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

Thank you, Josh. Good afternoon, and welcome to Netgear's third quarter of 2022 Financial Results Conference Caller. 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 third quarter provided by Brian, followed by details and commentary on the business provided by Patrick, and finish with fourth quarter of 2022 guidance provided by Brian. We'll 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 October 2nd, 2022, was $249.6 million, which was above the midpoint of our guidance range, up 11.8% sequentially, and down 14% year over year. Across our entire business, demand for our innovative, highly differentiated premium products remained strong. These higher margin products, including our pro AB managed switches, 5G mobile hotspots, and 10 gig tri and quad band Wi-Fi mesh products, are 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 5G mobile hotspots for our service provider partners. Despite these tremendous efforts, we were still short of supplying total Luna for our high-end products, which resulted in a less favorable mix of revenue and lower overall non-GAAP operating margin than expected. As we look to the fourth quarter, broad-based inflationary pressures and in certain macroeconomic environments are top of mind for many retail channel partners. As a result, while we made progress in destocking in the third quarter, our 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-gap operating margins of 0.7%. Stronger SMB performance helped us improve non-gap operating margins 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 in Pro AV managed switches, and on the CHP side with our M6 and M6 Pro 5G mobile hotspots. For the third quarter of 2022, net revenue for the Americas was $169.4 million, a decline of 13.2% year over year, and an increase of 17.6% on a sequential basis. Immune 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 7.1% from the prior year comparable period and up 3.4% 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. 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 786,000 units for the third quarter of 2022. 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% of our third quarter shipments. while products introduced in the last 12 months contributed about 25% of our 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 is down 250 basis points as compared to 30.1% in the prior year comparable period, and down 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 1.1% year over year and up 1.6% sequentially. Our headcount was 731 as of the end of the quarter, down from 740 in Q2. We evaluate our business priorities on a regular basis and make structural adjustments accordingly in areas that are not aligned with our strategic focus. We will continue to invest in our business and hire in key areas we believe will deliver future growth and profitability, such as ProAV, super premium Orbi Wi-Fi systems, 5G mobile hotspots, and subscription services. Our non-GAAP R&D expense for the third quarter was 8.5% of net revenue as compared to 7.6% of net revenue in the prior year comparable period and 9.5% 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. 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 one-time revision to previous year tax estimates. Looking at the bottom line for Q3, we reported non-GAAP net income of $6 million and non-GAAP dilute net income per share of 21 cents. 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 use for capital expenditures over the following 12 months to $7.1 million. 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 the end of the third quarter. Now turning to the third quarter results for our product segments. This connected home segment, which includes our industry-leading Orbi, Nighthawk, Nighthawk Pro Gaming, and Mural brands, generated net revenue of $150.6 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 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 that same period. We also saw continued strong demand for our leading 5G 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 premium Wi-Fi market, a market pioneered and led by Netgear, and 5G mobile hotspots will continue to deliver growth into 2023. I'm excited to share that 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 4.9% sequentially. We made incremental progress navigating the supply chain challenges facing our SMB business in the quarter, and our managed switch products led the way with 80% growth as compared to the prior year. This again demonstrates the strategic importance of our investments in the rapidly growing ProAV market. Importantly, we continue to see strong growth across all geographies despite significant FX headwinds. On a constant currency basis, our SMB business would have grown an even more impressive 29% year over year. I'll now turn the call over to Patrick for his commentary, after which I will provide guidance for the fourth quarter of 2022.

Thank you, Brian. I'm proud of our team's execution in navigating the ongoing supply chain challenges in the third quarter across a number of strategic growth product categories. On the SMB side, our ProAV managed switch line of products continued its strong performance and helped drive our SMB top line to record results in Q3. On the CHP side, our unique quad band OB9 and our 5G millimeter wave mobile hotspots continued their strong quarter-on-quarter growth. In turn, the growth of these new strategic product categories returned Netgear to non-GAAP profitability, and enabled us to deliver revenue in the top half of our guidance. As these new product categories continue 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 AV line was the driving force, which kept our SMB momentum. On an upward trajectory, the expansion of our ProAV business drove our family of managed Ethernet switch products to another record revenue level. It is clear that the industry transition from analog to digital AV over IP is accelerating, and Netgear, with products specifically tailored to the unique needs of the AV industry, is poised to capitalize on this transition. We continue to benefit from our differentiated software that enables all major AV equipment manufacturers and system integrators to perform efficient and trouble-free installation and management across a plethora of applications. To expand our advantage here, we're introducing new Windows and Mac OS-based ProAV network configuration and management software to great reception among the AV installer community. Additionally, we continue to expand an already broad portfolio of products that allow maximum flexibility in configuration, depending on the application, ranging from small video conference rooms to digital signage networks that span thousands of locations, all with our global Pro AV design consulting team which we are working to double in size, ready to help. Meanwhile, our operations team continues to secure additional supply to enable our SMB business to capitalize on its considerable backlog and produce even stronger performance in this category moving forward. On the CXP side, our super premium OB8 and 9 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, own a 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 are 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 7 and extensive deployment of millimeter wave 5G, we believe we can expand our lead and continue to grow the market with higher ASPs and deeper penetration of this unique user segment. To continue this leadership, we're doubling down on our product investments in our high-end mesh and mobile hotspot products. To update our best-selling Orbi A50 series, we recently introduced the Orbi 860 series, our new Orbi 10-gig tri-band Wi-Fi 6 mesh system. This exciting new product features a 10-gigabit Ethernet port with support for multi-gig Internet connections, an upgraded antenna design for greater Wi-Fi performance, and a one-year bundle of Netgear AMA, which protects all connected devices on the home network from incoming attacks and outgoing anomalies. This new Orbi A60 Mesh product is ideally suited for the latest iPhones and Macs, which demand the best Wi-Fi 6 performance, while they skip the interim step of Wi-Fi 6e support. Our patented tri-band and quad-band antenna design are the only choice for homeowners who want the absolute best performance and most secure Wi-Fi experience. Netgear 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 5G mobile hotspots, MyHawk M6 and M6 Pro. As a result, We are forecasting $50 million in service provider revenue in Q4. We are also introducing these exciting new products into the retail channel in unlocked versions. For many rural customers with no high-speed wired Internet connectivity, the Nighthawk M6 and M6 Pro are the only high-speed Internet options. To enhance the customer experience, we introduced the industry's first in-home mode for our Nighthawk M6 and M6 Pro mobile hotspots. In the in-home mode, the Wi-Fi signal is boosted and the battery can be taken out while the mobile hotspot is plugged into an AC power source. For many traveling business professionals, getting gigabit download speed on the road while keeping the connection private with our Nighthawk M6 and M6 Pro is priceless. Nighthawk M6 is retailed at $799, while M6 Pro will be retailed at $999. We remain confident we can continue to build on the success of these three high-end categories, ProAV, Super Premium Mobi 8 and 9 Wi-Fi Mesh, and 5G mobile hotspots. Even amid challenging macroeconomic conditions, these higher margin segments continue to grow. The key to Netgear'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 the Wi-Fi market, we are able to focus on the customers that demand the very best. To net year, that means higher ASPs in revenue, improved margin, and a better service revenue opportunity. Last but not least, on the services side, revenue was $8.5 million for the third quarter, up 6.4% sequentially, and up 14.7% year over year. Our full residential customers of our Orbi 8 and 9 are more likely to adopt our value-added subscription services, AMA, smart parental control, and pro support for their Orbi and Nighthawk mobile hotspots. We are also seeing more of our SMB channel partners, including pro AV system integrators, wireless LAN VARs, and even large-scale commercial mobile hotspot deployment enterprises adopting our Insight remote management subscription services. We continue to make progress growing our service business, ending the quarter with 666,000 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 CHP and SMB will be a key driver of a margin and top line expansion effort in the medium and long term. And with that, I'll turn it back over to Brian to comment on our opportunities and obstacles in the coming quarter and year.

Thank you, Patrick. While we expect to continue to experience strong underlying demand in the SMB business and the premium portion of our CHP product portfolio, we are facing near-term headwinds. We expect the SMB business to remain supply constrained, and we will continue to use higher-cost air freight as 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 in foreign currency, we are seeing significant foreign exchange headwinds going from Q3 into Q4. On the positive side, we do expect fourth quarter revenue from the service provider channel 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 4.2% to negative 3.2%, and non-GAAP operating margin is expected to be in the range of negative 2% to negative 1%. Our gap tax rate is expected to be approximately 20%, and our non-gap 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 Should unforeseen events occur, in particular challenges related to closures of our manufacturing partners' operations, increased transportation delays into any of our regional distribution centers, or greater than expected freight or component costs, our actual results could differ from the foregoing guidance. We would now like to answer any questions from the audience.

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 Hamed Khorasan with BWS. Your line is open.

Hi. So first off, could you just talk about your supply chain constraints? Because the headlines are suggesting that everyone's seeing some alleviation of these constraints, but you're talking about that you're still seeing some problems there. And if you're able to source from other areas to help meet your demand requirements,

No, actually, for example, on the SMB side, on the Pro-AV switches, the main chips are primarily coming from one single supplier, and they're still under severe constraint of supplying those chips, because those chips are primarily on older technologies of 55 nanometers and about. 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 other industries and other data center switches. 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, the high-end OB89 as well as the premium mobile hotspots. Interesting enough, it is not the main chip supplier that is really choking our supply. It's more the auxiliary components. For example, like the mobile hotspot is the LCD display, the little LCD display screen, the batteries. And then on the Orbi 8 and 9 are some of the antenna components and the PCBs. Unfortunately, these components are all still manufactured exclusively in China. We are desperately trying to find alternatives outside of China, but it's very difficult. And with all the COVID lockdowns here and there in various cities in China, and they're still doing it right now as we speak, as you probably know, in the biggest city where the items are made are under lockdown situation. In Shenzhen, it's also certain districts are under lockdown. So we have disruptions of all these little component supplies, which check out our supply of the high-end mobile hotspots, as well as your V8 and 9. As long as China continue to follow the COVID zero strategy and As long as we can't find alternatives outside of China, we will continue to face this headwind as we go forward.

Okay. And my other question was, what is the target inventory level in your retail channel? And are you considering broadening out your product availability to the retail channel beyond just the unlocked hotspot and maybe including some of the super premium products wireless routers?

Well, first and foremost, as you probably know, all the retail channel people are talking about recession and getting prepared for recession. And they all want to lower the channel inventory to ever lower level. So 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 would like to take it down to 10 weeks. And now, I mean, they say they want to go all the way down to six weeks. And so the goal pole is being moved all the time by our retail partners. That's primarily related to our legacy products of the mid to low end. The premium products, are mostly sold online. The affluent customers tend not to go into shops to buy them. They buy online. So it's a difference in terms of channel presence. The mobile hotspots and Orbi 8 and 9 are mostly sold through our own web stores, Amazon and BestBuy.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.

Thanks.

Your next question comes from the line of Adam Tindall 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 2023. 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, given you still have destocking happenings. 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 years. So the bar is lower to begin with. And secondly, we expect a crossover point. The destocking amount is going to be superseded by the growth amount of our other businesses. So if you look at that, our growth of the SMB revenue is pretty significant. And as the base gets bigger, actually the growth percentage, if staying the same, will be bigger. And the same thing is for the premium Orbi as well as Mobile Hotspot. As it becomes a bigger portion of our revenue and its growth rate continues to keep up, then it will be able to offset the decline in the legacy products channel inventory, the stocking. We believe that the crossover point is going to arrive next year. For the whole year, we're very confident that it's going to happen. To give you an idea, the SMB business in Q3 is running at $100 million a quarter, which is $30 million bigger than what it used to be. If you just assume it stays constant, that's $120 million growth in a year. And that's definitely bigger than any destocking that you could have. There is not $120 million of inventory out there if they want to go down to zero, which is not going to happen.

Right. That makes sense. 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 saying in a single quarter at some point you will return to growth?

Yeah, 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 I'm talking about margin, you've got a number of headwinds to gross margin. I'm wondering if you could maybe bucket and size some of those And then you've got some tailwinds on OPEX where you did some cost savings, particularly focused on this PHP business. Are those done and fully reflected in this quarter? Is there anything incremental? So I guess the question would really be just kind of unpacking the best you can the drivers moving forward of gross margin that might ultimately reverse temporary air freight, et cetera, as well as any OPEX benefits moving forward. Thank you.

Yeah, I'll start with the OpEx side. Yes, we have taken some actions, but I do expect that we're going to continue, and I said this earlier in my comments, that we're going to continue to look at the business and 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 ProAV, the super premium mesh, the 5G mobile hotspots and services. So I expect that exercise to continue, and we've always done that, and we won't stop. On the gross margin side of the business, as you said, there are a lot of puts and takes. Obviously, FX is a material headwind that we're facing. I would say the impact to us, primarily in the gross margin line year on year, is about 350 basis points, so a significant headwind there. Obviously, as we grow the SMB business, and that becomes a bigger portion of the mix, it will help the overall gross margins because it does carry a meaningfully higher gross margin. So those are probably some of the bigger factors. Air freight is still elevated in terms of volume and usage. As Patrick was touching on the pro AV supply chain challenges, we're expecting that's going to continue on and 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 subside a bit. I think from an air freight standpoint, we are getting close to the levels, pre-pandemic levels, in terms of a rate for air freight, which is great. Sea freight, dramatic improvement, I would say, in the third quarter, but it's still above pre-pandemic, probably only a bit of two to three times what those rates were. But that is very promising for us. The short-term challenge is 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, I think, levers that will kind of shape where 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 Callen. Your line is open.

Patrick and Brian, I appreciate you all taking the questions, and I'll apologize because I've got multiple calls tonight. If you've already answered any of my questions, I'm happy to take them offline. I won't waste your and other folks' time on the call. That said, first off, I know you haven't done it historically, but did you give this go-round a breakout in terms of revenue contribution or bookings contribution between premium and super high-end or whatever moniker you're using these days, and the mass market?

No. Traditionally, we have not broken out revenue by product categories or product line other than the two segments. So we haven't.

No, Patrick, I'm aware of that. And I'm not talking about product line. I'm obviously talking about whether it's probably the – the quad mesh, et cetera, from Mr. Bryan. I know you haven't broken it down historically, and the answer is you're still not breaking it down, correct?

No, because, you know, the sensitive thing is if you break it down, you're forced to do segment reporting on it, and it would be quite a bit of effort. And so I think that, as I said last time and actually in previous calls, the best way to measure how big the pro AV business is, see the incremental growth of an SMB business. That's all pro AV, so you can pretty much understand how big it is. I just mentioned our SMB business group from $70 million a quarter to $100 million a quarter, so you could deduce what it means. And then for the premium, the CHP products, 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 you could deduce that it becomes a very material portion of our business.

Well, so, Patrick, let me try to get at the question the other way. I appreciate your comments about the contribution margin, but put inside the exact dollar contribution from a revenue perspective. If we broke your business, and broadly, not just ProAV, but the ultra-high-end segment where you're having growth, where you're the only competitor, differentiation, good prices, good margins, et cetera, looking at that collectively, what was the growth rate for the ultra-high-end products? Is your expectation that those will continue to grow in Q4 and beyond? Are you seeing any changes?

Yeah, I mean, that one's pretty public, all right, because NPD reported, they reported by price band of Wi-Fi Mesh. So those $650 and plus, which they grouped them all into one price band, is growing about 10% to 15% every quarter, all right? So, and then... is pretty much us, nobody else. So that's the growth rate, all right, that you can see it. And that piece, you could easily get it from NPD. And so NPD's report in that particular segment, all right, they actually dollarize how big the market is of that segment, which is, you know, roughly about $40 million a year, but it's growing really fast while the rest of the market is shrinking. Now, that's only the high-end Orbi. And then you have the mobile hotspots, right? Again, in the mobile hotspots in retail, we're the only game in town, all right? 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, 42, right, this quarter, right, right? 42. And then next quarter, we're going to do 50. So that's pretty much all these high-end mobile hotspots.

So Patrick, if I understood your question correctly, your ultra-high-end is growing roughly 10% to 15%. And I didn't directly respond, but I trust you're saying there's been no indication of a macro-related, or for that matter, any other factor that's driving a moderation flow down the market. You're not seeing macro factors, FX,

No, not at all, because most of the sales of this category is about $1,500, and those people is the least affected by the macroeconomic situation. It's pretty much the same as the Rolex watches, the Ahmed backs, and the Porsche, and that kind of consumers.

I understand, but at some point, even that segment, I'm just thinking out loud, Patrick, at some point, and I recognize we've had a nice reversal to the upside the past week, but when stock prices are going down and going down dramatically and wealth, there's a wealth effect, wealth effect works in both directions, even among the super rich and the wealthy, there tends to be a pullback in material consumption. So it's not totally immune. I'm just trying to understand to what degree, but I hear you saying you're not seeing the impact at present and you don't expect to see the impact.

Right. So as you probably read this, I do, you know, in the last few weeks on Wall Street, Bloomberg, everything, they say this time is a little bit different, all right, because all the central banks around the world, including China, have printed so much money in the last three years since the pandemic. And guess what? All that money goes to these people. All right. So their wealth is still pretty big. And the articles are the articles reporting on how they spend in the current environment.

One last question, if I may. Along the same lines, we're looking at the mass market. If we look at your revenue from a linear perspective, including the past three-plus weeks of October, Is the impact on the mass market of macro, is the decline you're seeing, is that the decline you're expecting or it seems deteriorating as you speak? Has there been a progression of deterioration so that you think it gets worse before it stabilizes or wherever it's at now, you think that it's stabilizing at that level?

Well, the mass market is definitely deteriorating. So the decline of the mass market in the first three weeks of the quarter, as we see it, we read from NPD, is actually worse than the first three weeks of Q3. There's no doubt about it.

But we're not seeing that with our OB89 or our M6 and M6 Pro. Okay. I greatly appreciate the responses. Thank you. Sure.

There are no further questions. I'd like to turn the call back to Mr. Patrick Lowe for closing remarks.

Thank you everyone for joining us today. The strong demand of our differentiated, technologically advanced products give us the confidence about the long-term future in both the SMB and CHP businesses in terms of top and bottom line expansion. We're at the forefront of the pro-AV market transition, and we'll continue to make inroads in expanding our presence in the market. Although our CFP channel inventory reduction will continue into 2023, our long-term growth trajectory is on track, supported by our highly differentiated OB8 and 9 Wi-Fi mesh systems and our 5G mobile hotspots, all of which are in high demand. I look forward to sharing more on this at our upcoming analyst days set for early December.