All right, thanks everybody for joining. I'm Adam Tindle, and this is part of my connected devices coverage here at Raymond James. Very happy to have the team from NETGEAR. Many of you know and are familiar with their products. We've got Patrick Lo, Chairman, CEO, and Bryan Murray, CFO. In terms of our format, we'd love to keep it open-ended. I've got a fireside chat prepared, but if you do have questions as we go, please feel free to raise your hand and contribute to the conversation. G entlemen, thank you for being here. Sure. Patrick, maybe we want to start off with some high-level strategic questions. As I mentioned, NETGEAR's a pretty household name, but just give us a little background on the company and how it's evolved over time. Yes. W e started around, I would say, almost 30 years ago. In 1995, the concept was okay, at that time, the first browser, Netscape, was invented, but then there was no highway to connect the PCs to the internet. W e saw an opening that we could do that. That's how we started, and of course, things moved really fast. S nce we started first in doing that, we have been pioneering all the technologies that link the home PCs to the internet. W e started first with Ethernet and routers, and then we went on to do wireless, home Wi-Fi. O f course, once we got into home Wi-Fi, we got into 5G, all that wireless. W e have accumulated almost 30 years of radio frequency design, both on the system and antenna basis. We continued to evolve on that particular technology. I could still remember when we first introduced Nighthawk in New York. That was, like, about 15 years ago? That was the first, what we call, multi-band, multi-antenna design. I can still remember we were so nervous, and it's the first multi-antenna and of course, when we first introduced it, a lot of bugs. We could see the star rating, start from 5 to 4 to 3 to 2. My God, I think this thing is not going well. We worked on it. We worked and finally fixed it, and ever since then, the Nighthawk name has been synonymous with the high-performance router, Wi-Fi multi-antenna a nd then everybody copied us. We started with 3 and then 6, and everybody copied us. W e used the same technology of the multi-band technology to go into the mesh. W hen we introduced Orbi, roughly about, I would say, 10 years ago, then it's the same thing. We used multi-band, and there's one particular thing that we harnessed the multi-band, which is b ecause we have multiple bands, we use one band to connect the base and the satellites. W e have a dedicated highway to transmit data from where the internet comes in to all the satellites, so to ensure, and we patented it, and we ensure the maximum throughput. Orbi was born, and then what we did was, in Orbi, we continued to test the ability of doing more and more sophisticated antenna, and we introduced the Orbi at higher and higher price point. We're very excited every time we introduce a new higher price point. The market reception was exceptional. I can still remember the days during the COVID, all right, our highest price point was $999 for the Orbi 8, and it was sold on Marketplace on Amazon, on the secondary market for $1,699. It was pretty amazing. O kay, we saw that, and we introduced the Orbi 9 for the first time about 2 years ago at $1,499. The reception was just humongous. A gain, we introduced another Wi-Fi 7 version of Orbi 9 just two months ago at $2,299. The reception was just outstanding. W e believe that we're onto something in creating a completely new market for home connectivity using this multi-band technology that we invented 10, 15 years ago, and that's what we're known for. N ow, in the market, we're known for a single router with the Nighthawk brand and with the mesh with the Orbi brand, and we're very proud of it. Yep. T hat concept of constantly pushing the pricing up and moving up market is consistent with moving more into that premium category. Correct. Maybe talk about that decision and why to continue to skew upwards. Yes. I think when we first introduced the multi-band Nighthawk router, I can still remember we were very nervous because it was the first router that broke the $200 price point. Best Buy kept telling us: "You can't sell this. You can't sell this. T his is just too much. specially when you saw the star rating going down, you think, "My God, maybe we made a huge mistake." O nce we fixed the firmware and get things going with Broadcom, things started to take off. We had been testing that Nighthawk price point from $229. That was the price point that Best Buy warned us. They say, "The max we could go is $199." We say: "No, we're going to go for $229." W e went to $299 and again, $399. We really think, and everybody told us that $500 is the max. You can't go beyond $500. W hen we introduced the $999 Orbi mesh, we're nervous too. W hen we saw that in the marketplace, people could sell it double and still selling. There's hey, there is something. W e started into researching into: Who are the customers? W hy are they buying it? W e found out most of the customers buy, there's one very typical customer who sent me a note. He lives in New York City. He live in one of the brownstone townhouses, with six stories. He's a, he's an online sales CFO, and his wife is a surgeon. They say, "Internet is our lifeline. All right, when there is an image, a CT scan image sent in from the hospital, my wife must get it firsthand in full resolution. When I want to make a decision, we must get it to the market as a CFO," and he said, "W e got six stories, and we just got a new baby, whose bedroom's on the sixth floor, and my office is in the basement, and my wife is on the second floor." They say, "It's a brownstone house. We don't want to lay the Ethernet cables ugly, but we cannot drill holes. Orbi is the only way that we could do it," and he's very happy with it. That's a typical customer. W e started to research, how many of these customers are there? W e figure out there is about 1.5 million households in the U.S. that fall into that category. High net worth, critical work to do, right now it's work from home, two or three days a week, and big properties. Either they don't like line cables around, or they have a huge front yard and backyard, which they would like to beam the Wi-Fi to. T here are about 1.5 million of those households in the U.S., and it, if we could sell them $2,000 in Orbi system, that's a pretty big tab. That's a pretty big tab, and that's why we continue to get into it, and with the introduction of these ever higher price point of getting into reception, that gives us more conviction they could do. A nother thing is, about four or five years ago, we said, "Hey, you know what? These people are the same people who are concerned about cyber protection, cyber privacy, and all that. We could probably sell them a subscription service that could protect their digital life." S ure enough, 40% of these high-end customers would, would buy our cyber protection services. Actually, as a matter of fact, if they come to our store, to our NETGEAR.com stores, we can get 80% of them to buy into it by selling them the merit of it. I t's a double, double benefits. Yeah. I f you're thinking about reaching that higher-end premium consumer, for example, we just had Snap One here yesterday. S ome of those, different type of integrators that s ome of those. How are you thinking about, potentially evolving your go-to-market? Is that still the same customer that's going to go to Best Buy and buy and install themselves, or is there, maybe different paths you can think about? Yeah, there are different types of these customers. Some of them are a little bit more tech-savvy, that they would do it themselves. Some of them, maybe they could do it, they don't have the time to do it. They'll have the installers, the local installers to help them do it. S ome of them who actually would like to do the whole home automation, then they will entrust Crestron, they will entrust Savant, they will entrust Snap AV to do that. Now, Snap AV has their own thing, so we're competitors b ut I think one day they will come over. You should have been here yesterday. I know, yeah, that's right. Crestron is converted a nd, Savant is converted, Best Buy has converted. I think o ther than SnapAV, we've got the channel pretty well covered, and we're making inroads. The most important thing is to really get these 1.5 million households in the U.S. to understand that Wi-Fi is a necessity, it's a utility, and you don't need to live with bad Wi-Fi. There is a way, there is an easy way to get good Wi-Fi. It is buy Orbi. I'm going to ask one more, and then we'll go to audience questions. In terms of more near-term dynamics, how would you describe consumer behavior this holiday season versus last? A ny comments on the general health of the consumer. You've been doing this a long time, you're very familiar with consumer dynamics, so I always like to get your opinion. It 's pretty clear that from the earliest Adobe Analytics report is online is winning, hands down. Unfortunately, Best Buy and Walmart are losing. Generally, we have seen it, the consumers have bifurcated into two groups, or the halves. We just talked about it. The rich are getting richer and t hey don't blink, b ut everybody else got to count pennies. We saw over this holiday season, it's absolutely true that we see the low end of the market is getting very promotional. You see the pricing of Google and Amazon and the Chinese vendors are really fighting crazy on the low end. O n the high end, we don't even need to promote, and it's doing extremely well. B asically, the world is bifurcating in two. You can see the high-end segment continue to grow way out ahead of the market, while the low end of the market, they're getting shrunk because of ASP decline. T hat's the dynamics. I think it's probably going to last until interest rate come down a little bit. Yeah, that's how we see it. Questions so far? [How did these 1.5 million households find out about Orbi?] Yes. T hat is the $64 question. N umber one, I think the easiest way is to get their helpers to be converted. The Savant, the installers, the Crestron, those. T hat's the first path that we took. The second path we take is to really go where they congregate, and so we have been heavily involved in both affiliates and pay media advertising among the places where they go, like the Wall Street Journal, like the Robb Report, like the GQ, and Architectural Digest, and all those media that we go in and do a lot of affiliate marketing and pay media marketing. T hirdly, of course, we do a lot of search, Google search. T hose are the avenues we try to reach them. Yes. Yeah, and getting a lot of PRs. We just joked yesterday, we should send Taylor Swift one of our Orbi. E verything she uses, it just sells. Other questions? All right, let's talk a little bit more about demand trends, and we'll get to financial profile here in a minute. You highlighted a really strong start to launching Wi-Fi 7. When do you think that will be mainstream? Why upgrade to that? I f you want to maybe compare it to previous generations, 5, 6. Yeah. Sure. Today there are only two phones that are supporting Wi-Fi 7, the Pixel 8 and the OnePlus b ut we expect fully that Samsung, when they roll in April, all the new phones will have Wi-Fi 7, and we know for a fact that Apple, the next iteration, iPhone 15, will support Wi-Fi 7. That would be September, October next year. W e do believe that Wi-Fi upgrade cycle will start in April, May timeframe, and then get really heated by Christmas next year. Of course, every iteration of Wi-Fi is basically going on three axes of improvement. All right, the first one is speed. Of course, everybody can understand that. It's like zero to sixty. It goes to 4 seconds, 3 seconds, 1 second. W e're the same. S peed right now, if you go from the very old Wi-Fi 4, it'll be hard to push to 200Mbps, 300 Mbps. O nce you get to Wi-Fi 5, then you could really push it up to 600Mbps, 700 Mbps. Once you get a Wi-Fi 6, you could get over 1 Gbps. Now, once you get to Wi-Fi 7, we've tested it, you can get a 6 Gb 7 Gb. Wow! Yeah, it's incredible. Of course, you've got to get 6 Gb coming into the house first. Google is touting 20 Gb, and Comcast is rolling out 10 Gb, more and more places. That's one axis. The second axis is about capacity. H ow many devices can you support simultaneous? That how fast you can talk, b ecause Wi-Fi is a round robin thing, s o how fast you can talk, the devices is determining the capacity. Right now, with Wi-Fi 7, you could talk to hundreds of devices. It's really fast. T ypically right now, in these high-end homes, the number of connected devices are anywhere between 50-100 TVs, door locks, lightings and everything. T he third axis is also very important to a lot of people, believe it or not, is latency. All right. Wi-Fi 7, and then coming after that, Wi-Fi 8, is in a fight against 5G and 6G in terms of latency. All right, today, when it was old Wi-Fi 4, my God, the latency, we're talking about tens of milliseconds. When you try to play a game and shoot somebody, you're dead. If If you use Wi-Fi and the other guy use Ethernet, you're dead, man. You press the button, oh, you're already dead. All right, then you improve significantly when you get to Wi-Fi 6. T he latency gets to about anywhere between 10, 15 milliseconds, but when you get a Wi-Fi 7, it's sub-10 seconds. When you get a Wi-Fi 8, they're talking about getting into 1-2 milliseconds. You really could play games on the Wi-Fi. T hose are the three axes. I t's pretty exciting when we see the evolution of the technology. Yeah. Okay. W e talked a lot about the consumer side of the business. You also have an SMB side of the business. Maybe just talk about the opportunity on, in SMB and the different areas that you're targeting. Bryan, if you want to touch on the margin profile of SMB. Yeah. SMB is also, we started pretty much at the same time as we started the company because, as I said, right, we originally do the home networking use Ethernet cable, so it's natural we go into SMB. In the SMB world, most of the smaller businesses would use what we call unmanaged or lightly managed switches and access points, and we have a significant market share in that, except the market is not growing. W e all know small businesses get born and get killed, and the numbers of small businesses around the world is pretty constant. T hat market for us has been stagnant for a while because we, in the U.S., for example, we have about 60% market share in unmanaged switches. I t's very difficult to grow market share without giving up a lot of margin while the market is not growing. O ur SMB business has been pretty stable but very profitable for the ten years b ut since about four years ago, and we found a new segment in the SMB side, which is actually spanning across from small businesses to enterprises, which is, converting the audio/video like this. This is still on coax I nto Ethernet, into Wi-Fi. T hat wave is coming really fast and strong, and we've been working very closely with a lot of AV vendors, such as Shure, the mic guys and Crestron, the video conference guys, to help them to convert from these coax analog signals into digital IP signals on Wi-Fi and Ethernet. W e in the first inning, so there is still a long way to go, and we're very excited about this line of switches. I t's just like we always joke about that, right? Think about Taylor Swift. Now, she went on 50-some concerts. One day, you set up the concert, the next day, they do the concert, the third day, they tear down the concert and then move on to another city. You think they could do it with coax? There's no way they can do it. E verything is on IP, and we're the backbone of that IP networks. T hat's why we should send her to be spokesperson. We'll have her at the conference next year. It's pretty exciting when you see that. I t's crazy. It's crazy, yeah. Okay. SMB obviously has a different margin profile. Before we do that, maybe just touch on the margin profile of the overall company, and then maybe the different segments. Yeah, I'll start with our long-term vision and we've been there historically a nd that's to get to double-digit non-GAAP operating margin. Re ally, the propelling forces are all the things that Patrick's been touching on, the premium, the shift to premium on the consumer side, as well as subscription services. Those are definitely changing the dynamics of our overall gross margins. This past Q3, we delivered gross margin of 35% non-GAAP. T hat's really going to propel the margins upwards. The two businesses, obviously, are distinct. CHP will continue to improve. The more we're able to grow our subscriber base, the more we're able to shift the mix towards the premium. On the SMB side, margins are very healthy. W e typically talk in contribution margin terms, which is an operating margin, but excludes G&A expenses, more or less. T he differential between the two is about 15 whole percentage points, and I would say the bulk of that or all of it would be in the gross margins of the two businesses. V ery different margin profiles. All that said, though, I think the consumer business has the potential to continue to improve and close that gap. Got it. Y ou've got an Analyst Day coming up, anything you can say about the current plan for 2024 and how it might be similar or different than your plan from 2023? I can't give away the entire punchline. Tune in on Thursday. What I will say is that we've been dealing on the consumer side with. You're hearing this from many companies. We had the surge in demand at the start of the pandemic, and we've seen that come down over time. T he entire chain is adapting to that. We've seen our channel partners change their thinking in the way they actually carry inventory. Now, want to carry inventory levels below historical levels, want to be very lean. Some of that has to do with, obviously, higher cost of capital these days. Also, as Patrick was touching on earlier with regards to the holiday season, the more the business shifts over to E-com, you'll likely see change in patterns, even traditional brick-and-mortar retailers that are investing more in their E-com portion of their business. W e've been dealing with that for probably 5, 6 quarters, where we would actually sell in less than our resale partners were selling out. They were compressing their inventory levels. Pretty meaningful headwind throughout the year. J ust starting in the third quarter, we saw that start to normalize and level out, where we've seen the market stabilize. T hey are at the levels they want to carry in terms of channel inventory. T hat will balance out. The significance of that is, I think, in 2023, for the consumer business alone, it was probably about $50 million net revenue headwind for us in the year, where we were compressing. T hat, going into 2024, has normalized and will go away, and will give us an opportunity to return to growth for the CHP business and get some, some top-line leverage there. Perfect. O ne of the things that investors care a lot about in NETGEAR is the cash generation. M ore of a value investor base. Maybe just talk about your view of normalized cash flow and the trajectory of cash flow. Yeah. Historically, we've converted cash at, 85%-ish of non-GAAP net income. We have generated meaningful amounts of cash. Even today, we sit on cash that's in excess of operating needs. We probably need about $125 million to run the business today, and we're sitting on about $228 million. W e do have some excess cash. The third quarter, in part to the channel partners normalizing inventory and us also starting to compress our own inventory, we've returned back to free cash flow positive, which we hadn't been on a cumulative basis over the last 6-8 quarters. V ery positive trend for us. It was about $24 million on the quarter. We expect that level to continue into Q4 and into Q1, again, mostly driven by the compression of our own inventory balance. I expect that when things normalize, we'll continue to generate healthy amounts of cash at that rate of about 85% of, of non-GAAP net income. Patrick, maybe talk about the company has always been in sort of this more conservative approach, net cash position. Where does that philosophy come from? Have you thought about, different capital structures with the board? M aybe just talk about your view of the cash position. I still remember we were allowed to go public in 2001, and then New York blew up a nd we couldn't go public, and we're short of cash a nd then our investors say, "Patrick, you're on your own." "We're not going to to put more money into it." I went to Merrill Lynch, who was our banker at that time, Merrill Lynch. "Nah, nah, we're not going to give you any money." H e was out of control at that time. I told him, "Don't answer the phone calls." "All right? Don't. W hen you see people with tattoos in the front door, run, in the back door." This is how bad it was. C ash is always king for us. We know nobody's going to help us when we need the cash. T hat's the philosophy, that we always sit on enough cash that, we don't have to beg anybody, and we can still make payroll. At that time, we couldn't even make payroll. It was terrible. We were thrown a lifeline from our vendor at that time because they don't want us die be cause we die, they die, too. T hat's how we went through that rough patches. That's the philosophy. We always want to generate cash and keep a minimal cash balance that we could continue to make payroll and continue to pay at least the minimum to our vendors to keep them with us. T hat's right. E ven at the worst time, we still have about $180 million-$200 million of cash, w e never go below that. We're always staying $150 million is the minimum we need to operate on. Anything above that, then we'll consider returning the capital to our investors through stock buyback. We'll consider M&A. Even in these past three, four years, we did M&A. We invested money into a company called Megapixel, which is really good. T hey're leading edge in terms of the high-definition displays. W e'll continue to do that. P reviously, we paid $138 million to buy the mobile hotspot business from Sierra Wireless, which is turning out to be a really good piece of business for us. The last full-on acquisition was this Meural display that is doing great with the NFT world, and so we'll continue to do that. That's how we allocate capital. Okay, perfect. Maybe time for one more question. Anybody? No? Quiet crowd. W hy don't you take us home, Patrick? W hat would be the key message that you'd like to leave with investors today? I think the key message is that we are really excited in embarking on something new, that we believe a really high growth market and high margin and fast-growing. We believe that the future is bright, and these three pieces of business will eventually take over the entire business, overshadowing the traditional businesses. The three businesses are the premium end of home Wi-Fi, targeting to these 1.5 million households. The second one is the subscription services that go along with it. We believe there is potential of a $100 million run rate of these subscription business. The third piece is the Pro AV, that we don't know how big the market is, and we're the pioneer, we're the leader. We created the market, we're leading the market, and major brands in AV, they're all coming with us. T hose are the three businesses that we're building. I'm always excited to build new businesses, and I got the chance again to do it. Yeah, that's great. W e'll leave it there. Patrick, Bryan, thank you so much. Thank you. Thank you. Thanks for coming.