NETGEAR, Inc. (NTGR) Q3 2022 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'd now like to turn the conference over to Erik Bylin. Please go ahead, sir.

Thank you, Josh. Good afternoon and welcome to NETGEAR's Third Quarter of 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 third quarter provided by Bryan followed by details and commentary on the business, provided by Patrick and finish with fourth quarter of 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. 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-Q. Any forward-looking statements that we make on this call are based on assumptions as of today and NETGEAR undertakes no obligation to update these statements as a result of new information or future events. 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. Net revenue for the quarter ended October 2, 2022 was $249.6 million, which was above the midpoint of our guidance range, up 11.8% sequentially and down 14% year-over-year. Across our entire business, demand for our innovative, highly differentiated premium products remained strong. These higher margin products including our ProAV managed switches, 5G mobile hotspots, and 10 gig Tri and Quad-band WiFi mesh products are the key to delivering growth and expanding our profitability in the long-term. In the third quarter, despite supply challenges, the team worked around the clock to deliver as much of these key products as possible to our channel partners and end customers. This resulted in record quarterly revenue for our SMB segment and strong sequential growth of our 5G mobile hotspots for our service provider partners. Despite these tremendous efforts, we were still short of supplying total unit for our high end products which resulted in a less favorable mix of revenue and lower overall non-GAAP operating margin than expected. As we look to the fourth quarter, broad based inflationary pressures and the uncertain macroeconomic environment are top of mind for many retail channel partners. As a result, while we made progress in destocking in the third quarter. Our retail partners continue to right-size inventory and we expect that to continue in the fourth quarter and into 2023. We returned to non-GAAP operating profitability in the third quarter, delivering non-GAAP operating income of $1.8 million and non-GAAP operating margin of 0.7%. Stronger SMB performance helped us improve non-GAAP operating margin by 250 basis points as compared to the prior quarter. With that said, we still ended the quarter with a significant backlog on the SMB side particularly in ProAV managed switches and on the CHP side with our M6 and M6 Pro 5G mobile hotspot. For the third quarter of 2022, net revenue for the Americas was $169.4 million a decline of 13.2% year-over-year and an increase of 17.6% from a sequential basis. EMEA net revenue was $44.8 million which is down 21.3% year-over-year and flat quarter-over-quarter. Our APAC net revenue was $35.4 million which is down 7.1% from the prior comparable period and up 3.4% sequentially. Year-over-year revenue declines were principally driven by market softness in the retail portion of the CHP business partly offset by our SMB business, but we saw strong year-over-year growth across all three regions despite supply constraints. In general, the strengthening of the U.S. dollar over the past year has had a meaningful negative impact on our international revenue and our profitability. On a constant currency basis our EMEA and APAC revenue would have only declined 9% and 1% year-over-year respectively. For the third quarter of 2022 we shed total of approximately 2.4 million units including 1.5 million nodes the wireless products. Shipments of all wired and wireless rate routers and gateways combined were about 786,000 units for the third quarter of 2022. The net revenue split between home and business products was about 50% and 40% respectively. The net revenue split between wireless and wired products was about 61% and 39% respectively. Products introduced in the last 15 months constituted about 28% of third quarter shipments. All products introduced in the last 12 months contributed about 25% of our third 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 release distributed earlier today. Non GAAP gross margin in the third quarter of 2022 was 27.6% which is down 250 points as compared to 30.1% in the prior year comparable period and down 10 basis points compared to 27.7% in the second quarter of 2022. As compared to the prior year, the higher cost of components in transportation and the strength in U.S dollar were primary drivers for the reduction. Total Q3 non- GAAP operating experience came in $67.2 million which is down 1.1% year-over-year and up 1.6% sequentially. Our headcount was 731 as of the end of the quarter down from 740 in Q2. We evaluate our business priorities on a regular basis and make structural adjustments accordingly in areas that are not aligned with our strategic focus. We will continue to invest in our business and hirer in key areas we believe will deliver future growth and profitability, such as ProAV, super premium Orbi WiFi systems, 5G mobile hotspots and subscription services. Our non GAAP already expense for the third quarter was 8.5 of net revenue. As compared in the prior year comparable period and 9.5% of net revenue in the second quarter of 2022. To continue our technology and subscription service leadership, we are committed to continued investment in R&D. Our non GAAP tax was a benefit of $3.6 million in the third quarter of 2022. The benefit came as a result of revisions to current year-to-date estimates as well as a one-time revision to previous year tax estimates. Looking at the bottom line for Q3, we reported non GAAP net income of $6 million and non GAAP diluted net income per share of 0.21 cents. Turning to the balance sheet, we ended the third quarter of 2022 with shorter than sorry $73.2 in cash and short-term investments down $16.9 million from the prior quarter. During the quarter $15.2 million of cash was used by operations, which brings our total cash used by operations over the trailing twelve months to $40.9 million. We used 2.1 million in purchase of property and equipment during the quarter which brings our total cash used for capital expenditures over the trailing twelve months to $7.1 million. Although we did not repurchase any shares of NETGEAR common stock in the third quarter, we are committed to returning value to our shareholders, the plan to continue to repurchase shares in future periods. Since the start of our repurchase activity in Q4 2013, we have spent $651.9 million to repurchase 18.9 million shares. Our fully diluted share count is approximately 29 million shares as of June the third quarter. Now turning to the third quarter results for our product segments, disconnected home segment, which includes our industry leading Orbi, Nighthawk, Nighthawk Pro Gaming and Meural Brands, generated net revenue of $150.6 during the quarter, which is down 27.8% on a year-over-year basis and up 16.9% sequentially. We experienced a year-over-year decline in the retail side as the year ago period was still experiencing relatively elevated demand. Despite a double-digit decline in the fee free retail market overall year-over-year, our super premium WiFi mesh category grew in the same period. We also saw continued strong demand for our leading 5G mobile hotspots in both the retail and service provider channels in the third quarter. But we were limited by supply of these higher margin products. We remain confident that the super-premium WiFi market, a market pioneered and led by NETGEAR and 5G mobile hotspots will continue to deliver growth into 2023. I'm excited to share that SMB once again generated record net revenue of $99 million for the third quarter of 2022 which is up 21.3% on a year-over-year basis and up 4.9% sequentially. We made incremental progress navigating the supply chain challenges facing our SMB business in the quarter and our managed switch products led the way with 80% growth as compared to the prior year. This again demonstrates the strategic importance of our investments in the rapidly growing Pro AV market. Importantly, we continue to see strong growth across all geographies despite significant FX headwinds. On a constant currency basis, our SMB business would have grown an even more impressive 29% year-over-year. I'll now turn the call over to Patrick for his commentary, after which I will provide guidance for the fourth quarter of 2022.

Thank you, Bryan. I'm proud of our team's execution in navigating the ongoing supply chain challenges in the third quarter across a number of strategic growth product categories. On the SMB side, our Pro AV managed switch line of products continued this strong performance and helped drive our SMB top line to record result in Q3. On the CHP side, our unique Quad-band Orbi 9 and our 5G millimeter wave mobile hotspots, continued a strong quarter-on-quarter growth. In turn, the growth of these new strategic product categories returned NETGEAR to non-GAAP profitability and enabled us to deliver revenue in the top half of our guidance. As these new product categories continue to grow and become a more significant portion of our overall business in 2023 and beyond, we expect to see both our top and bottom lines improve. Our Pro AV line was the driving force, which kept our SMB momentum on an upward trajectory. The expansion of our Pro AV business drove our family of managed Ethernet switch products to another record revenue level. It is clear that the industry transition from analog to digital AV-over-IP is accelerating. And NETGEAR with products specifically tailored to the unique needs of the AV industry is poised to capitalize on this transition. We continue to benefit from our differentiated software that enables all major AV equipment manufacturers and system integrators to perform efficient and trouble-free installation and management across a plethora of applications. To expand our advantage here, we're introducing new Windows and Mac OS based ProAV network configuration and management software to great reception among the AV installer community. Additionally, we continue to expand an already broad portfolio of products that allows maximum flexibility in configuration depending on the application. Ranging from small video conference rooms to digital signage networks that span thousands of locations, all with our global ProAV design consulting team, which we are working to double in size, ready to help. Meanwhile, our operations team continues to secure additional supply to enable our SMB business to capitalize on its considerable backlog and produce even stronger performance in this category moving forward. On the CHP side, our super premium Orbi 8 and Orbi 9 WiFi mesh products demonstrated growth in end market sales even as the broader consumer WiFi market at large has declined. We continue to execute on our strategy to shift more of our consumer CHP product sales towards meeting the needs of premium residential customers who live in properties with large footprints on a vast array of connected devices and demand the best Internet security. We pioneered the best-in-class wireless performance, sparing no expenses to deliver an uncompromising experience and are pleased with the enthusiastic reception from this customer segment. We believe we have a huge lead in radio frequency, analog antenna and system design over our competition and we intend to use this to capitalize on future technology inflections. With the impending arrival of WiFi 7, and extensive deployment of millimeter wave 5G, we believe we can expand our lead and continue to grow the market with higher ASPs and deeper penetration of this unique user segment. To continue this leadership, we're doubling down on our product investments in our high-end mesh and mobile hotspot products. To update our best-selling Orbi 850 Series, we recently introduced the Orbi 860 Series, our new Orbi 10-gig tri-band WiFi 6 mesh system. This exciting new product features a tangy Ethernet port with support for multi-gig Internet connections, an upgraded antenna design for greater WiFi performance and a one-year bundle of NETGEAR Armor, which protects all connected devices on the home network from incoming attacks and outgoing anomalies. This new Orbi 860 mesh product is ideally suited for the latest icons and mesh, which remain the best WiFi 6 performance, while they skip the interim step of WiFi 6 need support. Our patented tri-band and quad-band antenna designs are the only choice for homeowners who want the absolute best performance and most secure WiFi experience. NETGEAR is and always will be committed to providing homeowners with the best WiFi coverage to up-level their connected home ecosystem. We are seeing improved supply of our latest 5G mobile hotspots, Nighthawk M6 and M6 Pro. As a result, we are forecasting $50 million in service provider revenue in Q4. We are also introducing these exciting new products into the retail channel in unlocked versions. For many rural customers with no high-speed wired Internet connectivity, the Nighthawk M6 and M6 Pro are the only high-speed Internet options. To enhance the customer experience, we introduced the industry's first in-home mode for our Nighthawk M6 and M6 Pro mobile hotspots. In the in-home mode, the WiFi signal is boosted, and the battery can be taken out while the mobile hotspot is plugged into an AC power source. For many traveling business professionals, getting gigabit download speeds on the road, while keeping the connection private with our Nighthawk M6 and M6 Pro is priceless. Nighthawk M6 is retailed at $7.99, while M6 Pro will be retailed at $9.99. We remain confident we can continue to build on the success of these three high-end categories: ProAV, premium Orbi 8 and Orbi 9 WiFi mesh and 5G mobile hotspots. Even amidst challenging macroeconomic conditions, these higher-margin segments continue to grow. The key to NETGEAR's market leadership has always been our focus on offering consumers in businesses the best in times technology to boost their productivity by providing the fastest and most reliable connectivity solutions. It is clearer than ever that our most innovative offerings are the key to our long-term growth and margin expansion. As a result of the shift away from the lower end of the WiFi market, we are able to focus on the customers that demand the very best. To NETGEAR, that means higher ASPs and revenue, improved margin and a better service revenue opportunity. Last but not least, on the services side revenue was $8.5 million for the third quarter, up 6.4% sequentially and up 14.7% year-over-year. Affluent residential customers of our Orbi 8 and Orbi 9 are more likely to adopt our value-added subscription services. Armor, smart parental controls and pro support for the Orbi and Nighthawk mobile hotspots. We are also seeing more of our SMB channel partners, including ProAV system integrators, wireless LAN wires, and even large-scale commercial mobile hotspot deployment enterprises, adopting our insight remote management and subscription services. We continue to make progress growing our service business, ending the quarter with 666,000 paid subscribers and expect to meaningfully expand this in the fourth quarter and beyond. The core value proposition of our subscription services is resonating with customers. And we expect service revenue both in CHP and SMB will be a key driver of our margin and top line expansion effort in the medium and long term. And with that, I'll turn it back over to Bryan to comment on our opportunities and obstacles in the coming quarter and year.

Thank you, Patrick. While we expect to continue to experience strong underlying demands in the SMB business and the premium portion of our CHP product portfolio, we are facing near-term headwinds. We expect the SMB business will remain supply constrained and we will continue to use higher cost airfreight as the means to partially mitigate. We are also continuing to work with our retail channel partners in the coming quarters to reduce their inventory levels. Furthermore, as roughly 50% of our SMB revenue is important currency, we are seeing significant foreign exchange headwinds going from Q3 into Q4. On the positive side, we do expect fourth quarter revenue from the service provider channel to increase to approximately $50 million. Together, these factors lead us to expect our fourth quarter net revenue to be in the range of $235 million to $250 million. As a result of these factors, our GAAP operating margin in the fourth quarter is expected to be in the range of negative 4.2% to negative 3.2% and non-GAAP operating margin is expected to be in the range of negative 2% to negative 1%. Our GAAP tax rate is expected to be approximately 20%, and our non-GAAP tax rate is expected to be 23% for the fourth quarter of 2022. While we are confident in our ability to provide guidance at this time, we do so with the caveat that sustainable uncertainty remains in the market due to COVID-19 pandemic and supply chain conditions continue to remain challenged. Should unforeseen events occur in particular challenges related to closures of our manufacturing partners' operations, increased transportation delays into any of our regional distribution centers or greater-than-expected freight or component costs or actual results could differ from the forwarding guidance. We'd now like to answer any questions from the audience.

[Operator Instructions] Your first question comes from Hamed Khorsand with BWS.

Hi. So first off, could you just talk about your supply chain constraints - are you - because the headlines are suggesting that you're - everyone is seeing some alleviation of this constraints, but you're talking about that you're still seeing some problems there. And if you're able to source from other areas to help meet your demand?

No. Actually, the - for example, on the SMB side, on the ProAV switches, the main chips are primarily coming from one single supplier, and they're still under severe constrain of supplying those chips because those chips are primarily on older technologies of 55 nanometers and above. We're going to roll over into newer technologies of 18 nanometers by the end of next year. In the meantime, the capacity of providing those chips are still competing against the older industries and other data center switches. So, we don't expect that to be alleviated until we roll over to the newer technology by the end of next year. And on the CHP side, the high end Orbi 8, Orbi 9 as well as the premium mobile hotspots. Interesting enough, it is not the main chip supplier that is really choking our supply. It's more the ancillary components, for example, like the mobile hotspot is the LCD display, the little LCD display screens, the batteries. And then on the Orbi 8 and 9, there are some of the antenna components and the PCBs. Unfortunately, these components are all still manufactured exclusively in China. We are desperately trying to find alternatives outside of China, but it's very difficult. And with all the Covid lockdowns here and there in various cities in China, and they're still doing it right now as we speak, as you probably know, in the biggest city where the iPhone's are made under-lockdown situation, [indiscernible] districts are under locked down. So we have disruptions of all these little component supplies, which shut out our supply of the high-end mobile hotspots as well as Orbi 8 and 9. As long as China continue to follow the Covid-Zero strategy and as long as we can find alternatives outside of China, we will continue to face this headwind as we go forward.

Okay. And then my other question was what is the target inventory level in your retail channel and are you considering broadening out your product availability to the retail channel beyond just the unlocked hotspot, maybe including some of the super-premium wireless routers.

Well, first and foremost, as you probably know, all the retail channel people are talking about recession and getting prepared for recession. And they all want to lower the channel inventory to ever lower level. So traditionally, our retail channel inventory when the market is going up, is somewhere between 12 weeks. And then when the market is kind of neutral, they would like to take it down, say 10 weeks. And now, I mean, they say they want to go all the way down to 6-weeks. And so the goalpost being moved all the time by our retail partners. That's primarily related to our magazine products of the mid to low end. The premium products are mostly sold online. The affluent customers cannot go into shops to buy them, they buy online. So that is a difference in terms of a channel presence, the mobile hotspots and our Orbi 8 and 9 are mostly sold through our own web stores, Amazon. and bestbuy.com. Those are the three major places. We don't intend to broaden the availability of these products into more physical shelf space into more retail stores because it's just a different set of clientele.

Great. That’s it for me. Thank you.

Thanks.

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

Okay. Thanks. Good afternoon. I just wanted to talk about the comments where you talked about being well positioned to return to growth in 2023 and kind of giving us some green shoots going forward. At the same time, you talked about that retail destocking continuing into '23. It was helpful to hear the weeks that you just mentioned, but maybe you can talk about how much time you think is left on retail destocking. And what gives you confidence to talk about returning to growth in 2023 given you still have destocking happening in that year? Thanks.

Well, the first thing that's working to our favor is this year 2022 is probably going to shape up as one of the lower revenue year. So the bar is lowest to begin with. And secondly, we expect a crossover point, right? The destocking amount is going to be superseded by the growth amount of our other businesses. So if you look at our growth of the SMB revenue is pretty significant. And as the base gets bigger, actually the growth percentage is staying the same will be bigger. And the same thing is for the premium Orbi as well as mobile hotspot. As it becomes a bigger portion of our revenue and its growth rate continues to keep up, then they will be able to offset the decline in the legacy products channel inventory destocking. So we believe that the crossover point is going to rise next year. And for the whole year, we are very confident that it's going to happen. I'll give you an idea, the SMB business in Q3 is running at $100 million a quarter, which is $30 million bigger than what it used to be. So if you just assume it stays constant, all right, that's $120 million growth in a year. And that's on the bigger than any destocking that you could have. There is not a $120 million kind of inventory out there. If they want to go down to zero, which is not going to happen.

Right. That makes sense. Just to clarify. So when you talk about returning to growth, does that mean 2023 for the full year is a growth year? Or are you saying in a single quarter at some point, you will return to growth?

Yes, it will be for the full year. Yes.

Okay. Great. And then, Bryan, this is going to be a tough one because I feel like there's so many moving parts here. On one hand, when I'm talking about margins, you've got a number of headwinds to gross margin. Wondering if you could maybe bucket and size some of those. And then you've got some tailwinds on OpEx, where you did some cost savings, particularly focused on the CHP business. Are those done and fully reflected in this quarter? Is there anything incremental? So I guess the question would really be just kind of unpacking the best you can that the drivers moving forward of gross margin that might ultimately reverse temporary air freight, et cetera, as well as any OpEx benefits moving forward. Thank you.

Yes, I'll start with the OpEx side. Yes, we have taken some actions, but I do expect that we're going to continue, as I said this earlier in my comments that we're going to continue to look at the business in the areas that are not aligned with the strategic growth. We're going to continue to look at rightsizing those so that we can fund the investments in the other areas, whether it be, probably be the super-premium mesh, the 5G mobile hotspots and services. So I expect that exercise to continue, and we've always done that and we won't stop. On the gross margin side of the business, that, as you said, there are a lot of puts and takes. Obviously, FX is a material headwind that we're facing. I would say the impact to us primarily in the gross margin line year-on-year is about 350 basis points. So a significant headwind there. Obviously, as we grow the SMB business, and that becomes a bigger portion of the mix, it will help the overall gross margins because it does carry a meaningfully higher gross margin. So those are probably some of the bigger factors, airfreight is still elevated in terms of volume and usage and as Patrick was touching on the ProAV supply chain challenges and we're expecting that's going to continue on. And we're not going to stop doing that as we want to fuel the growth. The good news is that we have seen those rates subside a bit. I think from an airfreight standpoint, we are getting close to the levels - pre-pandemic levels in terms of our rate for air freight, which is great. Fee freight, dramatic improvement, I would say, in the third quarter, but it's still above pre-pandemic, probably enable two to three times what those rates were. But that is very promising for us. The short-term challenge is because we have about six months of inventory, it takes us a while to burn through that and start to realize those cost benefits. So those are probably the most significant, I think, levers that will kind of shape where the gross margin was from here.

Thank you.

[Operator Instructions] Your next question comes from Paul Silverstein with Cowen. Your line is open.

Yes Patrick, Bryan, I appreciate you all take the questions. And I'll apologize because they are multiple calls tonight. If you've already answered any of my questions, I'm happy to take them off-line I don't waste your and other folks' time on the call. So that said, first off have you all - I know you haven't done it historically, but did you give us around a breakout in terms of revenue contribution or bookings contribution between premium, super high end or whatever monitor you're using these days and the mass market?

No, traditionally, we have not broken out revenue by product categories of product line other than the two segments. So we haven't.

No Patrick, I'm aware of that. But I'm not talking about product line. I'm obviously talking about what probably the quad mesh, et cetera from Bryan. I know you haven't broke it down historically, and the answer is you're still not breaking out, correct?

No, because the sensitive thing is if you break it out, you're forced to do segment reporting on it and it would be quite a bit of effort. And so I think - as I said it last time and actually in previous calls, the best way to measure how big the ProAV business is see the incremental growth of our SMB business that's all ProAV. So you can pretty much just how big it is, right? I just mentioned our SMB business grew from $70 million a quarter to $100 million a quarter. So you could deduce what it means - and.

Go ahead, Patrick.

And then for the premium, the CHP products, right, we haven't really broken that down. But I think to see a meaningful effect of that will be reflected in the contribution margin of the products. And once you see our contribution margin starting to increase significantly, then that you could deduce that it becomes a very material portion of our business.

Well - so Patrick, let me try to get ask the question the other way. I appreciate your comments about the contribution margin. But inside the exact dollar contribution from a revenue perspective, if we broke your business in broadly, not just ProAV, but the ultra-high segment, where you're having growth, where you're the only competitor, differentiation, to prices, the margins, et cetera. Looking back selectively - what was the growth rate for the ultra-high-end products? Is your expectation that those will continue to grow in Q4 and beyond or are you seeing?

Oh yes, yes, yes.

You seeing how many pack that prior to the ultra-high end?

Yes I mean that one is pretty public, all right, because MDD reported, they reported by price band of WiFi mesh. So those $650 in plus, which they group them all into one price band is growing about 10% to 15% every quarter, all right? So and that is pretty much us - nobody else so that's the growth rate, all right, that you could see it. And that piece, you could easily get it from NPD. And for NPD's report in that particular segment, all right, they actually dollarize how big the market is for that segment, which is roughly about $49 a year, but it's growing very fast, for the rest of the market is shrinking. Now that's only the Orbi the high end Orbi and then you have the mobile hotspots right? Again, in the mobile hotspots in retail, we're the only game in town, right? So - and of course, the bulk of our mobile hotspots sales today is still in the service provider. And then we did $50 million. I mean we did EUR35 million EUR42 million, right, this quarter right? Bryan. And then next quarter, we went 50. So that's pretty much all these high-end mobile plus yes.

So Pat, you're probably significant directly your ultra-high in is growing roughly 10% to 15%. And you didn't directly respond, but I trust you're saying there's been no indication of a macro related or for that matter, any other factor that's driving a moderation in so out of the market. You're not seeing macro factors, FX adversely in demand?

Because most of the sales of this category is about $1,500, right? And that those people that is the least affected by the macroeconomic situation. It's pretty much the same as the Rolex watches, the netbacks and Forza and that kind of consumers.

No, I understand. But at some point, even that segment - I'm just thinking a lot, Patrick. At some point, and I recognize we've had a nice reversal for the upside in the past week. But when stock prices are going down they go down dramatically and wealth, there's a wealth effect wealth effect works in both directions, even among the super-rich and wealthy, there tends to be a pullback in material consumption. So it's not totally immune. I'm just trying to understand to what degree, but I hear you saying you're not seeing the impact of President, you only expect to see the impact?

Right. So as you probably read just I do, in the last few weeks on Wall Street, Bloomberg, everything, they say, this time a little bit different, right, because all the central banks around the world, including China, have printed so much money in the last three years since the pandemic - and guess what. All that money goes to these people, all right? So the wealth is still pretty big. And the articles are articles reporting on how they spend in the current environment.

Well one last question, if I may. Along the same line, you look at mass market, if we look at the revenue from a linear perspective, including the past three-plus weeks of October. What is the mass market is the impact on the mass market of macro is the decline you're seeing? Is that the decline you're expecting? Or things deteriorating as you speak? Has there been a progression of deterioration so that you think it gets worse before it stabilizes or wherever it's at now you think that is stabilizing at that level?

Well, the mass market is definitely deteriorating. So the decline of the mass market in the first three weeks of the quarter we see it we read from NPD is actually worse than the first three weeks of Q3. There's no doubt about it. But we're not seeing that with our Orbi 8 and 9 or our M6 and M6 Pro.

Okay. I greatly appreciate the responses. Thank you.

Sure.

There are no further questions. I'd like to turn the call back to Mr. Patrick Lo for closing remarks.

Sure. Thank you, everyone, for joining us today. The strong demand of our differentiated technologically advanced products give us the confidence about the long-term future in both the SMB and CHP businesses in terms of top and bottom line expansion. We at the forefront of the Pro AV market transition, and we'll continue to make inroads in expanding our presence in the market. Although our CFP channel inventory reduction will continue into 2023, our long-term growth trajectory is on track, supported by our highly differentiated Orbi 8 and 9 WiFi mesh systems and our 5G mobile hotspots, all of which are in high demand. I look forward to sharing more on this at our upcoming Analyst Day set for early December. Talk to you all then.