Ladies and gentlemen, thank you for standing by. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. I would now like to turn the conference over to Mr. Erik Bylin. Please go ahead, sir.

Thank you, Brent. Good afternoon and welcome to NETGEAR's First Quarter 2022 Financial Results Conference Call. Joining us from the company are Mr. Patrick Lo, Chairman and CEO; and Mr. Bryan Murray, CFO. The format of the call will start with a review of the financials for the first quarter provided by Bryan followed by details and commentary on the business, provided by Patrick, and finish with second quarter 2022 guidance provided by Bryan. We'll then have time for any questions. If you've 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 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 on NETGEAR's periodic filings with the SEC, including the most recent Form 10-K. 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 GAAP to non-GAAP measures can be found in today's press release on the Investor Relations website.

Thank you, Erik, and thank you, everyone, for joining today's call. Net revenue for the quarter ended April 3, 2022, was $210.6 million, down 33.8% year-over-year and within our recently revised guidance range. Our SMB products continued to perform above our expectations, and if it were not for COVID-induced shutdowns in Shenzhen in the last month of the quarter and the temporary halt to component supply to our factories in Southeast Asia, our SMB revenue would have been another 5% to 7% higher. We continue to see momentum in the super-premium mesh market represented by our $1,000 plus Orbi 8 and 9 product offerings. Combined, they grew year-on-year and sequentially in these highly profitable segments, in which we are the only player in the market. We saw the broader U.S. market contract, exiting the quarter roughly flat to 2019 levels, lower than our previous expectation of 15% above pre-pandemic levels. The contraction was primarily driven by the lower end of the market. As the largest market shareholder, this decline in market size negatively impacted sales of CHP products sold in retail, with revenues coming in meaningfully below our expectations at the beginning of the quarter. Our market share is steady at 44% in the U.S. consumer WiFi market. We ended the first quarter with a non-GAAP operating loss of $9.3 million and a non-GAAP operating margin of negative 4.4%, primarily resulting from a loss of top-line leverage. In response to this newly reduced overall market size, we plan to reduce CHP resources focused on areas that are now declining, while ensuring we have adequate investment in those that will deliver future growth, such as our Orbi 8 and 9 products, as well as subscription services. Additionally, we are taking a new and more efficient approach to our marketing activities to drive a better return on our investment. Overall, these efforts will better align our cost structure to the projected revenue levels of our CHP business. For the first quarter of 2022, net revenue for the Americas was $144.6 million, a decline of 34% year-over-year and down 9.3% on a sequential basis. EMEA net revenue was $36.9 million, which is down 39.7% year-over-year and down 26.3% quarter-over-quarter. Our APAC net revenue was $29 million, which is down 22.9% from the prior-year comparable period and down 30.4% sequentially. Revenue declines were principally driven by the retail portion of the CHP business, with revenue in the prior-year comparative period boosted by elevated end-user demand tied to the pandemic and replenishment of previously depleted channel inventory levels. For the first quarter of 2022, we shipped a total of approximately 2.4 million units, including 1.5 million nodes of wireless products. Shipments of all wired and wireless routers and gateways combined were about 784,000 units for the first quarter of 2022. The net revenue split between home and business products was about 62% and 38%, respectively. The net revenue split between wireless and wired products was about 63% and 37% respectively. Products introduced in the last 15 months constituted about 26% of our first-quarter shipments. While products introduced in the last 12 months contributed about 21% of our first-quarter shipments. From this point on, my discussion points will focus on non-GAAP numbers. The reconciliation from GAAP to non-GAAP is detailed in our earnings release distributed earlier today. Non-GAAP gross margins in the first quarter of 2022 were 28.2%, which is down 700 basis points as compared to 35.2% in the prior-year comparable period and down 180 basis points compared to 30% in the fourth quarter of 2021. Increased material and production costs, as well as transportation costs, impacted gross margin performance compared to the prior year. During the first quarter, we selectively began to increase prices and we plan to raise prices again for certain SMB products before the middle of the year. We believe these actions will help counterbalance material and transportation cost increases experienced in recent quarters as we progress through the year. Total Q1 non-GAAP operating expenses came in at $68.7 million, which is down 1.4% year-over-year and up 0.4% sequentially. Our headcount was 766 as of the end of the quarter, down from 771 in Q4. We expect our headcount to continue to increase, but we will rebounce our headcount deployment to focus resources and invest in areas that we believe will deliver future growth, such as ProAV, Orbi 8 and 9 WiFi systems and subscription services. Our non-GAAP R&D expense for the first quarter was 10.8% of net revenue, compared to 7.1% of net revenue in the prior-year comparable period and 8.7% of net revenue in the fourth quarter of 2021. To continue our technology and subscription service leadership, we are committed to continued investment in R&D. Our non-GAAP tax rate was 16.5% in the first quarter of 2022. Looking at the bottom line for Q1, we reported a non-GAAP net loss of $8.1 million and a non-GAAP diluted net loss per share of $0.28. Turning to the balance sheet, we ended the first quarter of 2022 with $263.8 million in cash and short-term investments, down $7.7 million from the prior quarter. During the quarter, $1.3 million of cash was provided by operations, which brings our total cash used by operations over the trailing 12 months to $17 million. We used $1 million for the purchase of property and equipment during the quarter, bringing our total cash used for capital expenditures over the trailing 12 months to $9.2 million. In Q1, we spent $9.4 million to repurchase approximately 354,000 shares of NETGEAR common stock at an average price of $26.50 per share. Since the start of our repurchase activity in Q4 2013, we have repurchased $636.9 million worth of shares, totaling 18.2 million shares. We are committed to returning value to our shareholders and plan to continue opportunistically repurchasing shares in future periods. Our fully diluted share count is approximately 29.6 million shares as of the end of the first quarter. Now turning to the first quarter results for our product segments. The Connected Home segment, which includes our industry-leading Nighthawk, Orbi, Nighthawk Pro Gaming and Meural brands generated net revenue of $130.3 million in the quarter, down 45.9% year-over-year and down 25.2% sequentially. We experienced a year-over-year decline in both retail and service provider channels. As a reminder, the prior comparative period for the retail portion of the business was boosted by heightened consumer demand in response to the pandemic, along with stocking a depleted channel to meet the heightened demand. Although the overall size of the U.S. consumer WiFi market contracted to roughly flat with pre-pandemic levels, we experienced strong demand for our super-premium higher-margin WiFi mesh products with higher service attach rates, underscoring the confidence we have in our strategy for long-term profitable growth. Not only did we see our end-user sales for these products increase over 20% compared to the year ago, but we also saw sequential growth contrary to normal seasonality. Our service provider business performed largely in line with expectations and we continue to expect a strong sequential increase in Q2 and subsequent quarters, despite continuing supply chain challenges. The SMB segment continued to perform well in the face of supply chain challenges, generating net revenue of $80.2 million for the first quarter of 2022, which was up 4.2% year-over-year and up 4.1% sequentially. Our managed switch products continue to lead the way with over 80% growth compared to the prior year. The investments we made to develop the ProAV market are clearly bearing fruit. Additionally, we see growing traction behind our portfolio of WiFi 6 cloud-managed mesh wireless access points. However, once again due to supply chain challenges, we spent heavily on air freight to compensate for shipping and production delays, dampening the higher margin contribution from this business. Encouragingly, our market share in switches sold through the U.S. retail channel remained strong at 55% in Q1. I'll now turn the call over to Patrick for his commentary, after which I'll provide guidance for the second quarter of 2022.

Thank you, Bryan. Two years into the pandemic, substantial supply chain disruption is still plaguing many industries. This has been a limiting factor in our ability to fully capitalize on the unprecedented demand we see for our SMB business and our super-premium Orbi 9 and M5 mobile hotspots. While we overcame challenges to deliver SMB revenue over $80 million, we left a considerable amount on the table. Our CHP business saw the U.S. consumer WiFi market compress to roughly flat with pre-pandemic levels. However, within CHP, we saw strong incremental demand for our Orbi 9 Quad-band Mesh and M5 mobile hotspots. On the SMB side, other than strong demand for ProAV switches, we also saw meaningful year-on-year and sequential growth in our SMB wireless access points. We believe easing supply challenges later in 2022 will benefit our SMB and mobile hotspot sales in the service provider channel significantly. Our strategy to create and grow the super-premium portion of the CHP market will drive progress towards higher margin hardware and subscription service revenue as we move through 2022 and into 2023. As a matter of fact, we saw our service revenue growth over 47% year-over-year to reach $7.6 million for the first quarter of 2022. We ended the quarter with 627,000 paid subscribers, an increase of 43,000 sequentially. With a seasonally stronger second half, we are confident we will reach our target of 750,000 paid subscribers by the end of 2022. While we are taking actions to address the near-term external challenges, we believe the innovation and leadership in wireless and switching technologies that NETGEAR's homeowners will be at the center of returning our company to profitable growth. SMB remains on an upward trajectory, driven by strong demand across geographies and channels. In Q1, SMB delivered revenue of $80.2 million for year-on-year growth of 4.2%. With limited supply, we exited Q1 with the highest backlog in the history of the business. We are helping revolutionize the ProAV market in its transition from cumbersome analog solutions to ultra-high-definition intelligent digital AV over IP, driving demand for our ProAV managed switches within the market, with sales up over 100% compared to a year ago. Furthermore, we continue to see strong demand for our WiFi 6 wireless products as businesses reopened and upgrade their WiFi networks for employees returning to the office. NETGEAR is instrumental in helping the SMB market upgrade from WiFi 5 to WiFi 6. To help enable this, we intend to accelerate our new product introductions in both ProAV and SMB wireless in the next 12 months, armed with increased demand and new products, we are on an intensive campaign to recruit new value-added resellers around the world, with a target of growing that base by 50% in the next 12 months. We are pleased to report that the top 50 AV integrators in the U.S. are now our reselling partners. We also have over 300 managed service providers worldwide reselling our SMB wireless access points to their clients alongside our Insight Pro remote management and subscription services. Our focus on the highest end of the CHP business, which we call the super-premium segment, continues to be the right strategy. Right before the pandemic, we introduced the Orbi 8, a $1,000 mesh system with three nodes. The demand for the product was strong throughout the pandemic. Late last year, we introduced the world's first Quad-band Mesh System Orbi 9, priced at $1,500 with three nodes. Again, demand was strong. Combined, we have discovered a unique segment of the WiFi market where users value the ultimate WiFi experience of both speed and coverage expanding to every corner of their properties, both inside and outside. This group of users is characterized by wealthy individuals who pay a premium for onsite security and enhanced building management services at their residences, welcoming the ability to get our Armor smart parental controls and pro support services to their Orbi, which serves as the front door to their in-home WiFi Internet. To them, the price is well worth the value that is added to the modern-day Internet-intensive hybrid workplace. As our supply increases, we will expand our retail presence of the Orbi 9 into more channels and geographies worldwide. We are also making good progress in our direct-to-consumer web store sales. We saw 27% year-over-year sales growth on our web stores worldwide, and this channel grew as a percentage of our overall CHP sales sequentially. We continue to enhance our web stores with unique products, such as the black edition of our Orbi 9 and with special services, such as concierge check and at-home installation. We aim to make our web stores a vital platform to engage directly with our super-premium customers, and we are confident that it will surpass 10% of our total CHP sales by the end of this year. And with that, I'll turn it back over to Bryan to comment on our opportunities and obstacles in the coming quarter and year.

Thank you, Patrick. The U.S. consumer WiFi market is currently roughly flat to 2019 levels, lower than our expectations at the start of the year. Given the smaller markets, we will be taking actions to optimize our retail channel partners’ inventory levels in the coming quarters to align them with current demand expectations. We will also be taking measures to better align the cost structure of the CHP business with these projected revenue levels. Even in the face of significant supply chain challenges, we expect second quarter revenue from the service provider channels to be approximately $30 million, with SMB expected to perform slightly above Q1 levels. Together, these factors lead us to expect our second quarter net revenue to be in the range of $205 million to $220 million. As a result of these factors and reduced leverage from our top line, our GAAP operating margin for the second quarter is expected to be in the range of negative 6.5% to negative 5.5%. The non-GAAP operating margin is expected to be in the range of negative 4% to negative 3%. Our GAAP tax rate is expected to be approximately 17% and our non-GAAP tax rate is expected to be 16% for the second quarter of 2022. We remain hopeful that sea transportation costs will ease and our SMB and service provider supply will improve in the second half of the year. These factors, combined with our cost reduction efforts, will create a much more favorable environment for our top and bottom lines. While we are confident in our ability to provide guidance at this time, we do so with the caveat that considerable uncertainty remains in the market due to the COVID-19 pandemic and supply chain conditions, which continue to remain challenged. Should unforeseen events occur, particularly challenges related to the closure of our manufacturing partners' operations, increased transportation delays into any of our regional distribution or manufacturing centers, greater-than-expected freight or component costs or lower-than-expected end market demand, actual results could differ from the foregoing guidance. We would now like to answer any questions from the audience.

[Operator Instructions] Your first question comes from the line of Jeffrey Rand with Deutsche Bank. Your line is open.

Hi. Thanks for taking my question. In your SMB business, when you can't deliver a product due to supply constraints, does the customer just go to someone else who has inventory, or do most customers just wait until you have the product? Essentially, is this lost revenue or just delayed revenue due to supply constraints?

So a few things. We just discussed that our backlog is at the highest in history, which indicates that customers are not going away; they're staying with us. The reason the customers are remaining loyal is that for ProAV switches, we are essentially the only supplier in the market; there is nothing like that. So this is a resolution to help AV installations transition from HDMI solutions to Ethernet, which could go up to 8k or even 12k. But our supply is constrained, and we’re working diligently to get back on track. To produce these products, we require components from numerous locations, and a major portion of those components comes from China. When China enforces lockdowns, such as the recent lockdown in the City of Ningbo, it significantly impacts global supply. While we are actively trying to source components outside of China, it's a long-term process. I hope that answers your question.

Yes, great. As a follow-up, the first half of the year has been weaker than you expected during your Analyst Day last year when you gave the full-year outlook. Can you provide an update on how you're thinking about the full-year on the top and bottom line?

Sure, sure. It's evident that there is still a fair amount of uncertainty out there, including factors like the macroeconomic environment and the ongoing situation in Ukraine, which impacts consumer behavior in Europe. However, our best assessment is that we do expect improvements in the back half of the year. We discussed an improving supply situation for both SMB and mobile products, which should give us a lift. Additionally, we also expect to see a seasonal boost in retail for CHP in the latter half of the year. In summary, we anticipate the second half will be stronger than the first half on a top-line basis, likely in the range of 25%. With that increase in top line and some cost-cutting measures we are implementing, along with improved transportation costs, we believe we should achieve something close to our original second half guidance for operating margin, potentially in the 8% to 9% range.

Great. Thank you.

Your next question comes from the line of Adam Tindle with Raymond James. Your line is open.

Okay, thanks. Could you quantify some of the cost actions you are taking related to elevated supply chain costs and the timing for when you expect those to resolve? The second half guidance sounds like it could impact positively quite quickly, so I wanted to clarify.

Yes, I'll start with reiterating the component cost increases, which we discussed at our Analyst Day. Relative to 2021, those cost increases account for about a 400 basis point impact to our operating margins. Transportation cost increases contributed about 200 basis points, so not much has changed there. However, as I mentioned earlier, our guidance for the second half relative to what we're projecting for Q2 is largely due to an improved supply picture for SMB.

Okay. I can delve into CHP then. It’s apparent that the market has softened based on the miss versus your expectations now down to 2019 levels. With elevated inventory to clear out and the challenges of passing on price increases given the demand picture you're painting and with 400 basis points of component costs on top of it, how do you see this dynamic unfold in terms of clearing inventory with higher cost levels?

I'll start with our inventory method, which is on a FIFO basis. Some of the component cost increases were announced by major chipset suppliers last October, but they are only now reflecting in our P&L because we carry roughly two quarters of inventory. We believe those costs are already factored in. We have selectively raised prices within the market in the first quarter, and we expect those price increases to have a further impact moving forward. As we introduce new products, we also have that factored into our pricing strategy in the market. Our success in the super-premium portion of this segment, which is less price sensitive, is encouraging as well.

Okay, maybe just one more from me. On capital allocation, the stock is now near tangible book value. Given that earnings are suboptimal and there is rightsizing underway, what are the considerations for accelerating share repurchases since the stock is trading around its tangible book value to enhance shareholder value during this turnaround?

What you pointed out is indeed part of our thought process, but it’s also a matter of liquidity. We’re focused on reducing our inventory levels back to what I would consider our new normal, which historically was about three months. Given current transportation timelines, our optimal target is now probably around four months of inventory carrying level. So all of those factors will weigh into our capital allocation decisions.

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

Hi, yes. My first question is regarding the state of the CHP market. How are you adjusting your purchasing of components? Which market areas will you focus on? Will you concentrate solely on the low end, or will you also transition away from the low end part of the market?

Yes, there are dynamics within the CHP business, especially with the proliferation of mesh technology reducing the demand for traditional routers and extenders. Therefore, we will limit component purchases in those declining categories and focus primarily on mesh. Additionally, as WiFi 5 is going out, we will not purchase any WiFi 5 components, and for WiFi 6, we plan to move toward our premium-end WiFi 6E. We are also preparing for WiFi 7 components that will be introduced next year, so that will guide our purchasing decisions moving forward.

How will you compete on pricing as you clear out the channel, given you need to raise prices, and is your competition facing similar pressures? What's your strategy here?

We're confident that following our price increases in Q1, we maintained our market share at 44%. This suggests we still have a loyal customer base. Customers who are solely concerned with price have already left us, as indicated by our market share dropping from 50% to 44%. This process has naturally filtered out those customers. Therefore, we believe we can return inventory levels to normal. If we are correct that the market stays at 15% pre-pandemic levels, our channel clearing could have been achieved in Q4 of last year. However, the market's contraction has surprised us, but we believe that given three quarters, we can clear the inventory effectively. The strong indication of our price increases sustaining our market share represents a significant vote of confidence from customers.

Could you provide some commentary on the goodwill write-off in the quarter and why it occurred in Q1 instead of the usual Q4?

Given what we've shared regarding the U.S. consumer market declining to flat against pre-pandemic levels, we had to reassess the overall business, which triggered an accounting requirement. We took into account current market dynamics, including the stock market, and market cap while making an assessment as of today. This was a non-cash charge triggered by our new outlook on the CHP business.

Thank you.

Your final question comes from the line of Paul Silverstein with Cowen. Your line is open.

I appreciate you all taking the question. I want to revisit the super-premium end of the market that you're shifting towards. What percentage of the market does this segment constitute as a percentage of your revenue? I apologize if you mentioned it earlier in the call.

According to NPD's latest data, products priced above $500 have steadily risen from 4% of the market to close to 16% over the last two years. Clearly, we are driving this trend, which means a higher portion of our revenue is coming from this segment, and we are optimistic about this ongoing growth. As I mentioned at the start of this call, we plan to introduce further products like Orbi 8 and 9, which reinforces our confidence in catering to this target market segment.

I apologize for the confusion, but when you previously referenced the premium market, you mentioned it being around 25%, then it went up to 30% and then 38%. Now you're saying that 16% for the super-premium market seems different from your prior definitions. Can you clarify?

You're correct. Previously, we defined premium as tri-band products, but now we refer to super-premium as products priced over $500. Competitors are now pricing tri-band models closer to $300, so that's no longer considered premium.

Was the super-premium segment still showing sequential growth this quarter?

Yes, the sequential growth for the super-premium segment was in the low single digits. You need to understand that this is typically a tough quarter because the Q1 following Christmas generally experiences a decline of 10% to 15%. This year is even more challenging, as the overall market shrank in Q1. However, the fact that the super-premium segment still saw sequential growth despite this scenario is quite a feat.

If the macro environment worsens, do you believe a greater number of consumers might transition towards lower-priced solutions?

Yes, that's a given. Therefore, we must continuously move towards the higher end of the market and progressively raise our average selling prices. We've increased our ASP from $500 to $1,000, followed by another raise to $1,500 just two years later. Expect us to push that beyond $2,000 in the next two years.

I respectfully suggest that you should provide a quarterly breakdown of super-premium versus mass market revenue, which would benefit investors in understanding your business better. I hope you'll consider this.

Definitely, I believe that in the interim, monitoring the growth of the contribution margin of the CHP business, which we disclose in our 10-Q, is a good metric for both internal and external assessment. We will continue to report on subscriber growth as well, given that subscriber service revenue grew to $7.6 million, reflecting a 43% year-over-year growth, faster than our subscriber base growth, which is around 30%. This signals that we are performing well in the super-premium segment.

Thank you.

Thank you for joining us today. Like many other companies, we continue to navigate various uncertainties in the coming year. Nevertheless, we see no impediment to our long-term growth strategy. We have built our brand around best-in-class products in the premium portfolio, supported by our unmatched expertise in RF, circuitry, software, as well as switching and switching software. These core competencies enable us to target unique market segments that very few competitors can master. We look forward to updating everyone on our progress in these areas. The good news is that we expect to continue acquiring subscribers on both the SMB and CHP fronts with our products. Thank you again, and talk to you in about 2.5 months.

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.