Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you have a question, you will need to press the star 1 on your push-button phone. I would now like to turn this conference over to Mr. Eric Bilen. Please go ahead, sir.

Thank you, Operator. Good afternoon, and welcome to Netgear's second quarter of 2025 financial results conference call. Joining us from the company are Mr. C.J. Prober, CEO, and Mr. Brian Murray, CFO. The format of the call will start with commentary on the business provided by C.J., followed by a review of the financials for the second quarter and guidance for the third quarter provided by Brian. 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. 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 expense, expenses, and future business outlook. Actual results or trends could differ materially from those contemplated by these forward-looking statements. For more information, please refer to the risk factors discussed in NETGEAR's periodic filings with the SEC, including the most recent Form 10-Q. Any forward-looking statements that we make on this call are based on assumptions as of today, and NETGEAR undertakes no obligation to update these statements as a result of new information or future events, except as required by law. In addition, several non-GAAP financial measures will be mentioned on this call.

Reconciliation of the non-GAAP to GAAP measures can be found in today's press release on our investor relations website at this time i would now like to turn the call over to cj thanks eric and thank you all for joining our call we are very pleased to report that q2 was another great quarter for nikir with results much better than anticipated including historically high gross margins and another quarter of non-gap profitability the team simply delivered even more importantly our transformation to deliver long-term shareholder value via profitable growth is progressing as planned and we continue to execute well against our newly formed long-term strategy today i'll review our second quarter financial highlights give an update on each of our three business units and cover a couple macro points that are top of mind. In Q2, we outperformed our guidance on both the top and bottom line. Despite pro-AV supply constraints that limited shipments, net revenue came in at $170.5 million, above the high end of our outlook, and we delivered non-GAAP gross margins of 37.8%, an all-time high for the company. We also outperformed our non-GAAP operating margin guidance and delivered non-GAAP profitability for a second quarter in a row. This performance reflects continued progress in our transformation journey. A year removed from the major channel destocking we executed in Q2 of 2024, our tighter operational discipline is paying dividends. We've streamlined inventory, stabilized DSOs at their lowest level in nearly eight years, and realigned our supply chain to support leaner, more resilient execution. Nowhere is this transformation more evident than in the profitability of our three business units. Last quarter, we shared that each business unit improved its year-over-year contribution margin by over 400 basis points. This quarter, we're excited to share that we've achieved positive contribution margins across each business. This milestone is even more impressive considering the varied opportunities and challenges within each segment, and it serves as a great testament to the progress we're making in driving focused execution. Most importantly, though, these efforts have cemented a foundation of improved profitability, and now we are framing our growth plans for the second phase of our transformation. On to the business updates. NFB led the way again this quarter with revenue up 38% year-over-year and up more than 4% sequentially. NFB's gross margin reached 46.7%, representing an increase of 1,300 basis points year-over-year and 40 basis points sequentially. As we continue to scale this business and it becomes a larger percentage of our revenue, we will continue to benefit from the higher gross and contribution margin profile it brings to our consolidated P&L. ProAV remained a steadfast growth engine for NFB with strong double-digit year-over-year sell-through gross across all geographies. Despite entering the quarter supply constraint, great execution by the team allowed us to exceed our shipment target for Q2 and deliver 14% sequential revenue growth for ProAV. Even with this strong growth and market demand for our highly differentiated products resulted in a considerable increase in our sales backlog during the quarter. While we prefer to be capitalizing on the full potential of this business, it is great to see our investments unlock substantial growth opportunities. We're diligently working to improve supply, and we expect to begin to burn down our sales backlog in Q3 and establish safety stock in the first quarter of 2026. Further demonstrating our market leadership in Pro-AV, we also won multiple industry awards at NAB and Infocom and expanded our AV manufacturing partner base to approximately 460. The customer deployments on the AV side of our business continue to include large Fortune 500 organizations and high-profile events and productions. For example, we recently completed commercial deployments at Fortune 500 companies like CBRE, Applied Materials, Global Foundries, and Cary Ireland, And also powered the G7 conference in Canada, President Macron's Bastille Day celebration in France, and Marilyn Manson's concert tour, to name a few fun examples. We also launched our new AV professional services group this quarter. This launch marks an important expansion of our enterprise value proposition. Our on-site engineering assistance service embeds seasoned NIC gear engineers directly into customer deployments, offering pre-event validation, live day support, and post-event analysis, de-risking complex AV over IP projects, and delivering peace of mind for mission-critical use cases. With a full catalog of modular service offerings and development, we're building a scalable, service-led layer on top of our hardware and software foundation to drive long-term customer success and higher margin revenue. On the IT side of NFB, we're building a complete network and security solution for SMEs and MSPs to address an opportunity with huge potential where we currently only have a small share of the market. Our acquisition of Exeom gives us a proprietary SASE platform to integrate directly into our cloud management service, Insight. This will enable us to offer what we believe to be the industry's first fully integrated networking and cloud security solution, purpose-built for small and medium-sized enterprises. Combined with our in-house software team in Chennai, which was accelerated by the VOG AquaHire, we've substantially advanced our plan to in-source software development and make software a core capability and even more of a differentiator for NFB. Our home networking business had a great quarter up and down the P&L, surpassing our expectations for top-line, gross margin, and contribution profit. Despite the stiff competition that remains in the market, this business is unequivocally benefiting from a broadening product portfolio, the leaner operational footprint, and getting past some of the older inventory issues. These levers translated to strong sequential results. Revenue growth of 10%, 540 basis point increase in gross margin, and 750 basis point improvement in profitability. We've had success at the mid and high end of the market, and yesterday, our streamlined execution enabled us to launch our new Orbi 370 offering. The latest and perhaps most important addition to building out our good, better, best strategy, the Orbeez 370 leverages the deep expertise NICR brings at the high end on performance and security at a more accessible price point. This combination makes the 370 ideal for households that need the extended coverage of a mess system but don't require the advanced performance of our top-of-the-line model. This latest release rounds out our offering as our most affordable Wi-Fi 7 Mesh System to date, further expanding the Netgear brand to the bigger part of the market and positioning us for additional success in home networking. Most importantly, we're pleased to have Jonathan Oakes officially join as Senior Vice President and General Manager of our home networking business. Jonathan is the latest addition to our newly formed Executive Leadership team and brings deep experience in consumer technology with a strong track record of driving execution and innovation at scale at leading brands like Fitbit, Google, and Amazon. Since joining a couple of months ago, he's made an immediate impact by sharpening our strategic focus, accelerating the launch of Yorbi 370, and setting the groundwork to enhance our product roadmap, subscription offerings, and channel execution. Under his leadership, we're confident, home networking is on a strong trajectory to drive profitable growth. In our mobile segment, we saw strong retail performance and grew our EMEA-based service provider business substantially by launching six new products across four customers. That said, sales with our large U.S.-based service provider customer were weaker than expected, and the overall revenue for this business was below our expectation for the quarter. Despite the revenue shortfall, we significantly exceeded our gross margin expectations at over 29%, and were able to deliver positive contribution margin for the mobile business in the quarter. As we continue to make progress launching new products that align with our good, better, best product strategy, we expect to drive top-line improvement for this business. The underlying demand for cellular connectivity continues to grow in both the consumer and B2B markets, given the need for reliable cellular connectivity and the performance improvements enabled by 5G. We remain on track with the execution of our mobile product strategy and are bullish about the long-term prospects of this business. On the macro front, we're pleased to report that despite various machinations on tariffs, nothing has changed for Netgear and the vast majority of our products remain completely exempt from tariffs. Further, the fact that we manufacturer in China provides a clear benefit if trade tensions do indeed escalate. Additionally, we remain more confident than ever that our status as a U.S.-based independent public company positions us well in the complicated geopolitical landscape. Nikkei is exactly the type of company that consumers, enterprises, and governments can trust for example this quarter on the home networking front we were awarded several retail placements at the navy exchange stores and army and air force exchange service stores furthermore continuing reports of the escalating cyber threat posed by the prc and scrutiny faced by chinese-backed competitors strengthens our optimism that these tailwinds will not abate In closing, our team notched another excellent quarter. We delivered strong in-quarter results up and down the P&L, with all-time record gross margins and non-GAAP profitability being two of the most important proof points. Additionally, we were highly successful on the capital allocation front with the XCM acquisition and $7.5 million in share buybacks. I've been with Netgear for a year and a half now and could not be more pleased with not only the way the team has come together, but also how they've approached and succeeded at the vast transformations work we've already undertaken. We brought in new talent to lead key areas and elevated internal leaders and others. We've enabled these leaders to succeed through the creation of three distinct business units. This has given a sharper focus, accountability, and a path to greater growth and profitability. Each business has clear objectives and dedicated resources to execute its strategy as we build out the next phase of our transformation. Is two of our transformation already underway? I want to encourage everyone listening to join us at our Investor Day on November 17th in New York. We'll share more detail on the plans for each business and how we expect to deliver on our purpose of powering extraordinary experiences while creating long-term value for shareholders. With that, I'll hand it over to Brian to walk through the financials.

Thank you, CJ, and thank you everyone for joining today's call. Thanks to the excellent execution of our team, we continued the momentum from our strong start to the year and delivered a fifth consecutive quarter where we exceeded the high and upper guidance ranges for revenue and operating margin. We delivered year-over-year top-line growth of 18.5%, along with sequential growth of more than 5%, with strong performances from our NFB and home networking businesses. I'm also pleased to share that we delivered non-GAAP gross margin of 37.8%, an all-time high for NETGEAR, with DSOs at their lowest level in nearly eight years, Truly a testament to the operational excellence the team is performing at as we drive to profitable, long-term growth. As a reminder, we successfully conducted a channel de-stocking a year ago, setting the groundwork for the results you see today, but also suppressing our revenue and profitability in the year-ago comparable quarter. The second quarter's outperformance was driven mainly by a strong showing by our higher-margin NFB business segment, along with home networking coming in above our initial expectations, supported by stocking in anticipation of Prime Day, which occurred earlier this month. The health of the channel's inventory levels and our ability to match sell-in with sell-through were significant contributors to our success rounded at the first half of the year. Positioning ourselves for streamlined execution. In-user demand for our ProEV managed switch products grew double digits, and we continue to see penetration of our broader Wi-Fi 7 portfolio take up momentum for our home networking business. For the quarter ended June 29, 2025, revenue was above the high end of our guidance range, coming in at $170.5 million, up 5.2% on a sequential basis, and up 18.5% year-over-year. In Q2, we completed the purchase of Exxion to add securities specifically designed for small and medium enterprises to our NFB portfolio. And we repurchased $7.5 million of our shares. We ended the quarter with $363.5 million in cash and short-term investments. We delivered $82.6 million of revenue in the NFB segment for the second quarter, up 4.3% sequentially and up 38% year-over-year. Although we continue to be challenged by supply constraints around certain managed switch products in our NFB business, the team executed well and was once again able to outperform our forecast for the quarter by closely working with key vendors to overcome these headwinds. This enabled us to deliver sequential revenue growth of our managed switch products by approximately 14%. However, we expect revenue will remain constrained in the back half, which has been taken into consideration in our forecast. With demand substantially above our expectations, we are carrying a higher backlog for our Pro-AV managed switch products into Q3, as we remain challenged on supply. But we are expecting gradual improvement through the first quarter of 2026. In Q2, the home networking business delivered net revenue of $67.5 million, up 13.1% on a year-over-year basis and up 10% sequentially. The U.S. retail market remained extremely competitive, leading to market compression, although a little less than the decline we saw in the first quarter. This was offset by increased stocking in preparation for Prime Day, which took place in the beginning of the third quarter and was a longer event than initially expected. We continued to benefit from working through lower-cost inventory and improved product mix of Y5-7 offerings and benefits of streamlined channel execution. Revenue for the mobile business in Q2 was $20.4 million, slightly below our expectations, down 16.1% year-over-year and down 5% sequentially as a result of softer-than-expected service provider sales. With additional products expected to launch later this year, we believe the full benefit of our good, better, best strategy will build over time. We exited the second quarter with 559,000 recurring subscribers and generated $9 million in recurring service revenue in the quarter, a year-over-year increase of 16.6%. We continue to believe that focusing on increasing a recurring subscriber base is the optimal strategy to add high-margin revenue to the home networking business. With NNFB, we believe the acquisition of XCM and the launch of our new AV Professional Services Group will spur growth of our services revenue, as software rounds out our value proposition. 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 came in at 37.8% in the second quarter of 2025, an all-time high, in the fourth consecutive quarter of sequential gross margin expansion. This marked a 1,540 basis point increase compared to 22.4% in the prior year comparable period and a 280 basis point increase compared to 35% in the first quarter of 2025. Compared to the prior year period, our gross margin in the current period benefited from an improved mix of our higher margin NFB business, improved sales returns and associated costs, success in moving past older, higher cost inventory, along with other benefits of operating with channel inventory at leaner levels. In addition to the margin expansion unlocked by our NFB products, we also continue to see improved product mix from our Y5-7 lineup. Growing down to the profitability of our three business segments, NFB gross margin was 46.7%, up 1,300 basis points year-over-year, and the highest level in seven quarters. The mobile segment gross margin increased 750 basis points year-over-year to 29.1%. The home networking segment had the largest improvement in segment gross margin expansion, aided by our improved mix of Wi-Fi 7 products, the move into lower-cost inventory, and improved sales returns and associated costs, which improved our gross margin for this business by 1,800 basis points year-over-year to 29.5%. Total Q2 non-GAAP operating expenses came in at $65.7 million, up 3.7% year-over-year and up 10.6% sequentially, as we were able to catch up on our hiring plans. Our headcount was 707 as of the end of the quarter, up from 636 in Q1. As a reminder, we conducted a reorganization in January to enact approximately $20 million in annual savings and are reinvesting those savings in the areas of the business that we expect will deliver the best growth and profitability. This is reflected in the sequential operating expense and headcount increase, most notably within our NFB business. Our non-GAAP R&D expense for the second quarter was 11.6% of net revenue, if compared to 13.2% of net revenue in the prior comparable period and 10.9 percent of net revenue in the first quarter of 2025. To continue our technology and product leadership, we are committed to continued investment in R&D. I'm pleased that we deliver profitability above the high endeavor guidance range, enabled by improved top line led by our NFB and home networking segments, and compounded by gross margin improvement. Our Q2 non-GAAP operating loss was 1.2 million dollars resulting in a non-GAAP operating margin of negative 0.7 percent, an improvement of 2,090 basis points compared to the year-ago period, and an improvement of 90 basis points compared to the prior quarter. Our non-GAAP tax expense was approximately $800,000 in the second quarter of 2025. Looking at the bottom line for Q2, we reported non-GAAP net income of approximately $1.7 million, resulting in a non-GAAP income of $0.06 per share. Turning to the balance sheet, we ended the second quarter of 2025 with $363.5 million in cash and short-term investments, down $28.5 million from the prior quarter due largely to the XM acquisition and $7.5 million in stock repurchases, equating to $11.95 per share. During the quarter, $1.8 million of cash was used by operations which brings our total cash provided by operations over the trailing 12 months to 118.6 million dollars we use 3.5 million dollars in purchases of property and equipment during the quarter which brings our total cash used for capital expenditures over the trailing 12 months to 9.1 million dollars in q2 we spent 7.5 million dollars to repurchase approximately 258,000 shares of Nikkei or common stock at an average price of $29.09 per share. We have approximately 2.8 million shares reserved in our current authorization, and our fully diluted share count is approximately 30.4 million shares as the end of the second quarter. We're committed to returning value to our shareholders and plan to continue to opportunistically repurchase shares in future periods. I'll now cover our outlook for the third quarter of 2025. We expect to continue to see more predictable performance that is aligned with the market for all of our businesses. Within NFB, end-user demand for our ProAV line of managed switches is expected to remain strong. And although we expect to continue to make improvements in our supply position, we continue to face lengthy lead times for supply, which may limit our ability to capture the full top-line potential of this growing business. On the home networking side, we are seeing signs of the benefit of our broader product portfolio to address the market. On the mobile side, we expect revenue to be in line with Q2 as we await our new product introductions to round out the portfolio later this year. Accordingly, we expect third quarter net revenue to be in the range of $165 million to $180 million. In the third quarter, we expect to further ramp our planned investments with focus on insourcing software development capabilities and enhancing our go-to-market capabilities supporting our NFB business. Accordingly, we expect our third quarter GAAP operating margin to be in the range of negative 11% to negative 8% and non-GAAP operating margin to be in the range of negative 5.5% to negative 2.5%. Our GAAP tax expense is expected to be in the range of $800,000 to $1.8 million. And our non-GAAP tax expense is expected to be in the range of a benefit of $500,000 to an expense of $500,000 for the third quarter of 2025. And with that, we can now open up for questions.

Thank you, sir. At this time, I would like to remind everyone in order to ask a question, press star then number one on your telephone keypad. We'll take the first question from Logan Katzman, Raymond James.

Hey, guys. Thanks for taking my questions. Maybe start here, pro-AV. I was just curious if you guys could talk a little bit more about what's going on there and the supply constraints in a little bit more detail. And I think if I heard you correctly, you expect this to end here 1Q26, but I just want to confirm. And then it sounds like you guys were able to sell through Blacklog pretty well, but I was just curious how much you guys are carrying into Q3.

Hey, Logan, great question. Happy to take that and Brian can weigh in with any additional thoughts. So I think maybe a couple just framing points. We've historically talked about the three NFB businesses for simplicity as being kind of a third, a third, a third in terms of size. With the growth that we've seen on the pro-AV side of things, that's actually become about half of NSB's top line and about 25% of Medicare's overall top line. So it's not big business for us. So with the, you know, as we said on the call, 14% sequential growth, that was above our plan. Despite that, we saw an increase in our backlog of, you know, high single digit, low double digit millions. So obviously, the demand generation there is great. And a huge shout out to our operations team for being able to increase supply to allow us to deliver above plan. And the differentiation on the product side, it's everything from hardware to software to the ecosystem that we built. And it's really kind of validation that these investments that we outlined at the beginning of the year around uh you know the restructuring in q1 we're putting investments against nfb we'd already started that at the end of last year it's paying off so as it relates to supply we expect to start to burn down the backlog towards the end of q3 so we'll start that process and then we expect to be in a position in q1 to begin to build the safety stock position Now, of course, if we continue to over deliver on our expectations, it may take a little bit longer. But based on the visibility we currently have on supply, which we really addressed the opportunities we've had to accelerate that with our partners, that's what we're thinking.

Q3, Q4, burn down the backlog, Q1, we start to build a safety stock position. got it that's helpful thank you um and maybe a piggyback off that a little bit i know you guys uh talked a little bit about the opex increases here um as it relates to investing into the business but how should we think about opex ramping uh through the back half of this year um and then any operating leverage uh or anything any color you guys can give for 2026 on that front as well.

Yeah, let me take that one. So we clearly made some tremendous progress in Q2. We hired more than 70 people. As you know, we kicked off the year and did a restructuring to free up about $20 million in annual spend that we plan to reinvest at an equivalent level back into the business, largely into the NFB business. Q1, we got off to a bit of a slow start with the hiring. as we discussed before, but they made great progress in the second quarter. As we look out to the third quarter, I would say we have continued investments going there. We're likely to see an increase in our OPEX in the mid-single-digit increase, and largely that's due to these investments that we're making. There are a couple of other items that I'd probably like to highlight and point out. One, with the XM transaction closing late in Q2, we'll have a four-quarter expense of that newly acquired team, including some investments there to get that integrated into our Insight platform. There are also a couple of unusual items, I would say, with regards to the Q2 OpEx Outlook. One is we'll have double rent expense. So after 17 years of being in our current headquarter space, we decided it was time for a change. and so we will be making a move at the end of the quarter we're able to cut our footprint by about a third um but we will remain cost neutral on on the facility so during this three-month period while we're getting that up and running we'll have double rent expense that's about a million dollars uh the other thing is that we have a pretty meaningful litigation defense cost uh that that will hit in the quarter it's probably an incremental million dollars as well that we absolutely will be defending ourselves and we're not going to settle on claims that don't have merit. So those last two items, I would say a bit unique. You take those out, likely Q4, I would expect a sequential decrease in that low single digit range off of the back of the Q3 level. But that said, if you model this out, I think we're largely steering towards OPEX, when you normalize 2024 for the exceptional release that we got with regards to the TP-Link settlements, when you normalize for that in a full-year basis, we're probably trending to about a similar level of OPEX compared to last year.

Got it. Okay. No, that's helpful. And maybe hitting on some of the investments you guys are making in NFB. I know you guys talked about it uh on the prepared remarks we saw the plus release for professional services there um maybe first what parts of uh nfb is this going to affect the most uh and then also maybe what's your expectations on uh how and when this is going to impact the model um and yeah any other colors you guys uh can provide on on the professional services side there yeah let me uh start with that brian can weigh in uh and i'll make it a little broader logan than professional services so as we've talked about we have three business units and all three have you know different businesses but they have a common strategic theme and that in all of them

we're looking to differentiate via software and add value to customers via differentiated software and leverage that to shift our business model to recurring revenue. And today, when you look at our ARR, it mostly comes from our home networking business unit. And there's a lot of opportunity to scale that. Jonathan has a ton of experience, built Fitbits subscription business from scratch. So we're excited about that. We're excited about the increased top funnel that we're going to get from the 370 launch that we announced yesterday. But NFD, which is currently relatively nascent, we have three main levers to grow our recruiting business. First is we've got our current Insight Cloud Management platform with a licensing model that doesn't work. So we're revamping that, and we expect to expand our Insight business quite significantly as we do that. We made the acquisition of Exeom. That builds an important gap in security. We're going to integrate XEM into Insight, so that's a 1 plus 1 equals 3 for customers. We have other plans for how we leverage XEM's security footprint in other products that will also drive recurring revenue, so we're excited about that. Professional services, which is what you asked about, is the third leg of that stool for NFB, and if you think about companies like ours, you'll see services attached at 40%, 50%. We're at zero percent. We give a lot of that away today for free. We're actually getting customers asking us to offer this. So it's a win for customers because they're going to get better value from that year. It's a win for us because it's a new source of revenue. And all three of those are kind of in the early stages of deployment, professional services. To answer your very specific question, we'll support the AAP business initially. But we expect to see real growth on the recurring revenue side in NFB in 2026. It's a big, big focus of ours.

Got it. Now that's helpful. And then maybe on the shifting to the consumer side of the business, I just wanted to see kind of where we're at with TP-Link and any updates there.

Yeah. We're obviously reading the same tea leaves everybody else is. The, you know, when you when you speak to people about the whole situation of Chinese companies operating in the U.S. and lack of parity that exists, what's interesting is it's kind of people view this as a bit of a no brainer for the U.S. and not to make it political in any way, but the new administration, if you sent, I was listening to a podcast that he was on just on the way to the office today in Lutnik. I mean, they get the lack of parity with China and they're taking steps to address that. And so when you combine that with all the activity around commerce, what we've read about the DOJ, the Senate, the congressional leaders having a sustained focus on this. I mean, our confidence remains high that this is going to be a tailwind for us, either specifically or generally. And we're really well positioned to capitalize on it if that ends up being the case. For the second market leader, we've got the broad portfolio. The biggest gap in our portfolio was the low-end mesh. We just launched the 370. So in routing and mesh, we're really well positioned. We've got the brand. And then we have said publicly that we're making an investment in inventory so if something were to happen here that we're well positioned to capture it now there's a broad spectrum of approaches you could take there you could do nothing or you could go all in and we're not doing any either of those we're being quite strategic about where we're making incremental inventory investments and you know you might see that reflected in our q3 balance sheet kind of in the low double-digit, high single-digit millions of dollars just to reflect an incremental investment in inventory so that we're positioned to capture any upside that would come from that.

Got it. That's super helpful. I appreciate the color and your guys' time.

Thanks for all the questions.

And the next question will come from Jay Goldberg from Seaport Research Partners.

Thanks for taking my call.

So CJ, I was just wondering if you could talk a little bit more about home networking uh i know you've had some big plans there how are those progressing how do you see yourself in the market today where are things going yeah great question so um if you look at the market how the market's evolving units have been increasing right so there was a time post covid where the market was declining from the unit perspective units today are increasing ASPs are declining largely because of some super aggressiveness that we're seeing from TP-Link. We did gain share last quarter in-home networking, despite not having our full portfolio in the We lost some of that back. This quarter, we gained share in prime days. There's a big back and forth happening with TP-Link from a share perspective. when we moved when we shifted our strategy last year to play in bigger parts of the market that then you know we're going downstream with our routing products downstream with our mesh products the 370 is the most recent launch there it's really positioned us well with consumers and with jonathan on board you know we're starting to work on the longer term road map which we've given indications that, you know, we in, in past calls, Jay, before, uh, before you, you have been joined that we do, um, we do view that gear is playing a bigger role in the home and solving connectivity problems. And so we have, we have big aspirations for, for this business. And, uh, I'm excited about the position we put ourselves in to really compete. Uh, and we've got a great foundational subscription service that we're uh building off of as well so that that's kind of where we're where we stand we're in a bit of a dog fight right now um and but we've got some really good and exciting plans for the future here great um thank you for that so so brian i was wondering if you could just dig in a little bit to gross margin some of the puts and takes that got you to the numbers you're putting in this quarter?

And then, you know, I won't ask you to give guidance for the whole year, but sort of how should we think about those trends as we progress?

Yep. Yep. Thanks for joining us today, Jay. So obviously, record quarterly gross margin at 37.8%. It's a fantastic result. We're a bit ahead of pace of what we probably thought we'd be coming into the year. obviously the key contributor there is the mix of the nfb business and the success that we're seeing there driven by the pro ev managed switch portfolio we're continuing to see the benefits of getting past higher cost inventory that's going to be a permanent benefit as we move forward uh obviously we're managing a tighter supply chain we've got our inventory in order the channel inventories in order we'll get benefits from that as well we did have a one-time benefit i would say in the quarter that was specific to home networking that was in relation to sales returns experience where we've seen dramatic improvement there. That was about 100 basis point impact on our total consolidated gross margin, 250 basis points specific to home networking. So that's probably a non-repeatable thing, but putting all that together and given today's business mix, you know, we would expect to be able to maintain the mid to high 30% gross margin profile. um longer term you know cj touched on a few of these things earlier like obviously the continued growth of nfb will play a role given it's about 47 gross margin today but the services businesses that we expect to accelerate in in all of our businesses really will be kind of the next uh iteration or the next wave of accretion um the one thing i would kind of just say that we're focused on we're able to mitigate at this point but there is certainly a lot of noise and press out there with regards to memory pricing and ddr4 specifically where the major suppliers in this market are taking those products end of life and there have been some short-term pricing noise out there in the market like i said we've been able to mitigate it thus far but it's something that we're paying attention to but really i guess summarizing back to it we're pretty confident it we've we've delivered this benefit and expanded our gross margins and we're going to be able to maintain the mid to high 30 percent range till we see that next wave of accretion with the services thank you that's that's very helpful and and so i guess just this last question cj can you give us an update on your software insourcing how that's progressing maybe maybe tease a little bit about

what we're going to see at the analyst day on the software front yeah it's a it's a huge focus of ours as i mentioned earlier uh so great progress uh we completed the vog aqua hire which was a real accelerant to building out our uh chennai location uh so we've onboarded about 60 engineers we have a great team more focused on the home networking side of things the app side the cloud outside of the home networking business, being built out in Cork, got a great leader there. She's building out a great team. And then other parts of our organization are also building out their teams in Richmond, in the Vancouver area, and in Taipei. So it's going well. The amazing thing about this insourcing is, and I've said this before, but I'll say it again, it leads to better quality product, faster execution. So big wins for the customer. And it costs us about the same. So it's not like we're pouring money into this. We're burning down the contractor spend that we've had on outsourced vendors that just don't have the incentive to adopt automation and AI like we're doing internally here. So it's a real multiplier for us and super excited about all the teams that team members that we've onboarded recently.

Great. Thank you for that. Very helpful. Thank you, guys.

Thanks, Jay. And if I didn't say it at the outset, thanks for joining the call. Great to have you.

And everyone at this time, there are no further questions. I'd like to hand the call back to Mr. CJ Prober for any additional or closing remarks.

Just a quick shout out to the Global Netgear team. Thanks for delivering on another great quarter.

And once again, ladies and gentlemen, that does conclude today's conference. You may now disconnect.