NETGEAR Inc (NTGR) 2023 Q3 法說會逐字稿

Hello and welcome to NETGEAR's Third Quarter 2023 Results Conference Call. Ladies and gentlemen, thank you for standing by. (Operator Instructions)

您好，歡迎參加 NETGEAR 2023 年第三季業績電話會議。女士們先生們，謝謝你們的支持。 （操作員說明）

I would now like to turn the conference over to Erik Bylin. Please go ahead, sir.

我現在想把會議交給艾瑞克·拜林。請繼續，先生。

Thank you. Good afternoon, and welcome to NETGEAR's Third Quarter of 2023 Financial Results Conference Call. Joining us from the company are Mr. Patrick Lo, Chairman and CEO; and Mr. Bryan Murray, CFO.

謝謝。下午好，歡迎參加 NETGEAR 2023 年第三季財務業績電話會議。與我們一同出席的還有公司主席兼執行長羅偉強先生；和財務長 Bryan Murray 先生。

The format of the call will start with a review of the financials for the third quarter provided by Bryan, followed by details and commentary on the business provided by Patrick, and finish with the fourth quarter of 2023 guidance provided by Bryan. We'll 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.

電話會議的形式將首先由 Bryan 提供第三季度的財務狀況回顧，然後由 Patrick 提供有關業務的詳細資訊和評論，最後由 Bryan 提供 2023 年第四季度的指導。然後我們將有時間回答任何問題。如果您尚未收到今天發布的副本，請造訪 NETGEAR 投資者關係網站 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.

在我們開始正式發言之前，我們建議您今天的電話會議包含前瞻性陳述。前瞻性陳述包括有關預期收入、營業利潤、稅率、費用和未來業務前景的陳述。實際結果或趨勢可能與這些前瞻性陳述預期的結果或趨勢有重大差異。如需了解更多信息，請參閱 NETGEAR 向 SEC 定期提交的文件中討論的風險因素，包括最新的 10-Q 表。

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.

我們在本次電話會議中所做的任何前瞻性陳述均基於截至目前的假設，NETGEAR 不承擔因新資訊或未來事件而更新這些陳述的義務。此外，本次電話會議也將提及多項非公認會計準則財務指標。非公認會計原則與公認會計原則措施的調節可以在我們投資者關係網站上今天的新聞稿中找到。

At this time, I would now like to turn the call over to Mr. Bryan Murray.

現在，我想將電話轉給布萊恩·莫瑞先生。

Thank you, Erik, and thank you, everyone, for joining today's call.

謝謝艾瑞克，也謝謝大家參加今天的電話會議。

We are pleased by the continued strong execution of our team this quarter in delivering both revenue and operating margin comfortably above the high end of our guidance range. For the quarter ended October 1, 2023, revenue was $197.8 million, up 14.1% on a sequential basis, but down 20.7% year-over-year.

我們對本季度團隊持續強勁的執行力感到高興，營收和營業利潤率均遠高於我們指導範圍的上限。截至 2023 年 10 月 1 日的季度，營收為 1.978 億美元，季增 14.1%，但年減 20.7%。

Increased demand in both the CHP retail market and service provider channels, along with retail channel partners maintaining rather than depleting their inventories, enabled us to outperform our top line relative to our original expectations. As the WiFi 7 upgrade cycle begins to ramp and we approach the holiday season, we continue to see positive signs that the retail networking market is stabilizing. Notably, in Q3, the U.S. retail market grew double digits sequentially, in line with historical seasonality.

熱電聯產零售市場和服務提供者管道的需求增加，加上零售通路合作夥伴維持而不是耗盡庫存，使我們的表現優於我們最初的預期。隨著 WiFi 7 升級週期開始加速以及假期季節的臨近，我們繼續看到零售網路市場正在穩定的積極跡象。值得注意的是，第三季度，美國零售市場較上季成長兩位數，與歷史季節性相符。

In the retail portion of our CHP business, our premium solutions, which consist of Orbi 8 and 9 tri- and quad-band WiFi mesh products and 5G Nighthawk mobile hotspots are continuing to perform well. Sales to end users of these premium products grew double digits year-over-year, dramatically outperforming the total market which compressed double digits over the same time frame.

在我們的熱電聯產業務的零售部分，我們的優質解決方案（包括 Orbi 8 和 9 三頻和四頻 WiFi 網狀產品以及 5G Nighthawk 行動熱點）繼續表現良好。這些優質產品向最終用戶的銷售額年增兩位數，大大超過了同期壓縮兩位數的整體市場。

On the other hand, our SMB business fell short of our top line expectation in the third quarter. The uncertain macroeconomic environment continued to pressure our channel partners, and we saw them continue to reduce their inventory carrying levels, which constrained the top line of our SMB business and will continue to limit its top line potential in the quarters to come.

另一方面，我們的中小企業業務第三季的營收未達我們的預期。不確定的宏觀經濟環境繼續給我們的通路合作夥伴帶來壓力，我們看到他們繼續降低庫存水平，這限制了我們中小企業業務的營收，並將繼續限制其未來幾季的營收潛力。

This second consecutive quarter of top line outperformance is an encouraging sign that the CHP retail market is stabilizing and the WiFi 7 transition is gaining traction. The strong mix of our premium higher-margin products, combined with the progress we continue to make in growing our service revenue business in CHP, helped improve our gross margins.

連續第二季的營收表現出色是一個令人鼓舞的跡象，表明 CHP 零售市場正在穩定，WiFi 7 過渡正在獲得牽引力。我們的優質高利潤產品的強大組合，加上我們在熱電聯產服務收入業務方面不斷取得的進展，有助於提高我們的毛利率。

Additionally, we gained top line leverage from the seasonal lift of the back-to-school season and, coupled with the disciplined expense management, we returned to profitability, delivering non-GAAP operating income of $5.3 million and non-GAAP operating margin of 2.7%, with the margin coming in well above the high end of our guidance range. Our non-GAAP operating margin was up 200 basis points compared to the year ago period and up 890 basis points compared to the prior quarter.

此外，我們從返校季節的季節性提升中獲得了收入槓桿，再加上嚴格的費用管理，我們恢復了盈利，實現了 530 萬美元的非 GAAP 營業收入和 2.7 的非 GAAP 營業利潤率%，利潤率遠高於我們指導範圍的上限。我們的非 GAAP 營業利潤率較去年同期上升 200 個基點，較上一季上升 890 個基點。

For the quarter ended -- for the third quarter of 2023, net revenue for the Americas was $141 million, a decline of 16.7% year-over-year and up 20.9% on a sequential basis. EMEA net revenue was $35.7 million, a decrease of 20.4% year-over-year and down 1.3% quarter-over-quarter. Our APAC net revenue was $21.1 million, which is down 40.3% from the prior year comparable period and up 2.4% sequentially.

截至 2023 年第三季度，美洲地區的淨收入為 1.41 億美元，年減 16.7%，季增 20.9%。歐洲、中東和非洲地區淨收入為 3,570 萬美元，年減 20.4%，季減 1.3%。我們的亞太地區淨收入為 2,110 萬美元，比上年同期下降 40.3%，比上一季成長 2.4%。

For the third quarter of 2023, we shipped a total of approximately 1.8 million units, including 991,000 [nodes] of wireless products. Shipments of all wired and wireless routers and gateways combined were about 520,000 units for the third quarter of 2023.

2023年第三季度，我們總共出貨了約180萬台，其中無線產品99.1萬個[節點]。 2023 年第三季所有有線及無線路由器及閘道器的出貨量合計約 52 萬台。

The net revenue split between home and business products was about 64% and 36%, 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 16% of our third quarter shipments, while products introduced in the last 12 months contributed about 11% of our third quarter shipments.

家庭產品和商用產品的淨收入佔比分別約為 64% 和 36%。無線和有線產品的淨收入佔比分別約為 61% 和 39%。過去 15 個月推出的產品約占我們第三季出貨量的 16%，而過去 12 個月推出的產品約占我們第三季出貨量的 11%。

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 2023 was 35%, which is up 740 basis points as compared to 27.6% in the prior year comparable period and up 340 basis points compared to 31.6% in the second quarter of 2023.

從現在開始，我的討論點將集中在非公認會計原則數字上。我們今天稍早發布的財報中詳細介紹了從 GAAP 到非 GAAP 的調整。 2023年第三季的非公認會計原則毛利率為35%，較上年同期的27.6%上升740個基點，較2023年第二季的31.6%上升340個基點。

As compared to the prior year period, increased shipments of our premium higher-margin CHP products and considerably lower total freight costs drove the improvement. As compared to the prior quarter, Q3 experienced a higher mix of premium, higher-margin products. And overall, we were more efficient with our marketing spend.

與去年同期相比，我們的優質高利潤熱電聯產產品的出貨量增加以及總貨運成本的大幅降低推動了業績的改善。與上一季相比，第三季出現了更多優質、高利潤產品的組合。整體而言，我們的行銷支出更有效率。

Total Q3 non-GAAP operating expenses came in at $64 million, which is down 4.7% year-over-year and down 2.2% sequentially. Our head count was 644 as of the end of this quarter, down from 653 in Q2.

第三季非 GAAP 營運支出總額為 6,400 萬美元，較去年同期下降 4.7%，較上季下降 2.2%。截至本季末，我們的員工人數為 644 人，低於第二季的 653 人。

We will continue to strategically invest in our business and hire in key areas we believe will deliver future growth and profitability, such as Pro AV managed switches, premium Orbi WiFi mesh systems, 5G mobile hotspots and subscription services. However, we continue to evaluate other areas of the business on a regular basis, driving further cost efficiencies.

我們將繼續對我們的業務進行策略性投資，並在我們認為將帶來未來成長和盈利能力的關鍵領域進行招聘，例如 Pro AV 託管交換器、優質奧秘 WiFi 網狀系統、5G 行動熱點和訂閱服務。然而，我們繼續定期評估業務的其他領域，進一步提高成本效率。

Our non-GAAP R&D expense for the third quarter was 10.1% of net revenue as compared to 8.5% of net revenue in the prior year comparable period and 11.4% of net revenue in the second quarter of 2023. To continue our technology and subscription service leadership, we are committed to continued investment in R&D.

我們第三季的非 GAAP 研發費用佔淨收入的 10.1%，而上年同期佔淨收入的 8.5%，2023 年第二季佔淨收入的 11.4%。 繼續我們的技術和訂閱服務領導力，我們致力於持續投資研發。

Our non-GAAP tax expense was $0.7 million in the third quarter of 2023. Looking at the bottom line for Q3, we reported non-GAAP net income of $6.9 million and non-GAAP diluted earnings per share of $0.23.

2023 年第三季度，我們的非 GAAP 稅費為 70 萬美元。從第三季的底線來看，我們報告的非 GAAP 淨利潤為 690 萬美元，非 GAAP 稀釋每股收益為 0.23 美元。

Turning to the balance sheet. We ended the third quarter of 2023 with $228 million in cash and short-term investments, up $25.2 million from the prior quarter. As we projected in July, we were able to return to positive free cash flow in the third quarter as we made meaningful progress in reducing our inventory and improving our bottom line.

轉向資產負債表。截至 2023 年第三季末，我們的現金和短期投資為 2.28 億美元，比上一季增加 2,520 萬美元。正如我們在 7 月預測的那樣，隨著我們在減少庫存和提高利潤方面取得了有意義的進展，我們能夠在第三季度恢復正的自由現金流。

During the quarter, $26.1 million of cash was provided by operations, which reduced our total cash used by operations over the trailing 12 months to $4.4 million. We used $2 million in purchases of property and equipment during the quarter, which brings our total cash used for capital expenditures over the trailing 12 months to $5.2 million.

本季度，營運部門提供了 2,610 萬美元的現金，這使得過去 12 個月營運部門使用的現金總額減少至 440 萬美元。本季我們使用 200 萬美元購買財產和設備，這使得我們過去 12 個月用於資本支出的現金總額達到 520 萬美元。

We expect to continue generating positive free cash flow as we believe we will further reduce our inventory levels over the next couple of quarters and drive to our pre-pandemic carrying levels of 3 to 4 months.

我們預計將繼續產生正的自由現金流，因為我們相信我們將在未來幾季進一步降低庫存水平，並推動達到疫情前 3 至 4 個月的帳面水平。

Now turning to the third quarter results for our product segments. The Connected Home segment, which includes our industry-leading Orbi, Nighthawk, Nighthawk Pro Gaming, Armor and Meural brands generated strong revenue of $127.3 million during the quarter, down 15.4% on a year-over-year basis and up 29.4% sequentially.

現在轉向我們產品部門的第三季業績。互聯家庭部門包括我們行業領先的 Orbi、Nighthawk、Nighthawk Pro Gaming、Armor 和 Meural 品牌，本季產生了 1.273 億美元的強勁收入，年減 15.4%，環比增長 29.4%。

The year-over-year decline in both the retail and service provider channels is a result of a larger total addressable market and higher inventory carrying levels at our channel partners in the prior year period. Despite the year-over-year overall retail market contraction, demand for our premium Orbi 8 and 9 WiFi mesh and 5G mobile hotspots continue to grow, up double digits.

零售和服務提供者管道的同比下降是由於上一年期間我們的通路合作夥伴的潛在市場總量更大以及庫存水平更高。儘管整體零售市場較去年同期萎縮，但對我們優質奧秘 8 和 9 WiFi 網狀網路以及 5G 行動熱點的需求持續成長，增幅達到兩位數。

Bolstered by the addition of our recently released WiFi 7 products, namely the Orbi 97x mesh system and the Nighthawk RS700 router, these higher-margin, high-end products with high ASPs were an important contributor to delivering revenue and operating margin well above the high end of our guidance, serving as another proof point of the long-term growth and profitability potential of our core strategy.

在我們最近發布的WiFi 7 產品（即Orbi 97x 網狀系統和Nighthawk RS700 路由器）的支持下，這些利潤率較高、平均售價較高的高端產品為實現收入和運營利潤率遠高於高水平做出了重要貢獻。我們的指導結束，作為我們核心策略的長期成長和獲利潛力的另一個證明。

On the SMB side, net revenue came in at $70.5 million in the third quarter, below our expectations. The softness in SMB was due to the uncertain macroeconomic environment weighing on the SMB market, especially in geographies with stagnant or even negative GDP growth, such as Germany, Greater China and Japan, which are our biggest markets outside of North America.

中小企業方面，第三季淨收入為 7,050 萬美元，低於我們的預期。中小型企業的疲軟是由於不確定的宏觀經濟環境對中小型企業市場造成壓力，特別是在GDP成長停滯甚至負成長的地區，例如德國、大中華區和日本，這些地區是我們在北美以外最大的市場。

Our SMB channel partners continue to compress inventory levels in the quarter and are expected to continue doing so in the quarters ahead. Despite this, we continue to see growth in our Pro AV suite of products and remain confident they will be a long-term growth driver of our SMB business.

我們的中小企業通路合作夥伴在本季繼續壓縮庫存水平，並預計在未來幾季繼續這樣做。儘管如此，我們繼續看到我們的專業視聽產品套件的成長，並仍然相信它們將成為我們中小企業業務的長期成長動力。

I'll now turn the call over to Patrick for his commentary.

我現在將把電話轉給帕特里克，聽聽他的評論。

Thank you, Bryan. I would like to thank our NETGEAR team for delivering many great achievements in the third quarter. We have the most successful launch of new WiFi technology in our history with our WiFi 7 quad-band Orbi 97x and Nighthawk RS700 router. We attained an overall gross margin of 35% by driving an ideal combination of high-margin products in CHP and SMB with fewer promotional discounts.

謝謝你，布萊恩。我要感謝我們的 NETGEAR 團隊在第三季所取得的許多偉大成就。我們透過 WiFi 7 四頻 Orbi 97x 和 Nighthawk RS700 路由器成功推出了史上最成功的新 WiFi 技術。透過推動熱電聯產和中小企業高利潤產品與較少促銷折扣的理想組合，我們實現了 35% 的整體毛利率。

We continue to grow the number of value-added service subscribers to 844,000, achieving 25% growth in service revenue to $10.6 million for the quarter. We worked together with our retail channel partners to rightsize the inventory levels and believe they have reached the level they would like to maintain. We continue to see growth in market demand for our Pro AV line of SMB products. And finally, our team worked tirelessly to reduce our own inventory and generate meaningful cash for our balance sheet.

我們的加值服務用戶數量持續成長至 844,000 名，本季服務收入成長 25% 至 1,060 萬美元。我們與零售通路合作夥伴合作，調整庫存水平，並相信他們已經達到了他們想要維持的水平。我們看到市場對我們的 Pro AV 系列 SMB 產品的需求持續成長。最後，我們的團隊不知疲倦地努力減少我們自己的庫存，並為我們的資產負債表創造有意義的現金。

We started shipping our first 2 WiFi 7 products exclusively on our U.S. direct-to-consumer web store in the second to last week of Q3. And market reception well exceeded our expectations. The Orbi 97x, our WiFi 7 quad-band mesh delivered sales in the first 2 weeks double that of our prior launch of the quad-band WiFi 6E mesh, the Orbi 96x.

從第三季倒數第二週開始，我們開始在美國直接面向消費者的網路商店獨家出貨前 2 款 WiFi 7 產品。市場反應遠遠超出了我們的預期。我們的 WiFi 7 四頻網格 Orbi 97x 在前兩週內的銷量是我們之前推出的四頻 WiFi 6E 網格 Orbi 96x 的兩倍。

The Nighthawk WiFi 7 router, RS700, instantly became our #1 selling premium router, overtaking our previous top-of-the-line WiFi 6E router, the RAXE500.

Nighthawk WiFi 7 路由器 RS700 立即成為我們銷量第一的優質路由器，超越了我們之前的頂級 WiFi 6E 路由器 RAXE500。

While Wi-F7 clients are not widely available yet, the early technology adopters have clearly given us the stamp of approval. As WiFi 7 clients become widely available starting April or May of next year, we believe the retail market and our CHP revenue will ride the upgrade cycle. And we believe this will return our CHP business back to growth.

雖然 Wi-F7 用戶端尚未廣泛使用，但早期技術採用者顯然已經給了我們認可。隨著 WiFi 7 用戶端從明年 4 月或 5 月開始廣泛使用，我們相信零售市場和我們的 CHP 收入將順應升級週期。我們相信這將使我們的熱電聯產業務恢復成長。

We are readying a strong pipeline of WiFi 7 introductions in 2024 across all our major product lines: Orbi mesh, Nighthawk routers, Nighthawk mobile hotspots and SMB Insight access point. We are excited about these opportunities to expand our top and bottom lines in 2024 on a year-over-year basis for every quarter.

我們準備在 2024 年在所有主要產品線中推出 WiFi 7 的強大管道：Orbi 網狀網路、Nighthawk 路由器、Nighthawk 行動熱點和 SMB Insight 接入點。我們很高興有機會在 2024 年每個季度同比擴大我們的收入和利潤。

During Q3, our CHP sales and marketing teams worldwide were hard at work in showcasing and marketing our high-margin products across all categories, mesh, routers, mobile hotspots, cable gateways and laptop WiFi adapters, to achieve the best mix of high-margin products in recent years. Our SMB team is doing the same with our Pro AV products. As a result of these efforts, we were able to achieve 35% gross margin overall. We believe, as more WiFi 7 products launch in 2024, we would have room to further improve our overall gross margin in the new year.

在第三季度，我們全球的CHP 銷售和行銷團隊努力展示和行銷我們所有類別的高利潤產品，包括網狀網路、路由器、行動熱點、有線網關和筆記型電腦WiFi 適配器，以實現高利潤的最佳組合。近年來的產品。我們的 SMB 團隊正在對我們的 Pro AV 產品做同樣的事情。由於這些努力，我們的整體毛利率達到了 35%。我們相信，隨著更多 WiFi 7 產品在 2024 年推出，我們在新的一年將有進一步提高整體毛利率的空間。

We added 40,000 paid service subscribers in Q3, reaching account of 844,000. We grew our paid service revenue to 10.6 million. We are on pace to reach our goal of 875,000 paid service subscribers by the end of the year, further growing our service revenue, which would be a major contributor to our gross margin expansion for years to come.

第三季我們增加了 4 萬名付費服務用戶，達到 84.4 萬戶。我們的付費服務收入成長至 1,060 萬。我們正在努力實現到年底擁有 875,000 名付費服務用戶的目標，進一步增加我們的服務收入，這將是我們未來幾年毛利率擴張的主要貢獻者。

We will continue to add compelling features to our Armor services to protect our customers' connected devices throughout their homes. We intend to add more privacy protection features in 2024, thus increasing the appeal of our Armor service to even wider audiences.

我們將繼續為我們的 Armor 服務添加引人注目的功能，以保護客戶家中的連網裝置。我們計劃在 2024 年添加更多隱私權保護功能，從而提高 Armor 服務對更廣泛受眾的吸引力。

With the strong reception of our WiFi 7 launch and the stabilization of the size of the retail addressable market, our retail channel partners are more confident that the retail network market will stay at current levels or potentially even increase. They have demonstrated this by no longer depleting their inventory and we will continue to bring new products to market to add to their confidence.

隨著我們的 WiFi 7 推出的強烈反響以及零售潛在市場規模的穩定，我們的零售通路合作夥伴更有信心零售網路市場將保持在當前水平，甚至有可能成長。他們透過不再耗盡庫存來證明了這一點，我們將繼續向市場推出新產品，以增強他們的信心。

This quarter, we will bring out 2 new versions of our premium Nighthawk mobile hotspots, the M6 Pro. The first one is for the U.S. market with compatibility on the Verizon network. The second one is for the Japanese market with compatibility to all major carriers in Japan. There are more WiFi 7 mesh routers and mobile hotspots to be introduced in each quarter in 2024.

本季度，我們將推出 2 個新版本的高級 Nighthawk 行動熱點 M6 Pro。第一個適用於美國市場，相容於 Verizon 網路。第二個是針對日本市場的，相容於日本所有主要業者。 2024 年每季都會推出更多 WiFi 7 網狀路由器和行動熱點。

On the SMB side, our Pro AV managed switches continued their year-on-year growth with more commercial AV integrators and manufacturers adopting our easy to configure switches for various applications, video conferencing, control room displays, digital signage, concert tours, sporting events, esports arenas, lecture halls, churches and performance centers.

在中小型企業方面，我們的Pro AV 託管交換器繼續實現同比增長，越來越多的商業AV 整合商和製造商採用我們易於配置的交換器來實現各種應用、視訊會議、控制室顯示、數位看板、音樂會巡迴、體育賽事、電子競技場、演講廳、教堂和表演中心。

We recently participated for the first time in the biggest European broadcast equipment trade show, IBC in Amsterdam, showcasing our new M4350 switch with imminent support of the SMPTE 2110 broadcast protocol. We have seen lots of enthusiasm from potential partners, equipment manufacturers and integrators alike. We are excited about this opportunity in 2024.

我們最近首次參加了在阿姆斯特丹舉行的歐洲最大的廣播設備貿易展 IBC，展示了我們即將支援 SMPTE 2110 廣播協定的新型 M4350 交換器。我們看到了潛在合作夥伴、設備製造商和整合商的極大熱情。我們對 2024 年的這個機會感到興奮。

We also recently introduced our first residential wired router PR60X. It is well received by the high-end residential Pro AV integrators. We believe we will be able to expand further into this market in 2024.

我們最近也推出了第一款住宅有線電視路由器 PR60X。深受高端住宅專業AV整合商的好評。我們相信，到 2024 年，我們將能夠進一步擴展到這個市場。

We are making good progress in returning our inventory turns to between 3 and 4. We significantly reduced our inventory and generated meaningful cash in Q3. We are confident that our inventory levels will return to normal by mid-2024. We will have headwinds in the next 3 quarters as inventory costs go up due to the timing of the arrival in prior periods. We will continue to work on better product mix, cost containment and new product introductions to mitigate some of the negative effects. Our team is committed to such efforts.

我們在將庫存週轉率恢復到 3 到 4 之間方面取得了良好進展。我們在第三季度大幅減少了庫存並產生了可觀的現金。我們有信心到 2024 年中期我們的庫存水準將恢復正常。由於前期到貨時間導致庫存成本上升，我們將在未來三個季度遇到阻力。我們將繼續致力於更好的產品組合、成本控制和新產品的推出，以減輕一些負面影響。我們的團隊致力於此類努力。

Turning to our SMB business. We have seen some of our large markets like Greater China, Germany and Japan face macro uncertainty from geopolitical tensions, high interest rates and sluggish economic growth. This is impacting our SMB business in these markets and causing our channel partners to lower their inventory carrying levels, which will limit the top line potential of SMB in the coming quarters.

轉向我們的中小企業業務。我們看到大中華區、德國和日本等一些大型市場面臨地緣政治緊張、高利率和經濟成長疲軟帶來的宏觀不確定性。這影響了我們在這些市場的中小型企業業務，並導致我們的通路合作夥伴降低庫存水平，這將限制中小型企業未來幾季的營收潛力。

Despite the inventory compression, we believe there are ample near-term headwinds -- these are simple near-term headwinds and the underlying long-term growth opportunity of the business driven by our Pro AV solutions remained intact.

儘管庫存壓縮，但我們相信短期內仍存在充足的阻力——這些只是簡單的近期阻力，而由我們的專業視聽解決方案驅動的業務的潛在長期增長機會仍然完好無損。

And with that, I'll turn it back over to Bryan to comment on our opportunities and obstacles in the coming quarter and year.

至此，我將把它轉回給 Bryan，讓他評論我們在未來一個季度和一年中的機會和障礙。

Thank you, Patrick. We expect to continue to experience strong underlying demand in the premium portion of our CHP product portfolio, riding on the success of our WiFi 7 launch well into 2024. We are also encouraged that our retail channel partners are now maintaining rather than depleting their inventories.

謝謝你，派崔克。憑藉我們在2024 年推出WiFi 7 的成功，我們預計我們的CHP 產品組合的高端部分將繼續經歷強勁的潛在需求。我們也感到鼓舞的是，我們的零售通路合作夥伴現在正在維持而不是耗盡庫存。

However, we will continue to work with our SMB channel partners to optimize their inventory carrying levels during the next few quarters. Accordingly, we expect CHP to be approximately flat sequentially, in line with market seasonality, and SMB to be down sequentially, which will result in overall fourth quarter net revenue being in the range of $175 million to $190 million.

然而，我們將繼續與我們的中小企業通路合作夥伴合作，在未來幾季優化他們的庫存水準。因此，我們預計 CHP 將環比基本持平，與市場季節性一致，而 SMB 將環比下降，這將導致第四季度整體淨收入在 1.75 億美元至 1.9 億美元之間。

As we continue to make meaningful progress in reducing our own inventory levels, we will be consuming older, higher cost inventory. We expect we'll move back to normal inventory levels and normal inventory costs by the middle of next year. Accordingly, we expect fourth quarter GAAP operating margin to be in the range of negative 4.4% to negative 1.4% and non-GAAP operating margin to be in the range of negative 2% to positive 1%.

隨著我們在降低庫存水準方面繼續取得有意義的進展，我們將消耗舊的、成本較高的庫存。我們預計到明年年中我們將恢復到正常庫存水準和正常庫存成本。因此，我們預計第四季度 GAAP 營運利潤率將在負 4.4% 至負 1.4% 之間，非 GAAP 營運利潤率將在負 2% 至正 1% 之間。

Our GAAP tax expense is expected to be in the range of $1 million to $2 million. And our non-GAAP tax expense is expected to be in the range of 0 to $1 million for the fourth quarter of 2023. We expect we will continue to generate meaningful cash in Q4 and beyond.

我們的 GAAP 稅費預計在 100 萬至 200 萬美元之間。 2023 年第四季度，我們的非 GAAP 稅務費用預計在 0 至 100 萬美元之間。我們預計，我們將在第四季度及以後繼續產生可觀的現金。

We would now like to answer any questions from the audience.

現在我們想回答觀眾提出的任何問題。

(Operator Instructions) Your first question comes from the line of Hamed Khorsand from BWS Financial.

（操作員說明）您的第一個問題來自 BWS Financial 的 Hamed Khorsand。

So first question I had was about this inventory that you're intending to burn off and the timing of margins. How much -- what is the normal gross margin that you're aiming for right now? What kind of impact are you thinking that this will have in the next 2, 3 quarters?

因此，我的第一個問題是關於您打算消耗的庫存以及利潤的時間表。您現在的目標正常毛利率是多少？您認為這將在未來 2、3 個季度產生什麼樣的影響？

Yes. So in terms of Q4, we think there's probably about 150 basis points headwind relative to Q3, which is pretty much reflected in the guidance that we provided. It will reach its peak in the Q1 period and then taper off from there going into Q2 and the second half of 2024. And really, it's about -- as we're aggressively working down our inventory levels, you would have seen about a $42 million sequential decrease. We're stopping the inflow, and the operational cost supporting the procurement of that inventory as a percentage weigh a little bit heavier on the overall cost of the inventory. But as I said it's about 150 basis point headwind in Q4, it ticks up a little bit from there into Q1 and then will taper off as we progress.

是的。因此，就第四季度而言，我們認為相對於第三季度可能存在約 150 個基點的逆風，這在我們提供的指導中得到了充分體現。它將在第一季達到頂峰，然後在第二季度和 2024 年下半年逐漸減少。實際上，當我們積極降低庫存水平時，您會看到大約 42 美元萬環比減少。我們正在停止流入，支援庫存採購的營運成本在庫存總體成本中所佔的百分比稍重。但正如我所說，第四季的逆風約為 150 個基點，從第一季開始略有上升，然後隨著我們的進展逐漸減弱。

Yes. Our aim is using 35% as the base of our standard. And after burning off these higher cost inventory, we believe that we can continue to improve on that gross margin beyond 35%.

是的。我們的目標是以35%作為我們標準的基礎。在燒掉這些成本較高的庫存後，我們相信我們可以繼續將毛利率提高到 35% 以上。

Okay. And then given your commentary around inventory, I'm assuming that your aim is something around $80 million to $90 million of conversion to cash or -- what is the timing of that inventory converting from accounts receivable to cash because your DSOs still are pretty elevated?

好的。然後考慮到您對庫存的評論，我假設您的目標是將 8000 萬至 9000 萬美元轉換為現金，或者 - 該庫存從應收賬款轉換為現金的時間是什麼，因為您的 DSO 仍然相當高？

Yes. DSOs tend to go up in the fourth quarter. I expect that trend to continue. You may recall in the past, and we continue to do this, we support a couple of retailers with extended payment terms leading into the holiday season. So I think DSOs will go up, but that's in line with what our normal experience would be.

是的。第四季 DSO 往往會上升。我預計這種趨勢將持續下去。您可能還記得，過去，我們將繼續這樣做，我們支持一些零售商在假期期間延長付款期限。所以我認為 DSO 將會上升，但這符合我們的正常經驗。

In terms of the impact in reducing inventory, I would say that we're probably going to move in a similar direction to what you saw in Q3 in each of Q4 and Q1. I think the heaviest lift will happen in those 2 quarters. And I would expect that the free cash flow implications are slightly ahead of what we delivered in Q3 as a result of those efforts.

就減少庫存的影響而言，我想說，我們可能會在第四季和第一季朝著與第三季類似的方向發展。我認為最大的提升將發生在這兩個季度。我預計，由於這些努力，自由現金流的影響將略高於我們在第三季交付的結果。

I believe that by Q3 of next year, we will be back to normal in generating cash equivalent to net earnings or close to net earnings, yes.

我相信，到明年第三季度，我們將恢復正常產生相當於淨利潤或接近淨利潤的現金，是的。

So what I'm trying to get to is your cash balance is going to increase quite a bit, why hasn't the company come out and start buying back stock at $10?

所以我想知道的是你的現金餘額將會增加很多，為什麼公司還沒出來開始以 10 美元的價格回購股票？

So we're opportunistic buyers of our stock. We continue to have those conversations. As you saw this Q3 was the first period we returned to positive free cash flow, that's obviously a consideration point. But repurchasing stock is still a conversation we continue to have.

因此，我們是股票的機會主義買家。我們將繼續進行這些對話。正如您所看到的，第三季是我們第一次恢復正自由現金流，這顯然是一個考慮點。但回購股票仍然是我們繼續討論的話題。

What's a better opportunity than $10? I mean how much further down are you expecting your stock to go?

還有什麼比 10 美元更好的機會呢？我的意思是你預期你的股票會進一步下跌多少？

Well, I mean we definitely are looking at all these. I mean we believe that, yes, we will always be the opportunistic buyer in the market, especially now we are confident in generating cash.

嗯，我的意思是我們肯定正在研究所有這些。我的意思是，我們相信，是的，我們將永遠是市場上的機會主義買家，尤其是現在我們有信心產生現金。

Your next question comes from the line of Jake Norrison from Raymond James.

您的下一個問題來自雷蒙德詹姆斯 (Raymond James) 的傑克諾里森 (Jake Norrison)。

Firstly, can you guys touch on your early indications from holiday season? How is this similar or different from years past? And have there been any changes to your sort of promotional philosophy for this holiday season?

首先，你們能談談假期的早期跡象嗎？這與過去幾年有何相似或不同？這個假期你們的促銷理念有什麼改變嗎？

As a matter of fact, I think a good indication from the Prime Day 2 that Amazon put together, it seems like the holiday season in networking is pretty much like the rest of the retail market, is galvanizing into the high-end as well as the lower end. So that's why we're seeing really positive reception to our high-end products, such as the WiFi 7 products or even the existing Orbi 8 and Orbi 9 and the high-end routers such as what we mentioned, the RS700, the new one and the RAXE500 all on high end. But also there's quite a bit of demand on the lower cost WiFi products such as the adapters, such as the extenders, which are really cheap quick fix to better WiFi at home. We're also seeing the popularity of our lowest-cost cable gateway for $1.99 because a lot of customers will realize that by paying $15 a month of rent WiFi from cable operators, it's much cheaper to buy a cable gateway at $200, and after 12 months, it's all [gravy].

事實上，我認為亞馬遜在 Prime Day 2 上的一個很好的跡像是，網路假期似乎與零售市場的其他部分非常相似，正在刺激高端市場和高端市場的發展。下端。這就是為什麼我們看到我們的高階產品受到了非常積極的歡迎，例如 WiFi 7 產品，甚至現有的 Orbi 8 和 Orbi 9 以及高階路由器，例如我們提到的 RS700、新路由器和RAXE500 都是高階產品。但對適配器、擴展器等低成本 WiFi 產品的需求也相當大，這些產品確實是在家庭中提供更好 WiFi 的廉價快速解決方案。我們也看到價格最低的1.99 美元有線網關很受歡迎，因為很多客戶會意識到，透過每月向有線業者支付15 美元的WiFi 租金，以200 美元購買有線網關便宜得多，而且在12點之後幾個月，全是[肉汁]。

So I think the holiday season will be the same in those 2 areas. Now certainly, we're not promoting the Orbi 9, right? That's a premium product, but yes, we will strategically promote some of these lower end, higher demand customer products where we have a unique position, we have less competition so that we could generate more margin dollars.

所以我認為這兩個地區的假期將是相同的。當然，我們不是在推銷 Orbi 9，對吧？這是一種優質產品，但是，是的，我們將策略性地推廣一些低端、高需求的客戶產品，在這些產品中我們擁有獨特的地位，我們的競爭較少，這樣我們就可以產生更多的利潤。

And then last one for me. Can you just speak to the performance of the cybersecurity Armor service and then funnel of activations this quarter?

然後是我的最後一張。您能否談談網路安全 Armor 服務的表現以及本季的啟動管道？

The Armor cybersecurity service still our #1 service by our subscribers. And overall, we're seeing very strong uptake and strong renewal rate among these customers. So as we say, our intention is to expand the feature set so that we have opportunity to further expand the subscriber base and also potentially increase the ARPU. That's the strategy going forward. And we did a lot of user surveys through our app that customers' #1 request is to have privacy features such as shooting away cookies, hiding your identity, things like that. We would definitely add that in 2024.

Armor 網路安全服務仍然是我們訂戶的第一大服務。整體而言，我們看到這些客戶的使用率和續訂率非常高。正如我們所說，我們的目的是擴展功能集，以便我們有機會進一步擴大用戶群，並有可能提高 ARPU。這就是未來的策略。我們透過我們的應用程式進行了大量使用者調查，發現客戶的第一個要求是擁有隱私功能，例如刪除 cookie、隱藏您的身分等。我們肯定會在 2024 年添加這一點。

Are you guys internally thinking about ever providing more disclosures around the service?

你們內部是否考慮過提供更多有關服務的資訊揭露？

Such as?

例如？

A quarterly ARPU number, churn, retention metrics every quarter, things like that.

每季的 ARPU 數字、流失率、每季的留任指標等等。

Okay. All right. Yes. Certainly, we'll look into that. I think we have said quite -- during the Analyst Day that our ARPU is pretty consistent around $50. Hasn't changed since 2 years ago. So we expect that during this phase of user acquisition, our ARPU would stay the same. And from a churn rate perspective, as we said, for those customers who have renewed after the first year, the churn rate is actually lower than industry average.

好的。好的。是的。當然，我們會對此進行調查。我認為我們在分析師日期間已經說過，我們的 ARPU 相當穩定在 50 美元左右。自從2年前就沒有改變過。因此，我們預期在這個用戶獲取階段，我們的 ARPU 將保持不變。從流失率的角度來看，正如我們所說，對於那些在第一年後續訂的客戶，流失率實際上低於行業平均水平。

Our churn rate for those who have renewed for the first year, getting to second year then from here on out, the churn rate is less than 15%. I think we talked about that last time on the Analyst Day.

我們對於第一年續訂的用戶的流失率，到第二年，從現在開始，流失率低於 15%。我想我們上次在分析師日討論過這個問題。

We have no further questions in the queue at this time. Patrick, I'll turn the conference over to you for closing remarks.

目前我們隊列中沒有其他問題。派崔克，我將把會議交給你做總結發言。

Thank you for joining us today. I'm very pleased by our execution this quarter where our results have demonstrated our high-end premium products and services are resilient and holding up against the broader retail market and inventory compression headwind. It's clear, our commitment to innovation and investments in building a market-leading portfolio of products are paying off. While we are still facing SMB channel inventory compression and a high interest rate environment in the short term, the top and bottom line expansion potential of our premium CHP products, Armor security service and Pro AV switches is clear.

感謝您今天加入我們。我對本季的執行情況感到非常滿意，我們的業績證明了我們的高端優質產品和服務具有彈性，能夠抵禦更廣泛的零售市場和庫存壓縮的逆風。顯然，我們對創新和投資打造市場領先的產品組合的承諾正在得到回報。雖然短期內我們仍面臨中小企業通路庫存壓縮和高利率環境，但我們的優質 CHP 產品、Armor 安全服務和 Pro AV 交換器的營收和利潤擴張潛力是顯而易見的。

NETGEAR is well positioned ahead of the imminent WiFi 7 upgrade cycle with 2 WiFi 7 products already shipping and many more to come, giving us confidence in our ability to deliver even greater revenue and margin expansion and improved predictability in our business as we close out 2023 and enter 2024.

NETGEAR 在即將到來的WiFi 7 升級週期中處於有利位置，2 款WiFi 7 產品已經發貨，還有更多產品即將上市，這讓我們對在2023 年結束時實現更大收入和利潤擴張以及提高業務可預測性的能力充滿信心並進入2024年。

I look forward to sharing an update on our progress at our Analyst Day on December 7. We look forward to seeing you all. Thank you.

我期待在 12 月 7 日的分析師日分享我們的最新進展。我們期待見到大家。謝謝。

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

今天的電話會議到此結束。感謝您的參與，您現在可以斷開連接。