netgear 2018 analyst day · 2018. 9. 7. · $106 $115 $123 $95 $100 $105 $110 $115 $120 $125 2016...
TRANSCRIPT
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NETGEAR 2018 Analyst Day
S E P T E M B E R 6 , 2 0 1 8
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Safe Harbor DisclosureThis presentation contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Specifically, forward-looking statements
within the meaning of the Safe Harbor include statements concerning: future financial performance; projections on market share and market growth; future market
opportunities; NETGEAR's products and technology and their expected performance characteristics, specifications and specific uses; and anticipated new product offerings
and features. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including, without limitation, the following:
future demand for NETGEAR's products may be lower than anticipated; consumers may choose not to adopt NETGEAR's new product offerings or adopt competing products;
the actual price, performance and ease of use of NETGEAR products may not meet the price, performance and ease of use requirements of customers; product performance
may be adversely affected by real world operating conditions; global economic conditions, including rapidly changing international trade policies could materially adversely
affect NETGEAR’s results of operations; limited sources of certain components and reliance on a limited numbers of manufacturing partners could impede NETGEAR’s
business; new cyber threats may challenge the effectiveness of features in NETGEAR's products; the ability of NETGEAR to market and sell its products and technology, the
impact and pricing of competing products, and the introduction of alternative technological solutions; NETGEAR may be unsuccessful or experience delays in manufacturing
and distributing its new and existing products; telecommunications service providers may choose to slow their deployment of NETGEAR's products or utilize competing
products; NETGEAR may be unable to collect receivables as they become due; and NETGEAR may fail to manage costs. Further, certain forward-looking statements are
based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast
in such forward-looking statements. Further information on potential risk factors that could affect NETGEAR and its business are detailed in the Company's periodic filings with
the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled “Part II - Item 1A. Risk Factors,” pages 61
through 87, in the Company's quarterly report on Form 10-Q for the fiscal quarter ended July 1, 2018, filed with the Securities and Exchange Commission on August 3, 2018.
NETGEAR undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
All product and company names herein are or may be trademarks of their respective owners.
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Agenda
• Introduction by Patrick
• Financials
• SMB Update
• Connected Home Update
• Branding & Engagement
• Q&A
• Demos
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IntroductionP A T R I C K L O
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TECHNOLOGY INFLECTION RECURRING SERVICE REVENUECREATE NEW CATEGORIES
Strategy for Growth
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11ax Gaming
PoE+
Pro AV
10 Gig
Content Streaming
Mesh
Mesh
5G
Key Technology Inflections
New Categories
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… T O A L A R G E A N D E N G A G E D C U S T O M E R C O M M U N I T Y
Registration + Ongoing Engagement
Recurring Revenue
The NETGEAR Evolution
F R O M A L A R G E I N S T A L L E D B A S E W I T H L I M I T E D E N G A G E M E N T …
P A T H T O
O P M A R G I N S
15%
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Connected Home Services
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SMB Services
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PAID SUBSCRIBERS
TARGET
1M
650KR E G I S T E R E D A P P U S E R S
C U R R E N T
4.2ME M A I L O P T - I N
C U R R E N T
8.7MR E G I S T E R E D U S E R S
C U R R E N T
10MR E G I S T E R E D U S E R S
B Y E N D 2 0 1 8
ESTIMATED INSTALLED
BASE
~25M
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Financials
B R Y A N M U R R A Y
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12
Separation Update
Completed
IPO 15.8% OF ARLODISTRIBUTE THE REMAINING 84.2% OF ARLO TO ALL NTGR SHAREHOLDERS (FINAL SPIN)
Final spin subject to customary conditions, including:
• Final approval from NTGR Board • Favorable market conditions and
tax and legal considerations, including receipt of tax opinion
Prepare for separation
Completed
By
1Q19Feb
6Aug
2018
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Total NETGEAR Revenue
FY16 FY17 FY18E
$1.33B$1.41B
$1.54B*
*Source: FactSet, as of 09/05/18. NTGR consensus FY’18 net revenue estimate.
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Steady Topline Growth for CHP + SMB
$254m$193m $155m-
$165m
FY16 FY17 FY18E FY19E
$1.14B
$1.03B $1.06B*
*Source: FactSet, as of 09/05/18. NTGR consensus FY’18 net revenue estimate minus ARLO consensus FY’18 net revenue estimate.
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Quarterly Sales Trends
0
50
100
150
200
250
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18
Connected Home
Retail Service Provider0
10
20
30
40
50
60
70
80
2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18
SMB
NA retail cable mkt recovered in Q2’18
Expect SP revenue @ $35-40M per quarter
Shift to 10gig/PoE+ drives growth
Storage decline immaterial as of Q1’18
+7% +5%
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CHP Seasonality (Ex-Service Provider)
Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18
Historic QoQ Seasonality
Q1 Q2 Q3 Q4
-17% 1% 11% 14%
10%-12% decline 16%-18% growth
NA Retail Cable Headwinds
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Margin Fundamentals Intact
FY’16 FY’17 1H18
Total Total Ex-Arlo Total Ex-Arlo
Segment CM% 16.8% 14.0% 16.3% 13.6% 18.2%
Corporate & Unallocated -5.2% -5.3% -5.3%* -7.0% -7.0%*
Non-GAAP OM% 11.6% 8.7% 11.0% 6.7% 11.2%
*Note: assumes leverage experienced including Arlo business.
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Recurring Services Drive Margin Expansion
100K 500K 1M 1.5M 2M
$12 +0.1% +0.3% +0.6% +0.8% +1.1%
$24 +0.1% +0.6% +1.1% +1.6% +2.1%
$36 +0.2% +0.8% +1.6% +2.4% +3.2%
Paid Service Users Count
Assumptions: 50% gross margin on services
An
nu
al A
RP
U
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19
M&A SHARE REPURCHASER&D/BRAND INVESTMENT
Strategic Capital Allocation
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Share Repurchases Resume
S H A R E R E P U R CH ASES R E S U ME 2 H 1 8
Trailing 5- years (as of Q4’17)
Approach O P P O R T U N I S T I C
Total free cash flow generated $ 4 3 7 M
Total cash used for share repurchases $ 4 2 3 M
Weighted average price $ 3 5 . 6 1
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2019 Financial Targets
• Mid-single-digit YoY top line growth
• Service provider revenue of $35-$40M per quarter
• 10-11% non-GAAP operating margin
• Double-digit non-GAAP EPS growth
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Long Term Target Model
• Mid-single-digit % annual revenue growth
• Convert 1M+ of installed base to paid service customers
• 15% non-GAAP operating margin
• Low double-digit non-GAAP EPS growth
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SMB Update
J O H N M C H U G H
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Upgraded Technology > 2x ASP…
1Gbps 10Gbps PoE PoE+ 11ac 11ax
$210
$1,376
Q3'18
1G 10G
$250
$420
Q3'18
PoE PoE+
$68
$140
$400
Q3'18
11n 11ac 11ax
Smart Switch Port Speed ASPs Smart Switch PoE ASPs NETGEAR SMB Access Point ASPs
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We never stop inventing new categories.
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20032010
20112014
20172017
20172018First Smart Switch
First Lightly Managed Plus
Switch
First 10G Smart Switch
Flexible Mounting Click
Switch
First App Managed Access
Point
First Fully Autonomous Cloud
Management Switch
First DIY WiFi Mesh Solution for Business
Pro AV 48/96 10G Switch
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Interconnect market is $250M
Converting to AV-over-IP
AV Transitioning HDMI to Ethernet
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Do-It-Yourself SMB Networks
High-performance WiFi DIY wire-free installation Secure guest network
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Expanding margins withrecurring service revenue.
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Managed Service Providers$15 per year per device
DIY$5 per year per device
SCREENSHOT
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SMB Summary
Up ASP with new technology Pro AV, Orbi, App Switches Insight services
SCREENSHOT
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Connected Home Update
D A V I D H E N R Y
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NETGEAR WiFi Market Share
Source: The NPD Group, Inc., U.S. Retail Tracking Service; Gateways, Range Extenders. Routers; Wireless; Cellular Ready Technology excludes 3G, 4G, Dual Band 3G/4G, LTE; Network Connectivity excludes powerline; based on dollar share; Jan.-Dec. 2016, Jan.-Dec. 2017, Jan.-July 2018.
49.2%50.8%
2016
48.9%51.1%
2017
50.6%49.4%
2018 YTD
Others NETGEAR
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US WiFi YoY Market Growth
0%
1%
2%
3%
4%
5%
6%
2016 2017 2018 YTD
5.7%
0.8%
2.5%
Source: The NPD Group, Inc., U.S. Retail Tracking Service; Gateways, Range Extenders. Routers; Wireless; Cellular Ready Technology excludes 3G, 4G, Dual Band 3G/4G, LTE; Network Connectivity excludes powerline; based on dollar share; Jan.-Dec. 2015 vs. Jan.-Dec. 2016, Jan.-Dec. 2016 vs. Jan.-Dec. 2017, Jan.-July 2017 vs. Jan.-July 2018. Sales are adjusted for 5wk Jan. 2018 vs. 4wk Jan. 2017.
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$106
$115
$123
$95
$100
$105
$110
$115
$120
$125
2016 2017 2018 YTD
Consumer WiFi ASP
$123
$115
$106
Source: The NPD Group, Inc., U.S. Retail Tracking Service; Gateways, Range Extenders. Routers; Wireless; Cellular Ready Technology excludes 3G, 4G, Dual Band 3G/4G, LTE; Network Connectivity excludes powerline; average price; Jan.-Dec. 2016, Jan.-Dec. 2017, Jan.-July 2018.
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ASP expansion will continue. And here’s how…
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s
PERFORMANCE
SPEED
RANGE
CAPACITY
Handles 4X the
devices
Up to 50% longer
range
40% Higher
throughput
Improves battery
life for clients
The Next Generation of
WiFi is 11ax,
& NETGEAR Brings It
First
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5G Will Bring New Use Cases
Virtual & Augmented Reality
Health Care
Mobile Cloud Computing
Infrastructure & Utilities
Media & Entertainment
Automotive & Transportation
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We continue to innovate and create new categories.
Introducing Lifestyle…
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Source:
Newzoo 2018 Global Games Market ReportSource:
NewZoo 2018 Global Games Market Report
Gamers worldwide
growing to 2.75B by 2021
2.35BOf gamers purchase
hardware to improve or feel
it’s essential for gaming
68%
Nighthawk Pro Gaming
Driven by the Growth of eSports & Online Gaming
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Designed for the Needs of the Avid Gamer
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Orbi VoiceB E T T E R W I F I A N D S O U N D .
E V E R Y W H E R E .
https://www.youtube.com/watch?v=3n51QtdNZIo
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CNET“something no other smart
speaker does…”
Android Central“Orbi mesh networking system,
this is a perfect
add-on.”
TechRadar“The union we’ve all been
waiting for is here.”
Engadget“It's got serious
sound…spreading internet while
it's pumping tunes.”
VentureBeat“Netgear is getting more hip.”
Dong Knows Tech“In all, the thing is really cool!”
TechHive“Why has no one thought of it
before?
...packs a pretty good audio
punch”
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We’re growing opportunities in services.
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Existing Paid Services from NETGEAR
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Hacker attacks occur every 39 seconds, affecting 1 in 3
Americans every year.
Source: https://eng.umd.edu/news/story/study-hackers-attack-every-39-seconds
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Advanced Cyber Threat Protection for All Devices
NIGHTHAWK + AWARD WINNING SECURITY
MULTI-LAYERED PROTECTION
NETWORK CONTROL FROM ANYWHERE
UNLIMITED PERSONAL DEVICES COVERED
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Meural Membership
• Subscription $49.95/year
• Unlimited access to 40,000+ digital content
• Exclusive artwork & photography
• Strong membership attach
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CHP Summary
Up ASP with new technology Create new lifestyle category Sell services
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Branding & Engagement
H E I D I C O R M A C K
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52
NIG
HT
HA
WK
PR
O
GA
MIN
G
20%Sessions
27%Page Views
63%ITP Clicks
26%Direct Views
89%Organic Views
831%Social Views
1,811%Email Views
28%Page Views
103%YoY Unique Open
Rate
243%YoY Unique Click
Through Rate
463%Nighthawk
1,100%Media Impressions
2.2B
444MAcross All Campaigns
31MAcross All Campaigns
50%Total Followers
110%Social Followers
Branding & Engagement
80%Engagement Rate vs
Industry Standard
300KSent
32%Visits
36%New Registrations
In-app
Messaging
Emails
NE
TG
EA
R W
EB
SIT
E
45%Engagement
104%Orbi
BR
AN
D I
MP
RE
SS
ION
S
CO
MM
UN
ITY
GR
OW
TH
INSTALL BASE ENGAGEMENT
GLOBAL
IMPRESSIONS
PR IMPRESSIONS
FORUMS
30%ITP Clicks
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Orbi Voice Wins at IFA
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Pro Endorsements
18-34A G E G R O U P
+42%B R A N D I M P R E S S I O N S
230MV I D E O V I E W S
Channel
Gaming Events Influencers
Social
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Install Base Marketing
10xConversion Rate
• Effective targeting and personalization
• Multi-step campaigns with email & in-app
• Increased engagement & conversion rates
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Global Brand Building
• Social Media Engagement
• Digital Marketing
• Active Community Growth
• Increased App Engagement
• Optimization In-app & Email Marketing
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