NETGEAR, Inc. (NTGR) Q1 2022 Earnings Report, Transcript and Summary

00:04 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] 00:21 I would now like to turn the conference over to Mr. Erik Bylin. Please go ahead, sir.

00:27 Thank you, Brent. Good afternoon and welcome to NETGEAR's First Quarter 2022 Financial Results Conference Call. Joining us from the company are Mr. Patrick Lo, Chairman and CEO; and Mr. Bryan Murray, CFO. The format of the call will start with a review of the financials for the first quarter provided by Bryan followed by details and commentary on the business, provided by Patrick and finish with second quarter 2022 guidance provided by Bryan. We'll then have time for any questions. If you've not received a copy of today's release, please visit NETGEAR's investor relations website at www.netgear.com. 01:10 Before we begin the formal remarks, we advise you that today's conference call contains forward-looking statements. Forward-looking statements include statements regarding expected revenue, operating margins, tax rates, expenses and future business outlook. Actual results or trends could differ materially from those contemplated by these forward-looking statements. For more information, please refer to the risk factors discussed on NETGEAR's periodic filings with the SEC, including the most recent Form 10-K. Any forward-looking statements that we make on this call are based on assumptions as of today and NETGEAR undertakes no obligation to update these statements as a result of new information or future events. 01:51 In addition, several non-GAAP financial measures will be mentioned on this call. A reconciliation of the GAAP to non-GAAP measures can be found in today's press release on the Investor Relations website. 02:03 At this time, I would now like to turn the call over to Mr. Bryan Murray.

02:08 Thank you, Eric, and thank you, everyone, for joining today's call. Net revenue for the quarter ended April 3, 2022 was $210.6 million, down 33.8% year-over-year and within our recently revised guidance range. 02:28 Our SMB products continued to perform above our expectation, and if it were not for COVID induced shutdown in Shenzhen in the last month of the quarter, the temporary halt to component supply to our factories in Southeast Asia, our SMB revenue would have been another 5% to 7% higher. We continue to see momentum in the super-premium mesh market represented by our $1,000 plus Orbi 8 and 9 product offerings. Combined, they grew year-on-year and sequentially in this highly profitable segments, in which we are the only player in the market. 03:08 We saw the broader U.S. market contract, exiting the quarter roughly flat to 2019 levels. The lower previous expectation of 15% above pre-pandemic levels. The contraction was primarily driven by the lower end of the market. Being the biggest market shareholder, this decline in market size negatively impacted sales of CHP products sold in retail, with revenues coming in meaningfully below our expectations at the beginning of the quarter. Our market share is steady at 44% in the U.S. consumer WiFi market. 03:48 We ended the first quarter with a non-GAAP operating loss of $9.3 million and non-GAAP operating margin of negative 4.4%, primarily resulting from a loss of top line leverage. In response to this new reduced overall market size, we plan to reduce CHP resources that have been focused on areas that are now declining, while making sure we have adequate investment and those that will deliver future growth such as our Orbi 8 and 9 products, as well as subscription services. 04:23 Additionally, we are taking a new and more efficient approach on how we deploy some of our marketing activities to drive a better return on our investment. Overall, these efforts will better align our cost structure to the projected revenue levels of our CHP business. For the first quarter of 2022, net revenue for the Americas was $144.6 million, a decline of 34% year-over-year and down 9.3% on a sequential basis. 04:56 EMEA net revenue was $36.9 million, which is down 39.7% year-over-year and down 26.3% quarter-over-quarter. Our APAC net revenue was $29 million, which is down 22.9% from the prior-year comparable period and down 30.4% sequentially. Revenue declines were principally driven by the retail portion of the CHP business, with revenue in the prior-year comparative period boosted by elevated end user demand tied to the pandemic and replenishment of previously depleted channel inventory levels. 05:37 For the first quarter of 2022, we shipped a total of approximately 2.4 million units, including 1.5 million nodes of wireless products. Shipments of all wired and wireless routers and gateways combined were about 784,000 units for the first quarter of 2022. The net revenue split between home and business products was about 62% and 38%, respectively. The net revenue split between wireless and wired products was about 63% and 37% respectively. 06:11 Products introduced in the last 15-months constituted about 26% for our first quarter shipments. While products introduced in the last 12-months contributed about 21% for our first quarter shipments. 06:24 From this point on, my discussion points will focus on non-GAAP numbers. The reconciliation from GAAP to non-GAAP is detailed in our earnings release distributed earlier today. Non-GAAP gross margins in the first quarter of 2022 was 28.2%, which is down 700 basis points as compared to 35.2% in the prior-year comparable period and down 180 basis points, compared to 30% in the fourth quarter of 2021. Increased material and production costs, as well as transportation costs impacted gross margin performance, compared to the prior year. 07:05 During the first quarter, we selectively began to increase prices and we plan to raise prices again for certain SMB products before the middle of the year. We believe these actions will help counterbalance material and transportation cost increases experienced in recent quarters as we progress through the year. 07:25 Total Q1 non-GAAP operating expenses came in at $68.7 million, which is down 1.4% year-over-year and up 0.4% sequentially. Our headcount was 766 as of the end of the quarter, down from 771 in Q4. We expect our headcount to continue to increase, but we will re-bounce our headcount deployment to focus resources and invest in areas that we believe will deliver future growth, such as ProAV, Orbi 8 and 9 WiFi systems and subscription services. 08:04 Our non-GAAP R&D expense for the first quarter was 10.8% of net revenue, as compared to 7.1% of net revenue in the prior-year comparable period and 8.7% of net revenue in the fourth quarter of 2021. To continue our technology and subscription service leadership, we are committed to continued investment in R&D. 08:28 Our non-GAAP tax rate was 16.5% in the first quarter of 2022. Looking at the bottom line for Q1, we reported non-GAAP net loss of $8.1 million and non-GAAP diluted net loss per share of $0.28. 08:46 Turning to the balance sheet, we ended the first quarter of 2022 with $263.8 million in cash and short-term investments, down $7.7 million from the prior quarter. During the quarter, $1.3 million of cash was provided by operations, which brings our total cash used by operations of the trailing 12-months to $17 million. We used $1 million in purchase of the property and equipment during the quarter, which brings our total cash used for capital expenditures of the trailing 12 months to $9.2 million. 09:23 In Q1, we spent $9.4 million to repurchase approximately 354,000 shares of NETGEAR common stock at an average price of $26.50 per share. Since the start of our repurchase activity in Q4 2013, we expect $636.9 million to repurchase 18.2 million shares. We are committed to returning value to our shareholders and plan to continue to opportunistically repurchase shares in future periods. Our fully diluted share count is approximately 29.6 million shares as of the end of the first quarter. 10:04 Now turning to the first quarter results for our product segments. The Connected Home segment, which includes our industry-leading Nighthawk, Orbi, Nighthawk Pro Gaming and Meural brands generated net revenue of $130.3 million in the quarter, which is down 45.9% on a year-over-year basis and down 25.2% sequentially. We experienced a year-over-year decline in both retail and service provider channels. As a reminder, the prior comparative period for the retail portion of the business was boosted by heightened consumer demand in response to the pandemic, along with stocking a depleted channel to meet the heightened demand. 10:50 Although the overall size of the U.S. consumer WiFi market contracted to roughly flat to pre-pandemic levels, we experienced strong demand for our super-premium higher margin WiFi mesh products with higher service attach rates, underscoring the confidence we have in our strategy for long-term profitable growth. Not only did we see our end user sales for these products for over 20%, as compared to year ago, but we also saw sequential growth contrary to normal seasonality. Our service provider business performed largely in line with expectations and we continue to expect a strong sequential increase in Q2 and subsequent quarters, despite continuing supply chain challenges. 11:37 The SMB segment continued to perform well in the face of supply chain challenges and generated net revenue of $80.2 million for the first quarter of 2022, which was up 4.2% on a year-over-year basis and up 4.1% sequentially. Our managed switch products continue to lead the way with over 80% growth as compared to prior year. The investments we made to develop the ProAV market are clearly bearing fruit. 12:06 Additionally, we see growing traction behind our portfolio of WiFi 6 cloud managed mesh wireless access points. However, once again due to supply chain challenges, we spent heavily in air freight to compensate for shipping and production delays, dampening the higher margin contribution from this business. Encouragingly, our market share in switches sold through the U.S. retail channel remained strong at 55% in Q1. 12:33 I'll now turn the call over to Patrick for his commentary, after which I'll provide guidance for the second quarter of 2022.

12:41 Thank you, Bryan. Two years into the pandemic substantial supply chain disruption is still plaguing many industries. This has been a limiting factor in our ability to fully capitalize on the unprecedented demand we see for our SMB business and our super-premium Orbi 9 and M5 mobile hotspots. While we overcame challenges to deliver SMB revenue over $80 million, we left a considerable amount on the table. 13:17 Our CHP business saw the U.S. consumer WiFi market compress to roughly flat with pre-pandemic levels. However, within CHP, we saw strong incremental demand for our Orbi 9 Quad-band Mesh and M5 mobile hotspots. On the SMB side, other than strong demand in ProAV switches, we also saw a meaningful year-on-year and sequential growth in our SMB wireless access points. 13:52 We believe easing supply challenges later in 2022 will benefit our SMB and our mobile hotspot sales in the service provider channel meaningful. Our strategy to create and grow the super-premium portion of the CHP market will drive progress towards higher margin hardware and subscription service revenue as we move through 2022 and into 2023. 14:27 As a matter of fact, we saw our service revenue growth over 47% year-over-year to reach $7.6 million for the first quarter of 2022. We ended the quarter with 627,000 paid subscribers, an increase of 43,000 sequentially. With a seasonally stronger second half, we are confident we will reach our target of 750,000 paid subscribers by the end of 2022. While we are taking actions to address the near-term external challenges, but believe the innovation and leadership in wireless and switching technologies that our NETGEAR's homeowners will be at the center of returning our company to profitable growth. 15:26 SMB remains on an upward trajectory, driven by strong demand across geographies and channels. In Q1, SMB delivered revenue of $80.2 million in the quarter for year-over-year growth of 4.2%. With limited supply, we exited Q1 with the highest backlog in the history of the business. We are helping revolutionize the ProAV market in its transition from cumbersome analog solutions to ultra-high definition intelligent digital AV over IP, and that is driving demand for our ProAV managed switches within the market sales, up over 100% as compared to a year ago. 16:21 Furthermore, we continue to see strong demand for our WiFi 6 wireless products as business reopened and upgrade their WiFi networks for employees returning to the office. NETGEAR is instrumental in helping the SMB market upgrade from WiFi 5 to WiFi 6. To help enable this, we intend to accelerate our new product introductions in both ProAV and SMB wireless in the next 12-months, armed increased demand and new products, we are on an intensive campaign to recruit new value-added resellers around the world, and our target is to grow that base by 50% in the next 12 months. 17:12 We are happy to report that the top 50 AV integrators in the U.S. are now our reselling partners. We also have over 300 managed service providers worldwide reselling our SMB wireless access points to their clients together with our Insight Pro remote management and subscription services. 17:38 Our focus on the highest end of the CHP business, which we call, the super-premium segment continues to be the right strategy. Right before the pandemic, we introduced the Orbi 8, a $1,000 mesh system with three nodes. The demand for the product was strong throughout the pandemic. Late last year, we introduced the world's first Quad-band Mesh System Orbi 9 a $1,500 with three nodes. Again, the demand was strong. 18:16 Combined, we have discovered a unique segment of the WiFi market where it uses value the ultimate WiFi experience of both speed and coverage expanding to every corner of their properties both inside and outside. This group of users characterized by wealthy individuals, who pay a premium for onsite security and enhanced building management services at their residences, welcomes the ability to get our Armor smart parental controls and pro support services to their Orbi, which serves as the front door to their in-home WiFi Internet. 19:02 To them, the price is well worth the value that is added to the modern day Internet intensive hybrid workplace. As our supply increases, we will expand our retail presence of the Orbi 9 into more channels and more geographies worldwide. We are also making good progress in our direct to consumer web store sales. We saw 27% year-over-year sales growth on our web stores worldwide, and this channel grew as a percentage of our overall CHP sales sequentially. 19:42 We continue to enhance our web stores with unique products such as the black addition of our Orbi 9 and with special services such as the concierge checked and at-home installation. We aim to make our web stores a vital platform to engage directly with our super-premium customers, and we are confident that it will surpass 10% of our total CHP sales by the end of this year. 20:15 And with that, I'll turn it back over to Bryan to comment on our opportunities and obstacles in the coming quarter and year.

20:23 Thank you, Patrick. U.S. consumer WiFi market is currently roughly flat to 2019 levels, lower than our expectations to start of the year. Given the smaller markets, we will be taking actions to optimize our retail channel partners’ inventory levels in the coming quarters to align them the current demand expectations. We will also be taking measures to better align the cost structure of the CHP business with this current projected revenue levels. 20:52 Even in the face of significant supply chain challenges, we expect second quarter revenue from the service provider channels to be approximately $30 million, and the SMB to perform slightly above Q1 levels. 21:07 Together, these factors lead us to expect our second quarter net revenue to be in the range of $205 million to $220 million. As a result of these factors and the reduced leverage from our top line, our GAAP operating margin for the second quarter is expected to be in the range of negative 6.5% to negative 5.5%. The non-GAAP operating margin is expected to be in the range of negative 4% to negative 3%. 21:38 Our GAAP tax rate is expected to be approximately 17% and our non-GAAP tax rate is expected to be 16% for the second quarter of 2022. We remain hopeful that sea transportation costs will ease and our SMB and service provider supply will improve in the second half of the year. And these factors will combine with our cost reduction efforts to create a much more favorable environment for our top and bottom lines. 22:05 While we are confident in our ability to provide guidance at this time, we do so with the caveat that considerable uncertainty remains in the market due to the COVID-19 pandemic and supply chain conditions, which continue to remain challenged. And should unforeseen events occur and particular challenges related to closure of our manufacturing partners operations, increased transportation delays into any of our regional distribution or manufacturing centers, greater-than-expected freight or component costs or lower-than-expected end market demand or actual results could differ from the foregoing guidance. 22:41 We would now like to answer any questions from the audience.

22:46 [Operator Instructions] Your first question comes from the line of Jeffrey Rand with Deutsche Bank. Your line is open.

23:06 Hi. Thanks for taking my question. In your SMB business when you can't deliver a product, because of supply constraints, does the customer just go to someone who has inventory or most customers just wait until you have the product, basically is this lost revenue or just delayed revenue due to supply constraints?

23:23 So a few things, we just discussed that our backlog is at the highest in history. So that's an indication that customers are not going away, they're staying with us. And the reason the customers are not going away to stay with us because ProAV switches, we are pretty much the only supplier in the market, there is nothing like that. So this is a resolution of helping the AV installations going from HDMI Maxell at 1k into Ethernet, which could go up to 8k or even 12k is a very unique solution. So it's all supply bound, we're working feverishly to try to get the supply going. 24:08 But to produce these products, we require components from many, many places. And unfortunately, a good portion of those components come from China, and we just cannot avoid that. And when China goes into lockdown, one after another, you probably have heard that there's another big city of lock down today, which is going to have significant impact for the rest of the world is the City of Ningbo, all right? So that's really limiting our supply. Of course, we work feverishly to try to source components outside of China, but it's not a one month process, it’s a multiyear process. I hope that answers your question.

24:50 Yes, great. And as a follow-up, obviously, the first half of the year has been weaker than you expected during your Analyst Day last year when you gave the full-year outlook. Can you give us an update on how you're thinking about the full-year on the top and bottom line?

25:05 Sure, sure. It's obvious to say that there's still a fair amount of uncertainty out there, things like the macroeconomic environment, obviously what’s going on in Ukraine and just kind of the downstream impact on consumer behavior in Europe. But that said, our best read at this point is that we do expect things to improve in the back half of the year. We both spoke at length about an improving supply picture for both SMB, as well as their mobile products service provider business. So that can -- should give us a lift. We should also expect to see a seasonal lift on the retail portion of CHP in the back half of the year. 25:47 So I think all those things in aggregate, probably there’s second half to be up on first half on a top line basis, probably in the range of 25%. With that additional top line lift, some of the cost-cutting measures that we're taking on right now, an improved picture in terms of transportation costs, we still think that we should be able to achieve something near our original second half guidance from an operating margin standpoint in that 8% to 9% range. So again, I think everything is kind of steering to a much improved picture for the back half of the year.

26:24 Great. Thank you.

26:28 Your next question comes from the line of Adam Tindle with Raymond James. Your line is open.

26:35 Okay, thanks. Maybe if you could just start on that question. Is it possible to maybe quantify some of the cost actions that you're taking from the elevated supply chain cost and the timing that you expect to resolve those, so just put a finer point on the dollars in each of those buckets? And how quickly those should impact the model? Because that second half guidance sounds like it's pretty quick to impact positively. So I just want to clarify that.

27:02 Yes, I’ll -- I guess I'll reiterate -- I’ll start with reiterating the impact to some of these component cost increases, we shared some of this at our Analyst Day. And relative to 2021, those cost increases is about a 400 basis point impact to our operating margins. Transportation, we said would be up about 200 basis points, so not much has changed on that front. But again, the steer that I just kind of provided for the second half of the year, relative to what we're guiding for Q2 has a lot to do with what we see on the top line and starting with that improved supply picture for SMB.

27:48 Okay. Maybe I can drone in on CHP then, it’s obvious that the market has softened based on the miss versus your expectations now down to 2019 levels. You've got elevated inventory to clear out, I think it's at multi-quarter highs. And hard to imagine the ability to pass on price increases given that demand picture that you're painting and 400 basis points of component costs on top of it, so as you do clear out that inventory at that higher cost level, maybe you could just remind us -- are you LIFO or FIFO. So if we hold ASB constant and COGS are increasing as it flows through the model. Are those higher costs on inventory coming through. How long does that dynamic less and how they match that versus expectations to improve margins going forward?

28:36 I'll start with the inventory method more on a FIFO basis. And so some of these component cost increases were announced by major chipset suppliers last October, but they're just now working their way into our P&L, because as you pointed out, we're carrying roughly two quarters of inventory. So we think we've got those baked in. We have selectively chosen to increase prices in the market in the first quarter and we expect those to have further effect as we go forward, but certainly as we introduce new products, we have all that factored into where we're pricing the products in the market. And I think we both talked at length about the success that we're seeing in the super-premium portion of the market, which is obviously going to be less price sensitive and we're seeing a fees there obviously north of the $1,000.

29:34 Okay, maybe just one -- last one from me, I know it's a tough picture that's being painted right now, but on capital allocation, the stock's now near tangible book value, clearly earnings are suboptimal you've got rightsizing on the way. What are the puts and takes to accelerating share repurchases with the stock basically trading your liquidation value to try to super-size shareholder value creation ahead of this turnaround. Maybe you could talk about capital allocation and accelerating buybacks given where the stock is trading relative to tangible book?

30:05 Well, I think what you just pointed out is certainly part of our thought process, as well it's, kind of, just liquidity. We're working to bring down our inventory levels back to -- what I would say, our new norm, which historically was about three months, but I think given what transportation timelines are these days, optimal is probably at four months of inventory carrying level [Technical Difficulty] all of those things will be a part of that consideration.

30:34 Okay. Thank you.

30:38 Your next question comes from the line of Hamed Khorsand with BWS Financial. Your line is open.

30:45 Hi, yes, so first question I had is given the state of the CHP market right now, how are you adjusting your purchasing of components and which area of the market are you going to focus on, is it going to be just the low end and the high-end or are you going to move away from the low end part of the market?

31:05 Yes, there is dynamics within the CHP business clearly with the proliferation of mesh, you see the decrease in the deployment of routers and extenders. So clearly we're not going to purchase a lot more components in those declining categories, but mostly on the mesh. And even with mesh, we all know WiFi 5 is going out, so we will have zero purchase of WiFi 5. And even for WiFi 6, the market is starting to move into our premium-end WiFi 6E and of course we're preparing to purchase WiFi 7, which will come around next year. So yes that would be our decision of the mix of the components that we're going to purchase going forward.

32:01 And how are you going to compete on the pricing and as far as trying to clear out the channel, given that your need to raise prices and also if your competitions is also dealing with the same scenario. How does that play out for you?

32:17 Well, we're pretty confident that we're seeing after we raise prices, all right, in Q1, we maintain our market share at 44%. So that means we still have a loyal followings, people will appreciate. I mean, seriously, for those people who are only for price, price, price, they have deserted us already. As you can see, our market share went from 50% to 44%, that's pretty much the natural process has already eliminated those customers. So we're pretty confident that we would be able to get the inventory back into its normal level. 32:55 Now if we were right, that the market was staying at the 15% pre-pandemic, our channel clearing was done Q4 last year, which took that’s a three quarters, but then we were wrong, but the market actually shrank even further. So we are pretty confident give us three quarters, we'll clean it up, so the indication that we raise prices, our market share stay the same, is very strong vote of confidence from the market.

33:29 Okay. And my last question is could you just comment on the goodwill write-off in the quarter and why did it happen in Q1 instead of a usual Q4?

33:39 So given what we just shared with regards to the U.S. consumer market declining to flat to 2019 levels, it forced us to go back and look at the business overall, it's a triggering event, which is the accounting requirements around that exercise. We looked at it, we have to take current market dynamics including stock market, current market cap, all that into consideration to making an assessment as of today. So it's a non-cash charge, but really triggered by our new outlook on the CHP business.

34:20 Okay. Thank you.

34:22 Sure.

34:25 Your final question comes from the line of Paul Silverstein with Cowen. Your line is open.

34:31 I appreciate you all taking the question and I'll apologize if actually this question was ones in the past, but I want to go back to it, given the focus -- the understandable focus on the super-premium end I'll pass you Bryan, I'm hoping it sits more inside beyond what it constitute as a percentage of the market, where that is as a percentage of your revenue and I apologize if you said it earlier in the call, but what was it as a percentage of the market this quarter?

35:00 According to NPDs latest data, anything that's about $500 has steadily risen over the last two years from 4% of the market to close to 16% of the market, so you will see the meteoric rise of this. And clearly, we are the one driving it, all right. So you could see if we are the one driving it, of course our revenue portion of these things are higher in NETGEAR, so that's why we're encouraged by this continue rise, as I discussed in the opening of this call that I'll be introducing Orbi 8 and then Orbi 9, we are very confident that we have discovered the user group that really resonate with this group -- this set of products and as we found out just like anything, electronics be it HiFi, be it phones, there are always people who're really up for absolute the best. So we're very encouraged with this.

36:19 Hey Patrick before your response to the balance of my question, I'm just a little more confused, in previous quarters, I think about 4Q ‘20 when you referenced the premium market, you referenced the market at premium 25%, then 1Q was 30% and then it went up to 38% 4Q, that 16% that you're referencing now is clearly a different market than what you referenced on previous calls relative to the premium. Can you --

36:49 You're correct. Previously, we say, premium is Tri-band, anything that is Tri-band is premium. Now we refer to super-premium, super premium is that it's $500 plus, all right. Right now, we have our competitors like names with hell, tracking the Tri-band price to $300. So that is no more really premium.

37:17 So was premium is no longer premium is relatively modest size the super-premium --

37:22 Correct, correct [Multiple Speakers] super-premium. That's right.

37:25 The super-premium is 516%, all right. So last quarter I think you'd referenced 11% sequential growth, but I'm not sure if that was for your old, was now the commoditized or whether that was for the super-premium high-end --

37:43 The Super-premium, yes the super-premium as sequential growth. Yes.

37:48 What was the sequential growth this quarter?

37:51 This is sequential growth of the super-premium is in the low single-digit. And you have to understand this is very tough, because Christmas, right, December is usually the strongest quarter. And the overall market usually go from Christmas to Q1 is down 10%, 15%, all right? And this year is even worse, because the market shrank, all right, in Q1. But against that this super-premium still grow sequentially in low single-digit is quite a feat.

38:27 All right. At the risk of asking a question for which there is not an answer, what's the risk that over time and perhaps in short order the same thing happens to the super-premium into the market, I know you have a proud heritage of the performance later, and you take great pride in products performance et cetera. What's the risk whether it Google, Amazon or others due to the super-premium end of the market, what's already happened to what was the premium end of the market and you're constantly chasing your tail?

39:01 Yes. You are absolutely right, we are not going to stop at this $500. We're going to raise the bar continuously, and as we looked at the luxury market, be it cars, be it hand bags, be it watches, the market always be raised. And a good example is that, I mean, if you look at the super-premium guys like Lamborghini or [indiscernible], they make very lot of units, but they keep increasing the prices and there is always people out there who are willing to pay for it.

39:40 All right. One last question. If macro goes South, I assume that there will be pressure -- the increasing number of consumers will migrate toward lower-priced solutions, given the crunch on folks' pocketbooks. Is that just common sense? Is that a given? I mean, the risk to your --

40:10 Yes, that's a given. That's a given. You're right. So that's why the thing we've got to continue to move is into this higher end, all right, and raise the ASP of those. If you look at the ASP increase, it's pretty incredible, all right. We -- three years ago, we added -- actually, not three. Two and a half years ago, we increased our ASP to the highest end from $500 to $1,000. And then we increased it again from $1,000 to $1,500 after two years. Well, you should expect us to increase that again to over $2,000 in less than two years. So we'll keep going like that, all right. If you look at Rolex watches, I mean, they have increased their ASP like there is no tomorrow. They haven't increased the production units yet. They actually decreased the production units.

41:04 All right. I appreciate that. Patrick and Bryan, I'll end with this. It's not a question but it's a thought, and I say it respectfully. Given how dramatically different in every aspect the super premium end of the market that your shift -- understandably shifting your focus to, that you've been shifting your focus to, given how incredibly different that market is than the mass market from which you're shifting away, both collectively and being forced to shift away from. I would encourage you and I would hope and respectfully request that at some point in the not-too-distant future, you actually provide a quarterly breakout of where you're at as a percentage of your revenue in growth terms, all the things that investors need to better understand your business. I really think you would do them service. And by extension, you would do yourself a service to provide that breakout.

41:59 Definitely, I think that in the meantime, the best measure for us, both internally as well externally, is the growth of the contribution margin of the CHP business, which we file every single 10-Q. So -- and if we could -- and also the subscribers we talked about, right. I always say, I don't know, if you look at all the real estate reports for New York City, right, those condos with doorman services cost 20% more, both in rent and in purchase price, simply because these rich people want to have the security, the service and the convenience of the doorman service, which is pretty much the same, people buying a $1,500 setup, they would like to have the same security, convenience, and service. And we're providing them with our Armor, ProSupport and Game Boosters. So checking on the number of subscribers is also a proxy for how well we are doing in this super premium end.

43:12 All right. Appreciate that, but again I'm not sure why you all haven't done it yet, but again I think you do it yourselves service by doing your investors a service by providing the disclosure as to be those to the super-premium versus the mass market, and I appreciate what you just said, but that's half a low, if not the full off.

43:32 Sure. But ultimately, we're looking for subscriber service revenue, which we disclosed for the first time today, that our subscriber service revenue is at $7.6 million, which is a 43% growth year-over-year, which is faster than our number of subscriber growth, which is only about 30-some percent. So that's encouraging, so we'll continue to provide more details as we go along.

44:01 Alright, appreciate it. Thank you.

44:03 Sure.

44:05 There are no further questions at this time. I would now like to turn the call back over to Mr. Patrick Lo.

44:11 Sure. Thank you for joining us today. I mean, like many other companies, we continue to navigate a number of uncertainties in the coming year. But we see no impediment to our long-term growth strategy, all right. We pioneered and built our brand around our best-in-class products, the premium portfolio, all based on our internal expertise, second to none, for radio frequency, circuitry software, as well as for switching, and switching software. So these two core competencies of radiofrequency and switching enable us to really pursue a very unique market that very few competitors will be able to master. 45:05 So I look forward to continuing to update everyone on the progress in these areas. And the good thing is that we will continue to acquire subscribers, both on the SMB and the CHP side, with these products. So thank you very much. And talk to you in about 2.5 months.

45:26 Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.