NETGEAR, Inc. (NTGR) Q1 2021 Earnings Report, Transcript and Summary

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

Thank you, Mike. Good afternoon, and welcome NETGEAR’s first quarter of 2021 financial results conference call. Joining us from the Company are Mr. Patrick Lo, Chairman and CEO; and Mr. Bryan Murray, CFO. Format of the call, we’ll start with a review of the financials for the first quarter provided by Bryan, followed by details and commentary on the business provided by Patrick, and finish off with second quarter of 2021 guidance provided by Bryan. We’ll then have time for any questions. If you have not received a copy of today’s press release, please visit NETGEAR’s Investor Relations website at www.netgear.com. Before we begin the formal remarks, we advise you that today’s conference call contains forward-looking statements. Forward-looking statements include statements regarding expected revenue, operating margins, tax rates, expenses and future business outlook. Actual results or trends could differ materially from those contemplated by these forward-looking statements. For more information, please refer to the risk factors discussed in NETGEAR’s periodic filings with the SEC, including the most recent Form 10-K. Any forward-looking statements that we make on this call are based on assumptions as of today, and NETGEAR undertakes no obligation to update these statements as a result of new information or future events. In addition, several non-GAAP financial measures will be mentioned on this call. A reconciliation of the non-GAAP to GAAP measures can be found in today’s press release on our Investor Relations website. At this time, I would now like to turn the call over to Mr. Bryan Murray.

Thank you, Erik, and thank you, everyone, for joining today’s call. We delivered a great start to the year, setting the pace to achieve the full year target we put out at last December at our Analyst Day. We reported net revenue just above our guided range as both sides of the business perform well, and we saw supply constraints ease slightly. Our operations team navigated around chip constraints and the continuing elongated transportation times to bring product in from our suppliers while significantly lowering our freight spend from the fourth quarter levels. Net revenue for the first quarter ended March 28, 2021 was $317.9 million, up 38.3% year-over-year, driven primarily by strong CHP growth in the retail channel and better than expected SMB performance. Our leading WiFi 6 offerings continued their momentum in the first quarter across both businesses. Additionally, the work we continue to do to focus on the right products in support the work-from-home networking market coupled with strong Pro AV growth resulted in continued upward trajectory for our SMB business, delivering 17.9% year-over-year growth. In the first quarter, we generated a record non-GAAP operating income of $42.3 million. This translated into a non-GAAP operating margin well above the top end of our guidance range at 13.3%, an improvement of 970 basis points over the first quarter of 2020 and 230 basis points over the fourth quarter of 2020. Relative to our guidance range, we experienced better than expected performance from our SMB business, which carries higher margins. Additionally, we saw an improved mix of business coming from the higher margin e-commerce channel. As mentioned previously, our operations team was able to lower spend on airfreight meaningfully below planned levels. All three factors contributed to non-GAAP operating margin coming in well above our initial expectations. While we spent less on airfreight than originally expected, much of the improved supply arrived later in the quarter. As a result, we could only replenish the channel inventory towards the end of the quarter. And thus, we didn’t have an opportunity to increase promotional efforts and recruit even more market share from the modest gains we experienced in the quarter. We do believe we we’re in the solid position heading into the second quarter to selectively increase promotional efforts, including participation in promotional activities, planned with some key channel partners, which should allow further gains in market share and assist with our goal of driving increased paid subscribers. The strength in our business is seen across the globe as we delivered solid double digit year-over-year growth in all geographies, led by demand for our premium mesh products in our CHP business, as well as strength in our SMB business. For the first quarter of 2021, net revenue for the Americas was $219.2 million, which is up 38.5% year-over-year and down 15.6% on a sequential basis. EMEA net revenue was $61.1 million, which was up 44.9% year-over-year and down 9.4% quarter-over-quarter. Our APAC net revenue was $37.7 million, which was up 27.2% from the prior year comparable quarter and down 5.7% sequentially. For the first quarter of 2021, we shipped a total of approximately 4.1 million units, including 2.7 million nodes of wireless products. Shipments of all wired and wireless routers and gateways combined were about 1.4 million units for the first quarter of 2021. The net revenue split between home and business products was about 76% and 24%, respectively. The net revenue split between wireless and wired products was about 69% and 31%, respectively. Products introduced in the last 15 months constituted about 35% of our first quarter shipments, while products introduced in the last 12 months contributed about 30% of our first quarter shipments. From this point on, my discussion points will focus on non-GAAP numbers. The reconciliation from GAAP to non-GAAP is detailed in our earnings released distributed earlier today. The non-GAAP gross margin in the first quarter of 2021 was 35.2%, which is up 600 basis points as compared to 29.2% in the prior year comparable quarter and up 460 basis points compared to 30.6% in the fourth quarter of 2020. The year-over-year improvement was driven by improved product margins led by our premium mesh solutions. Sequentially, lower spend on airfreight, higher demand for SMB products and higher mix of revenue going through e-commerce channels, which brings the added benefit of lower costs associated with consumers returns, all contributed to improve gross margins. With improving supply, we plan to selectively increase promotional spending to accelerate market share gains, which should contribute to further growth in paid subscribers. In addition to higher promotional activities, we’ve seen an uptick in the cost of sea transportation by 2 times to 3 times historical levels. And as a consequence, we believe the Q1 ‘21 gross margin performance is not likely to repeat in the near term quarters ahead. Total Q1 non-GAAP operating expenses came in at $69.7 million, which is up 18.2% year-over-year and down 3.3% sequentially. Our team continues to navigate a challenging operating environment while adding proportionately less spend. As a result, we were able to unlock considerable leverage on a 38% year-over-year revenue growth. As always, we manage our expenses prudently while also ensuring we adequately fund the growth portions of our business so that they have the resources they need to succeed. Our headcount was 775 as of the end of the quarter, down from 818 in Q4 as we consolidated some of our offices in the APAC region to gain some cost efficiencies. This will fund further investment in other areas of the business, such as resources, supporting our paid subscription business. We continue to manage our headcount, but we’ll add resources to invest in areas that we believe will deliver future growth. Our non-GAAP R&D expense for the first quarter was 7.1% of net revenue as compared to 8.1% of net revenue in the prior year comparable period and 6% of net revenue in the fourth quarter of 2020. To continue our technology and subscription service leadership, we are committed to continued investment in R&D. Our non-GAAP tax was 24.5% in the first quarter of 2021. Looking at the bottom line for Q1, we reported non-GAAP net income of $31.6 million and non-GAAP diluted EPS of $0.99, each substantially higher than the prior year period. Turning to the balance sheet. We ended the first quarter of 2021 with $370.7 million in cash and short-term investments, up $17.3 million from the prior quarter. We were also able to strengthen our inventory position incrementally in the quarter, adding $43.6 million to our stock levels. We believe our supply position will continue to improve in the second quarter. During the quarter, we generated $13.7 million in cash flow from operations, which brings our total cash provided from operations over the trailing 12 months to $165.9 million. We used $1.6 million in purchase of property and equipment during the quarter, which brings our total cash used for capital expenditures over the trailing 12 months to $10.6 million. As we previously highlighted, we plan to reestablish normal carrying levels of our own inventory in 2021. As a result, we expect to be below our normal conversion ratio of 85% to 100% of non-GAAP net income by a fair amount as we saw in Q1, but we remain confident in our ability to continue to generate cash on a full year basis. Now, turning to the first quarter results for our product segments. The Connected Home segment, which includes the industry-leading Nighthawk, Orbi, Nighthawk Pro Gaming and Meural brands, generated net revenue of $240.9 million during the quarter, which is up 46.3% on a year-over-year basis and down 18.6% sequentially. The strong year-over-year growth was driven by heightened demand in the retail channel for our premium WiFi 6 solutions. In the first quarter, despite supply headwinds for our WiFi 6 products existing for much of the quarter, we were able to improve on our strong leadership position in U.S. market share in consumer WiFi, regaining 2 points to 43%, and we fully expect we will continue to gain share in the second quarter, given the improved supply position in the channel entering the quarter. The SMB segment executed well and generated net revenue of $77 million for the first quarter of 2021, which is up 17.9% on a year-over-year basis and up 8.5% sequentially. This is the highest quarterly revenue for our SMB business in the past two years. The growth was driven primarily by exceptionally strong demand for work-from-home solutions, including low port count switches as well as our SMB wireless solution. We are also particularly pleased with the performance of our Pro AV business, which experienced meaningful year-over-year growth as we see signs of activities resuming at business offices and sports entertainment venues. Our market share in switches sold through the U.S. retail channel came in at 56% in Q1. I’ll now turn the call over to Patrick for his commentary, after which I will provide guidance for the second quarter of 2021.

Thank you, Bryan. As we progress through 2021, we are seeing the progress of the world’s slow recovery from the pandemic. New cases remain high and variants from other continents are becoming prevalent in many states. However, unprecedented federal spending plans and accelerated vaccine rollout and state reopening plans point to a light at the end of the tunnel. Businesses, small and large, are planning for growth off of a difficult 2020 with signs of business offices, and sports and entertainment venues steering towards reopening, albeit at dialed back capacity. It is clear that the pandemic has accelerated multiple years of technological progress into one year, and people adjusted surprisingly quickly to more time and activities from home. However, to enable this transition, highly reliable, high-speed internet connectivity that covers the entire home and even patio or yard has become a necessity. This spurred the rapid growth of the premium segment in home WiFi, spearheaded by WiFi 6 mesh with tri-band architecture, which NETGEAR pioneered and continues to be the leader in the market. These solutions fuel the work and do everything from home for families that need to cover large houses and supply reliable internet to every corner of the home. Given the demands, all these activities put on home WiFi, we see no slowdown in the demand for our products that help keep people and the devices connected. This premium tri-band WiFi 6 segment represented 30% of the WiFi mesh market in the U.S. in Q1, rising from 25% in Q4 and 7% in the prior year comparable period. This category continues to grow quickly, and it garners the highest prices, use the healthiest margins and has the highest prospect for attaching our value-added services, which we clearly see the benefits of in our Q1 performance. NETGEAR continues to deliver the innovative leading-edge products to meet the needs of these most demanding consumers in the market. Last quarter, we announced the Nighthawk Tri-Band mesh WiFi system, model MK83, and we started shipping it in Q1. This is our first Tri-Band Nighthawk mesh system and it retails at $499 for the router and two satellite kits. The Nighthawk brand has a strong following among those who would like to have more real-time control of their WiFi setup such as QoS settings and SSID controls with different bands. The MK83 satisfies a long anticipated desire from the loyal Nighthawk base. We are also quite pleased with the demand and reception of the Nighthawk RAXE500 Tri-Band WiFi 6E router which debuted in Q1 at a price of $599. With speeds of 2 gigabits now available from cable operators in the U.S., WiFi 6E products have the WiFi speeds to match, thus enabling multiple high-quality video downloads and uploads and 8-K gaming. Equally important as the performance of the product is the strong attach rate of our subscription services that we are seeing from the ultra-premium customers purchasing this product. Last but not least, for product introduction on the CHP side, we launched our second DOCSIS 3.1 WiFi 6 cable gateway, the entry-level CAX30. The power of combining DOCSIS 3.1 speed with the benefits of WiFi 6 technology gives cable subscribing households an all-in-one option built to provide multi-gigabit internet speeds across a multitude of devices in a home, while avoiding the monthly rental fees of cable modems and WiFi routers from the cable operators. The category is about 20% of the total U.S. retail WiFi market and one in which we possess substantial market share. There is only one meaningful competitor to us in this category, and they have yet to introduce a WiFi 6 cable product today. As we enter the second quarter with an improving supply picture in the channel, we see the opportunity to build on our Q1 performance in regaining U.S. market share. This bodes well for us to continue to make progress in paid subscriber acquisition, building from the 481,000 paid subscribers that we ended with in Q1. We are on track to meet our goal of 650,000 subscribers by year end, and we’re excited about the long-term profitability impact that we have on our business. Additionally, we’ll improve on our service offerings in the second quarter with the rollout of our Smart Parental Controls service that Gartner accolades at CES earlier this year. Following that, we plan to bring the features of our gaming router lineup to the market through a service offering in the second half of this year for those online gaming loving customers of our premium WiFi 6 Tri-Band Orbi systems. I’m also very happy to share that we continue to make great progress with our SMB business. Our efforts to equip sophisticated home offices with best-in-class configurable WiFi fixed solutions in highly functional low port count PoE switches continue to meet with strong demand as businesses transition to flexible working environments. Additionally, with businesses better navigating COVID-related challenges and reopening and economies beginning to improve, our more sophisticated switching business is accelerating. This includes Pro AV switching line, which is also seeing the added benefit of sports and entertainment venues opening at entry levels of capacity. We intend to capitalize on this opportunity, and to do so, we are investing in these areas to continue to strengthen our differentiation. Our recent releases in the AV line expand our highly successful 4250 Pro AV switch product offerings and are tailored to make complex AV deployments easy to install and manage. These switches deliver higher overall wattage, provide AV specific presets and user interfaces, while seamlessly transporting the highest quality digital audio and video signals. We’re excited with what lies ahead, given the tailwinds across both businesses and improving supply outlook, driving the opportunities for further market share gain and a solid foundation for increasing our subscriber base. And with that, I’ll turn it over to Bryan Murray to comment on our opportunities and obstacles in the coming quarter.

Thank you, Patrick. Our net revenue for the second quarter is expected to be in the range of $305 million to $320 million. GAAP operating margin expected to be in the range of 6.5% to 7.5%. And non-GAAP operating margin is expected to be in the range of 9% to 10%. As our channel inventory progresses to healthy levels, we do expect Q2 will present an opportunity to selectively turn promotions back on, including participation in key sales events with some of our channel partners, allowing us to continue to grow market share and to drive paid subscriber acquisition. Additionally, while airfreight cost will stay at the Q1 level, we see sea transport costs rising to 2 to 3 times their normal rate. Our GAAP tax rate is expected to be approximately 27%, and our non-GAAP tax rate is expected to be 24.5% for the second quarter of 2021. While we are confident in our ability to provide guidance at this time, we do so with the caveat that considerable uncertainty remains in the market due to the COVID-19 pandemic and, should unforeseen events occur, in particular, related to transportation delays into any of our regional distribution centers, our actual results could differ from the foregoing guidance. We would now like to answer any questions from the audience.

[Operator Instructions] Your first question comes from the line of Jeffrey Rand from Deutsche Bank. Please go ahead.

Hi. Thanks for taking the question. You talked about participating in more promotional activities in the second quarter. With global chip supply still being relatively tight and demand remaining strong, can you just discuss the thought process for running more promotional activities?

Yes. As we have said that we would like to continue the momentum to regain share, and also we actually have to be in lock steps with our channel partners. So, our channel partners have planned for some promotional activities in a seasonally weaker Q2, and we would like to continue to keep the momentum going. And we believe that this is the most opportune time for us to gain share. And the importance of the gaining shares, of course, is to try to continue to have a really good installed base to work with to increase our paid subscribers, which is a very long-term benefit for us. We have found out over the last two years that the most opportune time to recruit service subscribers is at the point when they install a new product, and that’s the reason why driving our decision.

And just as my follow-up, how are you thinking about the trajectory of your SMB business as the global economy continues to open? Will that partially be offset by less people setting up home offices as we approach or return to the more traditional office?

We don’t believe so. We’re actually seeing a three-legged stool on the SMB business, we’re very encouraged by. I think there are a lot of entrepreneurs who has left the workforce and started to become entrepreneurs to open businesses at home. And then also, there are other small business owners and professionals who actually would split time between home office and their main office, such as accountants, architects and interior designers and so forth. So, the activities of entrepreneurial home-based business buying our, what we call, sophisticated home office solution is unabated. Secondly, as we have seen also, these small businesses who are starting to reopen and get back into the office, they have not been for over a year, found out, well, now they have just upgraded their home offices to WiFi 6, but their office is stuck with WiFi 5. And we’re seeing quite a bit of upgrade opportunities happening in the actual office. So, that’s also driving what we call the reopening trade. And our wireless business is still continuing to grow tremendously. And then, third piece is the Pro AV business. We’re seeing a lot of sports events reopening, entertainment reopening and a lot of video productions going on, all driving the demand of our Pro AV businesses as AVs -- aging close more into ultra-high definition, productions and things like that. And so, those three-legged stools give us confidence that our SMB momentum will continue on in the upcoming few years.

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

Hi. I just want to first ask is -- how do you feel about the current market environment as far as comparing it to previous cycles as far as seasonality is concerned? How are you going about -- with the inventory that you built up? Is that being consumed in channel, or are you holding it off for particular promotion in Q2?

No. I mean, so the channel inventory is “just in time”. So, we ship to the channel in anticipation of the weekly run rate of the channel. And we typically want to keep it at the forward-looking run rate of anywhere between 8 to 10 weeks, which we are thinking is in the optimal. Of course, there are some pockets products that are still below that level. And then, when promotions happen, we will shift to that maybe two, three weeks before the promotion starts. So, we will not preload the channel for a promotional activity to be done much later on. The market is pretty encouraging because for the first three weeks of this quarter and the last two weeks of last quarter, we’re actually comping last year’s to onset of the COVID-19 lockdowns. And as we have expected, the market is staying at an elevated level. And of course, it will go back to the usual seasonality that Q2 is slightly lower than Q1 and then Q3 is a big step up and then Q4 will be flat to Q3. So, we believe that seasonality will happen but at an elevated level, so -- which is very encouraging. The reason why we feel confident about this is because we saw that phenomenon in Asia, which really hasn’t been hit hard by COVID in some markets where they have always been resuming back-to-office work and without having any gathering, lockdowns. So, we’re pretty encouraged by what we have seen so far.

And Bryan, what’s transpired in the business that your Q2 guidance is a little different than the qualitative guidance that you provided, than past comments?

Yes. I think, it’s actually what Patrick just touched on. We’ve gotten the channel into a healthier place, a bit ahead of schedule. It bodes well in terms of our ability to start to regain the market share in the second quarter, start to build the subscriber base. But, as we said early on in the call, we expect the full year targets that we set out back in December, we think we’re on track for those. And what that means is the back half of the year is probably steering more towards the 10% growth over the first half, as we had said back in December. We said, they would be on the lower side because we thought there would more channels happening early on. But -- so we think it will be about 10% over the first half of the year. Some of that’s driven by the service provider business, which again is lumpy. This quarter for Q2, we think it will be about $30 million. So, still below the $35 million on average that we still believe will hit for the full year. But also, the strength of the SMB business is also contributing to the overall profile for the rest of the year. But again, we think the second half will be up on the first half, about 10%.

Your next question comes from the line of Liz Pate from Cowen and Company. Your line is open. [Operator Instructions] Your next question comes from the line of Adam Tindle from Raymond James. Your line is open.

Hi. Thanks. This is Alex on for Adam. I’m just curious about how you’re thinking about kind of the margin impacts from promotional spend, how are you thinking about the return on investment for that. And then kind of side on margins, you mentioned that shipping costs were up about 2 to 3 times. So just kind of curious about how that kind of flows through the gross margins. Is shipping a large component of gross margin?

Yes. I would say, the Q2 steer relative to the Q1 performance, I’d say about a third of the movement from the 13.3% operating margin to the 9% to 10% range is going of driven by the sea cost, the transportation cost for sea freight. So, it is significant, certainly. And then, the other two-thirds I would say is tied to the promotional activities. In terms of the return on investment, I think Patrick touched on that earlier. It’s all about assisting us in gaining additional paid subscribers, which is the long-term goal that we have of pushing that up and getting to our long-term target of 15% operating margin that is key to us sitting here.

Okay, perfect. Thanks. And then, again, just on promotional activity. Which products in particular do you think you’re going to kind of lean more heavily into it, more on the gaming side, more on the SMB side, home office side, and just kind of the cadence of that?

Different channels would have different focus. Generally speaking, it would be on the midrange WiFi 6 products. That would be the focus. And we believe that that is the place -- it serves multiple purpose. One, it’s relatively high ASP; secondly, relatively high chance of those new users or the installation users to attach to our paid subscription services. And they generally have a little bit higher margin. So, I think those are the areas that we’ll focus on.

Your next question comes from Woo Jin Ho from Bloomberg. Your line is open.

Couple of questions, Patrick. I’m actually looking at the gross margin in a different way. I mean, there’s a lot of things that could potentially pressure gross margin. You got the higher freight costs; you’ve got a lower mix of SMB. And traditionally, when you have these gross margin impacts, first promotional activity, your operating margin really sinks because of gross margin -- low gross margin. But implied to that, it almost seems as if you’re kind of holding the gross margin roughly around the 28% to 30% level. I’m just curious if there are any other factors that’s helping to prop up the gross margin going into your outlook.

In terms of -- I think, we just went through kind of the bridge of some of the gross margin numbers that peak levels that we saw in Q1 of 35%, the freight cost and the promotional activities will steer downwards. And I would say, the entirety of the bridge from Q3 -- sorry, Q1 to Q2 is going to be in the gross margin. I don’t think -- obviously, with the revenue guide that there’s not going to be a change in operating leverage on the business, but that would be the driving forces there. But again, long term, we’re going to try and push that up by adding subscribers and keep growing the premium segment of the market.

Are you seeing any positive impacts from subscription revenue on gross margin?

Yes, yes. I think if you look at our Analyst Day deck that we put out in December, I think if you look at the ASP that we communicated, which was about $48, we said it would probably contributed close to 80 basis points on this year’s margin. So, it is starting to contribute. But again, we’re trying to grow that as quickly as possible, as you saw with us increasing our target from $1 million to $2 million.

And secondly, Patrick, you kind of called out your cable gateway business. And given some of the recent industry dynamics, I mean, how much of an opportunity do you see in a cable gateway business going forward, given some of the, I guess, the divestitures that’s going in the industry?

Well, I mean, the cable gateway and cable modem segment of the retail WiFi has always been pretty steady somewhere around 20% of the total market. And as you probably know, there’s just only one other major competitor. Because it’s not easy, you have to get certified by all the cable operators in the U.S. We have a commanding market share. And I mean, theoretically, we can get 100% market share in this segment that means that we’ll have a base of 20% market share of U.S. WiFi. So, it’s pretty lucrative. Yes.

Got it. And then, lastly for me. You mentioned fairly briefly about getting a growing sales in your online store. I’m curious how large is that business? And why is the return dynamic different on your online store versus your traditional retailers to help on the gross margin side?

Actually, when Bryan talked about return, it’s not limited only to our own online stores, but also to our partner online stores such as Amazon, such as [indiscernible]. So basically, online -- as you probably know, the online stores are very, very nimble in reacting to price fluctuations much more than brick-and-mortar. And actually, 99% of the returns are no trouble found and the most frequent reason for people to return is they bought this at store A, and then found in store B having a promotion is cheaper. So, they would return one to store and buy the one from store B to enjoy that price arbitrage. Such situation will be much less online because the online stores are very nimble. They will match any lowest price already in the market today. So generically speaking, the online stores are low in return rate. It doesn’t matter whether it is the Amazon or is it B&H [ph] or netgear.com store. It’s the same story.

[Operator Instructions] Next question comes from the line of [indiscernible] from Cowen.

I wanted to ask you, like as you normalize your inventory levels in the channel, I assume, like your revenue was mostly selling. Any color you can provide on the delta between sell-in versus sell-through revenue for this year that you expect?

For the rest of this year, as we said, we think we’re pretty much there in terms of filling in the channel. So, from here forward, there shouldn’t be much delta, so.

So basically, your sell-in would -- your sell-through would be similar to your sell-in revenue growth?

That’s correct.

Okay. And I know you’ve maintained your guidance for this year, but any initial color you can provide on what your growth would look like into calendar ‘22?

We’ll get there eventually. But at this point, we’re focused on executing and navigating this operational environment for 2021, but we’ll get there.

Okay. And as you look to reinvest your incremental growth into promotional expenses, how should we look at incremental, like anything you can provide on how do we model incremental operating margins in your business and what the trajectory on the operating margins would look like as we go through the year? Thank you.

Yes. I think as we see the mix of SMB increase, it certainly bodes well for our margins. But, in a normal year will we typically see seasonality lift the back half of the year. That’s usually when we get the most operating leverage just given the top line steer there. But as I said earlier, we’re maintaining that -- the targets we set out for the full year, both on the top line and operating margin standpoint is what we’re striving to for 2021. And to your earlier question, the one bit I would remind you of in terms of 2022 is that we think the market has risen. It’s been elevated. We think it will maintain at these elevated levels. And then from here forward, we kind of get back into the business of increasing the market probably in the low single digits, all driven by ASP expansion. That’s what we do. We keep innovating and we keep bringing our products in the premium portion of the market that lays ASPs.

That was our last question. At this time, I would like to turn the call back over to Patrick Lo.

Thank you. Thanks, everybody, for joining us today. As you can see from our results, the team at NETGEAR is operating at a very high level in a difficult environment to produce excellent results. I remain confident on the tailwinds that have buoyed our business will continue. And we will continue to execute well to produce results for all of our stakeholders. And I look forward to sharing more of that in the coming quarters with all of you. Thank you.

This concludes today’s conference call. You may now disconnect.