Ladies and gentlemen, thank you for standing by. [Operator Instructions] I would now like to turn the conference over to Erik Bylin. Please go ahead, sir.

Thank you, Eric. Good afternoon and welcome to NETGEAR's Fourth Quarter and Full Year 2023 Financial Results Conference Call. Joining us from the company are Mr. C.J. Prober, CEO; Mr. Bryan Murray, CFO; and Mr. David Henry, President and General Manager of Connected Home Products and Services. The format of the call; we'll start with an overview of the company's recent leadership condition provided by Bryan, followed by an introduction by C.J. and finish a review of the financials for the fourth quarter and full year commentary on the business and first quarter of 2024 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 expense, expenses and future business outlook. Actual results or trends could differ materially from those contemplated by these forward-looking statements. For more information, please refer to the risk factors discussed in NETGEAR's periodic filings with the SEC, including the most recent Form 10-Q. Any forward-looking statements that we make on this call are based on assumptions as of today and NETGEAR undertakes no obligation to update these statements as a result of new information or future events. 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 turn the call over to Mr. Bryan Murray.

Thank you, Erik and thank you, everyone, for joining today's call. As we announced last week, after nearly 3 decades at the helm, Patrick Lo has chosen to retire from his role as CEO and Chairman at NETGEAR. Patrick will serve as a strategic adviser through July of this year to ensure a smooth transition. Well, Patrick will certainly be missed. We're very excited to see him embark on his next chapter in life. After a thorough search over the past year to identify a successor of Patrick, the Board appointed C.J. as NETGEAR CEO. C.J. has a background that is uniquely suited to the NETGEAR into our next chapter and then NETGEAR Board and the management team are excited to work with C.J. as we capitalize on the great opportunity in front of us. With that, I would like to personally welcome C.J. and give him the stage to introduce himself prior to getting into the Q4 results.

Thank you, Bryan. It's really awesome to be here. We had an all-hands with the NETGEAR global team last week, on my first day and another one just an hours ago. And I want to reiterate a few of the points that I shared with the team. First, I really appreciate the incredible welcome I have received from the Board, our executive leadership team, the broader NETGEAR team and many of our partners and customers. It's only been a week and I'm definitely feeling -- but I'm definitely feeling like the shoe fits and I'm more excited than ever about the road ahead. Second, if the real honor to be taking over from Patrick, he's been a pioneer in our industry. He is a great person with the highest integrity and he's established a great culture in NETGEAR. I really appreciate him and the rest of the Board entrusting me with this opportunity and supporting me and the rest of the executive team in the transition. Third and most importantly, the opportunity ahead for NETGEAR is incredibly exciting. We have macro tailwinds working in our favor, like the importance of the connectivity in a work-from-anywhere world, connected device proliferation, increasing need for higher bandwidth to support high fidelity audio and video experiences and the growing importance of digital security. We also have an incredible brand, great technology and products, a strong balance sheet, a diversified business with consumer and NETGEAR for business and a lot of potential adjacencies for growth. It's really pretty rare for a new CEO to be able to step into an opportunity with so much upside, the business has obviously been challenged and it's going to take a lot of work to capture that upside. The journey ahead starts with strengthening our core business, both on the consumer and NETGEAR-for-business side of things. I see many opportunities to do that, as part of this initial phase, I'm embarking on a 45-day listening tour to validate my plan and seek input from the broader team. While it is early, I can say that on the consumer side of things, the come important themes will be around the simplification of our product offerings, both devices and subscription and improving the performance of our highest margin channel. On the NETGEAR for business side of things, we've been able to scale the Pro AV business with a solution-focused sales motion and 1 theme going forward be to double down on those go-to-market capabilities so that we can grow our share in markets where products solve a critical need for customers. I believe the plan to strengthen our core which I look forward to sharing with you during a future earnings call in more detail, will lead to a stronger NETGEAR with improved cash flow performance and renewed growth opportunities. With that, back over to you, Bryan.

Thank you, C.J. And once again, on behalf of the entire team, welcome. We are pleased with the continued execution of our team this quarter in delivering revenue and operating margins at the high end of our updated guidance ranges. For the quarter ended December 31, 2023. Revenue was $188.7 million, down 4.6% on a sequential basis and down 24.3% year-over-year. Importantly, we took great strides in turning inventory into cash and added $55.6 million of cash to our balance sheet. On the CHP side, the U.S. retail market overall underperformed our expectations due to a more promotional holiday season especially in the lower end of the market but NETGEAR outperformed the market largely driven by strong results in our premium products. In tandem with the ramp of the WiFi 7 upgrade cycle end user demand for our premium solutions which consists of our Orbi 8 and 9, tri and quad-band WiFi mesh products and 5G Nighthawk Mobile Hotspots, again performed well. It grew double digit sequentially and more than 30% year-over-year, strongly outpacing the total market. In fact, our premium products reached a new high as a percentage of our CHP retail business contributing 25% of sales to end users. Meanwhile, sales to service providers came in at just over $27 million for the quarter. Our SMB business outperformed our expectations as we steadily drive up ASPs, even though channel inventory for our SMB business continued to contract, bolstering our total revenue to the upper end of our guidance. Outside of the inventory contraction our competitive position in SMB remains strong. The softening macro conditions and certain markets are still impacting SMB's growth prospects in the near term. As customers remain hesitant to make investments in deals are taking lower to close. For the full year of 2023, NETGEAR…

[Operator Instructions] Your first question comes from the line of Jake Norrison with Raymond James.

Okay. A couple from me. I just wanted to start off from a high level. Welcoming C.J., I'm just wondering what would this organizational shift enabled from a strategy and capital allocation perspective long term? I know you touched on potential growth adjacencies. Any more color there would be helpful.

It's too early to say. I obviously made the point that I see an opportunity for cash generation. We're doing that now on the back of working capital improvements. But long term, we want to create value and the way I see us creating value is being a long-term sustainable cash-generating business. In terms of how much capital that requires and how that feeds into kind of the strategy we implement, let's talk about that on a later call but I definitely appreciate where you're coming from on that question.

Okay. Sounds good. And then I'm also wondering, you guys gave fiscal year guidance at the Analyst Day. Can you just give us updated color on the cadence of how the year will play out. Are you still expecting that sort of hockey stick in the back half, low to mid-single-digit growth for the full year?

Yes. Keeping with our tradition, we're not going to -- do readdress annual guidance at this point. We provided guidance for Q1 based on what we see in the near term. But if you feel like the guidance we put our there for Q1 is relatively in line with what we shared at the Analyst Day. There is probably a slight lowering of the operating margin profile from the range that we provided for the first half and I would say the differential there is largely due to transitional costs as we kind of ramp up this new -- the new leadership of C.J. coming onboard and the transition costs coming along with that.

Makes sense. And then last 1 for me. You mentioned a couple of times you saw the retail market stabilize. Can you just touch on what gives you confidence there in that channel -- CHP channel inventory will be stable for the rest of the year?

Yes. Maybe I'll start and then I'll ask David to weigh in here. I think as we said last quarter, what's giving us the confidence of seeing that is that we're starting to see a return to normal seasonal behavior within that market. Typically, you would see a seasonally -- supplying our guidance here for Q1. So that's the main data point we have. We obviously think that continues to strengthen as WiFi 7 becomes more prominent in the market, just given the natural growth in ASPs that, that will bring in play. But David can probably provide some additional context.

Sure. Yes. As Bryan said, I think over the last couple of quarters, we started to see the year-on-year decline of the market stabilize and not continue to get lower and lower as we have seen for the last few years. As we go into this year, obviously, refresh cycle 4 years removed from the pandemic pull-in. So it will be wind at our backs as well as there's a lot of new WiFi 7 devices launching on the market. Samsung just announced their G F24 -- Galaxy F24 with WiFi 7. We expect others throughout this year. And as people start to adopt those new products, they're going to want to upgrade their networks and that should help stimulate the market to further stabilization.

[Operator Instructions] Your next question comes from the line of Hamed Khorsand with BWS Financial.

So first off, can we just talk about your commentary here for Q1. I mean you're saying retail is stabilizing but you're guiding quite a bit down and then it conflicts with that stabilization comment because Q1 '23, it was -- you're going to be below that. How is it stable? When Q1 '23, you were saying, oh, it's going to be -- it's the bottom and all that commentary and now you're saying, well, it's going to be below that number.

Yes, Hamed you may recall, the retail portion of the CHP business is very seasonal. In normal periods, you'll see something like a mid-teens percentage decline in the market from Q4 into Q1. So that's the main driver why revenues would be coming down and that was mentioned back in December at the Analyst Day as well. So we continue to see that playing out as we had mentioned back in December and the primary driver for the sequential decline in revenue.

Yes. No, I understand the commentary you gave in December. I understand the commentary now. What I'm trying to understand is how are you saying it's stable if you're actually -- your revenue is declining year-over-year from Q1 '23 to Q1 '24. That doesn't seem stable.

Yes. So again, the comment I made earlier with regards to what the signal is that leads us to believe that the market has stabilized is largely because we have returned to normal seasonal patterns. At some point, it will play out as a year-over-year flattening and hopefully turning to growth which, again, I think, the point David made and I said earlier a little a bit that's going to come as WiFi 7 kind of becomes more prominent in the market. But those are the signals that we see that are driving us towards believing the market is stabilizing.

And then, Bryan, what's happened since the Analyst Day that it's -- it feels like the Q1 is going to be lower than what was perceived. I think your quote was at Investor Day, it was going to be first half was going to be down mid-single digits, right? And now this is quite a bit more than that.

Yes. We said the sequential decline would be, yes, down mid-single digits. I think we're in that general direction with the guidance, depending where in the range you are landing. There's not much that's changed from the December guidance on the top line.

Okay. And then why hasn't there been any progress as far as what you want to do with your cash? I mean at $284 million, that's quite a bit of change and there has been no activity on buying back any stock.

Yes. There's no doubt we've been very successful of quickly turning that ship from the end of Q2, we were at $203 million and to exit the year just shy of $284 million. We've generated a lot of cash in a very short period of time, mainly coming from compressing our inventory balances. I would just say that is a very near-term trend. We obviously are going through a change in leadership and we're going to continue to have the same kind of conversations we've had historically with regards to how we allocate capital which, again, we continue to reiterate that we think we need about $125 million to run the business and then all amounts beyond that, we're continuing to have discussions about strategic uses. Obviously, M&A is something that we continuously talk about. And then stock repurchase. We again continue to be opportunistic buyers of stock but 2.5 million shares remaining on that program. But I think it's because we quickly turned the tides where we were using cash in the first half of the year and we've aggressively turned that around with the Q4 performance of generating free cash flow over $54 million was quite an improvement. And if you recall my comments back in October, we were expecting to generate probably something more in the $25 million to $30 million range. So we overshot that mark which is great and we still continue to believe that we're going to generate more cash in Q1.

There are no further questions at this time. C.J. I turn the call back over to you.

Yes, thank you guys for joining us today. Like I said, couldn't be more excited about the opportunity ahead. And that's it for us; NETGEAR team signing off.

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