Earnings Call Transcript - NTGR Q2 2025

Operator, Operator

Thank you for your patience. I will now pass this conference over to Mr. Erik Bylin. Please proceed, sir.

Erik Bylin, Moderator

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. CJ Prober, CEO; and Mr. Bryan Murray, CFO. The format of the call will start with commentary on the business provided by CJ, followed by a review of the financials for the second quarter and guidance for the third quarter 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. 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.

Charles J. Prober, CEO

Thanks, Erik, and thank you all for joining our call. We are very pleased to report that Q2 was another great quarter for NETGEAR, with results much better than anticipated, including historically high gross margins and another quarter of non-GAAP 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 3 business units and cover a couple of macro points that are top of mind. In Q2, we outperformed our guidance on both the top and bottom lines. Despite ProAV 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 8 years and realigned our supply chain to support leaner, more resilient execution. Nowhere is this transformation more evident than in the profitability of our 3 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 are 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 growth across all geographies. Despite entering the quarter supply constrained, 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, end 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 ProAV, we also won multiple industry awards at NAB and InfoComm 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, GlobalFoundries and Kerry Ireland and also powered the G7 Conference in Canada, President Macron's Bastille 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 NETGEAR engineers directly into customer deployments, offering pre-event validation, live day support and post-event analysis, derisking complex AV over IP projects and delivering peace of mind for mission-critical use cases. With the full catalog of modular service offerings in 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 NFT, 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 Exium 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 VAAG acqui-hire, 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, placing revenue growth of 10%, a 540 basis point increase in gross margin and a 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 Orbi 370 leverages the deep expertise NETGEAR 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 mesh 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 WiFi 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 the Orbi 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 6 new products across 4 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 we were able to deliver a 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 do not manufacture 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. NETGEAR 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 2 of the most important proof points. Additionally, we were highly successful on the capital allocation front with the Exium acquisition and $7.5 million in share buybacks. I've been with NETGEAR for 1.5 years now and cannot 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 3 distinct business units. This has given us 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. With Phase 2 of our transformation already underway, I want to encourage everyone listening to join us at our Investor Day on November 17 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.

Bryan D. Murray, CFO

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 end of our 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 8 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 destocking 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 around the first half of the year, positioning ourselves for streamlined execution. End-user demand for our ProAV Managed Switch products grew double digits, and we continue to see penetration of our broader WiFi 7 portfolio pick 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 Exium to add security 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 ProAV 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 continue to benefit from working through lower cost inventory and improved product mix of WiFi 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 services revenue in the quarter, a year-over-year increase of 16.6%. We continue to believe that focusing on increasing our recurring subscriber base is the optimal strategy to add high-margin revenue to the home networking business. Within NFB, we believe the acquisition of Exium 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 and 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 WiFi 7 lineup. Drilling down to the profitability of our 3 business segments, NFB gross margin was 46.7%, up 1,300 basis points year-over-year and the highest level in 7 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 WiFi 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 as compared to 13.2% of net revenue in the prior year comparable period and 10.9% 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 delivered profitability above the high end of our 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, resulting in a non-GAAP operating margin of negative 0.7%, 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 Exium 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. We used $3.5 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 $9.1 million. In Q2, we spent $7.5 million to repurchase approximately 258,000 shares of NETGEAR 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 of 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 in-sourcing 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.

Operator, Operator

We'll take the first question from Logan Katzman at Raymond James.

Logan Jacob Katzman, Analyst

Maybe to start here on ProAV. 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 Q1 '26, but I just want to confirm. And then it sounds like you guys were able to sell through backlog pretty well. But I was just curious how much you guys are carrying into Q3?

Charles J. Prober, CEO

Logan, thanks for the question. I’m glad to address that, and Bryan may have some additional insights. To provide some context, we’ve traditionally classified the three NFB businesses as roughly equal in size. However, with the growth in the Pro AV segment, it now represents about half of NFB's revenue and roughly 25% of NETGEAR's total revenue, which is not insignificant for us. As mentioned earlier, we experienced a 14% growth compared to the previous quarter, exceeding our expectations. Alongside this growth, we noted an increase in our backlog of several million dollars. This suggests strong demand, and I want to commend our operations team for successfully ramping up supply to meet this demand. Our product differentiation spans hardware, software, and the ecosystem we've developed, illustrating that the investments we started making last year, particularly regarding the restructuring in Q1, are starting to yield results. Regarding supply, we anticipate beginning to reduce the backlog by the end of Q3, and by Q1, we plan to start establishing a safety stock. However, should we continue to exceed our targets, the timeline could extend. Based on our current visibility into supply and the collaborations we've engaged with our partners, we believe we can effectively manage this backlog reduction in Q3 and Q4, with safety stock preparation beginning in Q1.

Logan Jacob Katzman, Analyst

Got it. That's helpful. And maybe to piggyback off that a little bit. I know you guys talked a little bit about the OpEx increases here as it relates to investing into the business. But how should we think about OpEx ramping through the back half of this year? And then any operating leverage or anything, any color you guys can give for 2026 on that front as well?

Bryan D. Murray, CFO

Yes, I'll address that. We made significant strides in the second quarter, bringing on over 70 new employees. At the beginning of the year, we restructured to free up approximately $20 million in annual expenses, which we intend to reinvest at a similar level back into the business, primarily in the NFB sector. We experienced a slower hiring pace in the first quarter, but the second quarter showed excellent improvement. Looking into the third quarter, we anticipate ongoing investments that will likely result in a mid-single-digit increase in our operating expenses due to these initiatives. Additionally, I want to highlight a couple of items. With the Exium transaction finalizing late in the second quarter, we will incur full quarter expenses for the newly acquired team, including investments needed to integrate them into our Insight platform. There are also a few unusual costs related to our second-quarter operating expenses. Firstly, we'll face double rent expenses. After 17 years at our current headquarters, we've decided to relocate at the end of the quarter. We are downsizing our space by about one-third while maintaining cost neutrality on the facility. However, for this three-month transition, we will incur roughly $1 million in double rent. Secondly, we anticipate facing significant litigation defense costs during this quarter, likely adding an incremental $1 million as we will vigorously defend our position against unfounded claims. I would characterize these last two items as somewhat unique, and if you exclude them, I foresee a sequential decrease in Q4 operating expenses in the low single-digit range compared to Q3 levels. Overall, if you model this out, we are primarily aiming for our operating expenses to trend similarly to last year when normalizing for the exceptional release related to the TP-Link settlements.

Logan Jacob Katzman, Analyst

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 on the prepared remarks, and we saw the press release for professional services there. Maybe first, what parts of NFB is this going to affect the most? And then also, maybe what's your expectations on how and when this is going to impact the model? And yes, any other color you guys can provide on the professional services side there?

Charles J. Prober, CEO

Yes. Let me start with that, Bryan can weigh in. And I'll make it a little broader, Logan, in professional services. So as we've talked about, we have 3 business units. And all 3 have 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 Fitbit subscription business from scratch. So we're excited about that. We're excited about the increased top of funnel that we're going to get from the 370 launch that we announced yesterday. But NFB, which is currently relatively nascent, we have 3 main levers to grow our recurring 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 Exium that fills an important gap in security. We're going to integrate Exium into Insight. So that's a 1 plus 1 equals 3 for customers. We have other plans for how we leverage Exium'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 attach at 40%, 50%. We're at 0%. We give a lot of that way 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 NETGEAR. It's a win for us because it's a new source of revenue. And all 3 of those are kind of in the early stages of deployment, professional services, to answer your very specific question, will support the AP 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.

Logan Jacob Katzman, Analyst

Got it. Got it. That's helpful. And then maybe 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?

Charles J. Prober, CEO

Yes. We understand the situation regarding Chinese companies operating in the U.S. and the current lack of parity. Many perceive this as a clear opportunity for the U.S. The new administration seems aware of this disparity with China and is taking action to address it. With all the ongoing activity in commerce and the focus from the DOJ, Senate, and congressional leaders, we feel confident that this could benefit us, whether directly or indirectly. We are well positioned to take advantage of it. As the second market leader with a broad portfolio, we have addressed the gaps, particularly in low-end mesh, by launching the 370 model. We're strategically investing in inventory to ensure we can seize any potential upsides. You might notice this reflected in our Q3 balance sheet, where we plan to demonstrate a modest investment in inventory to prepare for opportunities ahead.

Operator, Operator

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

Jay Goldberg, Analyst

So CJ, I was just wondering if you could talk a little bit more about home networking. 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?

Charles J. Prober, CEO

Yes, that's a great question. The market is evolving, and unit sales have been increasing. After a decline post-COVID, units are now on the rise. Average selling prices are decreasing mainly due to aggressive competition from TP-Link. Last quarter, we gained market share in home networking, even though our full product portfolio wasn't available. We've experienced some fluctuations in our share but saw recovery during Prime Day. There's a competitive back and forth with TP-Link regarding market share. Our strategy shift last year to target larger segments of the market has led us to introduce more affordable routing and mesh products, with the 370 being our latest launch. This positions us well with consumers, and with Jonathan on board, we're developing a long-term roadmap. We believe NETGEAR can play a significant role in enhancing home connectivity. We have ambitious goals for the business, and I’m excited about our competitive position. We're also building on a strong foundational subscription service. So, that's where we currently stand. We're in a competitive environment but have exciting plans for the future.

Jay Goldberg, Analyst

Great. So Bryan, 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 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?

Bryan D. Murray, CFO

Yes. Thanks for joining today, Jay. So obviously, record quarterly gross margin at 37.8%, a fantastic result. We're a bit ahead of pace of where we probably thought we would 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 ProAV Managed Switch portfolio. We are continuing to see the benefits of getting past higher cost inventory. That's going to be a permanent benefit as we move forward. Obviously, we're managing a tighter supply chain. We 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 a 100 basis point impact on our total consolidated gross margin, 250 basis points specific to home networking. So that's probably a nonrepeatable thing. But putting all that together and given today's business mix, we would expect to be able to maintain the mid- to high 30% gross margin profile. Longer term, 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 all of our businesses really will be kind of the next iteration or the next wave of accretion. 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 we've delivered this benefit and expanded our gross margins, and we're going to be able to maintain the mid- to high 30% range until we see that next wave of accretion with the services.

Jay Goldberg, Analyst

That's very helpful. And so I guess just last question, CJ, can you give us an update on your software in-sourcing, how that's progressing? Maybe tease a little bit about what we're going to see at the Analyst Day on the software front.

Charles J. Prober, CEO

Yes, it's a major priority for us, as mentioned earlier. We've made significant progress by completing the VAAG acqui-hire, which has really accelerated our efforts in Chennai. We've brought on about 60 engineers who are focused on home networking, mobile applications, and cloud services. Our team in Cork is being led by an excellent leader who is assembling a strong team. Additionally, other departments are also expanding their teams in Richmond, Vancouver, and Taipei. Everything is progressing well. The remarkable aspect of this in-sourcing is that it improves product quality and accelerates execution, resulting in significant benefits for customers, all while maintaining similar costs. We're reducing our reliance on contractors who lack the motivation to embrace automation and AI like we are internally. This is proving to be a substantial advantage for us, and we're very excited about the new team members we've recently onboarded. And if I didn't mention it earlier, thank you for joining the call. It's great to have you.

Operator, Operator

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.

Charles J. Prober, CEO

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

Operator, Operator

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