NETGEAR Inc (NTGR) 2017 Q4 法說會逐字稿

Good afternoon. My name is Kirsten, and I will be your conference operator today. At this time, I would like to welcome everyone to the NETGEAR Fourth Quarter and Fiscal Year 2017 Results Conference Call. (Operator Instructions)

At this time, I would like to turn the call over to your host, Mr. Genualdi. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome to NETGEAR's Fourth Quarter and Full Year 2017 Financial Results Conference Call. Joining us from the company are Mr. Patrick Lo, Chairman and CEO; and Ms. Christine Gorjanc, CFO.

The format of the call will start with a review of the financials for the fourth quarter and full year provided by Christine, followed by details and commentary on the business provided by Patrick, who will also discuss our plan to separate our Arlo business into a separate public company, and finish with first quarter of 2018 guidance provided by Christine. We will then have time for any questions.

If you have not received a copy of today's 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, our plans regarding the separation of Arlo business and the 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. A 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 Ms. Christine Gorjanc.

Thank you, Christopher. And thank you, everyone, for joining today's call. We have a lot to discuss on today's call given that we just announced that the NETGEAR Board of Directors has unanimously approved the pursuit of the separation of the Arlo business from NETGEAR. The separation is expected to be effective through an initial public offering of less than 20% of newly issued shares of common stock of Arlo Technologies, Inc. with NETGEAR to retain the remaining interest. We currently intend that, following the IPO, NETGEAR will distribute its remaining shares of Arlo to our stockholders in a spin-off that is generally intended to be tax-free to our stockholders for U.S. federal income tax purposes.

Before we dive into further details regarding the separation, I'd like to first provide commentary on our results for the fourth quarter of 2017 and the full year of 2017.

For the full year of 2017, NETGEAR net revenues were $1.41 billion, which is up 5.9% compared to full year 2016 net revenue. Non-GAAP diluted EPS for the full year 2017 was $2.74. Net revenue for the fourth quarter of 2017 came in above the high end of our guidance primarily driven by the continued growth of our Arlo and Orbi product lines. Overall, NETGEAR revenue for the fourth quarter ended December 31, 2017, was $397.1 million, which is up 7.9% on a year-over-year basis and up 11.7% on a sequential basis.

We are pleased to report that this is an all-time record in quarterly net revenue for the company.

NETGEAR net revenue by geography once again reflects our ongoing strength in North America as well as further improvement in the EMEA region. Net revenue for the Americas was $275.1 million, which is up 8.5% year-over-year and up 12.6% on a sequential basis. EMEA net revenue was $78.1 million, which is up 12.8% year-over-year and up 25.6% quarter-over-quarter.

Our APAC net revenue was $43.9 million for the fourth quarter of 2017, which is down 2.6% from the prior year comparable quarter and down 10.3% quarter-over-quarter.

I'd like to take a brief moment to highlight that we will be adopting the new revenue recognition accounting standard, ASC 606, effective January 1, 2018. We do not expect the material impact to the nature and timing of the company's revenues, results of operations, cash flows and statement of financial position. The company will be electing to apply the modified retrospective approach, which will result in accumulative effect adjustment to retained earnings. Additionally, we expect some classification changes on the balance sheet, which will add a couple of days to our DSOs.

For the fourth quarter of 2017, we shipped approximately 5.8 million units, including 5.1 million nodes of wireless products. Shipments of our wired and wireless routers and gateways combined were about 1.8 million units for the fourth quarter of 2017. The net revenue split between home and business products was about 82% and 18%, respectively.

The net revenue split between wireless and wired products was about 77% and 23%, respectively.

Products introduced in the last 15 months constituted about 50% of our fourth quarter shipments, while products introduced in the last 12 months constituted about 37% of our fourth quarter shipments.

From this point on, my discussion points will primarily 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 2017 was 26.5% compared to 30.9% in the prior year comparable quarter and 29.4% in the third quarter of 2017. The year-over-year decrease in non-GAAP gross margin was due to a number of factors, including increased investment in channel promotion activities deemed to be contra-revenue and the higher provision for sales returns, which follows the mix shift towards retail.

On a sequential basis, the decline was due to increased seasonal channel promotion activities deemed to be contra-revenue and an increase in the use of airfreight to support the revenue upside.

Total non-GAAP operating expenses came in at $76.3 million, which is up 6.5% year-over-year and 7.7% sequentially. Our headcount increased by a net of 26 people to 1,008 heads during the quarter.

We expect to add headcount to both NETGEAR and Arlo during 2018 in order to prepare each business for the separation. We do plan to quantify the costs for the roles that we plan to duplicate in order to structure both the stand-alone companies, which will be included in our guidance going forward.

Our non-GAAP R&D expense for the fourth quarter was 6.1% of net revenue as compared to 6.1% of net revenue in the prior year comparable period and 6.2% of net revenue in Q3 2017. R&D is critical to our business, and therefore, we expect this expense to continue to grow as needed in absolute dollars.

Our fourth quarter GAAP effective tax rate was impacted by 2 material nonrecurring items related to the enactment of the Tax Cuts and Jobs Act. We recorded a provisional estimate of the transition tax of approximately $21.7 million that will be paid over the next 8 years on the deemed repatriation of undistributed foreign earnings. In addition, we incurred a charge of $26.7 million for the remeasurement of net deferred tax assets from the permanent decrease of the U.S. tax rate from 35% to 21%.

As further guidance is issued by the Treasury on the application of the new tax law, our provisional estimate may require further refinement.

Our non-GAAP tax rate, which excludes the aforementioned impact of the changes in the U.S. tax law in addition to the impact of other adjustments derived at non-GAAP earnings, was 24.8% in the fourth quarter of 2017. The Q4 tax rate was lower than expected due to a favorable true-up reconciliation resulting from international profits exceeding our forecast for the full year.

Looking at the bottom line for Q4, we recorded non-GAAP net income of $22.8 million and non-GAAP diluted earnings per share of $0.71 per diluted share.

Turning to the balance sheet. We ended the fourth quarter of 2017 with $329.8 million in cash. For the fourth quarter of 2017, we had a negative $17.8 million in free cash flow, which is calculated as cash flows from operating activities as presented in the statement of cash flows under GAAP less capital expenditures.

As always, we recommend taking a full year view of NETGEAR's cash flows.

During the full year, we generated approximately $73.9 million in free cash flow. We will continue to focus on optimizing the business and generating cash to provide operational flexibility as well as the ability to strategically deploy cash to enhance shareholder value.

In Q4, we spent approximately -- we spent $26.5 million to repurchase approximately 555,000 shares of NETGEAR common stock at an average price of $47.78 per share, which resulted in a $0.01 benefit to non-GAAP diluted earnings per share for the quarter.

Since the start of our repurchase activity in Q4 2013, we have repurchased approximately 11.9 million shares and our diluted share count is lower by 17.7% as compared to the beginning of that period. The fully diluted share count is approximately 32.3 million shares at the end of Q4 '17. In light of our efforts to separate Arlo, which may result in our possessing material nonpublic information, we will not be in the market repurchasing the company's stock. We plan to continue to evaluate investment opportunities that offer the potential to provide long-term benefit to both NETGEAR and Arlo in the meantime.

Now turning to the results of our 3 product segments.

The Arlo segment's net revenue came in at $128.5 million for the fourth quarter of 2017. This is up 66.9% year-over-year or about $51.5 million from the prior year and up 16.3% on a sequential basis. Clearly, we are very pleased with the performance of this segment during the holiday season.

The Connected Home segment, which includes the industry-leading Nighthawk and Orbi brands, generated net revenue of $198.7 million during the quarter, which is down 7.6% on a year-over-year basis and up 8.5% sequentially.

The SMB segment generated net revenue of $59.8 million for the fourth quarter of 2017, which is down 8.1% on a year-over-year basis and up 12.8% sequentially.

I'll now turn the call over to Patrick for his commentary. After which, I will provide guidance for the first quarter of 2018.

Thank you, Christine, and hello, everyone.

I'd like to highlight our achievements during the fourth quarter of 2017 as well as our recent announcements on the 2018 Consumer Electronics Show.

During the fourth quarter, we rolled out and announced some very exciting new services across our 3 business segments. First, we've been actively rolling out Circle with Disney Smart Parental Controls across the Nighthawk and Orbi line. We have partnered with Circle to bring the industry-leading parental controls to our line of high-performance WiFi routers and systems.

In today's world, managing a child's screen time and content is top of mind of every parent. Circle parental controls manage a child's screen time and content almost -- Circle parent controls are the most robust on the market, allowing parents to manage screen time at the platform level across multiple devices. We are offering basic parental controls for free, premium parental controls for $4.99 a month and outside-of-home mobile device parental controls for another $4.99 per month.

Additionally, we announced at CES that we have partnered with cyber-security industry leader, Bitdefender, to bring NETGEAR Armor to the market. NETGEAR Armor provides advanced cyber threat protection for consumers across all of their devices. Cyber-security is no longer only a concern for enterprises, it's critical to residential homes as well. We believe that the best place to secure your home from cyber threats is at the router level, where Internet traffic enters and exit the home. With NETGEAR Armor, consumers will be able to run vulnerability assessments, perform dynamic URL blocking, protect endpoint devices inside and outside of the home and receive additional state-of-the-art security capabilities that will ensure all of your IoT devices and users are protected. This will be offered to our customers through a firmware update for an annual subscription fee of $69.99.

Turning to the Arlo side of the business. We'll soon be rolling out Arlo Smart, which is a new service that will provide Arlo users with powerful vision intelligence and rich notification for a small monthly subscription fee. Using vision intelligence, Arlo Smart will be able to inform users whether a human has triggered the cameras to record. Arlo Smart vision intelligence will keep getting smarter, too, but it will be able to deliver increasingly intelligent alert as time goes on.

With rich notifications, Arlo alerts will prompt users with an image from the recorded event and the option to call a friend or call 911 directly within the notification so that users can take quick action without having to open the app again. These services are improvements to the Arlo platform that we believe will make Arlo easier to use and a better security solution for our customers.

Last but not the least, as discussed in our prior earnings call, we have rolled out the Insight management platform that enable IT managers to remotely view and manage the network from a mobile app. We are offering 2 levels of subscription offerings: Insight Basic for $4.99 a month and Insight Premium for $9.99 per month.

Combining this industry-leading cloud management functionality with the affordability of our SMB products will be the key to driving success with SMB segment going forward.

For those of you who tuned in for our November Analyst Day, you can see that we are moving quickly to deliver the services that we discussed at that meeting. We're making good progress on all fronts and we'll continue to update you on our service push in subsequent quarters.

I'd also like to touch momentarily on another push that we are making, which is gaming. For many years, individual gamers have spent hundreds of thousands of dollars on premium equipment: PCs, headsets, mice, keyboards and other accessories, all in the pursuit of an edge over the competition. Yet, the one thing that can have the largest impact on one's gaming experience, which is the Internet connection, has been completely ignored.

This year at CES, we changed that with the announcement and release of the Nighthawk Pro Gaming Router as well as the Nighthawk Pro Gaming Switch. The Nighthawk Pro Gaming Router combines the best-in-class features of our Nighthawk WiFi line with cutting-edge gaming software provided by Netduma. Demand for the Nighthawk Pro Gaming Router has been extremely encouraging straight out of the gate. We have known for some time that our Nighthawk routers and switches resonate with the gaming community, so now we are designing and releasing products specifically for them. I look forward to updating you on both of these new products in subsequent earnings calls.

Turning to the Orbi line. Last week, CNET published a review of our new Orbi Outdoor Satellite, giving it a score of 9 out of 10. As the review puts it, the Orbi Outdoor Satellite performed out of this world. We are very proud of the team's effort in designing and bringing this superb product to the market.

Also, I'm pleased to report that due to the tremendous success of our Black Friday and Christmas promotions of Arlo, we had approximately 1.7 million registered users of Arlo worldwide at the end of December 2017. We're closing in on the 2 million mark and we are focusing on our resources to continuing to grow this number as quickly as reasonably possible.

Moving on, as you have all heard, today, we have announced that we are taking an important and exciting step forward with our plan to separate the Arlo business from NETGEAR. Up until now, Arlo has benefited from the talent and resources that have come with being a part of the NETGEAR organization.

Arlo's market-leading IP wire-free security camera solution would not have been possible without the world-class radio frequency expertise that can only be found in NETGEAR. Arlo achieved widespread and record global distribution on the shoulders of NETGEAR's strong worldwide, brick-and-mortar and online channels. We're extremely proud of the business that we have built here in NETGEAR.

Nevertheless, at this time, we believe that both NETGEAR and Arlo have reached the point where they can succeed by being independent of one another. We evaluated the different markets in which Arlo and the rest of the NETGEAR play in, and we have determined that separation will provide a strategic focus, agility and financial resources needed to position each for accelerated success in their respective marketplaces.

Following a thorough assessment and board approval, we believe that it is an opportune time now for these 2 great businesses to part ways and pursue their different growth trajectories. With the first stage IPO, Arlo will be able to raise cash to pursue a strategy of acquiring new users, continue to drive awareness for its still nascent brand and invest in new smart connected consumer product categories, cloud services and artificial intelligence. It will require a significant investment of capital to continue growing in a market category that is still in its relative infancy.

Approximately 4 months ago, we hired Matthew McRae as Senior Vice President of Strategy for NETGEAR. We expect that Matthew will serve as the CEO of Arlo after the separation. Matthew joined us from Vizio, where he served as Chief Technology Officer and Head of Marketing. He will be joined by the team of experienced leaders from NETGEAR and from other great companies.

The current plan is for Christine Gorjanc to serve as CFO for Arlo, bringing with her the same financial discipline and focus that she has provided at NETGEAR over the last 12 years.

Meanwhile, Bryan Murray, who has been with NETGEAR for over 16 years, serving in various management roles within the finance organization and currently is serving as our Vice President of Finance and Corporate Controller, is expected to assume the CFO role at NETGEAR.

Meanwhile, I plan to remain as CEO of NETGEAR, where we will revolutionize our engagement with the vast installed base that we have built over the last 22 years. We've allowed to transform our interaction with our installed base from that of a pure hardware replacement cycle occurring once every few years to one of continuous cloud and mobile app-based engagement on top of hardware upgrade cycles.

NETGEAR is a global leader in home and SMB networking. We believe that we have an installed base of tens of millions of users worldwide. We have built a fantastic business around these markets that has produced healthy margins and strong cash flow for over 20 years. We believe we can grow our profitability and revenue through market consolidation and by transforming our installed base into a highly engaged community in which we can sell value-added Internet services.

It is my intention to let -- to lead NETGEAR forward with a greater focus on margin expansion via recurring service revenue and top line growth by accretive acquisitions. The strategy needed to continue to win and create value at NETGEAR will be very different from the strategy needed for Arlo to succeed, as Arlo will focus on organic product introductions and rapid user base expansion.

We intend that both companies will have the appropriate capital structures necessary to efficiently deploy capital in the pursuit of the separate strategies. And we have 2 distinctly different investment profiles. We expect the separation will provide better clarity for investors, create 2 unique investment opportunities and create long-term value for shareholders.

We expect that the first stage IPO will be completed in the second half of 2018. We currently anticipate the second stage spin-off to be complete in approximately 6 months after the IPO of Arlo. The separation, including the IPO and the subsequent spin-off is, of course, subject to market, tax and legal considerations, final approval by the NETGEAR Board of Directors and other customary requirements.

I will now turn the call back to Christine for the Q1 guidance.

Thank you, Patrick. For the first quarter of 2018, we anticipate revenue will be in the range of approximately $330 million to $345 million. First quarter GAAP operating margin is expected to be in the range of 0.8% to 1.8%, which includes approximately $8.5 million of onetime costs associated with the separation, which includes professional service fees for various advisory and other related costs.

Non-GAAP operating margin is expected to be in the range of 6.5% to 7.5%, which includes approximately $1.5 million of costs associated with the separation of Arlo and the corresponding dis-synergies created as we hire talent to duplicate certain roles to prepare that business to stand up on its own.

Our GAAP tax rate is expected to be approximately 28% and the non-GAAP tax rate is expected to be approximately 25% for the first quarter of 2018. Due to the significant changes and complexities of the Tax Cuts and Jobs Act, the first quarter of 2018 tax rate guidance is provisional only, and therefore, subject to further analysis, interpretation and clarification of the tax reform legislation.

Operator, that concludes our comments, and we can now take questions.

(Operator Instructions) Our first question comes from the line of Rob Cihra from Guggenheim.

Congratulations, I guess, on your -- exciting to be spinning-off Arlo. A couple of questions on just the existing business. In Q4, just the -- Arlo business was up -- Arlo revenue was up in the teens sequentially, which is less than one would normally think in a seasonal Q4. And I realized you guys shipped or built a decent amount of channel inventory in Q3 ahead of time and then called that out at that time, so that was expected. But outside of that, what was linearity like? And I guess your channel inventories exiting Q4 actually went from sort of being high going into it and then looking actually low coming out. Curious if that's the panning word for Q1? And I have a couple of follow-ups, if that's all right.

So looking at the channel inventory at the end of 12/31/17, as we've noted, they're always based on the last 6 weeks of sell-through. So the last 6 weeks are probably the highest 6 weeks of our year. So that's why they typically look a little bit lower as you come out of Q4. But we do expect that we have a reasonable amount in the channel as we go forward into Q1.

And regarding the sequential revenue difference, it's actually a little bit more than the seasonality. As a matter of fact -- I mean, as we go into the Q4 and as we prepare for the separation of Arlo from the rest of the business, I think we actually would look at the actual more accurate provision of sales returns as well as contra-revenue, which is all folded into the actual Q4 reported segment revenue of Arlo. So that's why it looks like the seasonality is not as severe as before, but there's a lot of puts and takes into the net revenue calculations.

Right. Okay. That makes sense. And then similarly, I guess, just on service provider. I mean, it's obviously come down. It's not as meaningful anymore, but it was a little lower, even in a sort of a $55 million a quarter you have been guiding to. I mean, is that -- should we now still think -- or should we now think maybe $50 million a quarter? Is this the right number? Or what's your best guess, knowing that your visibility is only so good looking through to 2018?

Yes. We still believe that it's in this $50 million to $55 million range. But as you all know, service provider is pretty lumpy: one quarter, we'll be at $50 million; the other quarter, we'll be $58 million. It's hard to say. But generally speaking, we are staying in that range, between $50 million to $60 million, averaging $55 million, yes.

Okay. And then lastly, just, Patrick, I know you mentioned your -- so Christine is going to be the CFO of Arlo. You're going to reign CEO of NETGEAR. What is your role ultimately going to be at Arlo or are you not going to have one? And that's it.

I mean, in the overlapping period before the final spin-off, I would sit on the board of Arlo. But once the 100% spin-off is done, I will quit the board of Arlo. They are truly independent of each other from a management standpoint. But of course, I'll be still a shareholder.

Your next question comes from the line of Trip Chowdhry from Global Equities.

Patrick, a very, very solid quarter. Congratulations on Arlo's spin-off. A lot of good news here.

Thank you.

I have about a 3-part question, if I can ask, that'll be great. The very first one, we are spinning off Arlo as an IPO. When are you going to spin off Orbi and then Nighthawk as an IPO?

According to SEC rules, we're not allowed to talk about that, unfortunately.

All right, no worries, no worries. Second question I have is regarding the subscription services you announced at the CES, which is Circle and Armor. My understanding is both of these services may be very conducive to almost every Arlo customer. Any reason you are selling it as different subscriptions, rather than bundling them together and selling them as a bundled service offering?

Yes. We are going to roll out this Arlo smart service. And later this quarter, we're certainly not going to tip our hands to our competitors in how we're going to price it.

Beautiful. Now from a strategic perspective, definitely many investors have been on the wrong side of your stock. They were thinking wrongly that Google Nest is a very powerful force in the industry. Pretty much, Google Nest is a nonevent if you think about Arlo, your growth rates and everything you have done. Google paid $3.5 billion over Nest and still they failed, considering that Google has a lot of resources behind it. Give me some insightful strategic insights that Arlo has done which has outmaneuvered almost every big company when it comes to vision intelligence or Vision First Devices. What is your secret sauce?

I would say, really, just we've got a great team. And as Patrick mentioned, we have the RF, the wireless expertise, we have the battery expertise, we have the channel. We're lean and nimble. And we've been able to do this in many product categories, and Arlo is just one of them.

I just would like to supplement, as I always maintain, right, focus is very important. And as Google has so many things to worry about while we have really focused on one thing, that gives us the nimbleness as well as the concentration and agility. And that's exactly the reason why I want to spin off Arlo because as NETGEAR, we also have many, many focuses both on -- from WiFi, SMB switching as with Arlo. So by spinning off Arlo, they will be even more focused, more dedicated, more nimble and more resource-rich. So we believe that the formula of focus will continue to be a successful formula.

Last question, if I may. Nighthawk Pro Gamer is off to a very solid start. What technically is so superior about this product, the Nighthawk Pro Gamer, that none of the other players could either imagine or do it. What is so good about this product? And that's all for me. Congratulations on a very solid quarter and on proposed IPO of Arlo.

Thank you. Actually, recently, we're happy to see 2 technical reviews from 2 very technical gaming sites: one is PC Gamer; the other one is PGM Android. Both of them summarized it pretty succinctly that there is nothing before our pro gaming router came out that really combined the best routing hardware with the best gaming software; and when you have the combination of the 2, it's unbeatable. So the new features that we introduced to the software of this pro gaming router, there are 2: one, is the Geo Filtering, which all the gamers really love; the second one is what we call the QoS Dashboard. But then we will continue to roll out even more features that the gamers will love. Some of them will be add-on and some of them will be charged on a monthly basis. So we clearly are very excited about the future of the NETGEAR Pro Gaming series. We're so excited about it. We're so confident about it that we actually sponsored 3 gaming teams, eSports teams, around the world that will carry our logo and continue to promote the superiority of our pro gaming line of products.

Your next question comes from the line of Hamed Khorsand from BWS Financial.

I will start off with probably the easier one. Can you explain why accounts receivable jumped so much when your DSO is beyond any level you guys have had from the past?

Sure. But for the most part of that, we give some of our large retailers seasonal dating terms, which gives them an extra 60 days to pay, and we've had this in years past, and they typically do not pay until Q1. So it's always based on timing of the revenue and really one of our largest customers, it's over a 10% customer, has additional payment term. Our accounts receivable on that are extremely healthy as we go forward and it just makes the DSOs go up for Q4.

So this is significantly more than last year's quarter, so is there a mix change or is there expanded terms that you're giving...

Yes. If you get more Arlo into this guide, that means they're bigger.

Right. Retail is becoming a bigger piece -- a bigger percentage of the total mix going forward.

Got it. Okay. And then can you just talk a little bit more about just the talent separation and how you're going to go about that because obviously talent is a commodity, especially in Silicon Valley, and how you might hurt Arlo or NETGEAR given the talent pool is limited?

Well, the separation from technical talent perspective is not a challenge at all because, as you probably know, we have been running the company by segments. And each segment is already pretty independent in terms of product development. The only thing that we have to duplicate in the support organization such as finance, such as operations, and also as well in the frontline in the sales organization. We don't believe we have any challenge in hiring. And furthermore, we don't have to hire them in the Silicon Valley for operations and for finance because a chunk of our operations is in Hong Kong as well as in San Diego. We can hire talents over there relatively easily. And then for -- even if you look at sales, right, our sales organization is spread across the world. So frankly, we don't have that much salespeople here -- that many salespeople here in Silicon Valley. So I do not see the separation will create a problems in recruitment. And as a matter of fact, it's just exactly the opposite. I mean, people are really excited to join companies that are new.

Okay. And then lastly, just on the -- as far as the pricing and the promotions have been going on Arlo, is that going to continue in Q1?

Absolutely. I mean, we're not going to be letting off our gas. I mean, we're seeing positive results as you can see in the latest presentation that we put on our website. Our Arlo market share grew another 2 points and our WiFi markets, even though we're already at a very high percentage, we grew another point. We're going to let up -- not going to let up.

(Operator Instructions) Our next question comes from the line of Woo Jin Ho from Bloomberg.

Patrick, so during the overlap period, do you plan on managing the Arlo business a little differently ahead of the spin? Are you going to try to drive for growth or are you going to drive for profitability?

Well, I mean, as we have said all along, all right, we -- our job is to really make sure we can maximize both products' long-term success, be it the home, SMB networking or Arlo, and that is not going to change. We're not going to focus on short term. We're going to focus on a long-term view, all right? So we'll do what we have been doing successfully.

Okay. And in terms of the 2018 financial targets, are you able to reaffirm that 10% overall growth? And then within that, would you remind me of what the Connected Home, SMB growth expectations are for 2018?

Yes. I mean, as we said on the Analyst Day, we expect that all businesses combined, we'll still grow 10%-plus and then we believe that Arlo will grow faster. And then the Connected Home and SMB will grow in the low-single digit.

Okay. And then lastly, in terms of the margin profiles for the Connected Home and SMB ex-Arlo, I mean, how are you thinking about the margin profile for those businesses post spin?

Well, the easiest way is to go back a few years when Arlo was small, and you will get a segment reporting. That will be a good reference.

Yes. But back then, you had a larger service provider exposure. Shouldn't margins be higher?

Well, the service provider was separated out. Those segment reports are separated out. So you go back to the times that we report SPBU, RBU and CBU, then the RBU, CBU contribution margin profile at that time will be pretty similar to what we think that the future looks like.

And our last question comes from again the line of Rob Cihra from Guggenheim.

I actually just kind of following up the last question too, about margins. Would you, Christine, are you willing to give us -- or able -- operating margins by segment in Q4? Or do we have to wait for the K for that? That's the first question.

Yes. We'll have that information in the 10-K, so we'll file that shortly.

Okay. And then, I guess, just flushing out Patrick's statements a second ago. I mean, so would the expected margin profile for Arlo post-spin, I mean, would that be one that assumes you could run that at a loss for a while, given the fact that you're saying that your focus will be increasing users, and if that's the focus, then it frees you up to not necessarily for a while even focus on process at all? Or have you gotten to the point where you could say where do you think the target margin model would be a plus or minus to begin with?

At this point, we really can't speculate on anything regarding the IPO, but we will provide everyone more information as soon as it's appropriate.

And we have no further questions at this time.

All right. Great. I would like just to thank everybody for joining today's call. I mean, we're very clearly very excited about taking this next step of separating Arlo and NETGEAR and believe that is the right thing and the right time for each business and our shareholders. We'll keep you updated on our progress in this effort throughout the year. And I look forward to speaking with all of you again in April. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.