coupled with continued supply constraints, created a moderate sequential decline for the Americas region. Indian net revenue was $67.5 million, which is up 33.6% year-over-year and up 5.9% quarter-over-quarter, with strength in S&B adding to the strong year-over-year growth for CHP products from both the retail and service provider channels. Our APAC net revenue was $40 million, which is up 19.9% from the prior year comparable quarter, driven by strong growth of CHP products in the retail channel and up 9.5% sequentially. For the fourth quarter of 2020, we shipped a total of approximately 4.5 million units, including 3.6 million nodes of wireless products. Shipments of all wired and wireless routers and gateways combined were about 1.8 million units for the fourth quarter of 2020. The net revenue split between home and business products was about 81% and 19% respectively. The net revenue split between wireless and wired products was about 74% and 26% respectively. Products introduced in the last 15 months constituted about 34% of our fourth quarter shipments, while products introduced in the last 12 months contributed about 29% of our fourth quarter shipments. From this point on, my discussion points will focus on non-GAAP numbers. The reconciliation from GAAP to non-GAAP is detailed in our earnings release distributed earlier today. The non-GAAP gross margin in the fourth quarter of 2020 was 30.6%, which is up 270 basis points compared to 27.9% in the prior year comparable quarter and up 30 basis points compared to 30.3% in the third quarter of 2020. While we continue to spend heavily on air freight to deliver incremental profitable revenue, a combination of lower promotional activities and improved product margins from our premium Wi-Fi systems products combined to produce strong year-over-year gains in gross margin. Total Q4 non-GAAP operating expenses came in at $72 million, which is up 21.1% year-over-year and down 1.6% sequentially. Our team again navigated a challenging operating environment while adding proportionately less incremental spend to deliver considerable leverage on our 45% revenue growth, allowing for a more than 250% increase in our operating profit year over year. As always, we manage our expenses prudently while also ensuring we adequately fund the growth portions of our business so that they have the resources they need to succeed. Our headcount was 818 as of the end of the quarter. We continue to manage our headcount, but we'll add resources to invest in areas that we believe will deliver future growth. Our non-GAAP R&D expense for the fourth quarter was 6% of net revenue as compared to 7.2% of net revenue in the prior year comparable period and 6.2% of net revenue in the third quarter of 2020. To continue our technology and subscription services leadership, we are committed to continued investment in R&D. Our non-GAAP tax rate was 24% in the fourth quarter of 2020. Looking at the bottom line for Q4, we reported non-GAAP net income of $31 million and non-GAAP deleted EPS of 99 cents. each coming in at roughly three times what we delivered in the prior year comparable period. Non-GAAP diluted earnings per share for the full year of 2020 was $2.88, up 54% from 2019. Turning to the balance sheet, we ended the fourth quarter of 2020 with $353.3 million in cash and short-term investments, up $46.5 million from the prior quarter, and up $157.6 million from the beginning of the year. We were also able to strengthen our inventory position incrementally in the quarter, adding $27.8 million of our stock. However, we remain supply constrained in the quarter across both businesses. We also believe that within the first three quarters of 2021, we will be able to return to normalized historical inventory levels. During the quarter, we generated $46.1 million in cash flow from operations, which brings our total cash provided from operations over the trailing 12 months to $181.2 million. We used $4.2 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 $10.3 million. These efforts yielded an impressive free cash flow for the year of $170.9 million, equivalent to 193% of our non-GAAP net income. As we move into 2021, where we plan to reestablish normal carrying levels of our own inventory, we expect to be below our normal conversion ratio of 85% to 100% of non-GAAP net income by a fair amount, but we remain confident in our ability to continue to generate cash on a full year basis. Now, turning to the fourth quarter results for our product segments. The Connected Home segment, which includes the industry-leading Nighthawk, Orbi, Nighthawk Pro Gaming, and Mural Brands, generated net revenue of $296.1 million during the quarter, which is up 61.1% on a year-over-year basis, and down 6.5% sequentially. We again saw strong year-over-year growth driven by heightened demand across both service provider and retail channels. In the fourth quarter, despite supply headwinds for our Wi-Fi 6 products, we again held a strong leadership position in U.S. market share in consumer Wi-Fi, coming in at 41%. And we fully expect we can grow our share once again once we overcome the Wi-Fi 6 supply constraints in the coming quarters. The SMB segment continued its recovery with another strong sequential increase and generated net revenue of $70.9 million for the fourth quarter of 2020, which is up 2.7% on a year-over-year basis and up 15.6% sequentially. Our efforts to shift channel and product mix is paying dividends with revenue and profitability improvements. On the product front, our SMB wireless products and PoE switches continue to perform well in the market. Our market share in switches sold through the US retail channel came in at 55% in Q4. I'll now turn the call over to Patrick for his commentary. Afterwards, I will provide guidance for the first quarter of 2021.