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 Bailon. Please go ahead, sir.

Thank you, Emma. Good afternoon, and welcome to Netgear's fourth quarter and full year 2022 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 the first quarter of 2023 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 December 31, 2022, was $249.1 million, which came in at the high end of our guidance range, flat on a sequential basis, and down 0.8% year over year. Netgear's innovative, highly differentiated premium products, namely our ProAV-managed switches, 5G mobile hotspots, and 10-gig tri- and quad-band Wi-Fi mesh products continue to experience strong demand. In the fourth quarter, the team executed well to overcome supply challenges for these in-demand products, and this effort resulted in another record quarter of revenue for our SMB business, led by ProAV, and strong growth of our 5G mobile hotspots with our service provider partners. Our non-gap operating margin was negative 1.6%. in the middle of our guidance range. For the full year of 2022, Netgear net revenues were $932.5 million, down 20.2% compared to the year ended December 31, 2021. While 2022 was a difficult year due to challenges from supply chain, foreign exchange, and high transportation costs, I'm proud of the progress we made in executing on our strategy to grow our SMB business and transition our CHP business to the premium, higher margin segments of the market, where we enjoy considerable competitive differentiation. While the broader US consumer retail market decreased approximately 25% for the full year, our premium products materially outperformed the market, up double digits for the full year. a clear validation of our core long-term strategy to focus on the premium segment. We expect that the trends for both businesses that we discussed at our analyst day will continue to expand the available market opportunities for Netgear. These higher margin products are the key to delivering growth and increasing profitability in the long term. As we look to the first quarter, broad-based inflationary pressures and the uncertain macroeconomic environment remain top of mind for many retail channel partners. Consequently, while we made progress in D stocking in the fourth quarter, our retail partners continue to right size inventory levels. And we continue to expect that to carry into 2023. While this will dampen CHP retail results in the first half of 2023, we expect to see material improvement as we move into the back half of the year. In the fourth quarter, We delivered non-GAAP operating loss of $3.9 million and non-GAAP operating margin of negative 1.6%. This declined 230 basis points as compared to the prior quarter due to a strengthened US dollar, higher freight costs when the inventory was purchased, and a seasonally more promotional environment. Although our SMB revenue for the full year outperformed the expectations we had at the beginning of the year, The U.S. consumer networking market contracted further than expected, which led to lost top-line leverage overall. In conjunction with a challenging supply chain environment throughout the year, unfavorable foreign exchange conditions also reduced profitability and led to full-year non-GAAP operating loss of $15.6 million and non-GAAP operating margins of negative 1.7%. For the fourth quarter of 2022, net revenue for the Americas was $159.2 million, flat year over year, and a decrease of 6% on a sequential basis. EMEA net revenue was $52.7 million, which is up 5.4% year over year, and up 17.6% quarter over quarter. Our APAC net revenue was $37.2 million, which is down 10.8% from the prior year comparable period, and up 5.1% sequentially. Our SMB business saw strong year-over-year growth across all three regions, as we made progress securing additional supply for SMB products. However, in general, the strengthening of the U.S. dollar over the past year had a meaningful negative impact on our international revenue and our profitability. On a constant currency basis year-over-year, our EMEA revenue would have grown 21%, and our APAC revenue would have only declined 5%. For the fourth quarter of 2022, we shipped a total of approximately 2.2 million units, including 1.4 million nodes of wireless products. Shipments of all wired and wireless routers and gateways combined were about 674,000 units for the fourth 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 57% and 43%, respectively. Products introduced in the last 15 months constituted about 28% of our fourth quarter shipments, while products introduced in the last 12 months contributed about 25% 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. Non-GAAP gross margin in the fourth quarter of 2022 was 24.9%, which is down 510 basis points as compared to 30% in the prior year comparable period and down 270 basis points compared to 27.6% in the third quarter of 2022. As compared to the prior year, the strength in U.S. dollar was a significant driver of the decrease. Total Q4 non-GAAP operating expenses came in at $66.1 million. which is down 3.5% year over year and down 1.6% sequentially. Our headcount was 691 as of the end of the quarter, down from 731 in Q3. 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 strategically invest in our business and hire in key areas we believe will deliver future growth and profitability. such as ProAV managed switches, premium Orbi Wi-Fi mesh systems, 5G mobile products, and subscription services. Our non-GAAP R&D expense for the fourth quarter was 7.7% of net revenue, as compared to 8.7% of net revenue in the prior year comparable period, and 8.5% of net revenue in the third quarter of 2022. To continue our technology and subscription service leadership, we are committed to continued investment in R&D. Our non-GAAP tax saw a benefit of $1 million in the fourth quarter of 2022. Looking at the bottom line for Q4, we reported non-GAAP net loss of $0.9 million and non-GAAP diluted net loss per share of 3 cents. Turning to the balance sheet, We ended the fourth quarter of 2022 with $227.4 million in cash and short-term investments, down $5.8 million from the prior quarter. During the quarter, $4.9 million of cash was used by operations, which brings our total cash used by operations over the 12 months to $13.7 million. We used $1.6 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 $5.8 million. Now, turning to the fourth quarter results for our product segments. The connected home segment, which includes our industry-leading Orbi, Nighthawk, Nighthawk Pro Gaming, Armor, and Mural brands generated net revenue of $149 million during the quarter, down 14.4% on a year-over-year basis and 1% 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 year-over-year double-digit decline in the consumer networking market overall in Q4, the premium Wi-Fi mesh category and leading-edge 5G mobile hotspots outperformed the market in that same period, giving us confidence that focusing on these innovative premium products is a key to returning to growth and profitability. I'm excited to share that SMB generated a third consecutive quarter of record net revenue, coming in at $100.1 million for the fourth quarter. The team executed well and made tremendous progress navigating the supply chain challenges, driving growth of 29.9% on a year-over-year basis and 1.1% sequentially. Encouragingly, we continue to see strong year-over-year growth across all geographies despite considerable FX headwinds. On a constant currency basis, our SMB top line would have grown an even more impressive 39% year-over-year. The star of our SMB business continues to be our managed switch products, which grew 65% for the full year, further validating the strategic investments we have made in the nascent, yet rapidly growing, pro-AV market. I'll now turn the call over to Patrick for his commentary, after which I will provide guidance for the first quarter of 2023.