UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(Address of principal executive offices) |
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(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class |
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Trading symbol(s): |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated filer |
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Non-Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of outstanding shares of the registrant’s Common Stock, $0.001 par value, was
TABLE OF CONTENTS
Item 1. |
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Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) |
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Unaudited Condensed Consolidated Statements of Stockholders' Equity |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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2
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
NETGEAR, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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March 31, 2024 |
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December 31, 2023 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Goodwill |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued employee compensation |
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Other accrued liabilities |
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Deferred revenue |
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Income taxes payable |
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Total current liabilities |
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Non-current income taxes payable |
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Non-current operating lease liabilities |
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Other non-current liabilities |
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Total liabilities |
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(Note 8) |
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Stockholders’ equity: |
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Common stock |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
NETGEAR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
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Three Months Ended |
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March 31, 2024 |
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April 2, 2023 |
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Net revenue |
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$ |
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$ |
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Other operating expenses, net |
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Total operating expenses |
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Loss from operations |
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Other income, net |
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Loss before income taxes |
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Benefit from income taxes |
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( |
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Net loss |
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$ |
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$ |
( |
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Net loss per share |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted average shares used to compute net loss per share: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
NETGEAR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
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Three Months Ended |
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March 31, 2024 |
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April 2, 2023 |
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Net loss |
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$ |
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$ |
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Other comprehensive income (loss), before tax: |
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Change in unrealized gains and losses on derivatives |
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Change in unrealized gains and losses on available-for-sale investments |
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Other comprehensive income (loss), before tax |
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Tax provision related to derivatives |
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( |
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Tax provision related to available-for-sale investments |
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( |
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Other comprehensive income (loss), net of tax |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
NETGEAR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
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Common Stock |
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Shares |
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Amount |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Balance as of December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Change in unrealized gains and losses on available-for-sale investments, net of tax |
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— |
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— |
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— |
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( |
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— |
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( |
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Change in unrealized gains and losses on derivatives, net of tax |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Repurchase of common stock |
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( |
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( |
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— |
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— |
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( |
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( |
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Restricted stock unit withholdings |
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( |
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— |
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— |
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— |
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( |
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( |
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Issuance of common stock under stock-based compensation plans |
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— |
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— |
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— |
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Balance as of March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Common Stock |
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Shares |
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Amount |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Balance as of December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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Change in unrealized gains and losses on available-for-sale investments, net of tax |
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— |
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— |
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— |
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— |
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Change in unrealized gains and losses on derivatives, net of tax |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Restricted stock unit withholdings |
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( |
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— |
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— |
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— |
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( |
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( |
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Issuance of common stock under stock-based compensation plans |
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— |
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— |
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— |
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Balance as of April 2, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
NETGEAR, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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Three Months Ended |
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March 31, |
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April 2, |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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Stock-based compensation |
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(Gain) Loss on investments, net |
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( |
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( |
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Deferred income taxes |
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Provision for excess and obsolete inventory |
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Changes in assets and liabilities: |
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Accounts receivable, net |
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Inventories |
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( |
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Prepaid expenses and other assets |
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( |
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Accounts payable |
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( |
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( |
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Accrued employee compensation |
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( |
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Other accrued liabilities |
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( |
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( |
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Deferred revenue |
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Income taxes payable |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Purchases of short-term investments |
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( |
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Proceeds from maturities of short-term investments |
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Purchases of property and equipment |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Repurchases of common stock |
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( |
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Restricted stock unit withholdings |
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( |
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Proceeds from issuance of common stock under employee stock purchase plan |
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Net cash provided by (used in) financing activities |
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( |
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Net decrease in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents, at beginning of period |
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Cash and cash equivalents, at end of period |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
NETGEAR, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and Basis of Presentation
NETGEAR, Inc. (“NETGEAR” or the “Company”) is a global company, incorporated in Delaware in January 1996. The Company turns ideas into innovative, high-performance and premium networking products that connect people, power businesses and advance the way we live. The Company is dedicated to delivering innovative and highly differentiated connected solutions ranging from easy-to-use premium WiFi solutions, security and support services to protect and enhance home networks, to switching and wireless solutions to augment business networks and audio and video over Ethernet for Pro AV applications. Its products and services are built on a variety of technologies such as wireless (WiFi and 4G/5G mobile), Ethernet and powerline, with a focus on reliability and ease-of-use. Additionally, the Company continually invests in research and development to create new technologies and services and to capitalize on technological inflection points and trends, such as WiFi 7, audio and video over Ethernet, and future technologies. Its product line consists of devices that create and extend wired and wireless networks, as well as services that complement and enhance the Company's product line offerings. These products are available in multiple configurations to address the changing needs of the Company's customers in each geographic region.
The Company sells networking products through multiple sales channels worldwide, including traditional retailers, online retailers, wholesale distributors, direct market resellers (“DMRs”), value-added resellers (“VARs”), broadband service providers and its direct online store at www.netgear.com.
The accompanying unaudited condensed consolidated financial statements include the accounts of NETGEAR, Inc. and its wholly owned subsidiaries. They have been prepared in accordance with established guidelines for interim financial reporting and the instructions of Form 10-Q and Article 10 of Regulation S-X. All significant intercompany balances and transactions have been eliminated in consolidation. The balance sheet dated December 31, 2023, has been derived from audited financial statements at such date. These unaudited condensed consolidated financial statements do not include all of the information and footnotes typically found in the audited consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K. In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments considered necessary to fairly state the Company's financial position, results of operations, comprehensive income (loss), stockholder's equity and cash flows for the periods indicated. These unaudited condensed consolidated financial statements should be read in conjunction with the notes to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Annual Report”).
The Company's fiscal year begins on January 1 of the year stated and ends on December 31 of the same year. The Company reports its results on a fiscal quarter basis rather than on a calendar quarter basis. Under the fiscal quarter basis, each of the first three fiscal quarters ends on the Sunday closest to the calendar quarter end, with the fourth quarter ending on December 31.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the financial statements, and (iii) the reported amounts of net revenue and expenses during the reported period. The Company bases these estimates on historical and anticipated results, trends and various other assumptions that it believes are reasonable under the circumstances. As of the date of issuance of these condensed consolidated financial statements, the Company is not aware of any specific event or circumstance that would require it to update its estimates, judgments or revise the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ materially from those estimates and operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024, or any future period.
Segment Recast
In the first fiscal quarter of 2024, resulting from certain segment structure changes, the Company revised its allocation method by allocating certain historically unallocated operating expenses to its individual operating segments. This change impacted Note 11, Segment Information. The prior-year segment financial information has been recast to conform to the
8
current-year presentation. None of the changes impact previously reported consolidated net revenue, income (loss) from operations, net income (loss) per share, total assets, or stockholders’ equity.
Note 2. Summary of Significant Accounting Policies
No material changes have been made to the Company’s significant accounting policies disclosed in Note 1, The Company and Summary of Significant Accounting Policies, in Part II, Item 8 “Financial Statements and Supplementary Data” in its Annual Report.
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for the Company for the year ended 2024 and early adoption is permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. The Company does not expect that the guidance will have material impacts on its financial position, results of operations or cash flows. The Company is evaluating the impact that the updated standard will have on its financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which improves the transparency of income tax disclosures. ASU 2023-09 is effective for the Company for the year ended December 31, 2025 and early adoption is permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. The Company is evaluating the impact that the updated standard will have on its financial statement disclosures.
With the exception of the new standards discussed above, there have been no other new accounting pronouncements that have significance, or potential significance, to the Company’s financial position, results of operations and cash flows.
Note 3. Revenue
Revenue from contracts with customers is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
Transaction Price Allocated to the Remaining Performance Obligations
Remaining performance obligations represent the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. Unsatisfied and partially unsatisfied performance obligations consist of contract liabilities, in-transit orders with destination terms, and non-cancellable backlog. Non-cancellable backlog includes goods for which customer purchase orders have been accepted, that are scheduled or in the process of being scheduled for shipment, and that are not yet invoiced.
The following table summarizes estimated revenue expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of March 31, 2024:
(In thousands) |
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Less than |
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Total |
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Performance obligations |
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$ |
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$ |
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$ |
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$ |
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Contract Balances
The Company records accounts receivable when it has an unconditional right to consideration. Contract liabilities are recorded when cash payments are received or due in advance of performance. Contract liabilities consist of advance payments and deferred revenue, where the Company has unsatisfied performance obligations. Contract liabilities are mainly classified as Deferred revenue on the unaudited condensed consolidated balance sheets.
9
Payment terms vary by customer. The time between invoicing and when payment is due is not significant. For certain products or services and customer types, payment is required before the products or services are delivered to the customer.
The following table reflects the contract balances:
(In thousands) |
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Balance Sheet Location |
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March 31, 2024 |
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December 31, 2023 |
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Accounts receivable, net |
|
Accounts receivable, net |
|
$ |
|
|
$ |
|
||
Contract liabilities – current |
|
Deferred revenue |
|
$ |
|
|
$ |
|
||
Contract liabilities – non-current |
|
Other non-current liabilities |
|
$ |
|
|
$ |
|
||
The difference in the balances of the Company’s contract assets and liabilities as of March 31, 2024 and December 31, 2023, primarily results from the timing difference between the Company’s performance and the customer’s payment.
During the three months ended March 31, 2024, $
10
obligations and $
There were no significant changes in estimates during the period that would affect the contract balances.
Disaggregation of Revenue
In the following tables, net revenue is disaggregated by geographic region and sales channel. The Company conducts business across
|
|
Three Months Ended |
|
|||||||||||||||||||||
|
|
March 31, 2024 |
|
|
April 2, 2023 |
|
||||||||||||||||||
(In thousands) |
|
Connected |
|
|
NETGEAR for Business |
|
|
Total |
|
|
Connected |
|
|
NETGEAR for Business |
|
|
Total |
|
||||||
Geographic regions (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Americas |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
EMEA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
APAC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Sales channels: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Service provider |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Non-service provider |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
(1)
Note 4. Balance Sheet Components
Available-for-sale investments
Amortized cost and estimated fair market value of investments classified as available-for-sale, excluding cash equivalents, as of March 31, 2024 and December 31, 2023, were as follows:
|
|
March 31, 2024 |
|
|||||||||||||
(In thousands) |
|
Amortized Cost |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
||||
U.S. treasury securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Convertible debt |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
December 31, 2023 |
|
|||||||||||||
(In thousands) |
|
Amortized Cost |
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
||||
U.S. treasury securities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Convertible debt |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
11
The contractual maturities on the U.S. treasury securities as of March 31, 2024 are all due within one year. Accrued interest receivable as of March 31, 2024 was $
The following table summarizes investments classified as available-for-sale in a continuous unrealized loss position for which an allowance for credit losses was not recorded as of March 31, 2024 and December 31, 2023:
|
March 31, 2024 |
|
|||||||||||||||||||||
|
Less Than 12 Months |
|
|
12 Months or Longer |
|
|
Total |
|
|||||||||||||||
(In thousands) |
Estimated Fair Market Value |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Market Value |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Market Value |
|
|
Gross Unrealized Losses |
|
||||||
U.S. treasury securities |
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||||
Total |
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||||
|
December 31, 2023 |
|
|||||||||||||||||||||
|
Less Than 12 Months |
|
|
12 Months or Longer |
|
|
Total |
|
|||||||||||||||
(In thousands) |
Estimated Fair Market Value |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Market Value |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Market Value |
|
|
Gross Unrealized Losses |
|
||||||
U.S. treasury securities |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
In the three months ended March 31, 2024 and April 2, 2023,
Inventories
(In thousands) |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Finished goods |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
The Company records provisions for excess and obsolete inventory based on assumptions about future demand and market conditions and the amounts incurred were $
12
Property and equipment, net
(In thousands) |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Computer equipment |
|
$ |
|
|
$ |
|
||
Furniture, fixtures, and leasehold improvements |
|
|
|
|
|
|
||
Software |
|
|
|
|
|
|
||
Machinery and equipment |
|
|
|
|
|
|
||
Total property and equipment, gross |
|
|
|
|
|
|
||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
|
|
$ |
|
||
Other non-current assets
(In thousands) |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Non-current deferred income taxes |
|
$ |
|
|
$ |
|
||
Long-term investments |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Long-term equity investments
The Company’s long-term investments are comprised of equity investments without readily determinable fair values, investments in convertible debt securities and investments in limited partnership funds. The changes in the carrying value of equity investments without readily determinable fair values were as follows:
|
Three months ended |
|
|
|||||
(In thousands) |
March 31, 2024 |
|
|
April 2, 2023 |
|
|
||
Carrying value as of the beginning of the period (1) |
$ |
|
|
$ |
|
|
||
Carrying value as of the end of the period (1) |
$ |
|
|
$ |
|
|
||
For such equity investments without readily determinable fair values still held at March 31, 2024, there were
13
Other accrued liabilities
(In thousands) |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
|
$ |
|
|
$ |
|
|||
Sales and marketing |
|
|
|
|
|
|
||
Warranty obligations |
|
|
|
|
|
|
||
Sales returns(1) |
|
|
|
|
|
|
||
Freight and duty |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Note 5. Derivative Financial Instruments
The Company’s subsidiaries have material future cash flows related to revenue and expenses denominated in currencies other than the U.S. dollar, the Company’s functional currency worldwide. The Company executes currency forward contracts that typically mature in less than
The Company typically executes
The Company enters into non-designated hedges that are generally expected to offset the changes in value of its net non-functional currency asset and liability position resulting from foreign exchange rate fluctuations. The Company adjusts its non-designated hedges monthly and typically executes about
Fair Value of Derivative Instruments
The fair values of the Company’s derivative instruments and the line items on the unaudited condensed consolidated balance sheets to which they were recorded were summarized as follows:
|
|
Balance Sheet |
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
||||
(In thousands) |
|
Location |
|
March 31, |
|
|
December 31, |
|
|
Location |
|
March 31, |
|
|
December 31, |
|
||||
Derivatives not designated as hedging instruments |
|
Prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
|
Other accrued liabilities |
|
$ |
|
|
$ |
|
||||
Derivatives designated as hedging instruments |
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
Other accrued liabilities |
|
|
|
|
|
|
||||
Total |
|
|
|
$ |
|
|
$ |
|
|
|
|
$ |
|
|
$ |
|
||||
Refer to Note 12, Fair Value Measurements for detailed disclosures regarding fair value measurements. Refer to Note 9, Stockholders’ Equity, for details on the accumulated other comprehensive income (loss) activity related to derivatives and refer to Note 11, Segment Information, for details on gain/(loss), net pertaining to derivatives not designated as hedging instruments that were recognized in Other income (expenses), net.
14
Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. Potentially dilutive common shares include common shares issuable upon exercise of stock options, vesting of Restricted Stock Units (“RSUs”) and performance shares, and issuances of shares under the Employee Stock Purchase Plan (the “ESPP”), which are reflected in diluted net income (loss) per share by application of the treasury stock method. Potentially dilutive common shares are excluded from the computation of diluted net income (loss) per share when their effect is anti-dilutive.
Net income (loss) per share consisted of the following:
|
|
Three Months Ended |
|
|
|||||
(In thousands, except per share data) |
|
March 31, 2024 |
|
|
April 2, 2023 |
|
|
||
Numerator: |
|
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
||
Denominator: |
|
|
|
|
|
|
|
||
Weighted average common shares – basic |
|
|
|
|
|
|
|
||
Weighted average common shares – dilutive |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
Basic net income (loss) per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
Diluted net income (loss) per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
||
Anti-dilutive employee stock-based awards, excluded |
|
|
|
|
|
|
|
||
Note 7. Income Taxes
The income tax benefit for the three months ended March 31, 2024 was $
The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. The future foreign tax rate could be affected by changes in the composition in earnings in countries with tax rates differing from the U.S. federal rate. The Company is under examination in various U.S. and foreign jurisdictions.
The Company files income tax returns in the U.S. federal jurisdiction as well as various state, local, and foreign jurisdictions. Due to the uncertain nature of ongoing tax audits, the Company has recorded its liability for uncertain tax positions as part of its long-term liability as payments cannot be anticipated over the next twelve months. The existing tax positions of the Company continue to generate an increase in the liability for uncertain tax positions. The liability for uncertain tax positions may be reduced for liabilities that are settled with taxing authorities or on which the statute of limitations could expire without assessment from tax authorities. The possible reduction in liabilities for uncertain tax positions in multiple jurisdictions in the next twelve months is approximately $
The Company accounts for income taxes under an asset and liability approach. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences resulting from different treatment for tax versus accounting for certain items, such as accruals and allowances not currently deductible for tax purposes. The deferred
15
tax assets and liabilities represent the future tax return consequences of these differences, which will either be taxable or deductible when assets and liabilities are recovered or settled, as well as operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheets. The Company must then assess the likelihood that the Company’s deferred tax assets will be recovered from future taxable income and to the extent the Company believes that recovery is not more likely than not, the Company must establish a valuation allowance. The Company’s assessment considers the recognition of deferred tax assets on a jurisdictional basis. Accordingly, in assessing its future taxable income on a jurisdictional basis, the Company considers the effect of its transfer pricing policies on that income. As of the period ended October 1, 2023, the Company determined that recovery of its U.S. federal and state deferred tax assets was no longer more likely than not and established a full valuation allowance on those net assets, based on evaluation of all available evidence, including actual and anticipated business results. Accordingly, the balance sheet net deferred tax assets from the U.S. federal and state jurisdictions reported in “Other Non-current Assets” were reduced after the effect of establishing the valuation allowance.
Note 8. Commitments and Contingencies
Purchase Obligations
The Company has entered into various inventory-related purchase agreements with suppliers. Generally, under these agreements,
Non-Trade Commitments
As of March 31, 2024, the Company had non-cancellable purchase commitments of $
Warranty Obligations
Changes in the Company’s warranty obligations, which is included in Other accrued liabilities on the unaudited condensed consolidated balance sheets, were as follows:
|
|
Three Months Ended |
|
|||||
(In thousands) |
|
March 31, 2024 |
|
|
April 2, 2023 |
|
||
Balance as of beginning of the period |
|
$ |
|
|
$ |
|
||
Provision for warranty liability made |
|
|
|
|
|
|
||
Settlements made |
|
|
( |
) |
|
|
( |
) |
Balance as of the end of the period |
|
$ |
|
|
$ |
|
||
16
Litigation and Other Legal Matters
The Company is involved in disputes, litigation, and other legal actions, including, but not limited to, the matters described below. In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. In such cases, the Company accrues for the amount, or if a range, the Company accrues the low end of the range, only if there is not a better estimate than any other amount within the range, as a component of legal expense within litigation reserves, net. The Company monitors developments in these legal matters that could affect the estimate the Company had previously accrued. In relation to such matters, the Company currently believes that there are
Huawei v. NETGEAR Inc., NETGEAR Deutschland GmbH, and Exertis-Connect GmbH
On or around March of 2022, Huawei filed
On or around May 10, 2022, the Company was served with two suits that Huawei filed before the Jinan Intermediate People’s Court of China asserting Patent Nos. ZL 201811536087.9 (case no 407) and ZL 201810757332.2 (case no. 408) against the Company’s WiFi 6 products. The Company’s challenge of the Jinan Court’s jurisdiction in both cases was denied by the Supreme Court of China. The parties attended an evidentiary hearing for the cases on July 3, 2023. Licensing and technical hearings followed on July 24, 2023 and July 25, 2023. After the July 25th hearing, the Court indicated it will advise the parties of further action.
Huawei v. NETGEAR Inc., NETGEAR Deutschland GmbH, and NETGEAR International Limited
On or around July 3, 2023, Huawei filed a new infringement suit, asserting patent EP 3 611 989 (the ’989 Patent), against NETGEAR Inc., NETGEAR Deutschland GmbH, and NETGEAR International Limited at the Unified Patent Court (UPC) in Munich, Germany. The Company filed its Statement of Defense on November 7, 2023 and the Court held an interim conference on February 19, 2024. The deadline for the parties to complete briefing is June 3, 2024 and the oral hearing is scheduled for June 18, 2024.
On around December 11, 2023, Huawei filed a second UPC suit, asserting EP 3 678 321 (“EP 321”), against the Company and requested that the Court allow it to amend the pending EP 989 case to add EP 321. The Company disagreed and filed an objection. The Appeal Court found in favor of the Company and designated the EP 321 matter as a separate case. The Company filed its Statement of Defense on April 18, 2024, to include a counterclaim for revocation of the patent at the UPC.
The Company, at this time, is not able to reasonably estimate any financial impact to the Company resulting from these litigation matters.
17
The Company does not believe that it is reasonably possible that a material loss has been incurred for any of the matters disclosed above, and consequently has not established any loss provisions.
Note 9. Stockholders’ Equity
Stock Repurchases
From time to time, the Company’s Board of Directors has authorized programs under which the Company may repurchase shares of its common stock, depending on market conditions, in the open market or through privately negotiated transactions. Under the authorizations, the timing and actual number of shares subject to repurchase are at the discretion of management and are contingent on a number of factors, such as levels of cash generation from operations, cash requirements for acquisitions and the price of the Company’s common stock. During the three months ended March 31, 2024, the Company repurchased and retired, reported based on trade date, approximately
The Company repurchased, reported based on trade date, approximately
These shares were retired upon repurchase. The Company’s policy related to repurchases of its common stock is to charge the excess of cost over par value to retained earnings. All repurchases were made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.
Accumulated Other Comprehensive Income (Loss)
The following tables set forth the changes in accumulated other comprehensive income (loss) (“AOCI”) by component:
(In thousands) |
|
Unrealized |
|
|
Unrealized |
|
|
Estimated tax |
|
|
Total |
|
||||
Balance as of December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other comprehensive income (loss) before reclassifications |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Less: Amount reclassified from accumulated other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Net current period other comprehensive income (loss) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance as of March 31, 2024 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(In thousands) |
|
Unrealized |
|
|
Unrealized |
|
|
Estimated tax |
|
|
Total |
|
||||
Balance as of December 31, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Less: Amount reclassified from accumulated other comprehensive income (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Net current period other comprehensive income (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Balance as of April 2, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
18
The following table provides details about significant amounts reclassified out of each component of AOCI:
|
|
Three Months Ended |
|
|
|||||
(In thousands) |
|
March 31, 2024 |
|
|
April 2, 2023 |
|
|
||
Amount Reclassified from AOCI |
|
|
|
|
|
|
|
||
Gains (losses) on cash flow hedge: |
|||||||||
Foreign currency forward contracts |
|
|
|
|
|
|
|
||
Affected line item in the statement of operations |
|
|
|
|
|
|
|
||
Net revenue |
|
$ |
( |
) |
|
$ |
|
|
|
Cost of revenue |
|
|
|
|
|
( |
) |
|
|
Research and development |
|
|
( |
) |
|
|
( |
) |
|
Sales and marketing |
|
|
|
|
|
( |
) |
|
|
General and administrative |
|
|
|
|
|
( |
) |
|
|
Total before tax |
|
|
( |
) |
|
|
|
|
|
Tax impact |
|
|
|
|
|
( |
) |
|
|
Total, net of tax |
|
$ |
( |
) |
|
$ |
|
|
|
Note 10. Employee Benefit Plans
The Company grants options, RSUs, and performance shares under the 2016 Incentive Plan (the “2016 Plan”), under which awards may be granted to all employees. Vesting periods under this plan are generally
In February 2024, the Company’s Board of Directors approved 2024 Inducement Equity Incentive Plan (the “2024 Inducement Plan”), under which Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units, Performance Shares, and other stock or cash awards can be granted to personnel for positions of substantial responsibility. As of March 31, 2024, approximately
Additionally, the Company sponsors an Employee Stock Purchase Plan (the “ESPP”). The terms of the plan include a look-back feature that enables employees to purchase stock semi-annually at a price equal to
Option Activity
Stock option activity was as follows:
(In thousands, except per share amounts) |
|
Number of |
|
|
Weighted Average Exercise Price Per Share |
|
|
||
Outstanding as of December 31, 2023 |
|
|
|
|
$ |
|
|
||
Granted |
|
|
|
|
$ |
|
|
||
Exercised |
|
|
|
|
$ |
|
|
||
Cancelled |
|
|
|
|
$ |
|
|
||
Expired |
|
|
|
|
$ |
|
|
||
Outstanding as of March 31, 2024 |
|
|
|
|
$ |
|
|
||
19
Time-Based RSU Activity
Time-based RSU activity was as follows:
(In thousands, except per share amounts) |
|
Number |
|
|
Weighted Average Grant Date Fair Value Per Share |
|
||
Outstanding as of December 31, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Cancelled |
|
|
( |
) |
|
$ |
|
|
Outstanding as of March 31, 2024 |
|
|
|
|
$ |
|
||
Performance-Based RSU Activity
Since 2020, the Company’s executive officers were granted performance-based restricted stock units (“PSUs”) under the 2016 Plan with vesting occurring at the end of a
In February 2024, the Company granted PSUs under the 2024 Inducement Plan to its newly-hired Chief Executive Officer with 1/3 of the target PSUs being allocated to each tranche and vesting occurring at the end of each anniversary of the vesting commencement date over a
PSU activity was as follows:
(In thousands, except per share amounts) |
|
Number |
|
|
Weighted Average Grant Date Fair Value Per Share |
|
||
Outstanding as of December 31, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested |
|
|
|
|
$ |
|
||
Cancelled |
|
|
( |
) |
|
$ |
|
|
Outstanding as of March 31, 2024 |
|
|
|
|
$ |
|
||
Valuation and Expense Information
The following table sets forth the stock-based compensation expense resulting from stock options, RSUs (time-based and performance-based) and the ESPP included in the Company’s unaudited condensed consolidated statements of operations:
|
|
Three Months Ended |
|
|
|||||
(In thousands) |
|
March 31, 2024 |
|
|
April 2, 2023 |
|
|
||
Cost of revenue |
|
$ |
|
|
$ |
|
|
||
Research and development |
|
|
|
|
|
|
|
||
Sales and marketing |
|
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
||
20
As of March 31, 2024, $
Note 11. Segment Information
Operating segments are components of an enterprise about which separate financial information is available and is evaluated quarterly by management, namely the Chief Operating Decision Maker (“CODM”) of an organization, in order to determine operating and resource allocation decisions. By this definition, the Company has identified its CEO as the CODM. The Company operates and reports in
The Company believes that this structure reflects its current operational and financial management, and that it provides the best structure for the Company to focus on growth opportunities while maintaining financial discipline. The leadership team of each segment is focused on product and service development efforts, both from a product marketing and engineering standpoint, to service the unique needs of their customers.
The results of the reportable segments are derived directly from the Company’s management reporting system. The results are based on the Company’s method of internal reporting and are not necessarily in conformity with accounting principles generally accepted in the United States. Management measures the performance of each segment based on several metrics, including contribution income (loss). Segment contribution income (loss) includes all product line segment revenues less the related cost of sales, research and development and sales and marketing costs. Contribution income (loss) is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. Certain operating expenses are not allocated to segments because they are separately managed at the corporate level. These unallocated indirect costs include corporate costs, such as corporate research and development, corporate marketing expense and general and administrative costs, amortization of intangibles, stock-based compensation expense, restructuring and other charges, litigation reserves, net, and other income (expenses), net.
21
Effective on January 1, 2024, resulting from certain segment structure changes, the Company revised its allocation method by allocating certain historically unallocated operating expenses to its individual operating segments. The prior-year segment financial information has been recast to conform to the current-year presentation.
|
|
Three Months Ended |
|
|||||
(In thousands) |
|
March 31, 2024 |
|
|
April 2, 2023* |
|
||
Net Revenue: |
|
|
|
|
|
|
||
Connected Home |
|
$ |
|
|
$ |
|
||
NETGEAR for Business |
|
|
|
|
|
|
||
Total net revenue |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Contribution Income (loss): |
|
|
|
|
|
|
||
Connected Home |
|
$ |
( |
) |
|
$ |
( |
) |
Contribution margin |
|
|
( |
)% |
|
|
( |
)% |
NETGEAR for Business |
|
$ |
|
|
$ |
|
||
Contribution margin |
|
|
% |
|
|
% |
||
Total segment contribution income |
|
$ |
|
|
$ |
|
||
Corporate and unallocated costs |
|
|
( |
) |
|
|
( |
) |
Amortization of intangibles |
|
|
|
|
|
( |
) |
|
Stock-based compensation expense |
|
|
( |
) |
|
|
( |
) |
Restructuring and other charges |
|
|
( |
) |
|
|
( |
) |
Litigation reserves, net |
|
|
( |
) |
|
|
|
|
Other income, net (1) |
|
|
|
|
|
|
||
Loss before income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
* Financial information for each reportable segment were recast to conform to the current reportable segment structure.
The CODM does not evaluate operating segments using discrete asset information.
Operations by Geographic Region
For reporting purposes, revenue is generally attributed to each geographic region based on the location of the customer.
The following table shows net revenue by geography:
|
|
Three Months Ended |
|
|||||
(In thousands) |
|
March 31, 2024 |
|
|
April 2, 2023 |
|
||
United States (U.S.) |
|
$ |
|
|
$ |
|
||
Americas (excluding U.S.) |
|
|
|
|
|
|
||
EMEA (1) |
|
|
|
|
|
|
||
APAC (1) |
|
|
|
|
|
|
||
Total net revenue |
|
$ |
|
|
$ |
|
||
22
Long-lived assets by Geographic Region
The following table presents the Company’s long-lived assets located in geographic areas, which consist of property and equipment, net, and operating lease right-of-use assets:
(In thousands) |
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
United States (U.S.) |
|
$ |
|
|
$ |
|
||
Canada |
|
|
|
|
|
|
||
Americas (excluding U.S. and Canada) |
|
|
|
|
|
|
||
EMEA |
|
|
|
|
|
|
||
Singapore |
|
|
|
|
|
|
||
APAC (excluding Singapore) (1) |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Note 12. Fair Value Measurements
The following tables summarize assets and liabilities measured at fair value on a recurring basis:
|
|
March 31, 2024 |
|
|||||||||
(In thousands) |
|
Total |
|
|
Quoted market |
|
|
Significant |
|
|||
Assets: |
|
|
|
|
|
|
|
|
|
|||
Cash equivalents: money-market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Available-for-sale investments: U.S. treasury securities(1) |
|
|
|
|
|
|
|
|
|
|||
Trading securities: mutual funds(1) |
|
|
|
|
|
|
|
|
|
|||
Available-for-sale investments: convertible debt securities(1) |
|
|
|
|
|
|
|
|
|
|||
Foreign currency forward contracts(2) |
|
|
|
|
|
|
|
|
||||
Total assets measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Liabilities: |
|
|
|
|
|
|
|
|
|
|||
Foreign currency forward contracts(3) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Total liabilities measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|||
23
|
|
December 31, 2023 |
|
|||||||||
(In thousands) |
|
Total |
|
|
Quoted market |
|
|
Significant |
|
|||
Assets: |
|
|
|
|
|
|
|
|
|
|||
Cash equivalents: money-market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Available-for-sale investments: U.S. treasury securities(1) |
|
|
|
|
|
|
|
|
|
|||
Trading securities: mutual funds(1) |
|
|
|
|
|
|
|
|
|
|||
Available-for-sale investments: convertible debt securities(1) |
|
|
|
|
|
|
|
|
|
|||
Foreign currency forward contracts(2) |
|
|
|
|
|
|
|
|
||||
Total assets measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Liabilities: |
|
|
|
|
|
|
|
|
|
|||
Foreign currency forward contracts(3) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Total liabilities measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The Company’s investments in money-market funds and mutual funds are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company’s investments in U.S. treasury securities are classified within Level 2 of the fair value hierarchy because they are valued based on readily available pricing sources for comparable or identical instruments in less active markets. The Company’s investments in convertible debt securities issued by a publicly held company are classified within Level 2 of the fair value hierarchy as the fair value for the instrument approximates its cost based on the contractual terms of the arrangement. The Company’s foreign currency forward contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that consider the contract terms as well as currency rates and counterparty credit rates. The Company verifies the reasonableness of these pricing models using observable market data for related inputs into such models. The Company enters into foreign currency forward contracts with only those counterparties that have long-term credit ratings of A-/A3 or higher. The carrying value of non-financial assets and liabilities measured at fair value in the financial statements on a recurring basis, including accounts receivable and accounts payable, approximate fair value due to their short maturities.
Note 13. Restructuring and Other Charges
The Company accounts for its restructuring plans under the authoritative guidance for exit or disposal activities. The Company includes expenses related to restructuring and other charges in Other operating expenses (income), net in the condensed consolidated statements of operations. Accrued restructuring and other charges are classified within Accrued employee compensation and Other accrued liabilities on the condensed consolidated balance sheets.
Restructuring and other charges recognized in the three months ended March 31, 2024 and April 2, 2023, respectively, were primarily for severance, and other costs in relation to the reorganization of our business to better align the cost structure of the business with projected revenue levels. The liabilities as of March 31, 2024 are expected to be settled in 2024.
24
The following table provides a summary of the activity related to accrued restructuring and other charges:
(In thousands) |
|
Accrued Restructuring and Other Charges at December 31, 2023 |
|
|
|
|
Cash Payments |
|
|
Adjustments |
|
|
Accrued Restructuring and Other Charges at March 31, 2024 |
|
||||||
Restructuring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Employee termination charges |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Lease contract termination and other charges |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||
Total Restructuring and other charges |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
(In thousands) |
|
Accrued Restructuring and Other Charges at December 31, 2022 |
|
|
Additions |
|
|
Cash Payments |
|
|
Adjustments |
|
|
Accrued Restructuring and Other Charges at April 2, 2023 |
|
|||||
Restructuring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Employee termination charges |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
Total Restructuring and other charges |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended and the Private Securities Litigation Reform Act of 1995. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, the words “believes,” “anticipates,” “plans,” “expects,” “intends,” “could,” “may,” “will,” and similar expressions are intended to identify forward-looking statements. The forward-looking statements represent NETGEAR, Inc.’s expectations or beliefs concerning future events based on information available at the time such statements were made and include statements regarding: NETGEAR’s future operating performance and financial condition, including expectations regarding growth, revenue, expenses, operating margin, gross margin, continued profitability and cash generation; NETGEAR’s plan to closely align end sales with revenue and expected efficiency, predictability and profitability; NETGEAR’s strategic adjustments, long-term strategy and capital allocation priorities; NETGEAR’s investments in developing new products and subscription services, enhancing current products and expanding channels and direct-to-consumer capabilities; NETGEAR’s outsourcing strategy and its impact to products cost and gross margin; expectations regarding product mix and market demand for NETGEAR’s products and services, including NETGEAR for Business and Connected Home products and subscription services and NETGEAR’s ability to respond to this demand; expectations regarding the timing, distribution, sales momentum and market acceptance of recent and anticipated new product and services introductions that position NETGEAR for growth and market share gain; expectations regarding competition, competitive factors, consumer price sensitivity and demand for NETGEAR’s products and services; expectations regarding sales channels, direct online store and in-app offerings; expectations regarding macroeconomic conditions and impacts to NETGEAR’s operational and financial performance and business strategies; expectations regarding the consumer retail networking market; expectations regarding existing cash, cash equivalents and short-term investments and anticipated cash requirements; expectations regarding inventory management and inventory costs; expectations regarding transportation costs; expectations regarding research and development expenses, sales and marketing expenses and general and administration expenses; expectations regarding expected tax rates or tax expenses; and expectations regarding NETGEAR’s subscription services, service revenue and gross margin. These statements are based on management’s current expectations and are subject to a number of risks and uncertainties, including but not limited to those described in “Part II—Item 1A—Risk Factors” and “Liquidity and Capital Resources” below and in our other SEC filings, including our Annual Report. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. All forward-looking statements in this document are based on information available to us as of the date hereof and we assume no obligation to update any such forward-looking statements except as required by law. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes contained in this quarterly report. Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us” and “NETGEAR” refer to NETGEAR, Inc. and its subsidiaries.
Business and Executive Overview
We are a global company that turns ideas into innovative, high-performance, and premium networking products. Our products connect people, power businesses and service providers. Our products are designed to simplify and improve people’s lives. Our strategy for Connected Home Segment is to develop products to serve a broader segment of the consumer networking market, to evolve our marketing messaging to highlight our points of differentiation, as well as to leverage our position and independence to forge value-added partnerships that drive innovation and improve the experience for our customers. Our strategy for NETGEAR For Business segment is to innovate manufacturing partner integrations, to deploy our products in businesses of all sizes, as well as to capitalize on our product leadership position to pursue new and adjacent verticals, such as to expand our reach into the broadcast industry. Our goal is to enable people and businesses to collaborate and connect to a world of information and entertainment in or outside of the home. We are dedicated to delivering innovative and highly differentiated, connected solutions ranging from easy-to-use premium WiFi solutions, security and support services to protect and enhance home networks, to switching and wireless solutions to augment business networks and audio and video over Ethernet for Pro AV applications. Our products and services are built on a variety of technologies such as wireless (WiFi and 4G/5G mobile), Ethernet and powerline, with a focus on reliability and ease-of-use. Additionally, we continually invest in research and development to create new technologies and services and to capitalize on technological inflection points and trends, such as multi-Gigabit internet service to homes, WiFi 7, audio and video over Ethernet, and future technologies. Our product line consists of devices that create and extend wired and wireless networks, as well as services that complement and
26
enhance our product line offerings. These products are available in multiple configurations to address the changing needs of our customers in each geographic region.
We operate and report in two segments: Connected Home and NETGEAR for Business (formerly known as Small and Medium Business, or SMB). We believe that this structure reflects our current operational and financial management, and that it provides the best structure for us to focus on growth opportunities while maintaining financial discipline. The leadership team of each segment is focused on serving customer needs through product and service development efforts, both from a product marketing and engineering standpoint. The Connected Home segment focuses on consumers and provides high-performance, dependable, and easy-to-use premium WiFi internet networking solutions such as WiFi 6, WiFi 6E, and WiFi 7 Tri-band and Quad-band mesh systems, 4G/5G mobile products, and subscription services that provide consumers a range of value-added services focused on security, performance, privacy, and premium support. The NETGEAR for Business segment focuses on businesses and provides solutions for business networking, wireless local area network (“LAN”), audio and video over Ethernet for Pro AV applications, security and remote management providing enterprise-class functionality at an affordable price. We conduct business across three geographic regions: Americas; Europe, Middle East, and Africa (“EMEA”); and Asia Pacific (“APAC”).
Business Overview
The markets in which our segments operate are intensely competitive and subject to rapid technological evolution. We believe that the principal competitive factors in the consumer, business, and service provider markets for networking products include product breadth, price points, size and scope of the sales channel, brand name, timeliness of new product introductions, product availability, performance, features, functionality, reliability, ease-of-installation, maintenance and use, security, as well as customer service and support. To remain competitive, we believe we must continue to aggressively invest resources to develop new products and subscription services, enhance our current products, and expand our channels and direct-to-consumer capabilities, while increasing engagement and maintaining satisfaction with our customers. Our investments reflect our steadfast focus on cybersecurity of our products and systems, as the rising threat of cyber-attacks and exploitation of security vulnerabilities in our industry is a significant consumer concern.
We sell our products through multiple sales channels worldwide, including traditional and online retailers, wholesale distributors, direct market resellers (“DMRs”), value-added resellers (“VARs”), broadband service providers, and through our direct online store at www.netgear.com. Our retail channel includes traditional and online retail locations both domestically and internationally, such as Amazon.com (worldwide), Best Buy, Wal-Mart, Costco, Staples, Office Depot, Target, Electra (Sweden), Fnac Darty (Europe), JB HiFi (Australia), Elkjop (Norway), and Boulanger (France). Our DMRs include CDW Corporation, Insight Corporation, and PC Connection in domestic markets. Our main wholesale distributors include Ingram Micro, TD Synnex, and D&H Distribution Company. In addition, we also sell our products through broadband service providers, such as multiple system operators, xDSL, mobile, and other broadband technology operators domestically and internationally. Some of these retailers and broadband service providers purchase directly from us, while others are fulfilled through wholesale distributors around the world. A substantial portion of our net revenue is derived from a limited number of wholesale distributors, service providers and retailers. While we expect these channels to continue to be a significant part of our sales strategy, increasingly, customers are choosing to purchase products and services directly from us. We expect revenue through our direct online store or in-app offerings to continue to increase as a percentage of overall revenue for the foreseeable future.
Financial Overview
During the three months ended March 31, 2024, our net revenue decreased by $16.3 million, compared to the prior year period, mainly driven by decreases of $9.5 million in our NETGEAR for Business segment, and $6.8 million in our Connected Home segment. The decrease in NETGEAR for Business net revenue was primarily due to lower demand for transactional switches attributable to the uncertain macro environment. The decrease in Connected Home net revenue was primarily due to the prior year result benefiting from a higher total addressable market, leading to a year-over-year decline in the retail channel, partially offset by higher net revenue from the service provider channel. Despite the decline in net revenue during the three months ended March 31, 2024, demand for our 5G mobile hotspots continued to grow. We also experienced continued strong demand for the Pro AV product line of managed switches, and growth in our services revenue. Our gross margin percentage decreased 410 basis points for the three months ended March 31, 2024, compared to the prior year period, in part attributable to Connected Home segment which experienced higher cost of inventory, greater mix of service provider products, and increased marketing spend as a percentage of net revenue. Loss from operations increased by $9.7 million for the three months ended March 31, 2024, compared to the prior year period, primarily attributable to lower net revenue.
Geographically, net revenue from Connected Home and NETGEAR for Business decreased in Americas and EMEA, partially offset by increases in APAC during the three months ended March 31, 2024, compared to the prior year period.
27
Global Events Affecting our Business and Operations
Macroeconomic and geopolitical trends created uncertainty in the global economic environment since 2022. These include conditions such as the potential for a recession, fluctuations in inflation, elevated interest rates, and the related negative impact on the global economy, foreign exchange rate fluctuations, particularly changes of the U.S. dollar, and ongoing worldwide tensions, including the Russia-Ukraine conflict, Israel-Hamas conflict, and Red Sea crisis. The extent of impacts from these macroeconomic and geopolitical trends on our ongoing operational and financial performance, including our ability to execute our business strategies in the expected time frame, will depend on future developments. The broader implications of the macroeconomic uncertainty, and any related disruptions to channel partners and freight are unpredictable. Refer to Item 1A, Risk Factors of Part II of this Quarterly Report on Form 10-Q for various risks and uncertainties associated with the macroeconomic trends and uncertainty.
Looking forward, as the macro-economic environment remains challenged and higher than expected inflation and interest rates persist, given the increasing pressure on channel inventory and costs associated with having excess channel inventory, we have elected to accelerate the depletion of our slower moving inventory and will continue to work with our channel partners to optimize their inventory carrying levels in the second quarter to position us for a stronger second half of the year relative to the first half of the year. Despite these challenges, we expect to continue to experience strong underlying demand in the premium portion of our Connected Home product portfolio powered by our premium WiFi mesh systems and 5G mobile hotspots, along with growth in the Pro AV market. With the estimated impact to our second fiscal quarter to accelerate the inventory reduction with our channel partners being in the $25 million to $30 million range, we expect the net revenue in the second fiscal quarter of 2024 to be in the range of $125 million to $140 million, including $15 million from the service provider channels. We aim to execute on our strategy of capitalizing on the technological inflection points of WiFi 7, WiFi 6E, WiFi 6, 5G, audio and video over Ethernet, to develop and expand the premium WiFi market through new product introductions and to develop and roll out service offerings that build recurring service revenue streams.
Critical Accounting Estimates
In preparing our condensed consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income, and net income, as well as on the value of certain assets and liabilities on our condensed consolidated balance sheets. We base these estimates on historical and anticipated results, trends and various other assumptions that we believe are reasonable under the circumstances. As of the date of issuance of these condensed consolidated financial statements, we are not aware of any specific event or circumstance that would require us to update our estimates, judgments or revise the carrying value of our assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ materially from those estimates under different assumptions and conditions.
For a complete description of what we believe to be the critical accounting estimates used in the preparation of our Unaudited Condensed Consolidated Financial Statements, refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.
28
Results of Operations
The following table sets forth the unaudited condensed consolidated statements of operations for the periods presented.
|
|
Three Months Ended |
||||||
(In thousands, except percentage data) |
|
March 31, 2024 |
|
April 2, 2023 |
||||
Net revenue |
|
$164,586 |
|
100.0 % |
|
$180,908 |
|
100.0 % |
Cost of revenue |
|
116,349 |
|
70.7 % |
|
120,526 |
|
66.6 % |
Gross profit |
|
48,237 |
|
29.3 % |
|
60,382 |
|
33.4 % |
Operating expenses: |
|
|
|
|
|
|
|
|
Research and development |
|
20,227 |
|
12.3 % |
|
22,134 |
|
12.2 % |
Sales and marketing |
|
30,529 |
|
18.6 % |
|
33,879 |
|
18.7 % |
General and administrative |
|
18,067 |
|
11.0 % |
|
16,236 |
|
9.0 % |
Other operating expenses, net |
|
1,062 |
|
0.6 % |
|
108 |
|
0.1 % |
Total operating expenses |
|
69,885 |
|
42.5 % |
|
72,357 |
|
40.0 % |
Loss from operations |
|
(21,648) |
|
(13.2)% |
|
(11,975) |
|
(6.6)% |
Other income, net |
|
2,850 |
|
1.8 % |
|
1,406 |
|
0.8 % |
Loss before income taxes |
|
(18,798) |
|
(11.4)% |
|
(10,569) |
|
(5.8)% |
Benefit from income taxes |
|
(148) |
|
(0.1)% |
|
(857) |
|
(0.4)% |
Net loss |
|
$(18,650) |
|
(11.3)% |
|
$(9,712) |
|
(5.4)% |
Net Revenue by Geographic Region
Our net revenue consists of gross product shipments and service revenue, less allowances for estimated sales returns, price protection, end-user customer rebates and other channel sales incentives deemed to be a reduction of revenue per the authoritative guidance for revenue recognition, and net changes in deferred revenue.
For reporting purposes, revenue is generally attributed to each geographic region based upon the location of the customer.
|
|
Three Months Ended |
|
|||||||||
(In thousands, except percentage data) |
|
March 31, 2024 |
|
|
% Change |
|
|
April 2, 2023 |
|
|||
Americas |
|
$ |
109,928 |
|
|
|
(9.8 |
)% |
|
$ |
121,922 |
|
Percentage of net revenue |
|
|
66.8 |
% |
|
|
|
|
|
67.4 |
% |
|
EMEA |
|
$ |
31,187 |
|
|
|
(20.4 |
)% |
|
$ |
39,178 |
|
Percentage of net revenue |
|
|
18.9 |
% |
|
|
|
|
|
21.7 |
% |
|
APAC |
|
$ |
23,471 |
|
|
|
18.5 |
% |
|
$ |
19,808 |
|
Percentage of net revenue |
|
|
14.3 |
% |
|
|
|
|
|
10.9 |
% |
|
Total net revenue |
|
$ |
164,586 |
|
|
|
(9.0 |
)% |
|
$ |
180,908 |
|
Americas
Net revenue in Americas decreased in the three months ended March 31, 2024, driven by declines in Connected Home segment’s net revenue of 7.2% and in NETGEAR for Business segment’s net revenue of 15.8%, respectively, compared to the prior year period. The decline in Connected Home net revenue was primarily due to the prior year result benefiting from a higher total addressable market, leading to a year-over-year decline in the retail channel, partially offset by higher net revenue from the service provider channel, compared to the prior year period. The decline in NETGEAR for Business net revenue was mainly due to lower demand for transactional switches attributable to the uncertain macro environment.
EMEA
Net revenue in EMEA decreased in the three months ended March 31, 2024, compared to the prior year period, primarily due to the performance of both Connected Home and NETGEAR for Business segments, which experienced declines in net revenue of 33.6% and 14.5%, respectively. The net revenue decline in NETGEAR for Business segment was mainly driven by lower demand for transactional switches attributable to the uncertain macro environment. The net revenue decline in Connected Home segment was mainly due to lower net revenue from service provider channel.
29
APAC
Net revenue in APAC increased in the three months ended March 31, 2024, compared to the prior year period, mainly driven by a net revenue increase from the service provider channel in our Connected Home segment, whereas NETGEAR For Business net revenue was flat year over year.
For further discussions specific to our Connected Home and NETGEAR for Business, refer to the "Segment Information" section below.
Cost of Revenue and Gross Margin
Cost of revenue consists primarily of the following: the cost of finished products from our third party manufacturers; overhead costs, including purchasing, product planning, inventory control, warehousing and distribution logistics; third-party software licensing fees; inbound freight; import duties/tariffs; warranty costs associated with returned goods; write-downs for excess and obsolete inventory; amortization of certain acquired intangibles and software development costs; and costs attributable to the provision of service offerings.
We outsource our manufacturing, warehousing and distribution logistics. We believe this outsourcing strategy allows us to better manage our product costs and gross margin. Our gross margin can be affected by a number of factors, including fluctuation in foreign exchange rates, sales returns, changes in average selling prices, end-user customer rebates and other channel sales incentives, changes in our cost of goods sold due to fluctuations and increases in prices paid for components, net of vendor rebates, royalty and licensing fees, warranty and overhead costs, inbound freight and duty/tariffs, conversion costs, charges for excess or obsolete inventory, amortization of acquired intangibles and capitalized software development costs. The following table presents costs of revenue and gross margin, for the periods indicated:
|
|
Three Months Ended |
||||
(In thousands, except percentage data) |
|
March 31, 2024 |
|
% Change |
|
April 2, 2023 |
Cost of revenue |
|
$116,349 |
|
(3.5)% |
|
$120,526 |
Gross margin percentage |
|
29.3% |
|
|
|
33.4% |
Our gross margin percentage decreased for the three months ended March 31, 2024, compared to the prior year period, primarily attributable to Connected Home segment which experienced higher cost of inventory, greater mix of service provider products, which generally carried lower gross margin, and increased marketing expenditures as a percentage of net revenue. In the second fiscal quarter of 2024, as we accelerate the depletion of our slower moving inventory, and continue to optimize our channel inventory level in our NETGEAR For Business segment, we expect our gross margin to be negatively impacted due to the product mix given NETGEAR For Business segment normally carries higher gross margin and high cost of inventory.
Forecasting gross margin percentages is difficult, and there are a number of risks related to our ability to maintain or improve our current gross margin levels. Our cost of revenue as a percentage of net revenue can vary significantly based upon factors such as: uncertainties surrounding revenue levels, broad-based inflationary pressures and the uncertain macroeconomic environment, future pricing and/or potential discounts as a result of the economy or in response to the strengthening of the U.S. dollar in our international markets, competition, the timing of sales, and related production level variances; import customs duties and imposed tariffs; changes in technology; changes in product mix; expenses associated with writing off excessive or obsolete inventory; variability of stock-based compensation costs; royalties to third parties; fluctuations in freight costs; manufacturing and purchase price variances; changes in prices on commodity components; and warranty costs. We expect that revenue derived from paid subscription service plans will continue to increase in the future, which may have a positive impact on our gross margin. However, we will continue to experience fluctuations in our gross margin due to the factors discussed above.
30
Operating Expenses
Research and Development
Research and development expenses consist primarily of personnel expenses, payments to suppliers for design services, safety and regulatory testing, product certification expenditures to qualify our products for sale into specific markets, prototypes, IT and facility allocations, and other consulting fees. Research and development expenses are recognized as they are incurred. Our research and development organization is focused on enhancing our ability to introduce innovative and easy-to-use products and services. The following table presents research and development expenses, for the periods indicated:
|
|
Three Months Ended |
|
|||||||||
(In thousands, except percentage data) |
|
March 31, 2024 |
|
|
% Change |
|
|
April 2, 2023 |
|
|||
Research and development |
|
$ |
20,227 |
|
|
|
(8.6 |
)% |
|
$ |
22,134 |
|
Research and development expenses decreased for the three months ended March 31, 2024, compared to the prior year period, primarily driven by a decrease in professional service fees of $1.0 million and a decrease in personnel-related expenditures of $0.5 million.
We believe that innovation and technological leadership is critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies, products and services. We expect research and development expenses in absolute dollar amount in the second fiscal quarter of 2024 to be in line with the same quarter of 2023. We continue to invest in research and development to grow our cloud platform capabilities, our services and mobile applications and to create and expand our hardware product offerings focused on premium WiFi 7, and WiFi 6/6E, Advanced 4G/5G mobile and 5G coverage solutions, audio and video over Ethernet, web-managed, AV over IP managed switches and NETGEAR for Business wireless products. Research and development expenses may fluctuate depending on the timing and number of development activities and could vary significantly as a percentage of net revenue, depending on actual revenues achieved in any given quarter.
Sales and Marketing
Sales and marketing expenses consist primarily of advertising, trade shows, corporate communications and other marketing expenses, product marketing expenses, outbound freight costs, amortization of certain intangibles, personnel expenses for sales and marketing staff, technical support expenses, and IT and facility allocations. The following table presents sales and marketing expenses, for the periods indicated:
|
|
Three Months Ended |
|
|||||||||
(In thousands, except percentage data) |
|
March 31, 2024 |
|
|
% Change |
|
|
April 2, 2023 |
|
|||
Sales and marketing |
|
$ |
30,529 |
|
|
|
(9.9 |
)% |
|
$ |
33,879 |
|
The decline in sales and marketing expenses for the three months ended March 31, 2024, compared to the prior year period, was primarily attributable to decreases in brand marketing expenditures of $2.0 million, and personnel-related expenditures of $1.1 million, mainly due to lower headcount.
We expect sales and marketing expenses in absolute dollar amount in the second fiscal quarter of 2024 to be in line with or slightly below the same quarter of 2023 level. Expenses may fluctuate depending on revenue levels achieved as certain expenses, such as commissions, are determined based upon the revenues achieved. Forecasting sales and marketing expenses is highly dependent on expected revenue levels and could vary significantly depending on actual revenue achieved in any given quarter. Marketing expenses may also fluctuate depending upon the timing, extent and nature of marketing programs. Marketing expenditure committed with a customer is generally recorded as a reduction of revenue per authoritative guidance.
31
General and Administrative
General and administrative expenses consist of salaries and related expenses for executives, finance and accounting, human resources, information technology, professional fees, including legal costs associated with defending claims against us, allowance for doubtful accounts, IT and facility allocations, and other general corporate expenses. The following table presents general and administrative expenses, for the periods indicated:
|
|
Three Months Ended |
|
|||||||||
(In thousands, except percentage data) |
|
March 31, 2024 |
|
|
% Change |
|
|
April 2, 2023 |
|
|||
General and administrative |
|
$ |
18,067 |
|
|
|
11.3 |
% |
|
$ |
16,236 |
|
The increase in general and administrative expenses for the three months ended March 31, 2024, compared to the prior year period, was primarily driven by increases in personnel-related expenditures of $1.5 million mainly due to higher variable compensation and expenses associated with CEO transition, as well as increases in legal and professional services fees of $1.0 million, mainly associated with litigation matters.
We expect general and administration expenses in absolute dollar amount in the second fiscal quarter of 2024 to be slightly above the same quarter of 2023 level, partially due to executive transition costs. General and administrative expenses could fluctuate depending on a number of factors, including the level and timing of expenditures associated with litigation defense costs in connection with the litigation matters described in Note 8, Commitments and Contingencies, in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q. Future general and administrative expense increases or decreases in absolute dollars are difficult to predict due to the lack of visibility of certain costs, including legal costs associated with defending claims against us, as well as legal costs associated with asserting and enforcing our intellectual property portfolio and other factors.
Other Operating Expenses (Income), Net
Other operating expenses (income), net consists of restructuring and other charges, litigation reserves, net, and change in fair value of contingent consideration. The following table presents Other operating expenses (income), net for the periods indicated:
|
|
Three Months Ended |
|
|||||||
(In thousands, except percentage data) |
|
March 31, 2024 |
|
|
% Change |
|
April 2, 2023 |
|
||
Other operating expenses, net |
|
$ |
1,062 |
|
|
** |
|
$ |
108 |
|
** Percentage change not meaningful.
For the three months ended March 31, 2024, we incurred restructuring and other charges of $1.0 million, associated with our reorganization to better align the cost structure of the business with projected revenue levels. For a detailed discussion of restructuring and other charges, refer to Note 13, Restructuring and Other Charges, in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q. As our plan for developing a long-term strategy and prioritize the allocation of our capital to build a higher growth, and more profitable business, we expect to incur additional restructuring changes in the coming quarters driven by restructuring activities relating to executive transitions.
Other Income (Expenses), Net
Other income (expenses), net consists of interest income, which represents amounts earned and incurred on our cash, cash equivalents and short-term investments, and other income and expenses, which primarily represents gains and losses on transactions denominated in foreign currencies, gains and losses on investments, and other non-operating income and expenses, including gain on litigation settlements. The following table presents other income (expenses), net for the periods indicated:
|
|
Three Months Ended |
|
|||||||
(In thousands, except percentage data) |
|
March 31, 2024 |
|
|
% Change |
|
April 2, 2023 |
|
||
Other income, net |
|
$ |
2,850 |
|
|
** |
|
$ |
1,406 |
|
** Percentage change not meaningful.
32
The change in other income (expenses), net for the three months ended March 31, 2024, compared to the prior year period, was primarily due to higher interest income resulting from higher interest rates and higher cash and short-term investment balances.
Provision for (Benefit from) Income Taxes
|
Three Months Ended |
||||
(In thousands, except percentage data) |
March 31, 2024 |
|
% Change |
|
April 2, 2023 |
Benefit from income taxes |
$(148) |
|
(82.7)% |
|
$(857) |
Effective tax rate |
0.8% |
|
|
|
8.1% |
The change in taxes for the three months ended March 31, 2024, compared to the prior year period, was primarily due to the continued full valuation allowance on deferred tax assets for U.S. federal and state purposes that was established during the period ended October 1, 2023. We evaluated the current results as of the period ended March 31, 2024, coupled with the expectations for the remainder of the year, and determined that it continued to not be more likely than not that the deferred tax assets would be realized, and accordingly, recorded no benefit for the forecasted tax loss for the three months ended March 31, 2024. By comparison, for the three months ended April 2, 2023, a tax benefit was recorded on the pre-tax loss since the valuation allowance on deferred tax assets had not yet been established.
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our future foreign tax rate could be affected by changes in the composition in earnings in countries with tax rates differing from the U.S. federal rate. We are under examination in various U.S. and foreign jurisdictions.
Segment Information
In the first fiscal quarter of 2024, resulting from certain segment structure changes, we revised our allocation method by allocating certain historically unallocated operating expenses to our individual operating segments. The prior-year segment financial information has been recast to conform to the current-year presentation. Additional information on the change, a description of our products and services, as well as segment financial data, for each segment and a reconciliation of segment contribution income (loss) to income (loss) before income taxes can be found in Note 11, Segment Information, and information on net revenue by sales channels can be found in Disaggregation of Revenue in Note 3, Revenue, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.
Connected Home Segment
|
|
Three Months Ended |
||||
(In thousands, except percentage data) |
|
March 31, 2024 |
|
% Change |
|
April 2, 2023 |
Net revenue |
|
$95,963 |
|
(6.6)% |
|
$102,746 |
Percentage of net revenue |
|
58.3% |
|
|
|
56.8% |
Contribution income (loss) |
|
$(6,140) |
|
** |
|
$(1,756) |
Contribution margin |
|
(6.4)% |
|
|
|
(1.7%) |
** Percentage change not meaningful.
Connected Home net revenue decreased in the three months ended March 31, 2024, compared to the prior year period, primarily due to the prior year result benefiting from a higher total addressable market, leading to a year-over-year decline in the retail channel, partially offset by higher net revenue from the service provider channel in the Americas and APAC regions. Despite a decline in the overall consumer networking market during the three months ended March 31, 2024, our 5G mobile hotspots continued to grow, and we saw growth in our services revenue, as compared to the prior year period. Geographically, Connected Home net revenue decreased in the Americas and EMEA regions, whereas net revenue in APAC increased in the three months ended March 31, 2024, compared to the prior year period.
Connected Home contribution loss increased in the three months ended March 31, 2024, compared to the prior year period, primarily due to higher cost of inventory, greater mix of service provider products, which generally carried lower gross margin, and increased marketing expenditure as a percentage of net revenue.
33
NETGEAR for Business Segment
|
|
Three Months Ended |
||||
(In thousands, except percentage data) |
|
March 31, 2024 |
|
% Change |
|
April 2, 2023 |
Net revenue |
|
$68,623 |
|
(12.2)% |
|
$78,162 |
Percentage of net revenue |
|
41.7% |
|
|
|
43.2% |
Contribution income |
|
$9,904 |
|
(29.5)% |
|
$14,057 |
Contribution margin |
|
14.4% |
|
|
|
18.0% |
NETGEAR for Business net revenue decreased for the three months ended March 31, 2024, compared to the prior year period, primarily due to lower demand for transactional switches attributable to the uncertain macro environment, particularly in Americas and Europe. We continued to experience strong demand for the Pro AV product line of managed switches. Geographically, NETGEAR for Business net revenue decreased in Americas and EMEA regions, whereas net revenue in APAC slightly increased in the three months ended March 31, 2024, compared to the prior year period.
NETGEAR for Business contribution income decreased in the three months ended March 31, 2024, compared to the prior year period, primarily due to lower net revenue, and lower gross margin achievement mainly attributable to higher cost of inventory.
Liquidity and Capital Resources
Our principal sources of liquidity are cash, cash equivalents, short-term investments and cash generated from operations. As of March 31, 2024, we had cash, cash equivalents and short-term investment of $289.4 million, an increase of $5.8 million from December 31, 2023.
As of March 31, 2024, approximately 31% of our cash and cash equivalents and short-term investments were outside of the U.S., which are subject to fluctuation based on the settlement of intercompany balances. As we repatriate these funds in accordance with our designation of funds not permanently reinvested outside of the U.S., we will be required to pay income taxes in certain U.S. states and applicable foreign withholding taxes during the period when such repatriation occurs. We have recorded deferred taxes for the tax effect of repatriating the funds to the U.S.
Cash Flows
The following table presents our cash flows for the periods presented.
|
|
Three Months Ended |
|
|||||
(In thousands) |
|
March 31, 2024 |
|
|
April 2, 2023 |
|
||
Cash provided by operating activities |
|
$ |
17,190 |
|
|
$ |
9,122 |
|
Cash used in investing activities |
|
|
(11,339 |
) |
|
|
(14,597 |
) |
Cash provided by (used in) financing activities |
|
|
(9,912 |
) |
|
|
2,166 |
|
Net cash decrease |
|
$ |
(4,061 |
) |
|
$ |
(3,309 |
) |
Operating activities
Net cash provided by operating activities increased by $8.1 million in the three months ended March 31, 2024, compared to the prior year period, primarily due to favorable working capital movements. Our accounts payable (excluding payables related to property and equipment) decreased from $46.4 million as of December 31, 2023 to $37.5 million as of March 31, 2024, primarily due to the reduction and timing of inventory receipts and supplier payments. Accounts receivable decreased from $185.1 million as of December 31, 2023 to $172.8 million as of March 31, 2024, primarily due to the timing of cash collections and lower revenue. Inventory decreased from $248.9 million as of December 31, 2023 to $211.3 million as of March 31, 2024. We continue to make progress in optimizing our inventory carrying levels and start to accelerate the depletion of our slower moving inventory. We expect to continue generating cash from operating activities in the remainder of fiscal 2024 as we make further progress in reducing our inventory.
34
Investing activities
Net cash used in investing activities decreased by $3.3 million in the three months ended March 31, 2024, compared to the prior year period, mainly driven by lower net purchases of short-term investments.
Financing activities
Net cash used in financing activities was $9.9 million in the three months ended March 31, 2024, compared to net cash provided by financing activities of $2.2 million in the prior year period, primarily due to repurchases of our common stock in the current period.
Based on our current plans and market conditions, we believe that our existing cash, cash equivalents and short-term investments, together with cash generated from operations, will be sufficient to satisfy our anticipated cash requirements in the short-term and long-term. However, we may require or desire additional funds to support our operating expenses and capital requirements or for other purposes, such as acquisitions, and may seek to raise such additional funds through public or private equity financing or from other sources. We cannot assure you that additional financing will be available at all or that, if available, such financing would be obtainable on terms favorable to us and would not be dilutive. Our future liquidity and cash requirements will depend on numerous factors, including the introduction of new products and potential acquisitions of related businesses or technology.
Stock Repurchase Program
From time to time, our Board of Directors has authorized programs under which we may repurchase shares of our common stock. Under the authorizations, the timing and actual number of shares subject to repurchase are at the discretion of management and are contingent on a number of factors, such as levels of cash generation from operations, cash requirements for acquisitions and the price of our common stock. During the three months ended March 31, 2024, we repurchased and retired, reported based on trade date, approximately 0.8 million shares of common stock, at a cost of approximately $11.4 million under the repurchase authorization. We did not repurchase any shares of common stock during the three months ended April 2, 2023. As of March 31, 2024, approximately 1.7 million shares remained authorized for repurchase under the repurchase program. We also repurchased and retired, reported based on trade date, approximately 32,000 and 6,000 shares of common stock, at a cost of approximately $0.5 million and $0.1 million during the three months ended March 31, 2024 and April 2, 2023, respectively, to administratively facilitate the withholding and subsequent remittance of personal income and payroll taxes for individuals receiving Restricted Stock Units. For a detailed discussion of our common stock repurchases, refer to Note 9, Stockholders’ Equity, in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q. We remain confident in our ability to generate meaningful levels of cash, and plan to continue to opportunistically repurchase shares in future periods.
Contractual and Other Obligations
Except as follows, there were no material changes outside of the ordinary course of business in our contractual obligations as of March 31, 2024, from those as of December 31, 2023, disclosed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.
As of March 31, 2024, we had $77.0 million of purchase obligations which represented short-term non-cancellable inventory-related purchase agreements with suppliers, as compared to $42.6 million as of December 31, 2023. Due to an elongation of the time from order placement to production that occurred several years ago, we issued purchase orders to supply chain partners beyond contractual termination periods. As of March 31, 2024, $274.2 million of purchase orders beyond contractual termination periods remained outstanding. These purchase orders may be cancelled by either party, however we may incur expenses for materials and components, such as chipsets purchased by the supplier to fulfill the purchase order, in the event of cancellation. Expenses incurred in respect of cancelled purchase orders have historically not been significant relative to the original order value. For a detailed discussion, refer to Note 8, Commitments and Contingencies, in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.
35
Recent Accounting Pronouncements
Information with respect to this item may be found in Note 2, Summary of Significant Accounting Policies, in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q, which are hereby incorporated by reference.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
During the three months ended March 31, 2024, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of our management (including our Chief Executive Officer and Chief Financial Officer), our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) were effective as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially effect, our internal control over financial reporting. It should be noted that any system of controls, however well designed and operated, can provide only reasonable assurance, and not absolute assurance, that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals in all future circumstances.
36
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth under Note 8, Commitments and Contingencies, in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q, is incorporated herein by reference. For an additional discussion of certain risks associated with legal proceedings, see the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
Risk Factors Summary
The following is a summary of some of the risks and uncertainties as of the date of the filing of this Quarterly Report on Form 10-Q, some of which either have occurred or may occur in the future, that could materially adversely affect our business, financial condition and results of operations. You should read this summary together with the more detailed description of each risk factor contained below.
Risks Related to our Business, Industry and Operations
37
Risks Related to Our Products, Technology and Intellectual Property
Financial, Legal, Regulatory and Tax Compliance Risks, Including Recent Impairment Charges
38
General Risk Factors
Additional factors that could affect our businesses, results of operations and financial condition are discussed below. However, other factors not discussed below or elsewhere in this Quarterly Report on Form 10-Q could also adversely affect our businesses, results of operations and financial condition. Therefore, the risk factors below should not be considered a complete list of potential risks that we may face.
Any risk factor described in this Quarterly Report on Form 10-Q or in any of our other SEC filings could by itself, or together with other factors, materially adversely affect our liquidity, competitive position, business, reputation, results of operations, capital position or financial condition, including by materially increasing our expenses or decreasing our revenues, which could result in material losses.
Investing in our common stock involves a high degree of risk. The risks described below are not exhaustive of the risks that might affect our business. Other risks, including those we currently deem immaterial, may also impact our business. Any of the following risks could materially adversely affect our business operations, results of operations and financial condition and could result in a significant decline in our stock price. Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described in this section. This section should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q.
We have marked with an asterisk (*) those risks described below that reflect substantive changes from the risks described under Part I, Item 1A “Risk Factors” included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 16, 2024.
Risks Related to our Business, Industry and Operations
* Optimizing our channel partners' inventory levels and product mix within the current environment is challenging, and we have, and may in the future, incur costs associated with excess inventory, or lose sales from having too few products.
If we are unable to properly monitor and optimize our channel partners' inventory levels and maintain an appropriate level and mix of products with our retail partners and wholesale distributors and within our sales channels, we may incur increased and unexpected costs associated with this inventory. In 2022 and the first half of 2023, many of our retail and service provider partners began significantly reducing their target inventory levels which adversely affected our results of operations. While we see signs of the retail networking market stabilizing, the uncertain macroeconomic environment and persistent high inflation and interest rates are also putting pressure on our NETGEAR for Business channel partners. We have experienced and continue to experience lower revenue as a result of our channel partners lowering their inventory levels and higher cost of carrying excess channel inventory. On the other hand, low channel inventory levels increase the likelihood that our sales channel customers may not be able to fulfill end user demand, leading to delayed or lost sales, unhappy customers and potential impacts to our brand and reputation. Inadequate stock levels could also hinder our ability to fulfill large orders or take advantage of unexpected demand spikes, thereby limiting revenue growth opportunities. Moreover, reductions in target inventory levels put pressure on our ability to accurately forecast customer demand and inventory requirements and increases the likelihood that the accuracy of such forecasts would be lower. We determine production levels based on our forecasts of demand for our products. Actual demand for our products depends on many factors, which makes it difficult to forecast. We have experienced differences between our actual and our forecasted demand in the past and expect differences to arise in the future. If we
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improperly forecast demand for our products and channel inventory levels, we could end up with too many products and be unable to sell the excess inventory in a timely manner, if at all, or, alternatively we could end up with too few products and not be able to satisfy demand. This problem is exacerbated because we attempt to closely match inventory levels with product demand leaving limited margin for error. Also, during the transition from an existing product to a new replacement product, we must accurately predict the demand for the existing and the new product. If we improperly forecast demand for our products and channel inventory levels, we could incur increased expenses associated with writing off excessive or obsolete inventory, lose sales, incur penalties for late delivery or have to ship products by air freight to meet immediate demand incurring incremental freight costs above the sea freight costs and suffering a corresponding decline in gross margins. For example, when demand for our Connected Home products turned out to be lower than we previously forecasted, it had resulted in our revenue for our Connected Home products to come in lower than expected, as our channel partners in the U.S. replenished inventory slower than they sold through to end users to right size their inventory carrying position based on the lower demand levels than were previously expected. In addition, we generally allow wholesale distributors and traditional retailers to return a limited amount of our products in exchange for other products. Under our price protection policy, if we reduce the list price of a product, we are often required to issue a credit in an amount equal to the reduction for each of the products held in inventory by our wholesale distributors and retailers. If our wholesale distributors and retailers are unable to sell their inventory in a timely manner, we might lower the price of the products, or these parties may exchange the products for newer products or decrease their purchases of our products in subsequent periods, which would adversely affect our revenue and results of operations.
* To remain competitive and stimulate consumer and business demand, we must successfully manage new product introductions and transitions of products and services.
We operate in a highly competitive, quickly changing environment, and our future success depends on our ability to develop or acquire and introduce new products and services, enhance existing products and services, effectively stimulate customer and business demand for new and upgraded products and services, and successfully manage the transition to these new and upgraded products and services. Our future success will depend in large part upon our ability to identify demand trends in the consumer, business and service provider markets, and to quickly develop or acquire, manufacture and market and sell products and services that satisfy these demands in a cost-effective manner. In order to differentiate our products from our competitors’ products, we must continue to increase our focus and capital investment in research and development and marketing and sales, including software development for our products and complementary services and applications. For example, we previously made a strategic shift to focus on premium, higher margin products and have committed a substantial amount of resources to the development, manufacture, branding, marketing and sale of our Nighthawk mobile hotspot products, Orbi WiFi systems and Pro AV managed switches, and to introducing additional and improved models and services in these lines. In the third quarter of 2023, we launched our first WiFi 7 products, namely the Orbi 97X mesh system and the Nighthawk RS700 router, and will continue to invest in a strong pipeline of WiFi 7 introductions in 2024 across all our major product lines. The success of new products and services depends on a number of factors, including timely and successful development either through rapid innovation or acquisition, market acceptance, our ability to manage the risks and costs, such as investment costs and marketing costs, associated with development and introduction of new products and services, the effective management of purchase commitments and channel inventory levels in line with anticipated product demand, availability of products in appropriate quantities and at expected costs to meet anticipated demand, the risk that new products and services may have delays, quality or other defects or deficiencies and our ability to effectively manage marketing and reviews of our products and services.
In addition, we have acquired companies and technologies in the past and as a result, have introduced new product lines in new markets. We may not be able to successfully manage integration of the new product lines with our existing products. Selling new product lines in new markets will require our management to learn different strategies in order to be successful. We may be unsuccessful in launching a newly acquired product line in new markets which requires management of new suppliers, potential new customers and new business models. Our management may not have the experience of selling in these new markets and we may not be able to grow our business as planned. For example, in August 2018, we acquired Meural Inc., a leader in digital platforms for visual art, to enhance our Connected Home product and service offerings. If we are unable to effectively and successfully further develop these new product lines, we may not be able to increase or maintain our sales and our gross margins may be adversely affected.
Accordingly, if we cannot properly drive customer and business demand, manage future introductions and transitions of products and services, this could result in:
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In addition, if we are unable to successfully introduce or acquire new products with higher gross margins, or enhance and improve our services and subscription offerings for customer retention or service revenue growth, or if we are unable to improve the margins on our previously introduced and rapidly growing product and services lines, our net revenue and overall gross margin would likely decline.
* Investment in new business strategies could disrupt our ongoing business, present risks not originally contemplated and materially adversely affect our business, reputation, results of operations and financial condition.
We have invested, and in the future may invest, in new business strategies and adjust existing business strategies. Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations, greater-than-expected liabilities and expenses, economic, legal and regulatory challenges, inadequate return on capital, potential impairment of tangible and intangible assets, and significant write-offs. Changes in business strategies are inherently risky and may not be successful. The failure of any significant investment could materially adversely affect our business, reputation, results of operations and financial condition. For example, as mentioned in the risk factor above “To remain competitive and stimulate consumer and business demand, we must successfully manage new product introductions and transitions of products and services”, we previously made a strategic shift to focus on premium, higher margin products and services and we continue to make changes in our business strategies, including pursuing new, adjacent markets. Changes in business strategy would require us to hire in key areas and make certain investments, including marketing; however, such investments may not prove to be successful. If we fail to develop and successfully execute on our business strategies, our business, financial condition, results of operations and reputation could be materially adversely affected.
We rely on a limited number of traditional and online retailers, wholesale distributors and service provider customers for a substantial portion of our sales, and our net revenue could decline if they refuse to pay our requested prices or reduce their level of purchases, if there are unforeseen disruptions in their businesses, or if there is significant consolidation in our customer base that results in fewer customers for our products.
We sell a substantial portion of our products through traditional and online retailers, including Best Buy Co., Inc., Amazon.com, Inc. and their affiliates, wholesale distributors, including Ingram Micro, Inc. and TD Synnex, and service providers, such as AT&T. We expect that a significant portion of our net revenue will continue to come from sales to a small number of customers for the foreseeable future. In addition, because our accounts receivable are often concentrated with a small group of purchasers, the failure of any of them to pay on a timely basis, or at all, would reduce our cash flow. We are also exposed to increased credit risk if any one of these limited numbers of customers fails or becomes insolvent. We generally have no minimum purchase commitments or long-term contracts with any of these customers. These purchasers could decide at any time to discontinue, decrease or delay their purchases of our products. If our customers increase the size of their product orders without sufficient lead-time for us to process the order, our ability to fulfill product demands would be compromised. These customers have a variety of suppliers to choose from and therefore can make substantial demands on us, including demands on product pricing and on contractual terms, which often results in the allocation of risk to us as the supplier. Accordingly, the prices that they pay for our products are subject to negotiation and could change at any time. For example, as mentioned below in the risk factors “If disruptions in our transportation network continue to occur or our shipping costs substantially increase again in the future, we may be unable to sell or timely deliver our products, and net revenue and our gross margin could decrease” and “We obtain several key components from limited or sole sources, and if these sources fail to satisfy our supply requirements or we are unable to properly manage our supply requirements with our third-party manufacturers, we may lose sales and experience increased component costs”, we had previously experienced high freight costs and component costs and had issued price increases to our customers. Our ability to maintain strong relationships with our principal customers is essential to our future performance. If any of our major customers reduce their level of purchases or refuse to pay the prices that we set for our products, our net revenue and operating results could be harmed.
Furthermore, some of our customers are also our competitors in certain product categories, which could negatively influence their purchasing decisions. For example, Amazon owns Eero, one of our competitors in the mesh WiFi systems product category. Our traditional retail customers have faced increased and significant competition from online retailers, and some of these traditional retail customers have increasingly become a smaller portion of our business. If key retail customers continue to reduce their level of purchases, our business could be harmed. Similarly, we sell products and services directly to consumers from our own e-commerce platforms and expect these revenues to grow proportionate to overall revenue. Some of our customers, such as Amazon and Best Buy, may consider this to be competitive with their own businesses, which could negatively influence their purchasing decisions with respect to our products. Furthermore, we have experienced a shift towards
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products being bought and sold online. If we are unable to adjust to this shift and effectively manage our business and inventory requirements amongst our online customers and traditional retail customers, this may lead to lower market share and lower revenues for us, and our net revenue and operating results could be harmed.
In addition, adverse changes in economic conditions or unforeseen disruptions in the businesses of any of our key customers could adversely impact the sale of our products to end users and the quantity of products our customers decide to purchase from us. For example, as mentioned above in the risk factor “Accurately managing our sales channel inventory and product mix within the current environment is challenging, and we have, and may in the future, incur costs associated with excess inventory, or lose sales from having too few products,” many of our retail and service provider customers have and continue to reduce their target inventory levels. This shift may have a longer-term impact on the inventory levels our customers choose to carry.
Additionally, concentration and consolidation among our customer base may allow certain customers to command increased leverage in negotiating prices and other terms of sale, which could adversely affect our profitability. If, as a result of increased leverage, customer pressures require us to reduce our pricing such that our gross margins are diminished, we could decide not to sell our products to a particular customer, which could result in a decrease in our revenue. Consolidation among our customer base may also lead to reduced demand for our products, elimination of sales opportunities, replacement of our products with those of our competitors and cancellations of orders, each of which would harm our operating results. Consolidation among our service provider customers worldwide may also make it more difficult to grow our service provider business, given the fierce competition for the already limited number of service providers worldwide and the long sales cycles to close deals. If consolidation among our customer base becomes more prevalent, our operating results may be harmed.
* We obtain several key components from limited or sole sources, and if these sources fail to satisfy our supply requirements or we are unable to properly manage our supply requirements with our third-party manufacturers, we may lose sales and experience increased component costs.
Any shortage or delay in the supply of key product components, or any sudden, unforeseen price increase for such components, would harm our ability to meet product deliveries as scheduled or as budgeted. Many of the semiconductors used in our products are obtained from sole source suppliers on a purchase order basis. In addition, some components that are used in all our products are obtained from limited sources. We also obtain switching fabric semiconductors, which are used in our Ethernet switches and Internet gateway products, and WiFi chipsets, which are used in all of our wireless products, from a limited number of suppliers. We also use Cable Modem chipsets and Mobile chipsets in our cable and mobile products. Semiconductor suppliers have experienced and continue to experience component shortages themselves, such as with lead-frames and substrates used in manufacturing chipsets, which in turn adversely impact our ability to procure semiconductors from them in sufficient quantities and in a timely manner. For example, we had previously experienced certain chipset shortages for some of our switching products from two of our semiconductor suppliers who did not have enough wafer capacity to satisfy our demand, and this shortage continued for several quarters. Our third-party manufacturers generally purchase these components on our behalf on a purchase order basis, and we do not have any guaranteed supply arrangements with our suppliers. If demand for a specific component increases, we may not be able to obtain an adequate number of that component in a timely manner, and prices to obtain such components may increase. In addition, if worldwide demand for the components increases significantly, the availability of these components could be limited and prices for such components may increase. For example, as the demand for Artificial Intelligence chips increase, semiconductor production capacity may be shifted to these specific components thereby constraining supply of or increasing cost on chips used in our products. Further, dependence on a sole source for certain key components of our products may allow such sole source suppliers to command increased leverage in negotiating prices and other terms of sale, which could adversely affect our profitability. As a result, we may be left with little choice but to accept such higher prices or other fees for key components in order to ensure continuity of supply. This could affect our profitability or if we choose to push back against more onerous terms, could lead to inadequate supply, which could materially adversely affect our business. Our suppliers may also experience financial or other difficulties as a result of uncertain and weak worldwide economic, geopolitical conditions, trade disputes or public health issues. Other factors which may affect our suppliers’ ability or willingness to supply components to us include internal management product allocation decisions or reorganizational issues, such as roll-out of new equipment or disruptions to information infrastructure or power transmission or navigation miscalculations which may delay or disrupt supply of previously forecasted components, or industry consolidation and divestitures, which may result in changed business and product priorities among certain suppliers. Also, many standardized components used broadly in electronic devices are manufactured in significant quantities in concentrated geographic regions, particularly in Greater China. As a result, protracted crises, geopolitical unrest and uncertain economic conditions, could lead to eventual shortages of necessary components sourced from impacted regions or increased component costs. Additionally, government intervention to curb the consumption of electricity in China could have a disruptive impact on
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component production and supply availability. It could be difficult, costly and time consuming to obtain alternative sources for these components, or to change product designs to make use of alternative components. In addition, difficulties in transitioning from an existing supplier to a new supplier could create delays in component availability that would have a significant impact on our ability to fulfill orders for our products.
We provide our third-party manufacturers with a rolling forecast of demand and purchase orders, which they use to determine our material and component requirements. Lead times for ordering materials and components vary significantly and depend on various factors, such as the specific supplier, contract terms and demand and supply for a component at a given time. Some of our components have long lead times, such as WiFi chipsets, switching fabric chips, physical layer transceivers, and logic, power, analog and RF chipsets. If our forecasts are not timely provided or are less than our actual requirements, our third-party manufacturers may be unable to manufacture products in a timely manner. If our forecasts are too high, our third-party manufacturers will be unable to use the components they have purchased on our behalf. Historically, the cost of the components used in our products tends to drop rapidly as volumes increase and the technologies mature. Therefore, if our third-party manufacturers are unable to promptly use components purchased on our behalf, our cost of producing products may be higher than our competitors due to an oversupply of higher-priced components. Moreover, if they are unable to use components ordered at our direction, we will need to reimburse them for any losses they incur, which could be material.
If we are unable to obtain a sufficient supply of components, or if we experience any interruption in the supply of components, our product shipments could be reduced or delayed or our cost of obtaining these components may increase. Component shortages and delays affect our ability to meet scheduled product deliveries, damage our brand and reputation in the market, and cause us to lose sales and market share. For example, component shortages and disruptions in supply related to the COVID-19 induced lockdowns in Shenzhen, China and Shanghai, China previously had limited our ability to supply all the worldwide demand for our NETGEAR for Business switch products, and our revenue and profitability was affected. At times we have elected to purchase components on the spot market or to use more expensive transportation methods, such as air freight, to make up for manufacturing delays caused by component shortages, which reduces our margins.
We depend substantially on our sales channels, and our failure to maintain and expand our sales channels would result in lower sales and reduced net revenue.
To maintain and grow our market share, net revenue and brand, we must maintain and expand our sales channels. Our sales channels consist of traditional retailers, online retailers, DMRs, VARs, and broadband service providers. Some of these entities purchase our products through our wholesale distributor customers. We generally have no minimum purchase commitments or long-term contracts with any of these third parties.
Traditional retailers have limited shelf space and promotional budgets, and competition is intense for these resources. If the networking sector does not experience sufficient growth, retailers may choose to allocate more shelf space to other consumer product sectors and may choose to reduce their inventory levels. A competitor with more extensive product lines and stronger brand identity may have greater bargaining power with these retailers. Any reduction in available shelf space or inventory levels or increased competition for such shelf space would require us to increase our marketing expenditures simply to maintain current levels of retail shelf space and inventory levels, which would harm our operating margin. In addition, reduction in inventory levels puts pressure on our ability to accurately forecast customer demand. A failure to accurately predict high demand for a product could result in lost sales or higher product costs if we meet demand by paying higher costs for materials, production and delivery. We could also frustrate our customers and lose further shelf space and market share. A failure to predict low demand for a product could result in excess inventory, further reductions in target inventory levels, lower cash flows and lower margins if we are required to reduce product prices in order to reduce inventories.
Our traditional retail customers have faced increased and significant competition from online retailers. Further, we have experienced the shift to a greater percentage of purchases taking place online versus traditional retail customers. If we cannot effectively manage our business and inventory requirements amongst our online customers and traditional retail customers, our business would be harmed. The recent trend in the consolidation of online retailers and DMR channels has resulted in intensified competition for preferred product placement, such as product placement on an online retailer’s Internet home page. Expanding our presence in the VAR channel may be difficult and expensive. We compete with established companies that have longer operating histories and longstanding relationships with VARs that we would find highly desirable as sales channel partners. In addition, our efforts to realign or consolidate our sales channels may cause temporary disruptions in our product sales and revenue, and these changes may not result in the expected longer-term benefits. We also sell products and services directly to consumers from our own e-commerce platforms. This requires material investment in capital, time and resources and carries the risk that it may not achieve the expected return on investment that we are expecting, and that it may adversely affect our relationships with our existing channel partners, which ultimately may materially and adversely affect our results of operations.
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We also sell products to broadband service providers. Competition for selling to broadband service providers is fierce and intense. Penetrating service provider accounts typically involves a long sales cycle and the challenge of displacing incumbent suppliers with established relationships and field-deployed products. If we are unable to maintain and expand our sales channels, our growth would be limited and our business would be harmed.
We must also continuously monitor and evaluate emerging sales channels. If we fail to establish a presence in an important developing sales channel, such as sales directly to consumers from our own e-commerce platforms, our business could be harmed.
* We depend on a limited number of third-party manufacturers for substantially all of our manufacturing needs. If these third-party manufacturers experience any delay, disruption or quality control problems in their operations, we could lose revenue and our brand may suffer.
All of our products are manufactured, assembled, tested and generally packaged by a limited number of third-party manufacturers, including original design manufacturers, or ODMs, as well as their sub-contract manufacturers. In most cases, we rely on these manufacturers to procure components and, in some cases, subcontract engineering work. Some of our products are manufactured by a single manufacturer. We do not have any long-term contracts with any of our third-party manufacturers. Some of these third-party manufacturers produce products for our competitors or are themselves competitors in certain product categories. Due to uncertain and changing economic and geopolitical conditions, the viability of some of these third-party manufacturers may be at risk. The loss of the services of any of our primary third-party manufacturers could cause a significant disruption in operations and delays in product shipments. Qualifying a new manufacturer and commencing volume production is expensive and time consuming. Ensuring that a manufacturer is qualified to manufacture our products to our standards is time consuming. In addition, there is no assurance that a manufacturer can produce our products at the appropriate volumes and in the quality that we require. In addition, as we recently have transitioned a substantial portion of our manufacturing facilities to different regions, we are subject to additional significant challenges in ensuring that quality, processes and costs, among other issues, are consistent with our expectations. For example, while we expect our manufacturers to be responsible for penalties assessed on us because of excessive failures of the products, there is no assurance that we will be able to collect such reimbursements from these manufacturers, which causes us to take on additional risk for potential failures of our products.
Our reliance on third-party manufacturers also exposes us to the following risks over which we have limited control:
All of our products must satisfy safety and regulatory standards and some of our products must also receive government certifications. Our third-party manufacturers are primarily responsible for conducting the tests that support our applications for most regulatory approvals for our products. If our third-party manufacturers fail to timely and accurately conduct these tests, we would be unable to obtain the necessary domestic or foreign regulatory approvals or certificates to sell our products in certain jurisdictions. As a result, we would be unable to sell our products and our sales and profitability could be reduced, our relationships with our sales channel could be harmed, and our reputation and brand would suffer.
Specifically, substantially all of our manufacturing and assembly occurs in the Asia Pacific region, and any disruptions due to natural disasters, climate change, health epidemics and political, social and economic instability in the region would affect the ability of our third-party manufacturers to manufacture our products. For example, in late August 2021, heavy rains caused our manufacturer in Thailand to become flooded and created a one-month delay in manufacturing and required us to move some non-U.S. manufacturing back to China. Furthermore, if the cost of production charged by our third-party manufacturers increases, it may affect our margins and ability to lower prices for our products to stay competitive. Labor unrest in Southeast Asia, China or other locations where components and our products are manufactured may also affect our third-party manufacturers as workers may strike and cause production delays. If our third-party manufacturers fail to maintain good
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relations with their employees or contractors, and production and manufacturing of our products is affected, then we may be subject to shortages of products and quality of products delivered may be affected. Further, if our manufacturers or warehousing facilities are disrupted or destroyed, we would have no other readily available alternatives for manufacturing and assembling our products and our business would be significantly harmed.
In our typical ODM arrangement, our ODMs are generally responsible for sourcing the components of the products and warranting that the products will work against a product’s specification, including any software specifications. If we needed to move to a contract manufacturing arrangement, we would take on much more, if not all, of the responsibility around these areas, including increased costs and personnel expertise. If we are unable to properly manage these risks, our products may be more susceptible to defects and our business would be harmed.
Some of our competitors have substantially greater resources than we do, and to be competitive we may be required to lower our prices or increase our sales and marketing expenses, which could result in reduced margins or loss of market share and revenue.
We compete in a rapidly evolving and fiercely competitive market, and we expect competition to continue to be intense, including price competition. Our principal competitors in the consumer market include ARRIS, ASUS, AVM, Devolo, D-Link, Eero (owned by Amazon), Linksys (owned by Foxconn), Minim (Motorola licensee), Google WiFi, Samsung, and TP-Link. Our principal competitors in the business market include Allied Telesys, Barracuda, Buffalo, Cisco Systems, Dell, D-Link, Extreme, Fortinet, Hewlett-Packard Enterprise, Palo Alto Networks, QNAP Systems, SonicWall, Snap AV, Synology, TP-Link, Ubiquiti and WatchGuard. Our principal competitors in the service provider market include Actiontec, Airties, Arcadyan, ARRIS, ASUS, AVM, Compal Broadband, D-Link, Eero (owned by Amazon), Franklin, Google, Hitron, Huawei, Inseego, Nokia, Plume, Sagem, Sercomm, SMC Networks, TechniColor, TP-Link, Ubee, ZTE and Zyxel. Other competitors include numerous local vendors such as Xiaomi in China, AVM in Germany and Buffalo in Japan. In addition, these local vendors may target markets outside of their local regions and may increasingly compete with us in other regions worldwide. Our potential competitors also include other consumer electronics vendors, including Apple, LG Electronics, Microsoft, Panasonic, Sony, Toshiba and Vizio, who could integrate networking and streaming capabilities into their line of products, such as televisions, set top boxes and gaming consoles, and our channel customers who may decide to offer self-branded networking products. We also face competition from service providers who may bundle a free networking device with their broadband service offering, which would reduce our sales if we were not the supplier of choice to those service providers. In the service provider space, we also face significant and increased competition from original design manufacturers, or ODMs, and contract manufacturers who sell and attempt to sell their products directly to service providers around the world.
Many of our existing and potential competitors have longer operating histories, greater name recognition and substantially greater financial, technical, sales, marketing and other resources. These competitors may, among other things, undertake more extensive marketing campaigns, adopt more aggressive pricing policies, obtain more favorable pricing from suppliers and manufacturers, and exert more influence on sales channels than we can. Certain of our significant competitors also serve as key sales and marketing channels for our products, potentially giving these competitors a marketplace advantage based on their knowledge of our business activities and/or their ability to negatively influence our sales opportunities. For example, Amazon provides an important sales channel for our products, but it also competes with us in the mesh WiFi systems product category through its subsidiary Eero. In addition, certain competitors may have different business models, such as integrated manufacturing capabilities, that may allow them to achieve cost savings and to compete on the basis of price. Other competitors may have fewer resources but may be more nimble in developing new or disruptive technology or in entering new markets. We anticipate that current and potential competitors will also intensify their efforts to penetrate our target markets. For example, in the past certain network security companies such as Symantec have introduced security routers for the home consumer market to compete with us and we believe that other network security companies may also seek to do the same. Also, due to our recent success in the audio visual over IP market, some of our competitors may seek to enter this market as well. Price competition is intense in our industry in certain geographical regions and product categories. Many of our competitors in the service provider and retail spaces price their products significantly below our product costs in order to gain market share. Certain substantial competitors have business models that are more focused on customer acquisition and access to customer data rather than on financial return from product sales, and these competitors have the ability to provide sustained price competition to many of our products in the market. Average sales prices have declined in the past and may again decline in the future. These competitors may have more advanced technology, more extensive distribution channels, stronger brand names, greater access to shelf space in retail locations, bigger promotional budgets and larger customer bases than we do. In addition, many of these competitors leverage a broader product portfolio and offer lower pricing as part of a more comprehensive end-to-end solution which we may not have. These companies could devote more capital resources to develop, manufacture and market competing products than we could. Our competitors may acquire other companies in the market and leverage combined resources to gain market share. In some instances, our competitors may be acquired by larger companies with additional formidable resources, such as the purchase of ARRIS by CommScope, Eero by Amazon and Linksys by Foxconn. Additionally, in the case of Linksys, Foxconn is one of our main third-party manufacturing partners, which presents an additional risk if Foxconn decides to prioritize its interest in Linksys over its relationship with us. If any of these companies are successful in competing against us, our sales could decline, our margins could be negatively impacted and we could lose market share, any of which could seriously harm our business and results of operations.
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Our sales and operations in international markets have exposed us to and may in the future expose us to operational, financial and regulatory risks.
International sales comprise a significant amount of our overall net revenue. International sales were approximately 35% of overall net revenue in the first fiscal quarter of 2024 and approximately 34% of overall net revenue in fiscal 2023. We continue to be committed to growing our international sales, and while we have committed resources to expanding our international operations and sales channels, these efforts may not be successful. For example, in fiscal 2022 we experienced the strengthening of the U.S. dollar, which had a meaningful negative impact on our international revenue and our profitability.
International operations are subject to a number of other risks, including:
While we believe we generally have good relations with our employees, employees in certain jurisdictions have rights which give them certain collective rights. If management must expend significant resources and effort to address and comply with these rights, our business may be harmed. We are also required to comply with local environmental legislation and our customers rely on this compliance in order to sell our products. If our customers do not agree with our interpretations and requirements of new legislation, they may cease to order our products and our revenue would be harmed.
We depend on large, recurring purchases from certain significant customers, and a loss, cancellation or delay in purchases by these customers could negatively affect our revenue.
The loss of recurring orders from any of our more significant customers could cause our revenue and profitability to suffer. Our ability to attract new customers will depend on a variety of factors, including the cost-effectiveness, reliability, scalability, breadth and depth of our products. In addition, a change in the mix of our customers, or a change in the mix of direct and indirect sales, could adversely affect our revenue and gross margins.
Although our financial performance may depend on large, recurring orders from certain customers and resellers, we do not generally have binding commitments from them. For example:
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Further, our revenue may be impacted by significant one-time purchases which are not contemplated to be repeatable. While such purchases are reflected in our financial statements, we do not rely on and do not forecast for continued significant one-time purchases. As a result, lack of repeatable one-time purchases will adversely affect our revenue.
Because our expenses are based on our revenue forecasts, a substantial reduction or delay in sales of our products to, or unexpected returns from, customers and resellers, or the loss of any significant customer or reseller, could harm or otherwise have a negative impact to our operating results. Although our largest customers may vary from period to period, we anticipate that our operating results for any given period will continue to depend on large orders from a small number of customers. This customer concentration increases the risk of quarterly fluctuations in our operating results and our sensitivity to any material, adverse developments experienced by our customers.
The average selling prices of our products typically decrease rapidly over the sales cycle of the product, which may negatively affect our net revenue and gross margins.
Our products typically experience price erosion, a fairly rapid reduction in the average unit selling prices over their respective sales cycles. In order to sell products that have a falling average unit selling price and maintain margins at the same time, we need to continually reduce product and manufacturing costs. To manage manufacturing costs, we must collaborate with our third-party manufacturers to engineer the most cost-effective design for our products. In addition, we must carefully manage the price paid for components used in our products. We must also successfully manage our freight and inventory costs to reduce overall product costs. We also need to continually introduce new products with higher sales prices and gross margins in order to maintain our overall gross margins. If we are unable to manage the cost of older products or successfully introduce new products with higher gross margins, our net revenue and overall gross margin would likely decline.
If we fail to overcome the challenges associated with managing our broadband service provider sales channel, our net revenue and gross profit will be negatively impacted.
We sell a significant number of products through broadband service providers worldwide. However, the service provider sales channel is challenging and exceptionally competitive. Difficulties and challenges in selling to service providers include a longer sales cycle, more stringent product testing and validation requirements, a higher level of customization demands, requirements that suppliers take on a larger share of the risk with respect to contractual business terms, competition from established suppliers, pricing pressure resulting in lower gross margins, and irregular and unpredictable ordering habits. For example, rigorous service provider certification processes may delay our sale of new products, or our products ultimately may fail these tests. In either event, we may lose some or all of the amounts we expended in trying to obtain business from the service provider, as well as lose the business opportunity altogether. In addition, even if we have a product which a service provider customer may wish to purchase, we may choose not to supply products to the potential service provider customer if the contract requirements, such as service level requirements, penalties, and liability provisions, are too onerous. Accordingly, our business may be harmed and our revenues may be reduced. We have, in exceptional limited circumstances, while still in contract negotiations, shipped products in advance of and subject to agreement on a definitive contract. We do not record revenue from these shipments until a definitive contract exists. There is risk that we do not ultimately close and sign a definitive contract. If this occurs, the timing of revenue recognition is uncertain and our business would be harmed. In addition, we often commence building custom-made products prior to execution of a contract in order to meet the customer’s contemplated launch dates and requirements. Service provider products are generally custom-made for a specific customer and may not be scalable to other customers or in other channels. If we have pre-built custom-made products but do not come to agreement on a definitive contract, we may be forced to scrap the custom-made products or re-work them at substantial cost and our business would be harmed.
Further, successful engagements with service provider customers requires a constant analysis of technology trends. If we are unable to anticipate technology trends and service provider customer product needs, and to allocate research and development resources to the right projects, we may not be successful in continuing to sell products to service provider customers. In addition, because our service provider customers command significant resources, including for software support, and demand extremely competitive pricing, certain ODMs have declined to develop service provider products on an ODM basis. Accordingly, as our ODMs increasingly limit development of our service provider products, our service provider business will be harmed if we cannot replace this capability with alternative ODMs or in-house development.
Orders from service providers generally tend to be large but sporadic, which causes our revenues from them to fluctuate and challenges our ability to accurately forecast demand from them. In particular, managing inventory, inventory levels and production of our products for our service provider customers is a challenge and may be further exacerbated by current
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macroeconomic uncertainties and geopolitical instability. Many of our service provider customers have irregular purchasing requirements. These customers may decide to cancel orders for customized products specific to that customer, and we may not be able to reconfigure and sell those products in other channels. These cancellations could lead to substantial write-offs. In addition, these customers may issue unforecasted orders for products which we may not be able to produce in a timely manner and as such, we may not be able to accept and deliver on such unforecasted orders. In certain cases, we may commit to fixed-price, long term purchase orders, with such orders priced in foreign currencies which could lose value over time in the event of adverse changes in foreign exchange rates. Even if we are selected as a supplier, typically a service provider will also designate a second source supplier, which over time will reduce the aggregate orders that we receive from that service provider. Further, as the technology underlying our products deployed by broadband service providers matures and more competitors offer alternative products with similar technology, we anticipate competing in an extremely price sensitive market and our margins may be affected. If we are unable to introduce new products with sufficiently advanced technology to attract service provider interest in a timely manner, our service provider customers may then require us to lower our prices, or they may choose to purchase products from our competitors. If this occurs, our business would be harmed and our revenues would be reduced.
If we were to lose a service provider customer for any reason, we may experience a material and immediate reduction in forecasted revenue that may cause us to be below our net revenue and operating margin expectations for a particular period of time and therefore adversely affect our stock price. For example, many of our competitors in the service provider space aggressively price their products in order to gain market share. We may not be able to match the lower prices offered by our competitors, and we may choose to forgo lower-margin business opportunities. Many of the service provider customers will seek to purchase from the lowest cost provider, notwithstanding that our products may be higher quality or that our products were previously validated for use on their proprietary network. Accordingly, we may lose customers who have lower, more aggressive pricing, and our revenues may be reduced. In addition, service providers may choose to prioritize the implementation of other technologies or the roll out of other services than home networking. Weakness in orders from this industry could have a material adverse effect on our business, operating results, and financial condition. We have seen slowdowns in capital expenditures by certain of our service provider customers in the past and believe there may be potential for similar slowdowns in the future. Any slowdown in the general economy, over supply, consolidation among service providers, regulatory developments and constraint on capital expenditures could result in reduced demand from service providers and therefore adversely affect our sales to them. If we do not successfully overcome these challenges, we will not be able to profitably manage our service provider sales channel and our financial results will be harmed.
We expect our operating results to fluctuate on a quarterly and annual basis, which could cause our stock price to fluctuate or decline.
Our operating results are difficult to predict and may fluctuate substantially from quarter-to-quarter or year-to-year for a variety of reasons, many of which are beyond our control. If our actual results were to fall below our estimates or the expectations of public market analysts or investors, our quarterly and annual results would be negatively impacted and the price of our stock could decline. Other factors that could affect our quarterly and annual operating results include those listed in the risk factors section of this report and others such as:
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As a result, period-to-period comparisons of our operating results may not be meaningful, and you should not rely on them as an indication of our future performance.
* Changes in trade policy in the United States and other countries, including the imposition of tariffs and the resulting consequences, may adversely impact our business, results of operations and financial condition.
International trade disputes, geopolitical tensions, and military conflicts have led, and continue to lead, to new and increasing export restrictions, trade barriers, tariffs, and other trade measures that can increase our manufacturing and transportation costs, limit our ability to sell to certain customers or markets, limit our ability to procure, or increase our costs for, components or raw materials, impede or slow the movement of our goods across borders, or otherwise restrict our ability to conduct operations. Increasing protectionism, economic nationalism, and national security concerns may also lead to further changes in trade policy. For example, when the U.S. government engaged in extended trade negotiations with China, which resulted in the implementation of tariffs on a significant number of products manufactured in China and imported into the United States, we worked closely with our manufacturing partners to implement ways to mitigate the impact of these tariffs on our supply chain as promptly and reasonably as practicable, including shifting production outside of China. We cannot predict what further actions may be taken with respect to export regulations, tariffs or other trade regulations between the United States and other countries, what products or companies may be subject to such actions, or what actions may be taken by other countries in retaliation. In addition, actions to mitigate the effect of these tariffs are disruptive on our operations, may not be completely successful and may result in higher long-term manufacturing costs. Moreover, there is no certainty that countries to which we have shifted our manufacturing operations will not be subject to similar tariffs in the future. As a result, we may be required to raise our prices on certain products, which could result in the loss of customers and harm to our revenue, market share, competitive position and operating performance.
Additionally, the imposition of tariffs is dependent upon the classification of items under the Harmonized Tariff System (“HTS”) and the country of origin of the item. Determination of the HTS and the origin of the item is a technical matter that can be subjective in nature. Accordingly, although we believe our classifications of both HTS and origin are appropriate, there is no certainty that the U.S. government will agree with us. If the U.S. government does not agree with our determinations, we could be required to pay additional amounts, including potential penalties, and our profitability would be adversely impacted.
If disruptions in our transportation network continue to occur or our shipping costs substantially increase again in the future, we may be unable to sell or timely deliver our products, and our net revenue and gross margin could decrease.
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The transportation network is subject to disruption or congestion from a variety of causes, including labor disputes or port strikes, acts of war, terrorism or other geopolitical conflicts, like the Middle East conflict, natural disasters, effects of climate change, pandemics like COVID-19 and congestion resulting from higher shipping volumes. We are highly dependent upon the transportation systems we use to ship our products, including surface and air freight. Our attempts to closely match our inventory levels to our product demand intensify the need for our transportation systems to function effectively and without delay. On a quarterly basis, our shipping volume also tends to steadily increase as the quarter progresses, which means that any disruption in our transportation network in the latter half of a quarter will likely have a more material effect on our business than at the beginning of a quarter. For example, at times during the COVID-19 pandemic, we experienced significant limitations on the availability of key transportation resources and significant increases to the cost of air and ocean freight. When these occur, it has negatively impacted our profitability as we seek to transport an increased number of products from manufacturing locations in Asia to other markets around the world as quickly as possible. Moreover, feeder vessels that move containers to key trans-Pacific terminal locations can be subject to similar impacts due to the timing of container transfers and vessel departure dates. In addition, the global effects of climate change can result in increased frequency and severity of natural disasters that could also disrupt our transportation network. For example, in late November 2020, a giant wave damaged a cargo vessel carrying eight containers of our products, causing a 4-month delay to our shipment which ultimately arrived in Southern California in late March 2021. Furthermore, labor disputes among freight carriers and at ports of entry are common. A port worker strike, work slow-down or other transportation disruption in the ports of Singapore, Rotterdam, Los Angeles or Long Beach, California, where we have significant distribution centers, could significantly disrupt our business. For example, at times, during the course of the COVID-19 pandemic, we had experienced disruptions at the ports, due to multiple factors, such as supply and demand imbalance, a shortage of warehouse workers, truck drivers, and transport equipment (tractors and trailers), and other causes, and had suffered from heightened congestion, bottleneck and gridlock, leading to abnormally high transportation delays. In addition, as mentioned above in the risk factor "Accurately managing our sales channel inventory and product mix within the current environment is challenging, and we have, and may in the future, incur costs associated with excess inventory, or lose sales from having too few products," many of our retail and service provider customers have and continue to reduce their target inventory levels to more closely match with product demand. This further intensifies the need for our transportation systems to function effectively and without delay. Significant disruptions to the transportation network could lead to significant disruptions in our business, delays in shipments, and revenue and profitability shortfalls which could materially and adversely affect our business and financial results, especially if they were to take place within the last few weeks of any quarter.
Our international freight is regularly subjected to inspection by governmental entities. If our delivery times increase unexpectedly for these or any other reasons, our ability to deliver products on time would be materially adversely affected and would result in delayed or lost revenue as well as customer-imposed penalties. Similarly, transportation network disruptions such as those described in the preceding paragraph, may also lead to an increase in transportation costs. For example, the cost of shipping our products by ocean freight had previously increased to at least eight times historical levels and had a corresponding impact upon our profitability. Moreover, the cost of shipping our products by air freight is greater than other methods. From time to time in the past, we have shipped products using extensive air freight to meet unexpected spikes in demand, shifts in demand between product categories, to bring new product introductions to market quickly and to timely ship products previously ordered. If we rely more heavily upon air freight to deliver our products, our overall shipping costs will increase. Just as ocean freight costs had previously increased due to the aforementioned supply chain and transportation disruptions, the cost of air freight had previously increased, as well, up to five times historical levels. While transportation costs have recently decreased, if the cost of ocean and air freight were to significantly increase again, it would severely disrupt our business and harm our operating results, and in particular, our profitability.
Expansion of our operations and infrastructure may strain our operations and increase our operating expenses.
We have expanded our operations and are pursuing market opportunities both domestically and internationally in order to grow our sales. This expansion has required enhancements to our existing management information systems, and operational and financial controls. In addition, if we continue to grow, our expenditures would likely be significantly higher than our historical costs. We may not be able to install adequate controls in an efficient and timely manner as our business grows, and our current systems may not be adequate to support our future operations. The difficulties associated with installing and implementing new systems, procedures and controls may place a significant burden on our management, operational and financial resources. In addition, if we grow internationally, we will have to expand and enhance our communications infrastructure. If we fail to continue to improve our management information systems, procedures and financial controls or encounter unexpected difficulties during expansion and reorganization, our business could be harmed.
For example, we have invested, and will continue to invest, significant capital and human resources in the design and enhancement of our financial and enterprise resource planning systems, which may be disruptive to our underlying business. We depend on these systems in order to timely and accurately process and report key components of our results of operations, financial position and cash flows. If the systems fail to operate appropriately or we experience any disruptions or delays in enhancing their functionality to meet current business requirements, our ability to fulfill customer orders, bill and track our customers, fulfill contractual obligations, accurately report our financials and otherwise run our business could be adversely affected. Even if we do not encounter these adverse effects, the enhancement of systems may be much more costly than we
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anticipated. If we are unable to continue to enhance our information technology systems as planned, our financial position, results of operations and cash flows could be negatively impacted.
As part of growing our business, we have made and expect to continue to make acquisitions. If we fail to successfully select, execute or integrate our acquisitions, then our business and operating results could be harmed and our stock price could decline.
From time to time, we will undertake acquisitions to add new product lines and technologies, gain new sales channels or enter into new sales territories. For example, in August 2018, we acquired Meural Inc., a leader in digital platforms for visual art, to enhance our Connected Home product and service offerings. Acquisitions involve numerous risks and challenges, including but not limited to the following:
As part of undertaking an acquisition, we may also significantly revise our capital structure or operational budget, such as issuing common stock that would dilute the ownership percentage of our stockholders, assuming liabilities or debt, utilizing a substantial portion of our cash resources to pay for the acquisition or significantly increasing operating expenses. Our acquisitions have resulted and may in the future result in charges being taken in an individual quarter as well as future periods, which results in variability in our quarterly earnings. In addition, our effective tax rate in any particular quarter may also be impacted by acquisitions. Following the closing of an acquisition, we may also have disputes with the seller regarding contractual requirements and covenants. Any such disputes may be time consuming and distract management from other aspects of our business. In addition, if we increase the pace or size of acquisitions, we will have to expend significant management time and effort into the transactions and the integrations and we may not have the proper human resources bandwidth to ensure successful integrations and accordingly, our business could be harmed.
As part of the terms of acquisition, we may commit to pay additional contingent consideration if certain revenue or other performance milestones are met. We are required to evaluate the fair value of such commitments at each reporting date and adjust the amount recorded if there are changes to the fair value.
We cannot ensure that we will be successful in selecting, executing and integrating acquisitions. Failure to manage and successfully integrate acquisitions could materially harm our business and operating results. In addition, if stock market analysts or our stockholders do not support or believe in the value of the acquisitions that we choose to undertake, our stock price may decline.
We invest in companies primarily for strategic reasons but may not realize a return on our investments.
We have made, and continue to seek to make, investments in companies around the world to further our strategic objectives and support our key business initiatives. These investments may include equity or debt instruments of public or private
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companies, and may be non-marketable at the time of our initial investment. We do not restrict the types of companies in which we seek to invest. These companies may range from early-stage companies that are often still defining their strategic direction to more mature companies with established revenue streams and business models. If any company in which we invest fails, we could lose all or part of our investment in that company. If we determine that an other-than-temporary decline in the fair value exists for an equity or debt investment in a public or private company in which we have invested, we will have to write down the investment to its fair value and recognize the related write-down as an investment loss. The performance of any of these investments could result in significant impairment charges and gains (losses) on investments. We must also analyze accounting and legal issues when making these investments. If we do not structure these investments properly, we may be subject to certain adverse accounting issues, such as potential consolidation of financial results.
Furthermore, if the strategic objectives of an investment have been achieved, or if the investment or business diverges from our strategic objectives, we may seek to dispose of the investment. Our non-marketable equity investments in private companies are not liquid, and we may not be able to dispose of these investments on favorable terms or at all. The occurrence of any of these events could harm our results. Gains or losses from equity securities could vary from expectations depending on gains or losses realized on the sale or exchange of securities and impairment charges related to debt instruments as well as equity and other investments.
Risks Related to Our Products, Technology and Intellectual Property
We rely upon third parties for technology that is critical to our products, and if we are unable to continue to use this technology and future technology, our ability to develop, sell, maintain and support technologically innovative products would be limited.
We rely on third parties to obtain non-exclusive patented hardware and software license rights in technologies that are incorporated into and necessary for the operation and functionality of most of our products. In these cases, because the intellectual property we license is available from third parties, barriers to entry into certain markets may be lower for potential or existing competitors than if we owned exclusive rights to the technology that we license and use. Moreover, if a competitor or potential competitor enters into an exclusive arrangement with any of our key third-party technology providers, or if any of these providers unilaterally decide not to do business with us for any reason, our ability to develop and sell products containing that technology would be severely limited. If we are shipping products that contain third-party technology that we subsequently lose the right to license, then we will not be able to continue to offer or support those products. In addition, these licenses often require royalty payments or other consideration to the third-party licensor. Our success will depend, in part, on our continued ability to access these technologies, and we do not know whether these third-party technologies will continue to be licensed to us on commercially acceptable terms, if at all. If we are unable to license the necessary technology, we may be forced to acquire or develop alternative technology of lower quality or performance standards, which would limit and delay our ability to offer new or competitive products and increase our costs of production. As a result, our revenue, margins, market share, and operating results could be significantly harmed.
We also utilize third-party software development companies to develop, customize, maintain and support software that is incorporated into our products. For example, we license software from Bitdefender for our NETGEAR Armor cybersecurity services offering and we license software from Circle Media Labs, Inc., a wholly owned subsidiary of Aura, for our parental controls service offering. If these companies fail to timely deliver or continuously maintain and support the software, as we require of them, we may experience delays in releasing new products or difficulties with supporting existing products and customers. In addition, if these third-party licensors fail or experience instability, then we may be unable to continue to sell products that incorporate the licensed technologies in addition to being unable to continue to maintain and support these products. We do require escrow arrangements with respect to certain third-party software which entitle us to certain limited rights to the source code, in the event of certain failures by the third party, in order to maintain and support such software. However, there is no guarantee that we would be able to fully understand and use the source code, as we may not have the expertise to do so. We are increasingly exposed to these risks as we continue to develop and market more products and services containing third-party software, such as our subscription service offerings related to network security and smart parental controls. If we are unable to license the necessary technology, we may be forced to acquire or develop alternative technology, which could be of lower quality or performance standards. The acquisition or development of alternative technology may limit and delay our ability to offer new or competitive products and services and increase our costs of production. As a result, our business, operating results and financial condition could be materially adversely affected.
Product security vulnerabilities, system security risks, data protection breaches, cyber-attacks and improper use of artificial intelligence (“AI”) tools, could disrupt our products, services, internal operations or information technology systems, and any such disruption could increase our expenses, damage our reputation, harm our business and adversely affect our stock price.
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Our products and services may contain unknown security vulnerabilities. For example, the firmware, software and open source software that we or our manufacturing partners have installed on our products may be susceptible to hacking or misuse. We devote considerable time and resources to uncovering and remedying these vulnerabilities, using both internal and external resources, but the threats to network and data security are increasingly diverse and sophisticated and we continue to implement additional protections and increase our monitoring and threat intelligence. Despite our efforts and processes to prevent breaches, our systems and products are potentially vulnerable to cybersecurity risks, including cyber-attacks such as viruses and worms, vulnerabilities such as command injection, cross site scripting, authentication and session management, and stack-based buffer overflow, and other sophisticated attacks or exploits. It is also possible that an attacker could compromise our internal code repository or those of our partners and insert a ‘backdoor’ that would give them easy access to any of our devices using this code. This particular kind of attack is very sophisticated, relatively new, and hard to defend against. We may not be able to discover these vulnerabilities, and we may not be able to remedy these vulnerabilities in a timely manner, or at all, which may impact our brand and reputation and harm our business. These attacks could lead to interruptions, delays, loss of critical data, unauthorized access to user data, and loss of consumer confidence. If successful, these attacks could adversely affect our business, operating results, and financial condition, be expensive to remedy, and damage our reputation. In addition, any such breaches may result in negative publicity, adversely affect our brand, decrease demand for our products and services, and adversely affect our operating results and financial condition. Further, under certain circumstances, we may need to prioritize fixing these vulnerabilities over new product development, which may impact our revenues and adversely affect our business.
In addition, we offer a comprehensive online cloud management service paired with a number of our products. If malicious actors compromise this cloud service, or if customer confidential information is accessed without authorization, our business and reputation would be harmed. Operating an online cloud service is a relatively new business for us and we may not have the expertise to properly manage risks related to data security and systems security. In addition, we make our products available for purchase directly by consumers through our website. We rely on third-party providers for a number of critical aspects of our cloud services, e-commerce site and customer support, including web hosting services, billing and payment processing, and consequently we do not maintain direct control over the security or stability of the associated systems.
Maintaining the security of our computer information systems and communication systems is a critical issue for us and our customers. Malicious actors may develop and deploy malware that is designed to manipulate our products and systems, including our internal network, or those of our vendors or customers. Additionally, outside parties may attempt to fraudulently induce our employees to disclose sensitive information in order to gain access to our information technology systems, our data or our customers’ data. We have established a crisis management plan, business continuity program, information security incident response plan and Generative AI policy. While we regularly test and update these plans, policy and program, there can be no assurance that the plans, policy and program can withstand an actual or serious disruption in our business, including a data protection breach or cyber-attack. While we have established infrastructure and geographic redundancy for our critical systems, our ability to utilize these redundant systems requires further testing and we cannot be assured that such systems are fully functional. For example, much of our order fulfillment process is automated and the order information is stored on our servers. A significant business interruption could result in losses or damages and harm our business. As a result of the COVID-19 pandemic, most of our major offices worldwide are operating under hybrid work model, allowing employees the flexibility to work from home and at the workplace. Work from home arrangements present additional cybersecurity risks, including potential increases in malware and phishing attacks, greater challenges to secure home office data, and potential service degradation or disruption to key internal business applications and third-party services. Although we have taken measures to address these risks, they present challenges that could impact business operations and could cause recovery times to increase. If our computer systems and servers become unavailable at the end of a fiscal quarter, our ability to recognize revenue may be delayed until we are able to utilize back-up systems and continue to process and ship our orders, this could cause our stock price to decline significantly.
We devote considerable internal and external resources to network security, data encryption and other security measures to protect our systems and customer data, but these security measures cannot provide absolute security. In addition, U.S. and foreign regulators have increased their focus on cybersecurity vulnerabilities and risks and many states, countries and jurisdictions strictly regulate data privacy and protection and may impose significant penalties for failure to comply with these requirements. Compliance with laws and regulations concerning artificial intelligence, privacy, cybersecurity, data governance and data protection is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms ensuring compliance with the laws and regulations and incur substantial expenditures. If we fail to comply with any such laws or regulations, we may face significant fines and penalties that could adversely affect our business, financial condition and results of operations. Furthermore, the laws are not consistent, and compliance in the event of a widespread data breach is costly.
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Potential breaches of our security measures and the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us, our employees or our customers, including the potential loss or disclosure of such information or data as a result of improper use of AI tools, employee error or other employee actions, hacking, fraud, social engineering or other forms of deception, could expose us, our customers or the individuals affected to a risk of loss or misuse of this information, result in litigation and potential liability for us, subject us to significant governmental fines, damage our brand and reputation, or otherwise harm our business.
Our management has spent increasing amounts of time, effort and expense in this area, and in the event of the discovery of significant product or system security vulnerability, or improper use of AI tools or other cybersecurity incidents, we could incur additional substantial expenses and our business and reputation could be harmed. If we or our third-party providers are unable to successfully prevent breaches of security relating to our products, services, systems or customer private information, including customer personal identification information, or if these third-party systems failed for other reasons, it could result in litigation and potential liability for us, damage our brand and reputation, or otherwise harm our business.
* If we are unable to successfully leverage AI technology to automate and drive efficiencies in our operations and products and services, our business, reputation, results of operations and financial condition could be harmed.
We have embarked on an AI transformation effort to take full advantage of automation, artificial intelligence, machine learning and other technologies to drive efficiencies and improve productivity in our operations and to develop and improve our products, services and customer experiences. As we increase our investment in technology, software and systems to support this transformation effort, such investments may not increase productivity, result in more efficient operations or deliver better products, services and customer experiences. In addition, the evolution of these technologies may create unforeseen competitive pressures or cause disruption or delays to our operations, which may harm our business. Our competitors may incorporate AI technologies into their products and services more quickly or more successfully than us and could impair our ability to compete effectively and adversely affect our results of operations. Additionally, AI algorithms and training methodologies may be flawed, and the use of AI has been known to result in, and may in the future result in cybersecurity incidents. Further, the rapid evolution of AI may require the dedication of significant resources to develop, test and maintain AI technologies. If our incorporation of AI technologies does not increase our operational efficiency in accordance with our expectations, or if competition increases for the technology and services provided by third parties, our business, results of operations and financial condition may be harmed. The legal and regulatory landscape surrounding generative AI technologies is rapidly evolving and uncertain including in the areas of intellectual property, discrimination, cybersecurity, privacy and data protection. Compliance with existing, new, and changing laws, regulations, and industry standards relating to AI may limit some uses of AI, impose significant operational costs, and limit our ability to develop, deploy, or use AI technologies. Further, the continued integration of any AI technologies into our products and services may result in new or enhanced governmental or regulatory scrutiny. Failure to appropriately respond to this evolving landscape may result in legal liability, regulatory action, or brand and reputational harm.
We make substantial investments in software research and development and unsuccessful investments could materially adversely affect our business, financial condition and results of operations.
We continue to evolve our historically hardware-centric business model towards a model that includes more sophisticated software offerings, including subscription services and applications that complement our products and are intended to drive subscriber growth and future recurring revenue. As such, we have evolved the focus of our organization towards the delivery of more integrated hardware and software solutions for our customers, as well as related services, and we have and will continue to expend additional resources in this area in the future, including key new hires. Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations and insufficient revenue to offset expenses associated with this strategy. Software development is inherently risky for a company such as ours with a historically hardware-centric business model, and accordingly, our efforts in software development may not be successful and could materially adversely affect our financial condition and operating results.
If we cannot proportionately decrease our cost structure in response to competitive price pressures, our gross margin and, therefore, our profitability could be adversely affected. In addition, if our software solutions, services, applications, pricing and other factors are not sufficiently competitive, or if there is an adverse reaction to our product and services decisions, we may lose market share in certain areas, which could adversely affect our revenue, profitability and prospects.
Software research and development is complex. We must make long-term investments, develop or obtain appropriate intellectual property and commit significant resources before knowing whether our output from these investments will
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successfully result in meaningful customer demand and retention for our products and services. We must accurately forecast mixes of software solutions and configurations that meet customer requirements, and we may not succeed at doing so within a given product’s life cycle or at all. Any delay in the development, production or marketing of a new software solution could result in us not being among the first to market, which could further harm our competitive position. In addition, our regular testing and quality control efforts may not be effective in controlling or detecting all quality issues and defects. We may be unable to determine the cause, find an appropriate solution or offer a temporary fix to address defects. Finding solutions to quality issues or defects can be expensive and may result in additional warranty, replacement and other costs, adversely affecting our profits. If new or existing customers have difficulty with our software solutions or are dissatisfied with our services, our operating margins could be adversely affected, and we could face possible claims if we fail to meet our customers’ expectations. In addition, quality issues can impair our relationships with new or existing customers and adversely affect our brand and reputation, which could adversely affect our operating results.
If our products contain defects or errors, we could incur significant unexpected expenses, experience product returns and lost sales, experience product recalls, suffer damage to our brand and reputation, and be subject to product liability or other claims.
Our products are complex and may contain defects, errors or failures, particularly when first introduced or when new versions are released. The industry standards upon which many of our products are based are also complex, experience change over time and may be interpreted in different manners. Some errors and defects may be discovered only after a product has been installed and used by the end-user. As also noted in the risk factor “We make substantial investments in software research and development and unsuccessful investments could materially adversely affect our business, financial condition and results of operations” above, we devote considerable time and resources on testing and quality control efforts to detect quality issues and defects, and any reallocation of resources to fix such quality issues and defects could lead to delays in product introductions, which could further harm our competitive position.
In addition, epidemic failure clauses are found in certain of our customer contracts, especially contracts with service providers. If invoked, these clauses may entitle the customer to return for replacement or obtain credits for products and inventory, as well as assess liquidated damage penalties and terminate an existing contract and cancel future or then current purchase orders. In such instances, we may also be obligated to cover significant costs incurred by the customer associated with the consequences of such epidemic failure, including freight and transportation required for product replacement and out-of-pocket costs for truck rolls to end user sites to collect the defective products. Costs or payments we make in connection with an epidemic failure may materially adversely affect our results of operations and financial condition. If our products contain defects or errors, or are found to be noncompliant with industry standards, we could experience decreased sales and increased product returns, loss of customers and market share, and increased service, warranty and insurance costs. In addition, defects in, or misuse of, certain of our products could cause safety concerns, including the risk of property damage or personal injury. If any of these events occurred, our reputation and brand could be damaged, and we could face product liability or other claims regarding our products, resulting in unexpected expenses and adversely impacting our operating results. For instance, if a third party were able to successfully overcome the security measures in our products, such a person or entity could misappropriate customer data, third party data stored by our customers and other information, including intellectual property and personal information. In addition, the operations of our end-user customers may be interrupted. If that happens, affected end-users or others may file actions against us alleging product liability, tort, or breach of warranty claims.
Our user growth, engagement, and monetization of our subscription services on mobile devices depend upon effective operation with mobile operating systems, networks, technologies, products, and standards that we do not control.
The substantial majority of our revenue from our subscription services is generated from use of such services on mobile devices. We are dependent on the interoperability of Armor and our parental controls services and our other products and services with popular mobile operating systems, networks, technologies, products, and standards that we do not control, such as the Android and iOS operating systems and mobile browsers. Any changes, bugs, or technical issues in such systems, or changes in our relationships with mobile operating system partners, handset manufacturers, browser developers, or mobile carriers, or in their terms of service or policies that degrade our products’ functionality, reduce or eliminate our ability to update or distribute our products or services, give preferential treatment to competitive products, or charge fees related to the distribution of our products could adversely affect the usage of our subscription services products or our other products and services on mobile devices. We may not be successful in maintaining or developing relationships with key participants in the mobile ecosystem or in developing products and services that operate effectively with these technologies, products, systems, networks, or standards. In the event that it is more difficult for our users to access and use our subscription services products
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or our other products on their mobile devices, or if our users choose not to access or use our subscription services products or our other products on their mobile devices, our user growth and user engagement and our business could be harmed.
If we are unable to secure and protect our intellectual property rights, our ability to compete could be harmed.
We rely upon third parties for a substantial portion of the intellectual property that we use in our products. At the same time, we rely on a combination of copyright, trademark, patent and trade secret laws, nondisclosure agreements with employees, consultants and suppliers and other contractual provisions to establish, maintain and protect our intellectual property rights and technology. Despite efforts to protect our intellectual property, unauthorized third parties may attempt to design around, copy aspects of our product design or obtain and use technology or other intellectual property associated with our products. For example, one of our primary intellectual property assets is the NETGEAR name, trademark and logo. We may be unable to stop third parties from adopting similar names, trademarks and logos, particularly in those international markets where our intellectual property rights may be less protected. Furthermore, our competitors may independently develop similar technology or design around our intellectual property. In addition, we manufacture and sell our products in many international jurisdictions that offer reduced levels of protection and recourse from intellectual property misuse or theft, as compared to the United States. Our inability to secure and protect our intellectual property rights could significantly harm our brand and business, operating results and financial condition.
Financial, Legal, Regulatory and Tax Compliance Risks, Including Recent Impairment Charges
We are currently involved in numerous litigation matters in the ordinary course and may in the future become involved in additional litigation, including litigation regarding intellectual property rights, consumer class actions and securities class actions, any of which could be costly and subject us to significant liability.
The networking industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding infringement of patents, trade secrets and other intellectual property rights. In particular, leading companies in the data communications markets, some of which are our competitors, have extensive patent portfolios with respect to networking technology. From time to time, third parties, including these leading companies, have asserted and may continue to assert exclusive patent, copyright, trademark and other intellectual property rights against us demanding license or royalty payments or seeking payment for damages, injunctive relief and other available legal remedies through litigation. These also include third-party non-practicing entities who claim to own patents or other intellectual property that cover industry standards that our products comply with. If we are unable to resolve these matters or obtain licenses on acceptable or commercially reasonable terms, we could be sued or we may be forced to initiate litigation to protect our rights. The cost of any necessary licenses could significantly harm our business, operating results and financial condition. We may also choose to join defensive patent aggregation services in order to prevent or settle litigation against such non-practicing entities and avoid the associated significant costs and uncertainties of litigation. These patent aggregation services may obtain, or have previously obtained, licenses for the alleged patent infringement claims against us and other patent assets that could be used offensively against us. The costs of such defensive patent aggregation services, while potentially lower than the costs of litigation, may be significant as well. At any time, any of these non-practicing entities, or any other third-party could initiate litigation against us, or we may be forced to initiate litigation against them, which could divert management attention, be costly to defend or prosecute, prevent us from using or selling the challenged technology, require us to design around the challenged technology and cause the price of our stock to decline. In 2022, a third-party initiated litigation against us in Germany and China, which carries with it the threat of an injunction on the importation of our products into Germany and China, as well as a significant increase in time and resources to defend against. In addition, several third-party non practicing entities have initiated litigation against us in China, which also raises novel and unique challenges for us. For example, we have experienced that patent litigation in China proceeds along a faster timeline, is more costly than we anticipated, carries a greater risk of injunction, and suffers from a relative lack of judicial development relative to patent litigation in the United States. In addition, third parties, some of whom are potential competitors, have initiated and may continue to initiate litigation against our manufacturers, suppliers, members of our sales channels or our service provider customers or even end user customers, alleging infringement of their proprietary rights with respect to existing or future products. In the event successful claims of infringement are brought by third parties, and we are unable to obtain licenses or independently develop alternative technology on a timely basis, we may be subject to indemnification obligations, be unable to offer competitive products, or be subject to increased expenses. Consumer class-action lawsuits related to the marketing and performance of our home networking products have been asserted and may in the future be asserted against us. Finally, we have been sued in securities class action lawsuits, and may in the future be named in other similar lawsuits. For additional information regarding certain of the lawsuits in which we are involved, see the information set forth in Note 8, Commitments and Contingencies, in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q. If we do not resolve these claims on a favorable basis, our business, operating results and financial condition could be significantly harmed.
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We have been exposed to and may in the future be exposed to adverse currency exchange rate fluctuations in jurisdictions where we transact in local currency, which could harm our financial results and cash flows.
Because a significant portion of our business is conducted outside the United States, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve, and they could have a material adverse impact on our results of operations, financial position and cash flows. Although a portion of our international sales are currently invoiced in United States dollars, we have implemented and continue to implement for certain countries and customers both invoicing and payment in foreign currencies. Our primary exposure to movements in foreign currency exchange rates relates to non-U.S. dollar denominated sales in Europe, Japan and Australia as well as our global operations, and non-U.S. dollar denominated operating expenses and certain assets and liabilities. In addition, weaknesses in foreign currencies for U.S. dollar denominated sales could adversely affect demand for our products. For example, the volatility and strengthening of the U.S. dollar in 2022 had a meaningful negative impact on our international revenue and our profitability. Conversely, a strengthening in foreign currencies against the U.S. dollar could increase foreign currency denominated costs. As a result, we may attempt to renegotiate pricing of existing contracts or request payment to be made in U.S. dollars. We cannot be sure that our customers would agree to renegotiate along these lines. This could result in customers eventually terminating contracts with us or in our decision to terminate certain contracts, which would adversely affect our sales.
We hedge our exposure to fluctuations in foreign currency exchange rates as a response to the risk of changes in the value of foreign currency-denominated assets and liabilities. We may enter into foreign currency forward contracts or other instruments, the majority of which mature within approximately five months. Our foreign currency forward contracts reduce, but do not eliminate, the impact of currency exchange rate movements. For example, we do not execute forward contracts in all currencies in which we conduct business. In addition, we hedge to reduce the impact of volatile exchange rates on net revenue, gross profit and operating profit for limited periods of time. However, the use of these hedging activities may only offset a portion of the adverse financial effect resulting from unfavorable movements in foreign exchange rates.
We are exposed to the credit risk of some of our customers and to credit exposures, including bank failures, in weakened markets, which could result in material losses.
A substantial portion of our sales are on an open credit basis, with typical payment terms of 30 to 60 days in the United States and, because of local customs or conditions, longer in some markets outside the United States. We monitor individual customer financial viability in granting such open credit arrangements, seek to limit such open credit to amounts we believe the customers can pay, and maintain reserves we believe are adequate to cover exposure for doubtful accounts.
In the past, there have been bankruptcies amongst our customer base, and certain of our customers’ businesses face financial challenges that put them at risk of future bankruptcies. Although losses resulting from customer bankruptcies have not been material to date, any future bankruptcies could harm our business and have a material adverse effect on our operating results and financial condition. In addition, recent banking sector troubles and liquidity concerns in the financial services industry have impacted certain of our suppliers. Although such impacts have not resulted in material losses to date, any future bank sector disruptions could harm our business and have a material adverse effect on our operating results and financial condition. Furthermore, to the degree that turmoil in the credit markets makes it more difficult for some customers to obtain financing, our customers’ ability to pay could be adversely impacted, which in turn could have a material adverse impact on our business, operating results, and financial condition.
* Changes in tax laws or exposure to additional income tax liabilities could affect our future profitability.
Factors that could materially affect our future effective tax rates include but are not limited to:
We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective tax rate has fluctuated in the past and may fluctuate in the future. Future effective tax rates could be affected by changes in the composition of earnings in countries with differing tax rates, changes in deferred tax assets and liabilities, or changes in tax laws. Foreign jurisdictions have increased the volume of tax audits of multinational corporations. Further, many countries continue to consider changes in
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their tax laws by implementing new taxes such as the digital service tax and initiatives such as the Organization for Economic Co-operation and Development’s (OECD) Pillar II global minimum tax. More than 140 countries agreed to enact the Pillar II global minimum tax. While the OECD issued a framework model, each country will enact its own laws to incorporate Pillar II. While Pillar II is a global model, the country by country enactment of different laws to incorporate the framework is complex and there is uncertainty as to how the enactment of these laws will impact the Company. These changes could increase our total tax burden in the future. In addition, the acceleration of employee mobility as a result of the pandemic potentially increases the jurisdictional tax risk of our workforce. Changes in tax laws could affect the distribution of our earnings, result in double taxation and adversely affect our results.
The Tax Cuts and Jobs Act of 2017 included provisions effective for the 2022 tax year that eliminate the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years for domestic payments and 15 years for payments to foreign parties. These provisions have not been deferred, modified, or repealed by Congress as was previously anticipated might occur. These provisions have a material impact on our cash taxes which will continue in the future if these provisions are not modified, or repealed by Congress.
We have been audited by the Italy Tax Authority (“ITA”) for the 2004 through 2012 tax years. The ITA examination included an audit of income, gross receipts and value-added taxes. We have been in litigation with the ITA for the 2004 through 2012 years. This litigation was appealed by the ITA to the Italian Supreme Court. Our hearing on all years at the Italian Supreme Court was held on March 6, 2024. As of March 31, 2024, decisions were issued in the Company’s favor for the 2008 through 2012 tax years. As of the March 31, 2024 decisions on the 2004 through 2007 tax years had not yet been issued. If we are unsuccessful in defending our tax positions for the remaining years, our profitability will be reduced.
We are also subject to examination by other tax authorities, including state revenue agencies and other foreign governments. While we regularly assess the likelihood of favorable or unfavorable outcomes resulting from examinations by the IRS and other tax authorities to determine the adequacy of our provision for income taxes, there can be no assurance that the actual outcome resulting from these examinations will not materially adversely affect our financial condition and operating results. Additionally, the IRS and several foreign tax authorities have increasingly focused attention on intercompany transfer pricing with respect to sales of products and services and the use of intangibles. Tax authorities could disagree with our intercompany charges, cross-jurisdictional transfer pricing or other matters and assess additional taxes. If we do not prevail in any such disagreements, our profitability may be affected.
Historically the computation of our tax provision assumes that we will have sufficient profitability in the respective jurisdictions to continue to record deferred tax assets without a valuation allowance. As of the period ended October 1, 2023, we determined that it was no longer more likely than not that we would have sufficient profitability to realize the U.S. federal and state deferred tax assets. Accordingly, we recorded a full valuation allowance to impair U.S. federal and state deferred tax assets. Future benefit of these deferred tax assets will be realized in the period they are utilized.
We are subject to, and must remain in compliance with, numerous laws and governmental regulations concerning the manufacturing, use, distribution and sale of our products, as well as any such future laws and regulations. Some of our customers also require that we comply with their own unique requirements relating to these matters. Any failure to comply with such laws, regulations and requirements, and any associated unanticipated costs, may adversely affect our business, financial condition and results of operations.
We manufacture and sell products which contain electronic components, and such components may contain materials that are subject to government regulation in both the locations that we manufacture and assemble our products, as well as the locations where we sell our products. For example, certain regulations limit the use of lead in electronic components. To our knowledge, we maintain compliance with all applicable current government regulations concerning the materials utilized in our products, for all the locations in which we operate. Since we operate on a global basis, this is a complex process which requires continual monitoring of regulations and an ongoing compliance process to ensure that we and our suppliers are in compliance with all existing regulations. There are areas where new regulations have been enacted which could increase our cost of the components that we utilize or require us to expend additional resources to ensure compliance. For example, the SEC’s “conflict minerals” rules apply to our business, and we expended significant resources to ensure compliance. The implementation of these requirements by government regulators and our partners and/or customers could adversely affect the sourcing, availability, and pricing of minerals used in the manufacture of certain components used in our products. In addition, the supply-chain due diligence investigation required by the conflict minerals rules require expenditures of resources and management attention regardless of the results of the investigation. If there is an unanticipated new regulation which significantly impacts our use of various components or requires more expensive components, that regulation would have a material adverse impact on our business, financial condition and results of operations.
59
One area which has a large number of regulations is environmental compliance. Management of environmental pollution, climate change and other ESG considerations has produced significant legislative and regulatory efforts on a global basis, and we believe this will continue both in scope and the number of countries participating. These changes could directly increase the cost of energy which may have an impact on the way we manufacture products or utilize energy to produce our products. In addition, any new regulations or laws in the environmental area might increase the cost of raw materials we use in our products. Environmental regulations require us to reduce product energy usage, monitor and exclude an expanding list of restricted substances and to participate in required recover and recycling of our products. While future changes in regulations are certain, we are currently unable to predict how any such changes will impact us and if such impacts will be material to our business. If there is a new law or regulation that significantly increases our costs of manufacturing or causes us to significantly alter the way that we manufacture our products, this would have a material adverse effect on our business, financial condition and results of operations.
Our selling and distribution practices are also regulated in large part by U.S. federal and state as well as foreign antitrust and competition laws and regulations. In general, the objective of these laws is to promote and maintain free competition by prohibiting certain forms of conduct that tend to restrict production, raise prices, or otherwise control the market for goods or services to the detriment of consumers of those goods and services. Potentially prohibited activities under these laws may include unilateral conduct, or conduct undertaken as the result of an agreement with one or more of our suppliers, competitors, or customers. The potential for liability under these laws can be difficult to predict as it often depends on a finding that the challenged conduct resulted in harm to competition, such as higher prices, restricted supply, or a reduction in the quality or variety of products available to consumers. We utilize a number of different distribution channels to deliver our products to the end consumer, and regularly enter agreements with resellers of our products at various levels in the distribution chain that could be subject to scrutiny under these laws in the event of private litigation or an investigation by a governmental competition authority. In addition, many of our products are sold to consumers via the Internet. Many of the competition-related laws that govern these Internet sales were adopted prior to the advent of the Internet, and, as a result, do not contemplate or address the unique issues raised by online sales. New interpretations of existing laws and regulations, whether by courts or by the state, federal or foreign governmental authorities charged with the enforcement of those laws and regulations, may also impact our business in ways we are currently unable to predict. Any failure on our part or on the part of our employees, agents, distributors or other business partners to comply with the laws and regulations governing competition can result in negative publicity and diversion of management time and effort and may subject us to significant litigation liabilities and other penalties.
In addition to government regulations, many of our customers require us to comply with their own requirements regarding manufacturing, health and safety matters, corporate social responsibility, employee treatment, anti-corruption, use of materials, environmental concerns and other ESG considerations. Some customers may require us to periodically report on compliance with their unique requirements, and some customers reserve the right to audit our business for compliance. We are increasingly subject to requests for compliance with these customer requirements. For example, there has been significant focus from our customers as well as the press regarding corporate social responsibility policies and other ESG considerations. We regularly audit our manufacturers; however, any deficiencies in compliance by our manufacturers may harm our business and our brand. In addition, we may not have the resources to maintain compliance with these customer requirements and failure to comply may result in decreased sales to these customers, which may have a material adverse effect on our business, financial condition and results of operations.
We must comply with indirect tax laws in multiple jurisdictions, as well as complex customs duty regimes worldwide. Audits of our compliance with these rules may result in additional liabilities for taxes, duties, interest and penalties related to our international operations which would reduce our profitability.
Our operations are routinely subject to audit by tax authorities in various countries. Many countries have indirect tax systems where the sale and purchase of goods and services are subject to tax based on the transaction value. These taxes are commonly referred to as sales and/or use tax, value-added tax ("VAT") or goods and services tax ("GST"). In addition, the distribution of our products subjects us to numerous complex customs regulations, which frequently change over time. Failure to comply with these systems and regulations can result in the assessment of additional taxes, duties, interest and penalties. While we believe we are in compliance with local laws, we cannot assure that tax and customs authorities would agree with our reporting positions and upon audit may assess us additional taxes, duties, interest and penalties.
Additionally, some of our products are subject to U.S. export controls, including the Export Administration Regulations and economic sanctions administered by the Office of Foreign Assets Control. We also incorporate encryption technology into certain of our solutions. These encryption solutions and underlying technology may be exported outside of the United States
60
only with the required export authorizations or exceptions, including by license, a license exception, appropriate classification notification requirement and encryption authorization.
Furthermore, our activities are subject to U.S. economic sanctions laws and regulations that prohibit the shipment of certain products and services without the required export authorizations, including to countries, governments and persons targeted by U.S. embargoes or sanctions. Additionally, the current U.S. administration has been critical of existing trade agreements and may impose more stringent export and import controls. Obtaining the necessary export license or other authorization for a particular sale may be time consuming and may result in delay or loss of sales opportunities even if the export license ultimately is granted. While we take precautions to prevent our solutions from being exported in violation of these laws, including using authorizations or exceptions for our encryption products and implementing IP address blocking and screenings against U.S. government and international lists of restricted and prohibited persons and countries, we have not been able to guarantee, and cannot guarantee that the precautions we take will prevent all violations of export control and sanctions laws, including if purchasers of our products bring our products and services into sanctioned countries without our knowledge. Violations of U.S. sanctions or export control laws can result in significant fines or penalties and incarceration could be imposed on employees and managers for criminal violations of these laws.
Also, various countries, in addition to the United States, regulate the import and export of certain encryption and other technology, including import and export licensing requirements, and have enacted laws that could limit our ability to distribute our products and services or our end-users’ ability to utilize our solutions in their countries. Changes in our products and services or changes in import and export regulations may create delays in the introduction of our products in international markets.
Adverse action by any government agencies related to indirect tax laws could materially adversely affect our business, operating results and financial condition.
We are exposed to credit risk and fluctuations in the market values of our investment portfolio.
Although we have not recognized any material losses on our cash equivalents and short-term investments, future declines in their market values could have a material adverse effect on our financial condition and operating results. Given the global nature of our business, we have investments with both domestic and international financial institutions. Accordingly, we face exposure to fluctuations in interest rates, which may limit our investment income. If these financial institutions default on their obligations or their credit ratings are negatively impacted by liquidity issues, credit deterioration or losses, financial results, or other factors, the value of our cash equivalents and short-term investments could decline and result in a material impairment, which could have a material adverse effect on our financial condition and operating results.
Governmental regulations of imports or exports affecting Internet security could affect our net revenue.
Any additional governmental regulation of imports or exports or failure to obtain required export approval of our encryption technologies could adversely affect our international and domestic sales. The United States and various foreign governments have imposed controls, export license requirements, and restrictions on the import or export of some technologies, particularly encryption technology. In addition, from time to time, governmental agencies have proposed additional regulation of encryption technology, such as requiring the escrow and governmental recovery of private encryption keys. In response to terrorist activity, governments could enact additional regulation or restriction on the use, import, or export of encryption technology. This additional regulation of encryption technology could delay or prevent the acceptance and use of encryption products and public networks for secure communications, resulting in decreased demand for our products and services. In addition, some foreign competitors are subject to less stringent controls on exporting their encryption technologies. As a result, they may be able to compete more effectively than we can in the United States and the international Internet security market.
If our goodwill becomes impaired, as occurred in 2022, we may be required to record a significant charge to earnings.
Goodwill is required to be tested for impairment at least annually. Factors that may be considered when determining if the carrying value of our goodwill may not be recoverable include a significant decline in our expected future cash flows or a sustained, significant decline in our stock price and market capitalization.
As a result of our acquisitions, we have significant goodwill recorded on our balance sheets. In addition, significant negative industry or economic trends, such as those that have occurred as a result of the recent economic downturn, including reduced estimates of future cash flows or disruptions to our business could indicate that goodwill might be impaired. If, in any period
61
our stock price decreases to the point where our market capitalization is less than our book value, this too could indicate a potential impairment and we may be required to record an impairment charge in that period. Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on projections of future operating performance. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit. For example, in 2022, the market price of our common stock and market capitalization declined and the U.S. WiFi market contracted, which had a significant negative impact on our Connected Home business. As a result, we recognized a goodwill impairment charge in the first quarter of 2022. We have not recognized any impairment charge on our NETGEAR for Business reporting unit. However, we operate in highly competitive environments and projections of future operating results and cash flows may vary significantly from actual results. As a result, we may incur substantial impairment charges to earnings in our financial statements should an impairment of our goodwill be determined on our NETGEAR for Business reporting unit, resulting in an adverse impact on our results of operations.
General Risk Factors
* If we lose the services of our key personnel, we may not be able to execute our business strategy effectively.
Changes in our management team may disrupt our business, strategic and employee relationships, which may delay or prevent the achievement of our business objectives. During the transition periods, there may be uncertainty among investors, employees and others concerning our future direction and performance. For example, we appointed a new Chief Executive Officer effective January 31, 2024 and are undergoing a leadership change to our NETGEAR for Business reporting unit. The failure to successfully transition could adversely affect our results of operations. Our future success depends in large part upon the continued services of our key technical, engineering, sales, marketing, finance and senior management personnel. We do not maintain any key person life insurance policies. Our business model requires extremely skilled and experienced senior management who are able to withstand the rigorous requirements and expectations of our business. Our success depends on senior management being able to execute at a very high level. The loss of any of our senior management or other key engineering, research, development, sales or marketing personnel, particularly if lost to competitors, could harm our ability to implement our business strategy and respond to the rapidly changing needs of our business. Our future success also depends on our ability to hire for key functions. The market for talent in the technology industry, especially in the areas of software and subscription services is competitive, and we may not have the resources to compete at the same level as larger companies who are able to offer more compelling compensation packages. Therefore, our ability to recruit new talent and retain existing talent may be adversely affected, and as a result our business as a whole may suffer. While we believe that we have mitigated some of the business execution and business continuity risk with our organization into two business segments with separate leadership teams, the loss of any key personnel would still be disruptive and harm our business, especially given that our business is leanly staffed and relies on the expertise and high performance of our key personnel.
Global economic conditions could materially adversely affect our revenue and results of operations.
Our business has been and may continue to be affected by a number of factors that are beyond our control, such as general geopolitical, economic and business conditions, conditions in the financial markets, and changes in the overall demand for Pro AV, networking and smart home products. A severe and/or prolonged economic downturn could adversely affect our customers’ financial condition and the levels of business activity of our customers. Weakness in, and uncertainty about, global economic conditions may cause businesses to postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values, which could have a material negative effect on the demand for networking products. Adverse changes in economic conditions, including inflation, slower growth or recession, new or increased tariffs and other barriers to trade, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment and currency fluctuations could adversely impact the demand and sale of our products to end users and the quantity of products our customers decide to purchase from us (or change the mix of products demanded) and make it more challenging to forecast our operating results and make business decisions. For example, during the fourth quarter of 2022, our APAC sales were dampened by a sudden economic downturn in China due to sudden, widespread COVID-19 infections and illnesses.
The uncertainty in global and regional economic conditions have also affected the financial markets and financial institutions on which we rely and have resulted in a number of adverse effects including a low level of liquidity in many financial markets, banking sector disruptions, extreme volatility in credit, equity, currency and fixed income markets, instability in the stock market, high inflation and high unemployment. Macroeconomic weakness and uncertainty also make it more difficult for us to accurately forecast revenue, gross margin and expenses. If we are unable to successfully anticipate changing economic, geopolitical and financial conditions, we may be unable to effectively plan for and respond to those changes which
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could further disrupt our business or limit our ability to access certain assets and materially adversely affect our business and results of operations.
In addition, availability of our products from third-party manufacturers and our ability to distribute our products into the United States and non-U.S. jurisdictions may be impacted by factors such as an increase in duties, tariffs or other restrictions on trade; raw material shortages or price increases, work stoppages, strikes and political unrest; uncertain economic conditions; economic crises and international disputes or conflicts; changes in leadership and the political climate in countries from which we import products; and failure of the United States to maintain normal trade relations with China and other countries. Any of these occurrences could materially adversely affect our business, operating results and financial condition.
Furthermore, uncertainty about, or worsening of economic conditions could adversely affect consumer sentiment and demand for our products and services. Consumer confidence and spending could be adversely affected by financial market volatility, negative financial news, conditions in the real estate, mortgage and technology markets, declines in income or asset values, changes to fuel and other energy costs, labor reductions, labor and healthcare costs and other economic factors. This could also impact the quantity of products our customers decide to purchase from us and may have a longer-term impact on the inventory levels these customers choose to carry. Lower demands could also impact manufacturing capacity utilization and contribute to further increased component costs. These and other economic factors could materially and adversely affect our revenue and results of operations.
Political events, war, terrorism, public health issues, climate changes, natural disasters, sudden changes in trade and immigration policies, and other circumstances could materially adversely affect us.
Our corporate headquarters are located in Northern California and one of our warehouses is located in Southern California. Substantially all of our critical enterprise-wide information technology systems, including our main servers, are currently housed in colocation facilities in Arizona and different geographic regions in the United States. The majority of our manufacturing occurs in Southeast Asia and mainland China. Each of these regions are known for or susceptible to seismic activity and other natural disasters, such as drought, wildfires, storms, sea-level rise, and flooding. Furthermore, the global effects of climate change have resulted in increased frequency and severity of these extreme weather events and could cause physical damage or disrupt operations. If our manufacturers or warehousing facilities are disrupted or destroyed, we would be unable to distribute our products on a timely basis, which could harm our business. This could also lead to increased costs and decreased revenues.
In addition, health epidemics, war, terrorism, geopolitical uncertainties, social and economic instability, public health issues, sudden changes in trade and immigration policies (such as the higher tariffs on certain products imported from China, U.S. sanctions against Russia as a result of the Russia-Ukraine dispute, the Israel-Hamas conflict, and Red Sea crisis), and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a strong negative effect on us, our suppliers, logistics providers, manufacturing vendors and customers. Our business operations are subject to interruption by natural disasters, fire, power shortages, geopolitical disputes or conflicts, terrorist attacks and other hostile acts, labor disputes, public health issues, and other events beyond our control. In addition, in the past, labor disputes at third-party manufacturing facilities have led to workers going on strike, and labor unrest could materially affect our third-party manufacturers’ abilities to manufacture our products.
Such events could decrease demand for our products, make it difficult, more expensive or impossible for us to make and deliver products to our customers or to receive components from our direct or indirect suppliers, and create delays and inefficiencies in our supply chain. Wars or geopolitical conflicts, major public health issues, including pandemics such as COVID-19, could negatively affect us through more stringent employee travel restrictions, additional limitations in freight services or increase in freight costs, governmental actions limiting the movement of products between regions, delays in production ramps of new products, and disruptions in the operations of our manufacturing vendors and component suppliers.
Our stock price has experienced recent volatility and may be volatile in the future and your investment in our common stock could suffer a decline in value.
There has been significant volatility in the market price and trading volume of securities of companies in the technology industry and the stock market as a whole, which may be unrelated to the financial performance of these companies. These broad market fluctuations may negatively affect the market price of our common stock.
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Some specific factors that may have a significant effect on our common stock market price include:
We are required to evaluate our internal controls under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results from such evaluation, including restatements of our issued financial statements, could impact investor confidence in the reliability of our internal controls over financial reporting.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report by our management on our internal control over financial reporting. Such report must contain among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. From time to time, we conduct internal investigations as a result of whistleblower complaints. In some instances, the whistleblower complaint may implicate potential areas of weakness in our internal controls. Although all known material weaknesses have been remediated, we cannot be certain that the measures we have taken ensure that restatements will not occur in the future. Execution of restatements create a significant strain on our internal resources and could cause delays in our filing of quarterly or annual financial results, increase our costs and cause management distraction. Restatements may also significantly affect our stock price in an adverse manner.
Continued performance of the system and process documentation and evaluation needed to comply with Section 404 is both costly and challenging. During this process, if our management identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to assert such internal control is effective. If we are unable to assert that our internal control over financial reporting is effective as of the end of a fiscal year or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which may have an adverse effect on our stock price.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Repurchase of Equity Securities by the Company
Period |
|
Total Number of Shares Purchased (2) |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
|
|
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
|
||||
January 1, 2024 - January 28, 2024 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
2.5 |
|
January 29, 2024 - February 25, 2024 |
|
|
615,427 |
|
|
$ |
14.48 |
|
|
|
587,956 |
|
|
|
1.9 |
|
February 26, 2024 - March 31, 2024 |
|
|
199,225 |
|
|
$ |
14.98 |
|
|
|
195,043 |
|
|
|
1.7 |
|
Total |
|
|
814,652 |
|
|
$ |
14.61 |
|
|
|
782,999 |
|
|
|
|
|
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Insider Trading Arrangements
During the three months ended March 31, 2024, our Board of Directors and officers (as defined in Rule 16a-1(f)) under the Exchange Act
|
|
|
Type of Trading Arrangement |
|
|
|
|
Name and Position |
Action |
Adoption/Termination Date |
Rule 10b5-1* |
Non-Rule 10b5-1** |
Total Shares of Common Stock to be Sold*** |
Total Shares of Common Stock to be Purchased |
Expiration Date |
|
Net shares resulting from the vesting of |
N/A |
|||||
|
50% of net shares resulting from the vesting of |
N/A |
|||||
|
Up to |
N/A |
|||||
|
Up to |
N/A |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Contract, instruction or written plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act. |
|||||||
** “Non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K under the Exchange Act. |
|||||||
*** Net shares issued with shares withheld to administratively facilitate the withholding and subsequent remittance of personal income and payroll taxes for the vesting of RSUs and PSUs. |
|||||||
65
Item 6. Exhibits
Exhibit Index
|
|
|
|
Incorporated by Reference |
|
|
||||
Exhibit Number |
|
Exhibit Description |
|
Form |
|
Date |
|
Number |
|
Filed Herewith |
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
Amended and Restated Certificate of Incorporation of the registrant |
|
10-Q |
|
8/4/2017 |
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
8-K |
|
4/20/2018 |
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.1 |
|
|
S-1/A |
|
7/14/2003 |
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1+ |
|
2024 Inducement Equity Incentive Plan and forms of agreement thereunder |
|
8-K |
|
2/14/2024 |
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2+ |
|
2016 Equity Incentive Plan, as amended, and forms of agreement thereunder |
|
10-K |
|
2/16/2024 |
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.3+ |
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
10.4+ |
|
Offer Letter, dated January 30, 2024, between the registrant and Charles (CJ) Prober |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
10.5+ |
|
Form of Change in Control and Severance Agreement (Chief Executive Officer) |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
32.1# |
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
32.2# |
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
104* |
|
Cover Page Interactive Data File |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
+ |
|
Management contract or arrangement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# |
|
This certification is deemed to accompany this Form 10-Q and will not be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section. This certification will not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. |
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Included in Interactive Data File covered by Exhibit 101. |
|
|
|
|
|
|
|
|
|
|
|
||||||||
67
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NETGEAR, INC. |
Registrant |
/s/ BRYAN D. MURRAY |
Bryan D. Murray |
Chief Financial Officer |
(Principal Financial and Accounting Officer) |
Date: May 3, 2024
68
Exhibit 10.3
EXECUTIVE SUCCESSION AND ADVISORY SERVICES AGREEMENT
This Executive Succession and Advisory Services Agreement (“Agreement”) is made by and between Patrick C.S. Lo (“Executive”) and NETGEAR, Inc. (the “Company”) (collectively referred to as the “Parties” or individually referred to as a “Party”).
Whereas, Executive currently serves as President and Chief Executive Officer (“CEO”) and as Chairman of the Board of Directors (the “Board”) of the Company;
Whereas, Executive has notified the Board of his decision to retire as the CEO of the Company and from the Board on the first day of employment of the next CEO of the Company; and
Whereas, the Company and Executive mutually agree that it is in the best interests of the Company, to ensure a seamless transition of responsibilities to the Company’s next CEO, for the Company to retain the Executive’s assistance in commercial efforts that may assist management and the Board in the successful transition of responsibilities to the Company’s next CEO; and
Whereas, the Company desires to retain Executive’s services in a capacity and on the terms set forth in this Agreement; and
Whereas, the Company and Executive desire to enter into this Agreement that contemplates Executive’s succession and the transition to the next CEO of the Company and the retention of Executive in an advisory role thereafter.
Now, Therefore, in consideration of the mutual promises made herein, the Company and Executive hereby agree as follows:
a. any and all claims relating to or arising from Executive’s employment relationship with the Company and the termination of that relationship;
b. any and all claims relating to, or arising from, Executive’s right to purchase, or actual purchase of shares of stock of the Company, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law;
c. any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; harassment; retaliation; breach of contract, both express and implied; breach of covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; fraud; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; conversion; and disability benefits;
d. any and all claims for violation of any federal law, including, but not limited to, Title VII of the Civil Rights Act of 1964; the Civil Rights Act of 1991; the Rehabilitation Act of 1973; the Americans with Disabilities Act of 1990; the Equal Pay Act; the Fair Labor Standards Act, except as prohibited by law; the Fair Credit Reporting Act; the Age Discrimination in Employment Act of 1967; the Older Workers Benefit Protection Act; the Executive Retirement Income Security Act of 1974; the Worker Adjustment and Retraining Notification Act; the Family and Medical Leave Act, except as prohibited by law; the Sarbanes-Oxley Act of 2002; the Uniformed Services Employment and Reemployment Rights Act;
e. any and all claims for violation of any state or municipal law or statute (in each case, to the extent applicable), including, but not limited to:
f. any and all claims for violation of any law, amendment, directive, order, and/or regulation enacted in response to the COVID-19 pandemic, each to the maximum extent permitted by law, and each as amended from time to time;
g. any and all claims for violation of the federal or any state constitution;
h. any and all claims arising out of any other laws and regulations relating to employment or employment discrimination;
i. any claim for any loss, cost, damage, or expense arising out of any dispute over the non-withholding or other tax treatment of any of the proceeds received by Executive as a result of this Agreement; and
j. any and all claims for attorneys’ fees and costs.
Notwithstanding the foregoing general releases, Executive acknowledges that Executive has not made any claims or allegations related to sexual harassment or sexual abuse, and none of the payments set forth as consideration in this Agreement are related to sexual harassment or sexual abuse.
Executive agrees that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not extend to any obligations incurred under this Agreement. Although this is a general release, it does not apply to: (i) any unemployment insurance claim; (ii) any workers’ compensation insurance benefits to the extent any applicable state law prohibits the direct release of such benefits without judicial or agency approval, with the understanding that such benefits, if any, would only be payable in accordance with the terms of any workers’ compensation coverage or fund of the Company; (iii) continued participation in certain benefits under COBRA (and any state law counterpart), if applicable; (iv) any benefit entitlements vested as of Executive’s last day of employment, including under the Company’s expense reimbursement policies and practices, pursuant to written terms of any applicable Executive benefit plan sponsored by the Company; (v) any claims that cannot be waived as a matter of law; (vi) claims that arise after Executive signs this Agreement; (vii) any claims that the Executive may have for indemnification and related advancement of expenses, (viii) claims for coverage and indemnification under directors and officers insurance policies related to the Company; and (ix) any rights with respect to equity vested as of the date of the Release. Executive represents that Executive has made no assignment or transfer of any right, claim, complaint, charge, duty, obligation, demand, cause of action, or other matter waived or released by this Section. For the avoidance of doubt, notwithstanding the terms of this Agreement, the Company shall reimburse Executive for all expenses that are otherwise reimbursable to Executive under the Company’s expense reimbursement policies and practices.
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.
Executive, being aware of said code section, agrees to expressly waive any rights Executive may have thereunder (if applicable), as well as under any other statute or common law principles of similar effect.
[Remainder of Page Intentionally Left Blank]
() Executive has read this Agreement;
() Executive has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of Executive’s own choice or has elected not to retain legal counsel;
() Executive understands the terms and consequences of this Agreement and of the releases it contains; and
() Executive is fully aware of the legal and binding effect of this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below.
Dated: |
1/30/2024 |
|
/s/ Patrick C.S. Lo |
|
|
|
|
Patrick C.S. Lo, an individual |
|
|
|
|
|
|
|
|
|
NETGEAR, Inc |
|
Dated: |
1/30/2024 |
|
BY:/s/ Andrew Kim |
|
|
|
|
Andrew Kim, Chief Legal Officer |
|
Exhibit 10.4
January 30, 2024
Charles Prober
Re: Confirmatory Employment Letter
Dear Charles:
I am pleased to offer you employment with NETGEAR, Inc. (“NETGEAR,” the “Company,” or “we”) on the terms and conditions described in this letter agreement (the “Agreement”).
While you render services to the Company, you will not engage in any other employment, consulting or other business activity (whether full-time or part-time) that would create a conflict of interest with the Company or conflict with your obligations to the Company. You may serve on the board of directors of up to two other companies, as long as (i) such companies do not compete with the Company and (ii) such activities do not interfere with the performance of your duties under this Agreement. By signing this Agreement, you confirm that you have no contractual commitments or other legal obligations that would prohibit you from performing your duties for the Company. Similarly, you agree not to bring any third-party confidential information to the Company, including that of your former employer, and that in performing your duties for the Company you will not in any way utilize any such information.
The actual number of Shares covered by each Equity Award will be determined using the trailing twenty (20) trading-day average closing price as of the day prior to the Start Date.
Each Equity Award will be granted to you only if you remain an employee of the Company through the grant date (which date will be not later than thirty (30) days following your commencement of employment with the Company). Each Equity Award will be subject to the terms and conditions of a Plan and an award agreement between you and the Company (an “Award Agreement”). Except as otherwise provided in the Severance Agreement (as defined below), the Equity Awards will vest as follows:
2024 Annual Award and Sign-On RSU Award
The 2024 Annual Award and the Sign-On RSU Award each will vest in equal annual installments over four years (with the first installment vesting on January 31, 2025), in each case subject to your continued service with the Company through the vesting date; and
Sign-On PSU Award
The Sign-On PSU Award will be divided into three equal tranches that each vest based on performance during a period of approximately one year, as follows: (i) the first tranche will vest based on performance from the Start Date through December 31, 2024, (ii) the second tranche will vest based on performance during calendar year 2025, and (iii) the third tranche will vest based on performance during calendar year 2026.
Level |
Relative TSR Rank |
Number of Earned PSUs* |
Maximum |
75th percentile |
150% of target |
Target |
50th percentile |
100% of target |
Threshold |
25th percentile |
50% of target |
* For achievement between the threshold and maximum levels, the number of Earned PSUs will be determined through straight-line interpolation.
While the above provides the general terms of each Equity Award, the complete terms and conditions of each Equity Award (including how the Sign-On PSU Award will be treated on a change in control of the Company) will be set forth in the applicable Award Agreement. If there is any conflict between the general terms described above and the provisions of such Award Agreement, the Award Agreement will govern.
In addition, after 2024, you will be eligible to receive equity awards pursuant to any plans or arrangements the Company may have in effect for its senior executives from time to time. The Board or Committee, as applicable, will determine in its sole discretion whether you will be granted any such equity awards and the terms of any such award in accordance with the terms of any applicable plan or arrangement that may be in effect from time to time.
We look forward to you joining NETGEAR. To accept this offer of employment, please sign and date this Agreement in the space provided below.
Sincerely,
NETGEAR, Inc.
By: |
/s/ Andrew Kim |
|
Andrew Kim |
|
|
Agreed to and accepted: |
/s/ Charles Prober |
|
Charles Prober |
|
|
Dated: |
January 30, 2024 |
Exhibit A
SECTION 7 OF THE DEFEND TRADE SECRETS ACT OF 2016
“ . . . An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that—(A) is made—(i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. . . . An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual—(A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order.”
Exhibit 10.5
NETGEAR, Inc.
CHANGE IN CONTROL AND SEVERANCE AGREEMENT
This Change in Control and Severance Agreement (the “Agreement”) is made between NETGEAR, Inc. (the “Company”) and Charles Prober (the “Executive”), effective as of January 31, 2024 (the “Effective Date”).
This Agreement provides certain protections to the Executive in connection with a change in control of the Company or in connection with the involuntary termination of the Executive’s employment under the circumstances described in this Agreement.
The Company and the Executive agree as follows:
Notwithstanding the foregoing, a transaction will not be deemed a Change in Control for purposes of determining the payment or settlement date of deferred compensation under Section 409A unless the transaction qualifies as a change in control event within the meaning of Section 409A of the Code, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time.
For “Good Reason” to be established, the Executive must provide written notice to the Board and the Company within thirty (30) days immediately following such alleged events, the Company must fail to
materially remedy such event within thirty (30) days after receipt of such notice, and the Executive’s resignation must be effective not later than ninety (90) days from the occurrence of the alleged triggering event, and must not be effective until after the expiration of the notice and cure periods described above.
NETGEAR, Inc.
350 E. Plumeria Dr.
San Jose, CA 95134
Attention: General Counsel
[Signature page follows.]
By its signature below, each of the parties signifies its acceptance of the terms of this Agreement, in the case of the Company by its duly authorized officer.
COMPANY NETGEAR, Inc.
By: /s/Andrew Kim |
|
Title: Chief Legal Officer |
|
Date: 1/20/2024 |
EXECUTIVE
/s/Charles Prober |
Charles Prober |
|
Date: 1/30/2024 |
[Signature page to Change in Control and Severance Agreement]
EXHIBIT 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Charles (CJ) Prober, certify that:
Date: May 3, 2024
|
/s/ CHARLES (CJ) PROBER |
|
Charles (CJ) Prober |
|
Chief Executive Officer and Director |
|
NETGEAR, Inc. |
EXHIBIT 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION
I, Bryan D. Murray, certify that:
Date: May 3, 2024
|
/s/ BRYAN D. MURRAY |
|
Bryan D. Murray |
|
Chief Financial Officer |
|
NETGEAR, Inc. |
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEYACT OF 2002
In connection with the Quarterly Report of NETGEAR, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles (CJ) Prober, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 3, 2024
By: |
|
/s/ CHARLES (CJ) PROBER |
|
|
Charles (CJ) Prober |
|
|
Chief Executive Officer and Director |
|
|
NETGEAR, Inc. |
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Form 10-Q), irrespective of any general incorporation language contained in such filing.
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEYACT OF 2002
In connection with the Quarterly Report of NETGEAR, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bryan D. Murray, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 3, 2024
By: |
|
/s/ BRYAN D. MURRAY |
|
|
Bryan D. Murray |
|
|
Chief Financial Officer |
|
|
NETGEAR, Inc. |
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Form 10-Q), irrespective of any general incorporation language contained in such filing.
Unaudited Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Accounts receivable, net of allowance for doubtful accounts of $338 as of March 31, 2024 and December 31, 2023, respectively | $ 338 | $ 338 |
Unaudited Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
||||||||
| Income Statement [Abstract] | |||||||||
| Net revenue | [1] | $ 164,586 | $ 180,908 | [2] | |||||
| Cost of revenue | 116,349 | 120,526 | |||||||
| Gross profit | 48,237 | 60,382 | |||||||
| Operating expenses: | |||||||||
| Research and development | 20,227 | 22,134 | |||||||
| Sales and marketing | 30,529 | 33,879 | |||||||
| General and administrative | 18,067 | 16,236 | |||||||
| Other operating expenses, net | 1,062 | 108 | |||||||
| Total operating expenses | 69,885 | 72,357 | |||||||
| Loss from operations | (21,648) | (11,975) | |||||||
| Other income, net | [3] | 2,850 | 1,406 | [2] | |||||
| Loss before income taxes | (18,798) | (10,569) | [2] | ||||||
| Benefit from income taxes | (148) | (857) | |||||||
| Net loss | $ (18,650) | $ (9,712) | |||||||
| Net loss per share | |||||||||
| Basic | $ (0.63) | $ (0.33) | |||||||
| Diluted | $ (0.63) | $ (0.33) | |||||||
| Weighted average shares used to compute net loss per share: | |||||||||
| Basic | 29,395 | 29,040 | |||||||
| Diluted | 29,395 | 29,040 | |||||||
| |||||||||
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Statement of Comprehensive Income [Abstract] | ||
| Net loss | $ (18,650) | $ (9,712) |
| Other comprehensive income (loss), before tax: | ||
| Change in unrealized gains and losses on derivatives | 58 | 465 |
| Change in unrealized gains and losses on available-for-sale investments | (166) | 241 |
| Other comprehensive income (loss), before tax | (108) | 706 |
| Tax provision related to derivatives | (7) | (59) |
| Tax provision related to available-for-sale investments | 0 | (59) |
| Other comprehensive income (loss), net of tax | (115) | 588 |
| Comprehensive loss | $ (18,765) | $ (9,124) |
Pay vs Performance Disclosure - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Pay vs Performance Disclosure | ||
| Net Income (Loss) | $ (18,650) | $ (9,712) |
Insider Trading Arrangements |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Mar. 31, 2024
shares
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trading Arrangements, by Individual | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Material Terms of Trading Arrangement | Insider Trading Arrangements During the three months ended March 31, 2024, our Board of Directors and officers (as defined in Rule 16a-1(f)) under the Exchange Act adopted or terminated the contracts, instructions or written plans for the purchase or sale of the Company’s securities set forth in the table below.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rule 10b5-1 Arrangement Adopted | true | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-Rule 10b5-1 Arrangement Terminated | false | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shravan K Goli Director [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trading Arrangements, by Individual | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Name | Shravan K. Goli | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Title | Director | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rule 10b5-1 Arrangement Adopted | true | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-Rule 10b5-1 Arrangement Adopted | false | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adoption Date | 2/27/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Termination Date | 7/31/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Aggregate Available | 14,064 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Thomas H Waechter Director [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trading Arrangements, by Individual | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Name | Thomas H. Waechter | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Title | Director | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rule 10b5-1 Arrangement Adopted | true | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-Rule 10b5-1 Arrangement Adopted | false | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adoption Date | 2/29/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Termination Date | 2/28/2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Aggregate Available | 7,991 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tamesa T Rogers Chief People Officer [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trading Arrangements, by Individual | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Name | Tamesa T. Rogers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Title | Chief People Officer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rule 10b5-1 Arrangement Adopted | true | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-Rule 10b5-1 Arrangement Adopted | false | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adoption Date | 2/26/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Termination Date | 5/30/2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Aggregate Available | 47,605 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Heidi B Cormack Chief Marketing Officer [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trading Arrangements, by Individual | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Name | Heidi B. Cormack | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Title | Chief Marketing Officer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rule 10b5-1 Arrangement Adopted | true | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-Rule 10b5-1 Arrangement Adopted | false | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adoption Date | 2/12/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Termination Date | 8/30/2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Aggregate Available | 18,750 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The Company and Basis of Presentation |
3 Months Ended |
|---|---|
Mar. 31, 2024 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| The Company and Basis of Presentation | Note 1. The Company and Basis of Presentation NETGEAR, Inc. (“NETGEAR” or the “Company”) is a global company, incorporated in Delaware in January 1996. The Company turns ideas into innovative, high-performance and premium networking products that connect people, power businesses and advance the way we live. The Company is dedicated to delivering innovative and highly differentiated connected solutions ranging from easy-to-use premium WiFi solutions, security and support services to protect and enhance home networks, to switching and wireless solutions to augment business networks and audio and video over Ethernet for Pro AV applications. Its products and services are built on a variety of technologies such as wireless (WiFi and 4G/5G mobile), Ethernet and powerline, with a focus on reliability and ease-of-use. Additionally, the Company continually invests in research and development to create new technologies and services and to capitalize on technological inflection points and trends, such as WiFi 7, audio and video over Ethernet, and future technologies. Its product line consists of devices that create and extend wired and wireless networks, as well as services that complement and enhance the Company's product line offerings. These products are available in multiple configurations to address the changing needs of the Company's customers in each geographic region. The Company sells networking products through multiple sales channels worldwide, including traditional retailers, online retailers, wholesale distributors, direct market resellers (“DMRs”), value-added resellers (“VARs”), broadband service providers and its direct online store at www.netgear.com. The accompanying unaudited condensed consolidated financial statements include the accounts of NETGEAR, Inc. and its wholly owned subsidiaries. They have been prepared in accordance with established guidelines for interim financial reporting and the instructions of Form 10-Q and Article 10 of Regulation S-X. All significant intercompany balances and transactions have been eliminated in consolidation. The balance sheet dated December 31, 2023, has been derived from audited financial statements at such date. These unaudited condensed consolidated financial statements do not include all of the information and footnotes typically found in the audited consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K. In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments considered necessary to fairly state the Company's financial position, results of operations, comprehensive income (loss), stockholder's equity and cash flows for the periods indicated. These unaudited condensed consolidated financial statements should be read in conjunction with the notes to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Annual Report”). The Company's fiscal year begins on January 1 of the year stated and ends on December 31 of the same year. The Company reports its results on a fiscal quarter basis rather than on a calendar quarter basis. Under the fiscal quarter basis, each of the first three fiscal quarters ends on the Sunday closest to the calendar quarter end, with the fourth quarter ending on December 31. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the financial statements, and (iii) the reported amounts of net revenue and expenses during the reported period. The Company bases these estimates on historical and anticipated results, trends and various other assumptions that it believes are reasonable under the circumstances. As of the date of issuance of these condensed consolidated financial statements, the Company is not aware of any specific event or circumstance that would require it to update its estimates, judgments or revise the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ materially from those estimates and operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024, or any future period. Segment Recast In the first fiscal quarter of 2024, resulting from certain segment structure changes, the Company revised its allocation method by allocating certain historically unallocated operating expenses to its individual operating segments. This change impacted Note 11, Segment Information. The prior-year segment financial information has been recast to conform to the current-year presentation. None of the changes impact previously reported consolidated net revenue, income (loss) from operations, net income (loss) per share, total assets, or stockholders’ equity. |
Summary of Significant Accounting Policies |
3 Months Ended |
|---|---|
Mar. 31, 2024 | |
| Accounting Policies [Abstract] | |
| Summary of Significant Accounting Policies | Note 2. Summary of Significant Accounting Policies No material changes have been made to the Company’s significant accounting policies disclosed in Note 1, The Company and Summary of Significant Accounting Policies, in Part II, Item 8 “Financial Statements and Supplementary Data” in its Annual Report. Recent Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for the Company for the year ended 2024 and early adoption is permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. The Company does not expect that the guidance will have material impacts on its financial position, results of operations or cash flows. The Company is evaluating the impact that the updated standard will have on its financial statement disclosures. In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which improves the transparency of income tax disclosures. ASU 2023-09 is effective for the Company for the year ended December 31, 2025 and early adoption is permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. The Company is evaluating the impact that the updated standard will have on its financial statement disclosures. With the exception of the new standards discussed above, there have been no other new accounting pronouncements that have significance, or potential significance, to the Company’s financial position, results of operations and cash flows. |
Revenue |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | Note 3. Revenue Revenue from contracts with customers is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Transaction Price Allocated to the Remaining Performance Obligations Remaining performance obligations represent the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. Unsatisfied and partially unsatisfied performance obligations consist of contract liabilities, in-transit orders with destination terms, and non-cancellable backlog. Non-cancellable backlog includes goods for which customer purchase orders have been accepted, that are scheduled or in the process of being scheduled for shipment, and that are not yet invoiced. The following table summarizes estimated revenue expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of March 31, 2024:
Contract Balances The Company records accounts receivable when it has an unconditional right to consideration. Contract liabilities are recorded when cash payments are received or due in advance of performance. Contract liabilities consist of advance payments and deferred revenue, where the Company has unsatisfied performance obligations. Contract liabilities are mainly classified as Deferred revenue on the unaudited condensed consolidated balance sheets. Payment terms vary by customer. The time between invoicing and when payment is due is not significant. For certain products or services and customer types, payment is required before the products or services are delivered to the customer. The following table reflects the contract balances:
The difference in the balances of the Company’s contract assets and liabilities as of March 31, 2024 and December 31, 2023, primarily results from the timing difference between the Company’s performance and the customer’s payment. During the three months ended March 31, 2024, $12.9 million of revenue was deferred primarily due to unsatisfied performance obligations for service contracts, $11.2 million of revenue was recognized for the satisfaction of performance obligations and $9.9 million of this recognized revenue was included in the contract liability balance at the beginning of the period. There were no significant changes in estimates during the period that would affect the contract balances. Disaggregation of Revenue In the following tables, net revenue is disaggregated by geographic region and sales channel. The Company conducts business across three geographic regions: Americas; Europe, Middle East and Africa (“EMEA”); and Asia Pacific (“APAC”). The tables also include reconciliations of the disaggregated revenue by reportable segment. The Company operates and reports in two segments: Connected Home and NETGEAR for Business (formerly known as Small and Medium Business, or SMB). Sales and usage-based taxes are excluded from net revenue.
(1) No individual foreign country represented more than 10% of the Company’s total net revenue in the periods presented. |
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Balance Sheet Components |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Balance Sheet Related Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance Sheet Components | Note 4. Balance Sheet Components Available-for-sale investments Amortized cost and estimated fair market value of investments classified as available-for-sale, excluding cash equivalents, as of March 31, 2024 and December 31, 2023, were as follows:
The contractual maturities on the U.S. treasury securities as of March 31, 2024 are all due within one year. Accrued interest receivable as of March 31, 2024 was $0.5 million and was recorded within Prepaid expenses and other current assets on the unaudited condensed consolidated balance sheet. The following table summarizes investments classified as available-for-sale in a continuous unrealized loss position for which an allowance for credit losses was not recorded as of March 31, 2024 and December 31, 2023:
In the three months ended March 31, 2024 and April 2, 2023, no unrealized losses on available-for-sale securities were recognized in income. The Company does not intend to sell, and it is unlikely that it will be required to sell the investments in an unrealized loss position prior to their anticipated recovery. The investments are high-quality U.S. treasury securities and the decline in fair value is largely due to changes in interest rates and other market conditions with the fair value expected to recover as they reach maturity. There were no other-than-temporary impairments for these securities during the three months ended March 31, 2024 and April 2, 2023. Refer to Note 12, Fair Value Measurements, for detailed disclosures regarding fair value measurements. Inventories
The Company records provisions for excess and obsolete inventory based on assumptions about future demand and market conditions and the amounts incurred were $1.1 million and $1.2 million for the three months ended March 31, 2024 and April 2, 2023, respectively. While management believes the estimates and assumptions underlying its current forecasts are reasonable, there is risk that additional charges may be necessary if current forecasts are greater than actual demand.
Property and equipment, net
Other non-current assets
Long-term equity investments The Company’s long-term investments are comprised of equity investments without readily determinable fair values, investments in convertible debt securities and investments in limited partnership funds. The changes in the carrying value of equity investments without readily determinable fair values were as follows:
(1) The balances excluded an investment in limited partnership funds of $2.2 million as of March 31, 2024, $1.6 million as of April 2, 2023, $2.3 million as of December 31, 2023, and $1.7 million as of December 31, 2022. Additionally, the balance excluded an investment in convertible debt securities of $0.2 million as of March 31, 2024, December 31, 2023, April 2, 2023, and December 31, 2022, respectively.
For such equity investments without readily determinable fair values still held at March 31, 2024, there were no cumulative downward adjustments for price changes and impairment and the cumulative upward adjustments for price changes was $0.3 million.
Other accrued liabilities
(1) Inventory expected to be received from future sales returns amounted to $17.4 million and $16.9 million as of March 31, 2024 and December 31, 2023, respectively. Provisions to write down expected returned inventory to net realizable value amounted to $8.6 million and $9.7 million as of March 31, 2024 and December 31, 2023, respectively. |
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Derivative Financial Instruments |
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| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Financial Instruments | Note 5. Derivative Financial Instruments The Company’s subsidiaries have material future cash flows related to revenue and expenses denominated in currencies other than the U.S. dollar, the Company’s functional currency worldwide. The Company executes currency forward contracts that typically mature in less than 6 months to mitigate its currency risk, in currencies including Australian dollars, British pounds, euros, Canadian dollars, and Japanese yen. The Company does not enter into derivatives transactions for trading or speculative purposes. The Company’s foreign currency forward contracts do not contain any credit-risk-related contingent features. The Company enters into derivative contracts with high-quality financial institutions and limits the amount of credit exposure to any individual counterparty. The Company typically executes ten cash flow hedges per quarter with maturities under six months and with an average USD notional amount of approximately $5.4 million that are designated as cash flow hedges. The Company enters into non-designated hedges that are generally expected to offset the changes in value of its net non-functional currency asset and liability position resulting from foreign exchange rate fluctuations. The Company adjusts its non-designated hedges monthly and typically executes about seven non-designated forwards per quarter with maturities less than three months and an average USD notional amount of approximately $2.8 million. Fair Value of Derivative Instruments The fair values of the Company’s derivative instruments and the line items on the unaudited condensed consolidated balance sheets to which they were recorded were summarized as follows:
Refer to Note 12, Fair Value Measurements for detailed disclosures regarding fair value measurements. Refer to Note 9, Stockholders’ Equity, for details on the accumulated other comprehensive income (loss) activity related to derivatives and refer to Note 11, Segment Information, for details on gain/(loss), net pertaining to derivatives not designated as hedging instruments that were recognized in Other income (expenses), net. |
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Net Income (Loss) Per Share |
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| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) Per Share | Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. Potentially dilutive common shares include common shares issuable upon exercise of stock options, vesting of Restricted Stock Units (“RSUs”) and performance shares, and issuances of shares under the Employee Stock Purchase Plan (the “ESPP”), which are reflected in diluted net income (loss) per share by application of the treasury stock method. Potentially dilutive common shares are excluded from the computation of diluted net income (loss) per share when their effect is anti-dilutive. Net income (loss) per share consisted of the following:
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Income Taxes |
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Mar. 31, 2024 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | Note 7. Income Taxes The income tax benefit for the three months ended March 31, 2024 was $0.1 million, or an effective tax rate of 0.8%. The income tax benefit for the three months ended April 2, 2023 was $0.9 million, or an effective tax rate of 8.1%. The change in taxes for the three months ended March 31, 2024, compared to the prior year period, was primarily due to the continued full valuation allowance on deferred tax assets for U.S. federal and state purposes that was established during the period ended October 1, 2023. The Company evaluated the current results as of the period ended March 31, 2024, coupled with the expectations for the remainder of the year, and determined that it continued to not be more likely than not that the deferred tax assets would be realized, and accordingly, recorded no benefit for the forecasted tax loss for the three months ended March 31, 2024. By comparison, for the three months ended April 2, 2023, a tax benefit was recorded on the pre-tax loss since the valuation allowance on deferred tax assets had not yet been established. The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. The future foreign tax rate could be affected by changes in the composition in earnings in countries with tax rates differing from the U.S. federal rate. The Company is under examination in various U.S. and foreign jurisdictions. The Company files income tax returns in the U.S. federal jurisdiction as well as various state, local, and foreign jurisdictions. Due to the uncertain nature of ongoing tax audits, the Company has recorded its liability for uncertain tax positions as part of its long-term liability as payments cannot be anticipated over the next twelve months. The existing tax positions of the Company continue to generate an increase in the liability for uncertain tax positions. The liability for uncertain tax positions may be reduced for liabilities that are settled with taxing authorities or on which the statute of limitations could expire without assessment from tax authorities. The possible reduction in liabilities for uncertain tax positions in multiple jurisdictions in the next twelve months is approximately $0.7 million excluding the interest, penalties and the effect of any related deferred tax assets or liabilities. The Company is currently under examination in various U.S. and foreign jurisdictions. The Company accounts for income taxes under an asset and liability approach. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences resulting from different treatment for tax versus accounting for certain items, such as accruals and allowances not currently deductible for tax purposes. The deferred tax assets and liabilities represent the future tax return consequences of these differences, which will either be taxable or deductible when assets and liabilities are recovered or settled, as well as operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheets. The Company must then assess the likelihood that the Company’s deferred tax assets will be recovered from future taxable income and to the extent the Company believes that recovery is not more likely than not, the Company must establish a valuation allowance. The Company’s assessment considers the recognition of deferred tax assets on a jurisdictional basis. Accordingly, in assessing its future taxable income on a jurisdictional basis, the Company considers the effect of its transfer pricing policies on that income. As of the period ended October 1, 2023, the Company determined that recovery of its U.S. federal and state deferred tax assets was no longer more likely than not and established a full valuation allowance on those net assets, based on evaluation of all available evidence, including actual and anticipated business results. Accordingly, the balance sheet net deferred tax assets from the U.S. federal and state jurisdictions reported in “Other Non-current Assets” were reduced after the effect of establishing the valuation allowance. |
Commitments and Contingencies |
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| Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies | Note 8. Commitments and Contingencies Purchase Obligations The Company has entered into various inventory-related purchase agreements with suppliers. Generally, under these agreements, 50% of orders are cancelable by giving notice 46 to 60 days prior to the expected shipment date and 25% of orders are cancelable by giving notice 31 to 45 days prior to the expected shipment date. As of March 31, 2024, the Company had approximately $77.0 million, as compared to $42.6 million as of December 31, 2023, in short-term non-cancelable purchase commitments with suppliers or where the suppliers had procured unique materials and components upon receipts of the Company’s purchase orders. Due to an elongation of the time from order placement to production that occurred several years ago, the Company issued purchase orders to supply chain partners beyond contractual termination periods. As of March 31, 2024, $274.2 million of purchase orders beyond contractual termination periods remained outstanding. Consequently, the Company may incur expenses for materials and components, such as chipsets purchased by the supplier to fulfill the purchase order if the purchase order is cancelled. Expenses incurred in respect of cancelled purchase orders have historically not been significant relative to the original order value. For those orders not governed by master purchase agreements, the commitments are governed by the commercial terms on the Company’s purchase orders subject to acknowledgment from its suppliers. The Company establishes a loss liability for all products it does not expect to sell or orders it anticipates cancelling for which it has committed purchases from suppliers. Such loss liability is included in Other accrued liabilities on the Company’s unaudited condensed consolidated balance sheets. Losses incurred in relation to purchase commitments, including unique materials and components, amounted to $1.1 million and $0.5 million for the three months ended March 31, 2024 and April 2, 2023, respectively. Non-Trade Commitments As of March 31, 2024, the Company had non-cancellable purchase commitments of $13.1 million pertaining to non-trade activities. Warranty Obligations Changes in the Company’s warranty obligations, which is included in Other accrued liabilities on the unaudited condensed consolidated balance sheets, were as follows:
Litigation and Other Legal Matters The Company is involved in disputes, litigation, and other legal actions, including, but not limited to, the matters described below. In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. In such cases, the Company accrues for the amount, or if a range, the Company accrues the low end of the range, only if there is not a better estimate than any other amount within the range, as a component of legal expense within litigation reserves, net. The Company monitors developments in these legal matters that could affect the estimate the Company had previously accrued. In relation to such matters, the Company currently believes that there are no existing claims or proceedings that are likely to have a material adverse effect on its financial position within the next twelve months, or the outcome of these matters is currently not determinable. There are many uncertainties associated with any litigation, and these actions or other third-party claims against the Company may cause the Company to incur costly litigation and/or substantial settlement charges. In addition, the resolution of any intellectual property litigation may require the Company to make royalty payments, which could have an adverse effect in future periods. If any of those events were to occur, the Company’s business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from the Company’s estimates, which could result in the need to adjust the liability and record additional expenses. Huawei v. NETGEAR Inc., NETGEAR Deutschland GmbH, and Exertis-Connect GmbH On or around March of 2022, Huawei filed two patent infringement lawsuits at the District Court of Dusseldorf, Germany, against NETGEAR Inc., NETGEAR Deutschland GmbH, and Exertis-Connect GmbH, a third-party webstore selling NETGEAR products in Germany. Huawei asserted one EU patent in each suit, EP 3 337 077 B1 (the ’077 Patent) in case no. 08/22 and EP 3 143 741 B1 (the ’741 Patent) in case no. 09/22. In its complaints, Huawei alleged that the Company’s WiFi 6 products infringed the two patents, which Huawei further claimed are standard-essential patents. On or around February 9, 2023, the Federal Patent Court issued preliminary opinions finding both asserted patents invalid. The Company attended an oral hearing for both infringement cases on March 21, 2023 before the Dusseldorf District Court and the Court dismissed case no. 09/22 for the ‘741 Patent and stayed case no. 08/22 for the ‘077 Patent. Huawei is appealing the dismissal of case no. 09/22, and the hearing for the appeal is set for May 23, 2024. On March 20, 2024, the Patent Court maintained the validity of ‘741 Patent, but with an amended claim. Case no. 08/22 remains stayed while the nullity action is ongoing. On or around May 10, 2022, the Company was served with two suits that Huawei filed before the Jinan Intermediate People’s Court of China asserting Patent Nos. ZL 201811536087.9 (case no 407) and ZL 201810757332.2 (case no. 408) against the Company’s WiFi 6 products. The Company’s challenge of the Jinan Court’s jurisdiction in both cases was denied by the Supreme Court of China. The parties attended an evidentiary hearing for the cases on July 3, 2023. Licensing and technical hearings followed on July 24, 2023 and July 25, 2023. After the July 25th hearing, the Court indicated it will advise the parties of further action. Huawei v. NETGEAR Inc., NETGEAR Deutschland GmbH, and NETGEAR International Limited On or around July 3, 2023, Huawei filed a new infringement suit, asserting patent EP 3 611 989 (the ’989 Patent), against NETGEAR Inc., NETGEAR Deutschland GmbH, and NETGEAR International Limited at the Unified Patent Court (UPC) in Munich, Germany. The Company filed its Statement of Defense on November 7, 2023 and the Court held an interim conference on February 19, 2024. The deadline for the parties to complete briefing is June 3, 2024 and the oral hearing is scheduled for June 18, 2024. On around December 11, 2023, Huawei filed a second UPC suit, asserting EP 3 678 321 (“EP 321”), against the Company and requested that the Court allow it to amend the pending EP 989 case to add EP 321. The Company disagreed and filed an objection. The Appeal Court found in favor of the Company and designated the EP 321 matter as a separate case. The Company filed its Statement of Defense on April 18, 2024, to include a counterclaim for revocation of the patent at the UPC. The Company, at this time, is not able to reasonably estimate any financial impact to the Company resulting from these litigation matters.
The Company does not believe that it is reasonably possible that a material loss has been incurred for any of the matters disclosed above, and consequently has not established any loss provisions. |
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Stockholders' Equity |
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| Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity | Note 9. Stockholders’ Equity Stock Repurchases From time to time, the Company’s Board of Directors has authorized programs under which the Company may repurchase shares of its common stock, depending on market conditions, in the open market or through privately negotiated transactions. Under the authorizations, the timing and actual number of shares subject to repurchase are at the discretion of management and are contingent on a number of factors, such as levels of cash generation from operations, cash requirements for acquisitions and the price of the Company’s common stock. During the three months ended March 31, 2024, the Company repurchased and retired, reported based on trade date, approximately 0.8 million shares of common stock, at a cost of approximately $11.4 million under the repurchase authorization. The Company did not repurchase any shares of common stock during the three months ended April 2, 2023. As of March 31, 2024, 1.7 million shares remained authorized for repurchase under the repurchase program. The Company repurchased, reported based on trade date, approximately 32,000 and 6,000 shares of common stock, at a cost of approximately $0.5 million and $0.1 million, during the three months ended March 31, 2024 and April 2, 2023, respectively, to administratively facilitate the withholding and subsequent remittance of personal income and payroll taxes for individuals receiving RSUs. These shares were retired upon repurchase. The Company’s policy related to repurchases of its common stock is to charge the excess of cost over par value to retained earnings. All repurchases were made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. Accumulated Other Comprehensive Income (Loss) The following tables set forth the changes in accumulated other comprehensive income (loss) (“AOCI”) by component:
The following table provides details about significant amounts reclassified out of each component of AOCI:
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Employee Benefit Plans |
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| Employee Benefit and Share-Based Payment Arrangement, Noncash Expense [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Employee Benefit Plans | Note 10. Employee Benefit Plans The Company grants options, RSUs, and performance shares under the 2016 Incentive Plan (the “2016 Plan”), under which awards may be granted to all employees. Vesting periods under this plan are generally four years for options and RSUs and three years for performance shares. As of March 31, 2024, approximately 2.8 million shares were reserved for future grants under the 2016 Plan. In February 2024, the Company’s Board of Directors approved 2024 Inducement Equity Incentive Plan (the “2024 Inducement Plan”), under which Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units, Performance Shares, and other stock or cash awards can be granted to personnel for positions of substantial responsibility. As of March 31, 2024, approximately 0.9 million shares were reserved for future grants under the 2024 Inducement Plan. Additionally, the Company sponsors an Employee Stock Purchase Plan (the “ESPP”). The terms of the plan include a look-back feature that enables employees to purchase stock semi-annually at a price equal to 85% of the lesser of the fair market value at the beginning of the offering period or the purchase date. The duration of each offering period is generally six months. As of March 31, 2024, approximately 0.6 million shares were available for issuance under the ESPP. Option Activity Stock option activity was as follows:
Time-Based RSU Activity Time-based RSU activity was as follows:
Performance-Based RSU Activity Since 2020, the Company’s executive officers were granted performance-based restricted stock units (“PSUs”) under the 2016 Plan with vesting occurring at the end of a three-year period if performance conditions are met. The number of PSUs earned and eligible to vest are determined based on achievement of the pre-determined performance conditions and the recipients’ continued service with the Company. The number of stock units to vest could range from 0% to 150% of the target shares granted. At the end of each reporting period, the Company evaluates the probability of achieving the performance conditions and records the related stock-based compensation expense based on performance to date over the service period. In February 2024, the Company granted PSUs under the 2024 Inducement Plan to its newly-hired Chief Executive Officer with 1/3 of the target PSUs being allocated to each tranche and vesting occurring at the end of each anniversary of the vesting commencement date over a three-year period. The number of PSUs to vest could range from 0% to 150% of the target shares granted and are determined based on achievement of the pre-determined market condition and the recipients’ continued service with the Company. The grant date fair value was determined using the Monte Carlo valuation method. The stock-based compensation expense relating to PSUs with a market condition is recognized ratably from the service inception date to the vesting date for each tranche. PSU activity was as follows:
Valuation and Expense Information
The following table sets forth the stock-based compensation expense resulting from stock options, RSUs (time-based and performance-based) and the ESPP included in the Company’s unaudited condensed consolidated statements of operations:
As of March 31, 2024, $36.8 million of unrecognized compensation cost related to unvested RSUs (time-based and performance-based) expected to be recognized over a weighted-average period of 2.4 years. |
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Segment Information |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Information | Note 11. Segment Information Operating segments are components of an enterprise about which separate financial information is available and is evaluated quarterly by management, namely the Chief Operating Decision Maker (“CODM”) of an organization, in order to determine operating and resource allocation decisions. By this definition, the Company has identified its CEO as the CODM. The Company operates and reports in two segments: Connected Home and NETGEAR for Business: • Connected Home: Focuses on consumers and provides high-performance, dependable and easy-to-use premium WiFi internet networking solutions such as WiFi 6, WiFi 6E and WiFi 7 Tri-band and Quad-band mesh systems, and routers, 4G/5G mobile products, and subscription services that provide consumers a range of value-added services focused on performance, security, privacy, and premium support; and • NETGEAR for Business: Focuses on small and medium sized businesses and provides solutions for business networking, wireless local area network (“LAN”), audio and video over Ethernet for Pro AV applications, security and remote management providing enterprise-class functionality at an affordable price. The Company believes that this structure reflects its current operational and financial management, and that it provides the best structure for the Company to focus on growth opportunities while maintaining financial discipline. The leadership team of each segment is focused on product and service development efforts, both from a product marketing and engineering standpoint, to service the unique needs of their customers.
The results of the reportable segments are derived directly from the Company’s management reporting system. The results are based on the Company’s method of internal reporting and are not necessarily in conformity with accounting principles generally accepted in the United States. Management measures the performance of each segment based on several metrics, including contribution income (loss). Segment contribution income (loss) includes all product line segment revenues less the related cost of sales, research and development and sales and marketing costs. Contribution income (loss) is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. Certain operating expenses are not allocated to segments because they are separately managed at the corporate level. These unallocated indirect costs include corporate costs, such as corporate research and development, corporate marketing expense and general and administrative costs, amortization of intangibles, stock-based compensation expense, restructuring and other charges, litigation reserves, net, and other income (expenses), net. Effective on January 1, 2024, resulting from certain segment structure changes, the Company revised its allocation method by allocating certain historically unallocated operating expenses to its individual operating segments. The prior-year segment financial information has been recast to conform to the current-year presentation. Financial information for each reportable segment and a reconciliation of segment contribution income (loss) to loss before income taxes is as follows:
(1) Amounts included gain/(loss), net from derivatives not designated as hedging instruments of $1.5 million and $(0.2) million, for the three months ended March 31, 2024 and April 2, 2023, respectively. * Financial information for each reportable segment were recast to conform to the current reportable segment structure. The CODM does not evaluate operating segments using discrete asset information. Operations by Geographic Region For reporting purposes, revenue is generally attributed to each geographic region based on the location of the customer. The following table shows net revenue by geography:
(1) No individual foreign country represented more than 10% of the Company’s total net revenue in the periods presented.
Long-lived assets by Geographic Region The following table presents the Company’s long-lived assets located in geographic areas, which consist of property and equipment, net, and operating lease right-of-use assets:
(1) No individual country represented more than 10% of the Company’s total long-lived assets in the periods presented. |
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Fair Value Measurements |
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| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurements | Note 12. Fair Value Measurements The following tables summarize assets and liabilities measured at fair value on a recurring basis:
(1) Included in Short-term investments on the Company’s unaudited condensed consolidated balance sheets. (2) Included in Prepaid expenses and other current assets on the Company’s unaudited condensed consolidated balance sheets. (3) Included in Other accrued liabilities on the Company's unaudited condensed consolidated balance sheets.
The Company’s investments in money-market funds and mutual funds are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company’s investments in U.S. treasury securities are classified within Level 2 of the fair value hierarchy because they are valued based on readily available pricing sources for comparable or identical instruments in less active markets. The Company’s investments in convertible debt securities issued by a publicly held company are classified within Level 2 of the fair value hierarchy as the fair value for the instrument approximates its cost based on the contractual terms of the arrangement. The Company’s foreign currency forward contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that consider the contract terms as well as currency rates and counterparty credit rates. The Company verifies the reasonableness of these pricing models using observable market data for related inputs into such models. The Company enters into foreign currency forward contracts with only those counterparties that have long-term credit ratings of A-/A3 or higher. The carrying value of non-financial assets and liabilities measured at fair value in the financial statements on a recurring basis, including accounts receivable and accounts payable, approximate fair value due to their short maturities. |
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Restructuring and Other Charges |
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| Restructuring Charges [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring and Other Charges | Note 13. Restructuring and Other Charges
The Company accounts for its restructuring plans under the authoritative guidance for exit or disposal activities. The Company includes expenses related to restructuring and other charges in Other operating expenses (income), net in the condensed consolidated statements of operations. Accrued restructuring and other charges are classified within Accrued employee compensation and Other accrued liabilities on the condensed consolidated balance sheets.
Restructuring and other charges recognized in the three months ended March 31, 2024 and April 2, 2023, respectively, were primarily for severance, and other costs in relation to the reorganization of our business to better align the cost structure of the business with projected revenue levels. The liabilities as of March 31, 2024 are expected to be settled in 2024.
The following table provides a summary of the activity related to accrued restructuring and other charges:
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Summary of Significant Accounting Policies (Policies) |
3 Months Ended |
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Mar. 31, 2024 | |
| Accounting Policies [Abstract] | |
| Recent Accounting Pronouncements | Recent Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for the Company for the year ended 2024 and early adoption is permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. The Company does not expect that the guidance will have material impacts on its financial position, results of operations or cash flows. The Company is evaluating the impact that the updated standard will have on its financial statement disclosures. In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which improves the transparency of income tax disclosures. ASU 2023-09 is effective for the Company for the year ended December 31, 2025 and early adoption is permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. The Company is evaluating the impact that the updated standard will have on its financial statement disclosures. With the exception of the new standards discussed above, there have been no other new accounting pronouncements that have significance, or potential significance, to the Company’s financial position, results of operations and cash flows. |
| Revenue Recognition | Transaction Price Allocated to the Remaining Performance Obligations Remaining performance obligations represent the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. Unsatisfied and partially unsatisfied performance obligations consist of contract liabilities, in-transit orders with destination terms, and non-cancellable backlog. Non-cancellable backlog includes goods for which customer purchase orders have been accepted, that are scheduled or in the process of being scheduled for shipment, and that are not yet invoiced. Contract Balances The Company records accounts receivable when it has an unconditional right to consideration. Contract liabilities are recorded when cash payments are received or due in advance of performance. Contract liabilities consist of advance payments and deferred revenue, where the Company has unsatisfied performance obligations. Contract liabilities are mainly classified as Deferred revenue on the unaudited condensed consolidated balance sheets. Payment terms vary by customer. The time between invoicing and when payment is due is not significant. For certain products or services and customer types, payment is required before the products or services are delivered to the customer. |
| Net Income (Loss) Per Share | Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. Potentially dilutive common shares include common shares issuable upon exercise of stock options, vesting of Restricted Stock Units (“RSUs”) and performance shares, and issuances of shares under the Employee Stock Purchase Plan (the “ESPP”), which are reflected in diluted net income (loss) per share by application of the treasury stock method. Potentially dilutive common shares are excluded from the computation of diluted net income (loss) per share when their effect is anti-dilutive. |
| Income taxes | The Company accounts for income taxes under an asset and liability approach. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences resulting from different treatment for tax versus accounting for certain items, such as accruals and allowances not currently deductible for tax purposes. The deferred tax assets and liabilities represent the future tax return consequences of these differences, which will either be taxable or deductible when assets and liabilities are recovered or settled, as well as operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheets. The Company must then assess the likelihood that the Company’s deferred tax assets will be recovered from future taxable income and to the extent the Company believes that recovery is not more likely than not, the Company must establish a valuation allowance. The Company’s assessment considers the recognition of deferred tax assets on a jurisdictional basis. Accordingly, in assessing its future taxable income on a jurisdictional basis, the Company considers the effect of its transfer pricing policies on that income. As of the period ended October 1, 2023, the Company determined that recovery of its U.S. federal and state deferred tax assets was no longer more likely than not and established a full valuation allowance on those net assets, based on evaluation of all available evidence, including actual and anticipated business results. Accordingly, the balance sheet net deferred tax assets from the U.S. federal and state jurisdictions reported in “Other Non-current Assets” were reduced after the effect of establishing the valuation allowance. |
| Segment Recast | Segment Recast In the first fiscal quarter of 2024, resulting from certain segment structure changes, the Company revised its allocation method by allocating certain historically unallocated operating expenses to its individual operating segments. This change impacted Note 11, Segment Information. The prior-year segment financial information has been recast to conform to the current-year presentation. None of the changes impact previously reported consolidated net revenue, income (loss) from operations, net income (loss) per share, total assets, or stockholders’ equity. |
Revenue (Tables) |
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| Schedule of Remaining Performance Obligations |
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| Schedule of Contract Balances | The following table reflects the contract balances:
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| Schedule of Net Revenue Disaggregated by Geographical Region and Sales Channel | In the following tables, net revenue is disaggregated by geographic region and sales channel. The Company conducts business across three geographic regions: Americas; Europe, Middle East and Africa (“EMEA”); and Asia Pacific (“APAC”). The tables also include reconciliations of the disaggregated revenue by reportable segment. The Company operates and reports in two segments: Connected Home and NETGEAR for Business (formerly known as Small and Medium Business, or SMB). Sales and usage-based taxes are excluded from net revenue.
(1) No individual foreign country represented more than 10% of the Company’s total net revenue in the periods presented. |
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Balance Sheet Components (Tables) |
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Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance Sheet Related Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Amortized Cost and Estimated Fair Market Value of Investments Classified as Available-for-Sale Excluding Cash Equivalents | Amortized cost and estimated fair market value of investments classified as available-for-sale, excluding cash equivalents, as of March 31, 2024 and December 31, 2023, were as follows:
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| Schedule of Investments Classified as Available-for-Sale in Continuous Unrealized Loss Position | The following table summarizes investments classified as available-for-sale in a continuous unrealized loss position for which an allowance for credit losses was not recorded as of March 31, 2024 and December 31, 2023:
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| Schedule of Inventories | Inventories
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| Schedule of Property and Equipment, Net | Property and equipment, net
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| Schedule of Other Non-Current Assets | Other non-current assets
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| Schedule of Changes in Carrying Value of Long-term Equity Investments | Long-term equity investments The Company’s long-term investments are comprised of equity investments without readily determinable fair values, investments in convertible debt securities and investments in limited partnership funds. The changes in the carrying value of equity investments without readily determinable fair values were as follows:
The balances excluded an investment in limited partnership funds of $2.2 million as of March 31, 2024, $1.6 million as of April 2, 2023, $2.3 million as of December 31, 2023, and $1.7 million as of December 31, 2022. Additionally, the balance excluded an investment in convertible debt securities of $0.2 million as of March 31, 2024, December 31, 2023, April 2, 2023, and December 31, 2022, respectively. |
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| Schedule of Other Accrued Liabilities | Other accrued liabilities
(1)
Inventory expected to be received from future sales returns amounted to $17.4 million and $16.9 million as of March 31, 2024 and December 31, 2023, respectively. Provisions to write down expected returned inventory to net realizable value amounted to $8.6 million and $9.7 million as of March 31, 2024 and December 31, 2023, respectively. |
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Derivative Financial Instruments (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Values of the Company's Derivative Instruments and the Line Items on the Unaudited Condensed Consolidated Balance Sheets | The fair values of the Company’s derivative instruments and the line items on the unaudited condensed consolidated balance sheets to which they were recorded were summarized as follows:
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Net Income (Loss) Per Share (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Net Income (Loss) Per Share | Net income (loss) per share consisted of the following:
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Commitments and Contingencies (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Changes in Warranty Obligations | Changes in the Company’s warranty obligations, which is included in Other accrued liabilities on the unaudited condensed consolidated balance sheets, were as follows:
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Stockholders' Equity (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accumulated Other Comprehensive Income (loss) | The following tables set forth the changes in accumulated other comprehensive income (loss) (“AOCI”) by component:
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| Schedule of Reclassification out of AOCI | The following table provides details about significant amounts reclassified out of each component of AOCI:
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Employee Benefit Plans (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Employee Benefit and Share-Based Payment Arrangement, Noncash Expense [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Stock Option Activity | Stock option activity was as follows:
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| Schedule of Time-Based RSU Activity | Time-based RSU activity was as follows:
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| Schedule of PSU Activity | PSU activity was as follows:
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| Schedule of Total Stock-Based Compensation Expense Resulting from Stock Options, RSUs, Time-Based and Performance-Based and the ESPP | Valuation and Expense Information
The following table sets forth the stock-based compensation expense resulting from stock options, RSUs (time-based and performance-based) and the ESPP included in the Company’s unaudited condensed consolidated statements of operations:
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Segment Information (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Reportable Segments and Reconciliation of Segment Contribution Income (Loss) to Income (Loss) Before Income Taxes | Financial information for each reportable segment and a reconciliation of segment contribution income (loss) to loss before income taxes is as follows:
(1) Amounts included gain/(loss), net from derivatives not designated as hedging instruments of $1.5 million and $(0.2) million, for the three months ended March 31, 2024 and April 2, 2023, respectively. * Financial information for each reportable segment were recast to conform to the current reportable segment structure. |
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| Schedule of Net Revenue by Geography | The following table shows net revenue by geography:
(1)
No individual foreign country represented more than 10% of the Company’s total net revenue in the periods presented. |
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| Schedule of Long-Lived Asset By Geographic Region | The following table presents the Company’s long-lived assets located in geographic areas, which consist of property and equipment, net, and operating lease right-of-use assets:
(1)
No individual country represented more than 10% of the Company’s total long-lived assets in the periods presented. |
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Fair Value Measurements (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value, Assets and Liabilities Measured on Recurring Basis | The following tables summarize assets and liabilities measured at fair value on a recurring basis:
(1) Included in Short-term investments on the Company’s unaudited condensed consolidated balance sheets. (2) Included in Prepaid expenses and other current assets on the Company’s unaudited condensed consolidated balance sheets. (3)
Included in Other accrued liabilities on the Company's unaudited condensed consolidated balance sheets. |
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Restructuring and Other Charges (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring Charges [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Activity Related to Accrued Restructuring and Other Charges | The following table provides a summary of the activity related to accrued restructuring and other charges:
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Revenue (Schedule of Remaining Performance Obligations) (Details) $ in Thousands |
Mar. 31, 2024
USD ($)
|
|---|---|
| Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items] | |
| Performance obligations, amount | $ 58,584 |
| Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2024-04-01 | |
| Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items] | |
| Performance obligations, amount | $ 53,158 |
| Performance obligations, period | 1 year |
| Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2025-04-01 | |
| Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items] | |
| Performance obligations, amount | $ 2,908 |
| Performance obligations, period | 1 year |
| Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2026-04-01 | |
| Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items] | |
| Performance obligations, amount | $ 2,518 |
| Performance obligations, period | 1 year |
Revenue (Schedule of Remaining Performance Obligations) (Details 1) $ in Thousands |
Mar. 31, 2024
USD ($)
|
|---|---|
| Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | |
| Performance obligations, amount | $ 58,584 |
Revenue (Schedule of Contract Balances) (Details) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Revenue from Contract with Customer [Abstract] | ||
| Accounts receivable, net | $ 172,771 | $ 185,059 |
| Contract liabilities - current | 28,393 | 27,091 |
| Contract liabilities - non-current | $ 5,321 | $ 4,903 |
Revenue (Narrative) (Details) $ in Millions |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
USD ($)
Segment
Region
| |
| Revenue from Contract with Customer [Abstract] | |
| Revenue deferred due to unsatisfied performance obligations | $ 12.9 |
| Revenue recognized for satisfaction of performance obligations | 11.2 |
| Contract with Customer, Liability Included In Beginning Balance, Revenue Recognized | $ 9.9 |
| Number of geographic regions in which the Company conducts business | Region | 3 |
| Number of operating segments | Segment | 2 |
| Number of reportable segments | Segment | 2 |
Revenue (Schedule of Net Revenue Disaggregated by Geographical Region and Sales Channel) (Details) - USD ($) $ in Thousands |
3 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | [1] | $ 164,586 | $ 180,908 | [2] | |||||
| Service provider | |||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | 27,796 | 14,217 | |||||||
| Non-service provider | |||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | 136,790 | 166,691 | |||||||
| Connected Home | |||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | [1] | 95,963 | 102,746 | [2] | |||||
| Connected Home | Service provider | |||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | 27,553 | 14,027 | |||||||
| Connected Home | Non-service provider | |||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | 68,410 | 88,719 | |||||||
| NETGEAR for Business | |||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | [1] | 68,623 | 78,162 | [2] | |||||
| NETGEAR for Business | Service provider | |||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | 243 | 190 | |||||||
| NETGEAR for Business | Non-service provider | |||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | 68,380 | 77,972 | |||||||
| Americas | |||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | [1] | 109,928 | 121,922 | ||||||
| Americas | Connected Home | |||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | [1] | 77,995 | 84,001 | ||||||
| Americas | NETGEAR for Business | |||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | [1] | 31,933 | 37,921 | ||||||
| EMEA | |||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | [1],[3] | 31,187 | 39,178 | ||||||
| EMEA | Connected Home | |||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | [1] | 8,010 | 12,064 | ||||||
| EMEA | NETGEAR for Business | |||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | [1] | 23,177 | 27,114 | ||||||
| APAC | |||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | [1] | 23,471 | 19,808 | ||||||
| APAC | Connected Home | |||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | [1] | 9,958 | 6,681 | ||||||
| APAC | NETGEAR for Business | |||||||||
| Disaggregation of Revenue [Line Items] | |||||||||
| Total net revenue | [1] | $ 13,513 | $ 13,127 | ||||||
| |||||||||
Revenue (Schedule of Net Revenue Disaggregated by Geographical Region and Sales Channel) (Parenthetical) (Details) - Maximum |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Disaggregation of Revenue [Line Items] | ||
| Percentage of net revenue | 10.00% | |
| EMEA | ||
| Disaggregation of Revenue [Line Items] | ||
| Percentage of net revenue | 10.00% | 10.00% |
Balance Sheet Components (Schedule of Amortized Cost and Estimated Fair Market Value of Investments Classified as Available-for-Sale Excluding Cash Equivalents) (Details) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule Of Available For Sale Securities [Line Items] | ||
| Amortized Cost | $ 108,311 | $ 98,499 |
| Unrealized Gains | 0 | 128 |
| Unrealized Losses | (38) | 0 |
| Estimated Fair Value | 108,273 | 98,627 |
| U.S. Treasury Securities | ||
| Schedule Of Available For Sale Securities [Line Items] | ||
| Amortized Cost | 108,138 | 98,326 |
| Unrealized Gains | 0 | 128 |
| Unrealized Losses | (38) | 0 |
| Estimated Fair Value | 108,100 | 98,454 |
| Convertible debt securities | ||
| Schedule Of Available For Sale Securities [Line Items] | ||
| Amortized Cost | 173 | 173 |
| Unrealized Gains | 0 | 0 |
| Unrealized Losses | 0 | 0 |
| Estimated Fair Value | $ 173 | $ 173 |
Balance Sheet Components (Schedule of Amortized Cost and Estimated Fair Market Value of Investments Classified as Available-for-Sale Excluding Cash Equivalents) (Parentheticals) (Details) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule Of Available For Sale Securities [Line Items] | ||
| Short-term investments | $ 116,765 | $ 106,931 |
| Other non-current assets | $ 17,294 | $ 17,326 |
Balance Sheet Components (Narrative) (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Balance Sheet Related Disclosures [Line Items] | ||
| Accrued interest receivable | $ 500,000 | |
| Unrealized losses on available-for-sale securities | 0 | $ 0 |
| Other-than-temporary impairments | 0 | 0 |
| Provisions for excess and obsolete inventory | 1,132,000 | $ 1,174,000 |
| Equity securities without readily determinable fair value, cumulative downward adjustments for price change and impairment loss | 0 | |
| Cumulative upward adjustments for price changes | $ 300,000 | |
Balance Sheet Components (Schedule of Investments Classified as Available-for-Sale in Continuous Unrealized Loss Position) (Details) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule Of Investment Income Reported Amounts By Category [Line Items] | ||
| Estimated Fair Market Value, Less Than 12 Months | $ 108,100 | $ 98,454 |
| Gross Unrealized Losses, Less Than 12 Months | (38) | 0 |
| Estimated Fair Market Value, 12 Months or Longer | 0 | 0 |
| Gross Unrealized Losses, 12 Months or Longer | 0 | 0 |
| Estimated Fair Market Value, Total | 108,100 | 98,454 |
| Gross Unrealized Losses, Total | (38) | 0 |
| U.S. Treasury Securities | ||
| Schedule Of Investment Income Reported Amounts By Category [Line Items] | ||
| Estimated Fair Market Value, Less Than 12 Months | 108,100 | 98,454 |
| Gross Unrealized Losses, Less Than 12 Months | (38) | 0 |
| Estimated Fair Market Value, 12 Months or Longer | 0 | 0 |
| Gross Unrealized Losses, 12 Months or Longer | 0 | 0 |
| Estimated Fair Market Value, Total | 108,100 | 98,454 |
| Gross Unrealized Losses, Total | $ (38) | $ 0 |
Balance Sheet Components (Schedule of Inventories) (Details) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Balance Sheet Related Disclosures [Abstract] | ||
| Raw materials | $ 21,714 | $ 19,955 |
| Finished goods | 189,556 | 228,896 |
| Total | $ 211,270 | $ 248,851 |
Balance Sheet Components (Schedule of Property and Equipment, Net) (Details) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Total property and equipment, gross | $ 97,842 | $ 97,249 |
| Accumulated depreciation | (88,489) | (88,976) |
| Total | 9,353 | 8,273 |
| Computer equipment | ||
| Total property and equipment, gross | 5,335 | 5,458 |
| Furniture, fixtures and leasehold improvements | ||
| Total property and equipment, gross | 18,637 | 18,205 |
| Software | ||
| Total property and equipment, gross | 24,428 | 25,760 |
| Machinery and equipment | ||
| Total property and equipment, gross | $ 49,442 | $ 47,826 |
Balance Sheet Components (Schedule of Other Non-Current Assets) (Details) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Balance Sheet Related Disclosures [Abstract] | ||
| Non-current deferred income taxes | $ 3,251 | $ 3,343 |
| Long-term investments | 8,266 | 8,367 |
| Other | 5,777 | 5,616 |
| Total | $ 17,294 | $ 17,326 |
Balance Sheet Components (Schedule of Changes in Carrying Value of Long-term Equity Investments) (Details) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
Apr. 02, 2023 |
||
|---|---|---|---|---|---|
| Balance Sheet Related Disclosures [Abstract] | |||||
| Beginning Balance | [1] | $ 6,053 | $ 6,053 | $ 6,053 | |
| Ending Balance | [1] | $ 6,053 | $ 6,053 | $ 6,053 | |
| |||||
Balance Sheet Components (Schedule of Changes in Carrying Value of Long-term Equity Investments) (Parentheticals) (Details) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
Apr. 02, 2023 |
Dec. 31, 2022 |
|---|---|---|---|---|
| Balance Sheet Related Disclosures [Line Items] | ||||
| Equity investments | $ 8,266 | $ 8,367 | ||
| Limited partnership funds | ||||
| Balance Sheet Related Disclosures [Line Items] | ||||
| Equity investments | 2,200 | 2,300 | $ 1,600 | $ 1,700 |
| Convertible debt securities | ||||
| Balance Sheet Related Disclosures [Line Items] | ||||
| Equity investments | $ 200 | $ 200 | $ 200 | $ 200 |
Balance Sheet Components (Schedule of Other Accrued Liabilities) (Details) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
||
|---|---|---|---|---|
| Balance Sheet Related Disclosures [Abstract] | ||||
| Current operating lease liabilities | $ 11,306 | $ 11,869 | ||
| Operating Lease, Liability, Current, Statement of Financial Position [Extensible Enumeration] | Total | Total | ||
| Sales and marketing | $ 65,725 | $ 75,535 | ||
| Warranty obligations | 5,087 | 5,738 | ||
| Sales returns | [1] | 35,713 | 34,824 | |
| Freight and duty | 3,412 | 2,837 | ||
| Other | 33,324 | 37,281 | ||
| Total | $ 154,567 | $ 168,084 | ||
| ||||
Balance Sheet Components (Schedule of Other Accrued Liabilities) (Parentheticals) (Details) - USD ($) $ in Millions |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Balance Sheet Related Disclosures [Abstract] | ||
| Inventory expected to be received from future sales returns | $ 17.4 | $ 16.9 |
| Provisions to write down expected returned inventory to net realizable value | $ 8.6 | $ 9.7 |
Derivative Financial Instruments (Narrative) (Details) - Foreign currency forward contracts $ in Millions |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
USD ($)
Derivative_instrument
| |
| Derivatives not designated as hedging instruments | |
| Derivative [Line Items] | |
| Approximate number of derivatives per quarter | Derivative_instrument | 7 |
| Notional amount | $ | $ 2.8 |
| Cash Flow Hedges | |
| Derivative [Line Items] | |
| Approximate number of derivatives per quarter | Derivative_instrument | 10 |
| Notional amount | $ | $ 5.4 |
| Maximum | |
| Derivative [Line Items] | |
| Term of derivative contracts | 6 months |
| Maximum | Derivatives not designated as hedging instruments | |
| Derivative [Line Items] | |
| Term of derivative contracts | 3 months |
| Maximum | Cash Flow Hedges | |
| Derivative [Line Items] | |
| Term of derivative contracts | 6 months |
Derivative Financial Instruments (Schedule of Fair Values of the Company's Derivative Instruments and the Line Items on the Unaudited Condensed Consolidated Balance Sheets) (Details) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Derivatives, Fair Value [Line Items] | ||
| Gross Amounts of recognized assets | $ 168 | $ 291 |
| Gross Amounts of recognized liabilities | 45 | 1,691 |
| Prepaid expenses and other current assets | Derivatives not designated as hedging instruments | ||
| Derivatives, Fair Value [Line Items] | ||
| Gross Amounts of recognized assets | 167 | 284 |
| Prepaid expenses and other current assets | Derivatives designated as hedging instruments | ||
| Derivatives, Fair Value [Line Items] | ||
| Gross Amounts of recognized assets | 1 | 7 |
| Other accrued liabilities | Derivatives not designated as hedging instruments | ||
| Derivatives, Fair Value [Line Items] | ||
| Gross Amounts of recognized liabilities | 43 | 1,672 |
| Other accrued liabilities | Derivatives designated as hedging instruments | ||
| Derivatives, Fair Value [Line Items] | ||
| Gross Amounts of recognized liabilities | $ 2 | $ 19 |
Net Income (Loss) Per Share (Schedule of Net Income (Loss) Per Share) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Numerator: | ||
| Net loss | $ (18,650) | $ (9,712) |
| Denominator: | ||
| Weighted average common shares - basic | 29,395 | 29,040 |
| Weighted average common shares - dilutive | 29,395 | 29,040 |
| Basic net income (loss) per share | $ (0.63) | $ (0.33) |
| Diluted net income (loss) per share | $ (0.63) | $ (0.33) |
| Anti-dilutive employee stock-based awards, excluded | 2,085 | 1,318 |
Income Taxes (Narrative) (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Schedule Of Income Taxes [Line Items] | ||
| Tax impact | $ (148,000) | $ (857,000) |
| Effective tax rate | 0.80% | 8.10% |
| Benefit for forecasted tax loss | $ 0 | |
| Possible reduction in liabilities for uncertain tax positions | $ 700,000 | |
Commitments and Contingencies (Details) $ in Millions |
3 Months Ended | ||
|---|---|---|---|
|
Mar. 31, 2024
USD ($)
Patent
Claim
|
Apr. 02, 2023
USD ($)
|
Dec. 31, 2023
USD ($)
|
|
| Loss Contingencies [Line Items] | |||
| Non-cancelable purchase commitments with suppliers | $ 77.0 | $ 42.6 | |
| Additional purchase orders beyond contractual termination periods | 274.2 | ||
| Losses incurred related to purchase commitments | $ 1.1 | $ 0.5 | |
| Number of existing cases and proceedings that the Company currently believes are liking to have a material adverse effect on its financial position | claim | Claim | 0 | ||
| The future length the Company currently considered regarding existing cases and proceedings that are likely to have a material adverse effect on it (in months) | 12 months | ||
| 46 to 60 Days | |||
| Loss Contingencies [Line Items] | |||
| Percentage of cancelable orders | 50.00% | ||
| 46 to 60 Days | Minimum | |||
| Loss Contingencies [Line Items] | |||
| Required notice period prior to expected shipment date | 46 days | ||
| 46 to 60 Days | Maximum | |||
| Loss Contingencies [Line Items] | |||
| Required notice period prior to expected shipment date | 60 days | ||
| 31 to 45 Days | |||
| Loss Contingencies [Line Items] | |||
| Percentage of cancelable orders | 25.00% | ||
| 31 to 45 Days | Minimum | |||
| Loss Contingencies [Line Items] | |||
| Required notice period prior to expected shipment date | 31 days | ||
| 31 to 45 Days | Maximum | |||
| Loss Contingencies [Line Items] | |||
| Required notice period prior to expected shipment date | 45 days | ||
| Non- Trade | |||
| Loss Contingencies [Line Items] | |||
| Long-term, non-cancellable purchase commitments | $ 13.1 | ||
| Huawei v. NETGEAR Inc. | |||
| Loss Contingencies [Line Items] | |||
| Number of patent infringement cases | Patent | 2 | ||
| Number of patents | Patent | 2 | ||
Commitments and Contingencies (Schedule of Changes in Warranty Obligations) (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Movement in Standard Product Warranty Accrual [Roll Forward] | ||
| Balance as of beginning of the period | $ 5,738 | $ 6,320 |
| Provision for warranty liability made | 608 | 1,417 |
| Settlements made | (1,259) | (1,386) |
| Balance as of the end of the period | $ 5,087 | $ 6,351 |
Stockholders' Equity (Narrative) (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Stockholders' Equity Note [Abstract] | ||
| Shares remaining authorized for repurchase (in shares) | 1,700,000 | |
| Stock repurchased (in shares) | 800,000 | |
| Cost of stock repurchased | $ 11,444 | |
| RSU withholdings (in shares) | 32,000 | 6,000 |
| RSU withholdings | $ 454 | $ 120 |
Stockholders' Equity (Schedule of Changes in Accumulated Other Comprehensive Income (loss) by Component) (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Estimated tax benefit (provision) | ||
| Beginning balance | $ 3 | $ 125 |
| Other comprehensive income (loss) before reclassifications | 6 | (240) |
| Less: Amount reclassified from accumulated other comprehensive income (loss) | 13 | (122) |
| Net current period other comprehensive income (loss) | (7) | (118) |
| Ending balance | (4) | 7 |
| AOCI, after tax | ||
| Beginning balance | 535,495 | 620,855 |
| Other comprehensive income (loss) before reclassifications | (165) | 1,047 |
| Less: Amount reclassified from accumulated other comprehensive income (loss) | (50) | 459 |
| Net current period other comprehensive income (loss) | (115) | 588 |
| Ending balance | 511,362 | 618,562 |
| Unrealized gains (losses) on available-for-sale investments | ||
| AOCI, before tax | ||
| Beginning balance | 126 | (322) |
| Other comprehensive income (loss) before reclassifications | (166) | 241 |
| Less: Amount reclassified from accumulated other comprehensive income (loss) | 0 | 0 |
| Net current period other comprehensive income (loss) | (166) | 241 |
| Ending balance | (40) | (81) |
| Unrealized gains (losses) on derivatives | ||
| AOCI, before tax | ||
| Beginning balance | 7 | (338) |
| Other comprehensive income (loss) before reclassifications | (5) | 1,046 |
| Less: Amount reclassified from accumulated other comprehensive income (loss) | (63) | 581 |
| Net current period other comprehensive income (loss) | 58 | 465 |
| Ending balance | 65 | 127 |
| AOCI | ||
| AOCI, after tax | ||
| Beginning balance | 136 | (535) |
| Ending balance | $ 21 | $ 53 |
Stockholders' Equity (Schedule of Reclassifications out of AOCI) (Details) - USD ($) $ in Thousands |
3 Months Ended | ||||||
|---|---|---|---|---|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
||||||
| Reclassification Out of Accumulated Other Comprehensive Income [Line Items] | |||||||
| Net revenue | [1] | $ 164,586 | $ 180,908 | [2] | |||
| Cost of revenue | 116,349 | 120,526 | |||||
| Research and development | 20,227 | 22,134 | |||||
| Sales and marketing | 30,529 | 33,879 | |||||
| General and administrative | 18,067 | 16,236 | |||||
| Tax impact | 148 | 857 | |||||
| Total, net of tax | (18,650) | (9,712) | |||||
| Amount Reclassified from AOCI | |||||||
| Reclassification Out of Accumulated Other Comprehensive Income [Line Items] | |||||||
| Net revenue | (79) | 689 | |||||
| Cost of revenue | 0 | (1) | |||||
| Research and development | (1) | (8) | |||||
| Sales and marketing | 9 | (83) | |||||
| General and administrative | 8 | (16) | |||||
| Total before tax | (63) | 581 | |||||
| Tax impact | 13 | (122) | |||||
| Total, net of tax | $ (50) | $ 459 | |||||
| |||||||
Employee Benefit Plans (Narrative) (Details) shares in Millions, $ in Millions |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
USD ($)
shares
| |
| 2016 Incentive Plan | |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Number of shares reserved for future grant (in shares) | 2.8 |
| 2024 Inducement Equity Incentive Plan | |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Number of shares reserved for future grant (in shares) | 0.9 |
| Employee Stock Purchase Plan | |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Number of shares reserved for future grant (in shares) | 0.6 |
| Purchase percentage of stock at fair market value (in percentage) | 85.00% |
| Options and RSUs | |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Vesting term | 4 years |
| Performance Shares | |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Vesting term | 3 years |
| Performance Shares | 2016 Incentive Plan | |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Vesting term | 3 years |
| Performance Shares | 2016 Incentive Plan | Minimum | |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Percentage vest of performance shares | 0.00% |
| Performance Shares | 2016 Incentive Plan | Maximum | |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Percentage vest of performance shares | 150.00% |
| Performance Shares | 2024 Inducement Equity Incentive Plan | |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Vesting term | 3 years |
| Performance Shares | 2024 Inducement Equity Incentive Plan | Minimum | |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Percentage vest of performance shares | 0.00% |
| Performance Shares | 2024 Inducement Equity Incentive Plan | Maximum | |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Percentage vest of performance shares | 150.00% |
| Time-Based RSU | |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Total unrecognized compensation | $ | $ 36.8 |
| Weighted-average period of recognition of stock based compensation | 2 years 4 months 24 days |
| Performance-Based RSU | |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Total unrecognized compensation | $ | $ 36.8 |
| Weighted-average period of recognition of stock based compensation | 2 years 4 months 24 days |
Employee Benefit Plans (Schedule of Stock Option Activity) (Details) - Employee Stock Option shares in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
$ / shares
shares
| |
| Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward] | |
| Number of shares, beginning balance (in shares) | shares | 866 |
| Number of shares, granted (in shares) | shares | 0 |
| Number of shares, exercised (in shares) | shares | 0 |
| Number of shares, cancelled (in shares) | shares | 0 |
| Number of shares, expired (in shares) | shares | 0 |
| Number of shares, ending balance (in shares) | shares | 866 |
| Beginning balance (in dollars per share) | $ / shares | $ 30.70 |
| Granted (in dollars per share) | $ / shares | 0 |
| Exercised (in dollars per share) | $ / shares | 0 |
| Cancelled (in dollars per share) | $ / shares | 0 |
| Expired (in dollars per share) | $ / shares | 0 |
| Ending balance (in dollars per share) | $ / shares | $ 30.70 |
Employee Benefit Plans (Schedule of Time-Based RSU Activity) (Details) - Time-Based RSU shares in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
$ / shares
shares
| |
| Number of Shares | |
| Beginning balance (in shares) | shares | 1,567 |
| Granted (in shares) | shares | 459 |
| Vested (in shares) | shares | (85) |
| Cancelled (in shares) | shares | (41) |
| Ending balance (in shares) | shares | 1,900 |
| Weighted Average Grant Date Fair Value Per Share | |
| Beginning Balance (in dollars per share) | $ / shares | $ 22.83 |
| Granted (in dollars per share) | $ / shares | 14.90 |
| Vested (in dollars per share) | $ / shares | 19.93 |
| Cancelled (in dollars per share) | $ / shares | 22.15 |
| Ending Balance (in dollars per share) | $ / shares | $ 20.87 |
Employee Benefit Plans (Schedule of Performance Shares Activity) (Details) - Performance Shares shares in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
$ / shares
shares
| |
| Number of Shares | |
| Beginning balance (in shares) | shares | 417 |
| Granted (in shares) | shares | 456 |
| Vested (in shares) | shares | 0 |
| Cancelled (in shares) | shares | (296) |
| Ending balance (in shares) | shares | 577 |
| Weighted Average Grant Date Fair Value Per Share | |
| Beginning Balance (in dollars per share) | $ / shares | $ 24.76 |
| Granted (in dollars per share) | $ / shares | 20.71 |
| Vested (in dollars per share) | $ / shares | 0 |
| Cancelled (in dollars per share) | $ / shares | 27.36 |
| Ending Balance (in dollars per share) | $ / shares | $ 20.23 |
Employee Benefit Plans (Schedule of Total Stock-Based Compensation Expense Resulting from Stock Options, RSUs, Time-Based and Performance-Based and the ESPP) (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Total stock-based compensation | $ 4,544 | $ 4,665 |
| Cost of revenue | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Total stock-based compensation | 365 | 351 |
| Research and development | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Total stock-based compensation | 698 | 1,065 |
| Sales and marketing | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Total stock-based compensation | 1,237 | 1,431 |
| General and administrative | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Total stock-based compensation | $ 2,244 | $ 1,818 |
Segment Information (Narrative) (Details) |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
Segment
| |
| Segment Reporting [Abstract] | |
| Number of operating segments | 2 |
| Number of reportable segments | 2 |
Segment Information (Schedule of Reportable Segments and Reconciliation of Segment Contribution Income (Loss) to Income (Loss) Before Income Taxes) (Details) - USD ($) $ in Thousands |
3 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
[2] | |||||||
| Segment Reporting Information [Line Items] | |||||||||
| Total net revenue | [1] | $ 164,586 | $ 180,908 | ||||||
| Total segment contribution income | 3,764 | 12,301 | |||||||
| Corporate and unallocated costs | (19,806) | (19,374) | |||||||
| Amortization of intangibles | 0 | (129) | |||||||
| Stock-based compensation expense | (4,544) | (4,665) | |||||||
| Restructuring and other charges | (1,032) | (108) | |||||||
| Litigation reserves, net | (30) | 0 | |||||||
| Other income, net | [3] | 2,850 | 1,406 | ||||||
| Loss before income taxes | (18,798) | (10,569) | |||||||
| Connected Home | |||||||||
| Segment Reporting Information [Line Items] | |||||||||
| Total net revenue | [1] | 95,963 | 102,746 | ||||||
| Total segment contribution income | $ (6,140) | $ (1,756) | |||||||
| Segment contribution margin | (6.40%) | (1.70%) | |||||||
| NETGEAR for Business | |||||||||
| Segment Reporting Information [Line Items] | |||||||||
| Total net revenue | [1] | $ 68,623 | $ 78,162 | ||||||
| Total segment contribution income | $ 9,904 | $ 14,057 | |||||||
| Segment contribution margin | 14.40% | 18.00% | |||||||
| |||||||||
Segment Information (Schedule of Reportable Segments and Reconciliation of Segment Contribution Income (Loss) to Income (Loss) Before Income Taxes) (Parenthetical) (Details) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Segment Reporting [Abstract] | ||
| Gain/(loss), net from derivatives not designated as hedging instruments | $ 1.5 | $ (0.2) |
Segment Information (Schedule of Net Revenue by Geographic Areas) (Details) - USD ($) $ in Thousands |
3 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
||||||||
| Segment Reporting Information [Line Items] | |||||||||
| Total net revenue | [1] | $ 164,586 | $ 180,908 | [2] | |||||
| United States (U.S.) | |||||||||
| Segment Reporting Information [Line Items] | |||||||||
| Total net revenue | 107,289 | 117,798 | |||||||
| Americas (excluding U.S.) | |||||||||
| Segment Reporting Information [Line Items] | |||||||||
| Total net revenue | 2,639 | 4,124 | |||||||
| EMEA | |||||||||
| Segment Reporting Information [Line Items] | |||||||||
| Total net revenue | [1],[3] | 31,187 | 39,178 | ||||||
| APAC | |||||||||
| Segment Reporting Information [Line Items] | |||||||||
| Total net revenue | [3] | $ 23,471 | $ 19,808 | ||||||
| |||||||||
Segment Information (Schedule of Net Revenue by Geographic Areas) (Parenthetical) (Details) - Maximum |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Revenues From External Customers And Long Lived Assets [Line Items] | ||
| Percentage of net revenue | 10.00% | |
| EMEA | ||
| Revenues From External Customers And Long Lived Assets [Line Items] | ||
| Percentage of net revenue | 10.00% | 10.00% |
| APAC | ||
| Revenues From External Customers And Long Lived Assets [Line Items] | ||
| Percentage of net revenue | 10.00% | 10.00% |
Segment Information (Schedule of Long-Lived Asset by Geographic Region) (Details) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
||
|---|---|---|---|---|
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Total | $ 44,066 | $ 45,558 | ||
| United States (U.S.) | ||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Total | 23,757 | 25,051 | ||
| Canada | ||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Total | 4,712 | 4,714 | ||
| Americas (excluding U.S. and Canada) | ||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Total | 64 | 68 | ||
| EMEA | ||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Total | 3,582 | 3,739 | ||
| Singapore | ||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Total | 5,995 | 6,218 | ||
| APAC (excluding Singapore) | ||||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||||
| Total | [1] | $ 5,956 | $ 5,768 | |
| ||||
Segment Information (Schedule of Long-Lived Asset by Geographic Region) (Parenthetical) (Details) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2024 |
Dec. 31, 2023 |
|
| Maximum | APAC (excluding Singapore) | ||
| Revenues From External Customers And Long Lived Assets [Line Items] | ||
| Percentage of total long-lived assets owned | 10.00% | 10.00% |
Fair Value Measurements (Summary of Valuation of Company's Financial Instruments by Various Levels) (Details) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
||||||
|---|---|---|---|---|---|---|---|---|
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | $ 144,781 | $ 133,208 | ||||||
| Liabilities measured at fair value | 45 | 1,691 | ||||||
| Quoted market prices in active markets (Level 1) | ||||||||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | 36,340 | 34,290 | ||||||
| Liabilities measured at fair value | 0 | 0 | ||||||
| Significant other observable inputs (Level 2) | ||||||||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | 108,441 | 98,918 | ||||||
| Liabilities measured at fair value | 45 | 1,691 | ||||||
| Cash Equivalents | ||||||||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | 27,848 | 25,986 | ||||||
| Cash Equivalents | Quoted market prices in active markets (Level 1) | ||||||||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | 27,848 | 25,986 | ||||||
| Cash Equivalents | Significant other observable inputs (Level 2) | ||||||||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | 0 | 0 | ||||||
| Trading securities | ||||||||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | [1] | 8,492 | 8,304 | |||||
| Trading securities | Quoted market prices in active markets (Level 1) | ||||||||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | [1] | 8,492 | 8,304 | |||||
| Trading securities | Significant other observable inputs (Level 2) | ||||||||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | [1] | 0 | 0 | |||||
| Available-for-sale Investments | U.S. Treasury Securities | ||||||||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | [1] | 108,100 | 98,454 | |||||
| Available-for-sale Investments | U.S. Treasury Securities | Quoted market prices in active markets (Level 1) | ||||||||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | [1] | 0 | 0 | |||||
| Available-for-sale Investments | U.S. Treasury Securities | Significant other observable inputs (Level 2) | ||||||||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | [1] | 108,100 | 98,454 | |||||
| Available For Sale Investments Convertible Debt Securities | ||||||||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | [1] | 173 | 173 | |||||
| Available For Sale Investments Convertible Debt Securities | Quoted market prices in active markets (Level 1) | ||||||||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | [1] | 0 | 0 | |||||
| Available For Sale Investments Convertible Debt Securities | Significant other observable inputs (Level 2) | ||||||||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | [1] | 173 | 173 | |||||
| Foreign currency forward contracts | ||||||||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | [2] | 168 | 291 | |||||
| Liabilities measured at fair value | [3] | 45 | 1,691 | |||||
| Foreign currency forward contracts | Quoted market prices in active markets (Level 1) | ||||||||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | [2] | 0 | 0 | |||||
| Liabilities measured at fair value | [3] | 0 | 0 | |||||
| Foreign currency forward contracts | Significant other observable inputs (Level 2) | ||||||||
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||||||||
| Assets measured at fair value | [2] | 168 | 291 | |||||
| Liabilities measured at fair value | [3] | $ 45 | $ 1,691 | |||||
| ||||||||
Fair Value Measurements (Summary of Valuation of Company's Financial Instruments by Various Levels) (Parenthetical) (Details) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | ||
| Short-term investments | $ 116,765 | $ 106,931 |
| Other non-current assets | $ 17,294 | $ 17,326 |
Restructuring and Other Charges (Summary of Activity Related to Accrued Restructuring and Other Charges ) (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Restructuring Cost and Reserve [Line Items] | ||
| Beginning balance | $ 287 | $ 1,912 |
| Additions | $ 1,032 | $ 108 |
| Restructuring, Incurred Cost, Statement of Income or Comprehensive Income [Extensible Enumeration] | Other Operating Income (Expense), Net | Other Operating Income (Expense), Net |
| Cash payments | $ (668) | $ (1,149) |
| Adjustments | (128) | 21 |
| Ending balance | 523 | 892 |
| Employee Termination Charges | ||
| Restructuring Cost and Reserve [Line Items] | ||
| Beginning balance | 257 | 1,912 |
| Additions | 924 | 108 |
| Cash payments | (665) | (1,149) |
| Adjustments | (14) | 21 |
| Ending balance | 502 | $ 892 |
| Lease Contract Termination and Other Charges | ||
| Restructuring Cost and Reserve [Line Items] | ||
| Beginning balance | 30 | |
| Additions | 108 | |
| Cash payments | (3) | |
| Adjustments | (114) | |
| Ending balance | $ 21 | |