NETGEAR, Inc.

If you have a question, you will need to press star and then the number one on your push button phone. I would now like to turn the conference over to Eric Violin. Please go ahead, sir.

Thank you, Rachel. Good afternoon and welcome to Netgear's second quarter of 2021 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 second quarter, provided by Brian, followed by details and commentary on the business, provided by Patrick, and finished with third quarter of 2021 guidance, provided by Brian. You will then have time for any questions. If you have 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 quarter ended June 27, 2021, was $308.8 million, up 10.3% year-over-year, driven primarily by strong S&B growth and growth in the retail portion of CHP, with offset coming from the expected decline in service provider revenue relative to last year. While our team managed to deliver double-digit year-over-year growth, with net revenue within our guiding range, Our top line results came in below our expectations. As worldwide supply chain constraints limited, what could have been an even better performance, in particular on the SMB side of the business? As we continue to navigate through a dynamic environment, we remain confident in our long-term strategy of providing premium Wi-Fi products to drive the growth of the consumer networking market and our paid subscriber base. Even with employees returning to the office, the need for pervasive, high-speed wireless connectivity in the home remains strong as hybrid and remote work models become the norm. And we now see the U.S. consumer networking market settling in at about 20% higher than where it was in 2019. With our improved supply position of CHP products in the channel entering the quarter and performance led by our premium mesh portfolio, We added another three points to our U.S. consumer Wi-Fi market share in the quarter, a clear validation of our strategy. This translated into mid-single-digit growth year-over-year in the retail portion of the CHP business, while our service provider business performed to our expectation, declining from a year ago when we experienced opportunistic demand brought about by the pandemic. Meanwhile, our SMB business is riding the wave of businesses reopening worldwide, growing 58% year-over-year and bearing the fruit of investments made over the last couple of years in areas such as ProAV and our leadership in moving SMB wireless products to Wi-Fi 6, despite being held in check by the aforementioned supply constraints. While we have to navigate some top-line challenges for the rest of 2021, we do expect to achieve the full-year non-GAAP operating margin guidance that we provided at last year's analyst day. In the second quarter, we generated non-GAAP operating income of $26.5 million. This translated into non-GAAP operating margin of 8.6%, slightly below our guidance range, which was an improvement of 110 basis points over the second quarter of 2020. Component shortages, elongated delivery times, and unforeseen factory closures due to COVID-19, all of which we've navigated successfully at varying times over the past year, came together in a way that we could not overcome, thus hindering our ability to drive our SMB top line higher and, correspondingly, improve our margin performance. We delivered year-over-year revenue growth in all geographies, with meaningful SMB growth globally, For the second quarter of 2021, net revenue for the Americas was $212.6 million, which is up 5.1% year-over-year and down 3% on a sequential basis. In the net revenue, the $61.8 million, which is up 27.7% year-over-year and up 1.1% quarter-over-quarter. Our APAC net revenue was $34.4 million, which is up 16.8% from the prior year comparable quarter and down 8.7% sequentially. For the second quarter of 2021, we shipped a total of approximately 3.9 million units, including 2.6 million nodes of wireless products. Shipments of all wired and wireless routers and gateways combined were about 1.4 million units for the second quarter of 2021. The net revenue split between home and business products was about 74% and 26% respectively. The net revenue split between wireless and wired products was about 65% and 35% respectively. Products introduced in the last 15 months constituted about 32% of our second quarter shipments. While products introduced in the last 12 months contributed about 27% of our second quarter shipments. From this point on, my discussion points will focus on non-GAAP numbers. The reconciliation from GAAP to non-GAAP is detailed in our earnings release distributed earlier today. The non-GAAP gross margin in the second quarter of 2021 was 30.4%, which is up 80 basis points compared to 29.6% in the prior year comparable quarter, and down 480 basis points compared to 35.2% in the first quarter of 2021, primarily a result of our planned increased promotional activities. Total Q2 non-GAAP operating expenses came in at $67.4 million. which is up 8.7% year-over-year and down 3.2% sequentially. Our headcount was 769 at the end of the quarter, down from 775 in Q1. We continue to manage our headcount, but we'll continue to add resources and invest in areas that we believe will deliver future growth. Our non-GAAP R&D expense for the second quarter was 6.9% of net revenue, as compared to 6.9% of net revenue in the prior year comparable period, and 7.1% of net revenue in the first quarter of 2021. To continue our technology and subscription service leadership, we are committed to continued investment in R&D. Our non-GAAP tax rate was 23.4% in the second quarter of 2021. Looking at the bottom line for Q2, we reported non-GAAP net income of $20.8 million. a non-GAAP deleted EPS of 66 cents, each more than 20% higher than the prior year comparable period. Turning to the balance sheet, we ended the second quarter of 2021 with $335.3 million in cash in short-term investments, down $35.3 million from the prior quarter. We've made substantial progress replenishing our inventory on the CHP side of the business in recent quarters. but expect supply to remain constrained on SMB products. During the quarter, $5.2 million of cash was used by operations, which brings our total cash provided from operations over the trailing 12 months to $97.5 million. We used $3 million in purchases of property and equipment during the quarter, which brings our total cash used for capital expenditures over the trailing 12 months to $11.2 million. In Q2, we spent $25 million to repurchase approximately 654,000 shares of Net Year Common stock at an average price of $38.21 per share. Since the start of our repurchase activity in Q4 2013, we have spent $577.5 million to repurchase 16.3 million shares. Our fully diluted share count is approximately 31.5 million shares as of the end of the second quarter. With a meaningful portion of our targeted inventory position established, we plan to continue to opportunistically repurchase shares in the future quarters. Now, turning to the second quarter results for the product segment. The connected home segment, which includes the industry-leading Nighthawk, Orbi, Nighthawk Pro Gaming, and Mural Brands, generated net revenue of $229.9 million during the quarter. which is flat on a year-over-year basis and down 4.6% sequentially. The year-over-year performance was driven by growth in the retail business being offset by service provider returning to anticipated levels. With our premium mesh segment leading the way, our leadership position in the U.S. consumer Wi-Fi market improved again, up 3 percentage points to 46%. With the progress we've made in replenishing CHP inventory, we fully expect we can grow our share further in Q3. The SMB segment executed well against the supply constrained environment and generated net revenue of $78.9 million for the second quarter of 2021, which is up 57.8% on a year-over-year basis and up 2.5% sequentially. This is the highest quarterly revenue level for our SMB business in two years. The growth was driven primarily by exceptionally strong demand, believed by new business formations, businesses reopening, and demand for flexible working environments. We continue to see our SMB wireless solutions and low port count switches performing very well. We also continue to gain traction in our ProAV business, which experienced meaningful year-over-year growth as we see activities resuming across venues, such as those focused on sports and entertainment. Our market share in switches sold through the U.S. retail channel grew 5 percentage points to 61% in Q2. I'll now turn the call over to Patrick for his commentary, after which I will provide guidance for the third quarter of 2021.