NETGEAR INC

Previous wording

We are a global company that turns ideas into innovative, high-performance, and premium networking products. Our products connect people, power businesses and service providers. Our products are designed to simplify and improve people’s lives. Our core long-term strategy is to create and grow the premium higher-margin segments of the consumer networking market, where we believe competition is less intense and consumers are less price sensitive and offers greater potential to sell our subscription services. A key element of our premium strategy is the curated online experience we deliver to guide our customers through the shopping experience. This approach has helped grow NETGEAR.com as a channel and, with expansion to more countries, we have a great opportunity to accelerate traction in the premium segment of the market. Our goal is to enable people to collaborate and connect to a world of information and entertainment in or outside of the home. We are dedicated to delivering innovative and highly differentiated, connected solutions ranging from easy-to-use premium WiFi solutions, security and support services to protect and enhance home networks, to switching and wireless solutions to augment business networks and audio and video over Ethernet for Pro AV applications. Our products and services are built on a variety of technologies such as wireless (WiFi and 4G/5G mobile), Ethernet and powerline, with a focus on reliability and ease-of-use. Additionally, we continually invest in research and development to create new technologies and services and to capitalize on technological inflection points and trends, such as multi-Gigabit internet service to homes, WiFi 7, audio and video over Ethernet, non-fungible token (“NFT”) artwork, and future technologies. Our product line consists of devices that create and extend wired and wireless networks, devices that attach to the network, such as smart digital displays as well as services that complement and enhance our product line offerings. These products are available in multiple configurations to address the changing needs of our customers in each geographic region.

Current wording

We are a global leader in innovative and advanced networking technologies for businesses, homes, and service providers. We deliver a wide range of intelligent solutions designed to unleash the full potential of connectivity. Our goal is to power extraordinary experiences where people collaborate and connect to a world of information and innovation. Our highly differentiated connected solutions range from switching and wireless products to augment business networks and audio and video (“AV”) over Ethernet for Pro AV applications to our good, better, and best WiFi solutions, security and support services to protect and enhance business and home networks. Additionally, we continually invest in research and development to create new technologies and services and to capitalize on technological inflection points and trends, such as audio and video over Ethernet, multi-Gigabit internet service to homes, WiFi 7, eSIM and future technologies. Our product line helps to create and extend wired and wireless networks as well as devices that attach to the network, such as services that complement and enhance our product line offerings. These products are available in multiple configurations to address the changing needs of our customers in each geographic region.

Previous wording

We operate and report in two segments: Connected Home, and NETGEAR for Business (formerly known as Small and Medium Business, or SMB). We believe that this structure reflects our current operational and financial management, and that it provides the best structure for us to focus on growth opportunities while maintaining financial discipline. The leadership team of each segment is focused on serving customer needs through product and service development efforts, both from a product marketing and engineering standpoint. The Connected Home segment focuses on consumers and provides high-performance, dependable, and easy-to-use premium WiFi internet networking solutions such as WiFi 6, WiFi 6E, and WiFi 7 tri-band and Quad-band mesh systems, 4G/5G mobile products, smart devices such as Meural digital displays, and subscription services that provide consumers a range of value-added services focused on security, performance, privacy, and premium support. The NETGEAR for Business segment focuses on businesses and provides solutions for business networking, wireless local area network (“LAN”), audio and video over Ethernet for Pro AV applications, security and remote management providing enterprise-class functionality at an affordable price. We conduct business across three geographic regions: Americas; Europe, Middle East, and Africa (“EMEA”); and Asia Pacific (“APAC”).

Current wording

Through 2024, we operated and reported in two segments: NETGEAR for Business and Connected Home. We believe that this structure reflected our operational and financial management, and that it enabled us to focus on growth opportunities while maintaining financial discipline. The leadership team of each segment is focused on serving customer needs through product and service development efforts, both from a product marketing and engineering standpoint. The NETGEAR for Business segment offers reliable, easy-to-use, high-performance networking solutions, including switches, routers, access points, software, and AV over IP technologies, tailored to meet the diverse needs of organizations of all sizes. The Connected Home segment offers advanced connectivity, powerful performance, and enhanced security features right out of the box, designed to help keep families safe online, whether at home or on the go, including high-performance, dependable and easy-to-use premium WiFi networking solutions such as 4G/5G mobile products, WiFi 7 Tri-band and Quad-band mesh systems and routers, WiFi 6E, WiFi 6, and subscription services that provide consumers a range of value-added services focused on performance, security, privacy and premium support. We conduct business across three geographic regions: Americas; Europe, Middle East, and Africa (“EMEA”); and Asia Pacific (“APAC”).

Previous wording

The markets in which our segments operate are intensely competitive and subject to rapid technological evolution. We believe that the principal competitive factors in the consumer, business, and service provider markets for networking products include product breadth, price points, size and scope of the sales channel, brand name, timeliness of new product introductions, product availability, performance, features, functionality, reliability, ease-of-installation, maintenance and use, security, as well as customer service and support. To remain competitive, we believe we must continue to aggressively invest resources to develop new products and subscription services, enhance our current products, and expand our channels and direct-to-consumer capabilities, while increasing engagement and maintaining satisfaction with our customers. Our investments reflect our steadfast focus on cybersecurity of our products and systems, as the rising threat of cyber-attacks and exploitation of security vulnerabilities in our industry is a significant consumer concern.

Current wording

The markets in which our segments operate are intensely competitive and subject to rapid technological evolution. We believe that the principal competitive factors in the business, consumer, and service provider markets for networking products include product breadth, price points, brand name, security and privacy, performance, features, functionality and reliability, product availability, timeliness of new product introductions, size and scope of the sales channel, ease-of-installation, maintenance and use, and customer service and support. To remain competitive, we believe we must continue to aggressively invest resources in highly differentiated, “good, better, best”, high performance reliable and trusted connectivity solutions, complemented by valuable subscription services, expanding our sales channels including our direct-to-consumer capabilities and custom installers, increasing engagement with our customers and manufacturing partners, and maintaining customer satisfaction worldwide. Our investments reflect our enhanced focus on the security of our products and systems, as the threat of cyber-attacks and exploitation of potential security vulnerabilities in our industry is on the rise and is increasingly a significant consumer concern.

Previous wording

We sell our products through multiple sales channels worldwide, including traditional and online retailers, wholesale distributors, direct market resellers (“DMRs”), value-added resellers (“VARs”), broadband service providers, and through our direct online store atwww.netgear.com. Our retail channel includes traditional and online retailers both domestically and internationally, such as Amazon.com (worldwide), Best Buy, Wal-Mart, Costco, Staples, Office Depot, Target, Electra (Sweden), Fnac Darty (Europe), JB HiFi (Australia), Elkjop (Norway), and Boulanger (France). Our DMRs include CDW Corporation, Insight Corporation, and PC Connection in domestic markets. Our main wholesale distributors include Ingram Micro, TD Synnex, and D&H Distribution Company. In addition, we also sell our products through broadband service providers, such as multiple system operators, xDSL, mobile, and other broadband technology operators domestically and internationally. Some of these retailers and broadband service providers purchase directly from us, while others are fulfilled through wholesale distributors around the world. A substantial portion of our net revenue is derived from a limited number of wholesale distributors, service providers and retailers. While we expect these channels to continue to be a significant part of our sales strategy, increasingly, customers are choosing to purchase products and services directly from us. We expect revenue through our direct online store or in-app offerings to continue to increase as a percentage of overall revenue for the foreseeable future.

Current wording

We sell our products through multiple sales channels worldwide, including traditional and online retailers, wholesale distributors, direct market resellers (“DMRs”), value-added resellers (“VARs”), broadband service providers, and through our direct online store at www.netgear.com. Our retail channel includes traditional and online retail locations both domestically and internationally, such as Amazon.com (worldwide), Best Buy, Wal-Mart, Staples, Office Depot, Target, Electra (Sweden), Fnac Darty (Europe), JB HiFi (Australia), Elkjop (Norway), and Boulanger (France). Our DMRs include CDW Corporation, Insight Corporation, and PC Connection in domestic markets. Our main wholesale distributors include Ingram Micro, TD Synnex, and D&H Distribution Company. In addition, we also sell our products through broadband service providers, such as multiple system operators, xDSL, mobile, and other broadband technology operators domestically and internationally. Some of these retailers and broadband service providers purchase directly from us, while others are fulfilled through wholesale distributors around the world. A substantial portion of our net revenue is derived from a limited number of wholesale distributors, service providers and retailers. While we expect these channels to continue to be a significant part of our sales strategy, increasingly, customers are choosing to purchase products and services directly from us. We expect revenue through our direct online store or in-app offerings to continue to increase as a percentage of overall revenue for the foreseeable future.

Previous wording

During the year ended December 31, 2023, our net revenue decreased by $191.6 million compared to the prior year, mainly driven by decreases of $112.0 million in our Connected Home segment, and $79.7 million in our NETGEAR for Business segment. The year-over-year decrease in Connected Home net revenue was mainly due to a contraction of the U.S. retail market and lower net revenue from the service provider channel. The year-over-year decrease in NETGEAR for Business net revenue was mainly due to channel inventory compression driven by the continued pressure of the uncertain macroeconomic environment. Despite the year-over-year decline in net revenue, demand for our premium WiFi mesh systems and 5G mobile hotspots, continued to grow, bolstered by the addition of our recently released WiFi 7 mesh systems. During the year, we also experienced continued strong demand for the Pro AV product line of managed switches, and growth in our services revenue. Our gross margin percentage increased 670 basis points compared to the prior year in part due to a more favorable mix of our premium Connected Home products, combined with continued growth of our services business. Additionally, we incurred lower sea freight costs when the inventory was purchased, and were less reliant on higher cost air freight due to an improved supply picture. Loss from operations decreased by $49.6 million in spite of lower revenue, compared to the prior year, primarily due to the timing of goodwill impairment charge of $44.4 million recorded in the prior year with respect to our Connected Home segment, and reduced operating expenses in the current year.

Current wording

During the year ended December 31, 2024, our net revenue decreased by $67.1 million, compared to the prior year, mainly driven by decreases of $60.9 million in our Connected Home segment, and $6.2 million in our NETGEAR for Business segment. The decrease in Connected Home net revenue was mainly due to market contraction, leading to a year-over-year decline in the retail channel, and, to a lesser extent, a decline in net revenue in the service provider channel. The year-over-year decrease in NETGEAR for Business net revenue was mainly due to our work with our channel partners to optimize their inventory carrying levels in the first half of 2024. Despite the year-over-year decline in net revenue, we saw continued strong demand for the Pro AV product line of managed switches, which experienced double digit growth in end market sales, and growth in our services revenue. In addition, our premium portfolio of products in Connected Home segment continued to outperform the market. Our gross margin percentage decreased 450 basis points, compared to the prior year, primarily attributable to higher cost of inventory, higher freight costs, and higher excess and obsolete inventory expense as we accelerated the depletion of our slower moving inventory, partially offset by higher mix of NETGEAR for Business products, which generally carry higher gross margin. Income from operations increased by $45.5 million in spite of lower revenue, compared to the prior year, primarily attributable to the payment received from the litigation settlement with TP-Link, leading to a contra-expense of $92.7 million in the litigation reserves, and a reduction of $10.9 million in general and administrative expenses to offset the related legal fees incurred to date.

Previous wording

Geographically, net revenue from Connected Home and NETGEAR for Business decreased across all three regions during the year ended December 31, 2023, compared to the prior year.

Current wording

Geographically, net revenue from NETGEAR for Business decreased in Americas and EMEA but increased in APAC, whereas net revenue from Connected Home decreased in all three regions, during the year ended December 31, 2024, compared to the prior year.

Previous wording

Macroeconomic and geopolitical trends created uncertainty in the global economic environment in 2022 and continued through 2023. These include conditions such as the potential for a recession, fluctuations in inflation, elevated interest rates, and the related negative impact on the global economy, foreign exchange rate fluctuations, particularly changes of the U.S. dollar, and ongoing worldwide tensions, including the Russia-Ukraine conflict, Israel-Hamas conflicts, and Red Sea crisis. The extent of impacts from these macroeconomic and geopolitical trends on our ongoing operational and financial performance, including our ability to execute our business strategies in the expected time frame, will depend on future developments. The broader implications of the macroeconomic uncertainty, and any related disruptions to channel partners and freight are unpredictable. Refer to Item 1A, Risk Factors of Part I of this

Current wording

Macroeconomic and geopolitical trends created uncertainty in the global economic environment in recent years. These include conditions such as the new tariffs by the Trump administration, the potential for a recession, fluctuations in inflation, interest rate changes, and the related negative impact on the global economy, foreign exchange rate fluctuations, particularly changes of the U.S. dollar, and ongoing worldwide tensions, including the Russia-Ukraine conflict, Israel-Hamas conflict, and Red Sea crisis. The extent of impacts from these macroeconomic and geopolitical trends on our ongoing operational and financial performance, including our ability to execute our business strategies in the expected time frame, will depend on future developments. The broader implications of the macroeconomic uncertainty, and any related disruptions to channel partners and freight are unpredictable. Refer to Item 1A, Risk Factors of Part I of this Annual Report on Form 10-K for various risks and uncertainties associated with the macroeconomic trends and uncertainty.

Previous wording

Goodwill is not amortized, but instead tested for impairment on an annual basis, or more frequently if certain events or indicators of potential impairment exists, and goodwill is written down when it is determined to be impaired.

Current wording

Goodwill is not amortized, but instead tested for impairment on an annual basis, or more frequently if certain events or indicators of potential impairment exist, and goodwill is written down when it is determined to be impaired.

Previous wording

During the third fiscal quarter ended October 1, 2023, we reassessed the valuation allowance for the deferred tax assets and determined to establish a full valuation allowance on its U.S. deferred tax assets. Additionally, we experienced a reduction in our market capitalization. Due to these factors, we determined that a triggering event had occurred, and an interim goodwill impairment assessment was performed. Prior to performing a goodwill impairment test, we assessed our long-lived assets and concluded the carrying amount of the intangible assets for our Connected Home reporting unit was not recoverable and recognized an intangible asset impairment charge of $1.1 million. No other impairments of long-lived assets were identified. We elected to bypass the qualitative goodwill impairment assessment and proceeded directly to the quantitative test, measured as of October 1, 2023. Further, we completed our annual impairment test of goodwill as of the first day of the fourth fiscal quarter of 2023, or October 2, 2023. We identified the reporting units for the purpose of goodwill impairment testing still as Connected Home and NETGEAR for Business. The results of the quantitative testing indicated that the fair value of the NETGEAR for Business reporting unit substantially exceeded its carrying amount, including goodwill, thus no goodwill impairment was recognized. Refer to Note 3, Balance Sheet Components, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for details. An interim goodwill impairment test performed in the first fiscal quarter of 2022 resulted in an impairment charge of $44.4 million in respect to our Connected Home reporting unit, which reduced the goodwill of this reporting unit to zero. No goodwill impairment was recognized for our NETGEAR for Business reporting unit in the year ended December 31, 2022 and no goodwill impairment was recognized for our Connected Home and NETGEAR for Business reporting units in the year ended December 31, 2021.

Current wording

We completed our annual impairment test of goodwill as of the first day of the fourth fiscal quarter of 2024, or September 30, 2024. We identified the reporting units for the purpose of goodwill impairment testing as NETGEAR for Business and Connected Home and performed a qualitative test. The results of the quantitative testing indicated that the fair value of the NETGEAR for Business reporting unit substantially exceeded its carrying amount, including goodwill, thus no goodwill impairment was recognized. An interim goodwill impairment test performed in the first fiscal quarter of 2022 resulted in an impairment charge of $44.4 million in respect to our Connected Home reporting unit, which reduced the goodwill of this reporting unit to zero. No goodwill impairment was recognized for our NETGEAR for Business reporting unit in the years ended December 31, 2024, 2023 and 2022. Refer to Note 3, Balance Sheet Components, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K for details.

Previous wording

Net revenue in Americas decreased in fiscal 2023, driven by declines of 19.2% in Connected Home net revenue and 15.9% in NETGEAR for Business net revenue, compared to the prior year. The decline in Connected Home net revenue was mainly due to a contraction of the U.S. retail market and lower net revenue from the service provider channel. The decline in NETGEAR for Business net revenue was mainly due to channel inventory compression.

Current wording

Net revenue in Americas decreased in fiscal 2024, primarily attributable to a decline in Connected Home segment's net revenue of 13.0%, compared to the prior year. The decline in Connected Home segment's net revenue was mainly due to market contraction, leading to a year-over-year decline in the retail channel. NETGEAR For Business segment's net revenue slightly decreased, compared to the prior year.

Previous wording

For further discussions specific to our Connected Home and NETGEAR for Business, refer to the "Segment Information" section below.

Current wording

For further discussions specific to our NETGEAR for Business and Connected Home, refer to the "Segment Information" section below.

Previous wording

Forecasting gross margin percentages is difficult, and there are a number of risks related to our ability to maintain or improve our current gross margin levels. Our cost of revenue as a percentage of net revenue can vary significantly based upon factors such as: uncertainties surrounding revenue levels, broad-based inflationary pressures and the uncertain macroeconomic environment, future pricing and/or potential discounts as a result of the economy or in response to the strengthening of the U.S. dollar in our international markets, competition, the timing of sales, and related production level variances; import customs duties and imposed tariffs; changes in technology; changes in product mix; expenses associated with writing off excessive or obsolete inventory; variability of stock-based compensation costs; royalties to third parties; fluctuations in freight costs; manufacturing and purchase price variances; changes in prices on commodity components; and warranty costs. We expect that revenue derived from paid subscription service plans will continue to increase in the future, which may have a positive impact on our gross margin. However, we will continue to experience fluctuations in our gross margin due to the factors discussed above.

Current wording

We expect our gross margin in the first fiscal quarter of 2025 to be higher than the same quarter of 2024 level. Forecasting gross margin percentages is difficult, and there are a number of risks related to our ability to maintain or improve our current gross margin levels. Our cost of revenue as a percentage of net revenue can vary significantly based upon factors such as: uncertainties surrounding revenue levels, broad-based inflationary pressures and the uncertain macroeconomic environment, future pricing and/or potential discounts as a result of the economy or in response to the strengthening of the U.S. dollar in our international markets, competition, the timing of sales, and related production level variances; import customs duties and imposed tariffs; changes in technology; changes in product mix; expenses associated with writing off excessive or obsolete inventory; variability of stock-based compensation costs; royalties to third parties; fluctuations in freight costs; manufacturing and purchase price variances; changes in prices on commodity components; and warranty costs. We expect that revenue derived from paid subscription service plans will continue to increase in the future, which may have a positive impact on our gross margin. However, we will continue to experience fluctuations in our gross margin due to the factors discussed above.

Previous wording

The decline in research and development expenses in fiscal 2023, compared to the prior year, was primarily driven by a decrease in personnel-related expenditures of $4.7 million mainly due to decreased headcount primarily in our Connected Home segment and shared services functions.

Current wording

The decline in research and development expenses in fiscal 2024, compared to the prior year, was primarily driven by a decrease in IT and facility allocation of $1.4 million, and a decrease in engineering projects and outside professional service fees of $1.0 million.

Previous wording

We believe that innovation and technological leadership is critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies, products and services. We expect research and development expenses as a percentage of net revenue in fiscal 2024 to be in line with or slightly below fiscal 2023 levels. We continue to invest in research and development to grow our cloud platform capabilities, our services and mobile applications and to create and expand our hardware product offerings focused on premium WiFi 7, and WiFi 6/6E, Advanced 4G/5G mobile and 5G coverage solutions, audio and video over Ethernet, web-managed, AV over IP managed switches and NETGEAR for Business wireless products. Research and development expenses may fluctuate depending on the timing and number of development activities and could vary significantly as a percentage of net revenue, depending on actual revenues achieved in any given quarter.

Current wording

We believe that innovation and technological leadership is critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies, products and services. We expect research and development expenses as a percentage of net revenue in the first fiscal quarter of 2025 to be in line with or slightly higher than the same quarter of 2024 level. We continue to invest in research and development to grow audio and video over Ethernet, web-managed, AV over IP managed switches, NETGEAR for Business wireless products, our cloud platform capabilities, our recurring services and mobile applications, and to broaden our WiFi 7 offerings for consumers to align to our good-better-best strategy and broaden our 5G mobile products. Our NETGEAR for Business segment will receive most of our incremental investments for 2025 and we will be focused on in-sourcing our software capabilities, expanding our product portfolio that will allow us to grow our share in the sizable AV and enterprise WiFi markets. The research and development expense resulting from the incremental investment is partially offset by efficiencies in the research and development expense on the consumer side as affected by our restructuring in January 2025. Research and development expenses may fluctuate depending on the timing and number of development activities and could vary significantly as a percentage of net revenue, depending on actual revenues achieved in any given quarter.

Previous wording

The decline in sales and marketing expenses for fiscal 2023, compared to the prior year, was primarily attributable to decreases in outbound freight costs for product deliveries to our customers of $7.0 million, in personnel-related expenditures and variable compensation of $4.2 million, mainly due to lower headcount and performance-based compensation expenses, and outside service expenditures of $2.8 million, mainly attributable to lower call center support costs. The declines were partially offset by an increase in brand-marketing related expenditures of $2.3 million, compared to the prior year.

Current wording

The decline in sales and marketing expenses for fiscal 2024, compared to the prior year, was primarily attributable to a decrease in brand marketing expenditures of $5.7 million, partially offset by an increase in personnel-related expenditures of $1.2 million, mainly due to higher variable compensation.

Previous wording

We expect sales and marketing expenses as a percentage of net revenue in fiscal 2024 to be in line with fiscal 2023 levels. Expenses may fluctuate depending on revenue levels achieved as certain expenses, such as commissions, are determined based upon the revenues achieved. Forecasting sales and marketing expenses is highly dependent on expected revenue levels and could vary significantly depending on actual revenue achieved in any given quarter. Marketing expenses may also fluctuate depending upon the timing, extent and nature of marketing programs. Marketing expenditure committed with a customer is generally recorded as a reduction of revenue per authoritative guidance.

Current wording

We expect sales and marketing expenses as a percentage of net revenue in the first fiscal quarter of 2025 to be in line with the same quarter of 2024 level. Most of our incremental investments in sales and marketing in 2025 will be related to go-to-market capabilities of our product offerings in the NETGEAR for Business segment, partially offset by efficiencies in marketing on the consumer side. Expenses may fluctuate depending on revenue levels achieved as certain expenses, such as commissions, are determined based upon the revenues achieved. Forecasting sales and marketing expenses is highly dependent on expected revenue levels and could vary significantly depending on actual revenue achieved in any given quarter. Marketing expenses may also fluctuate depending upon the timing, extent and nature of marketing programs. Marketing expenditure committed with a customer is generally recorded as a reduction of revenue per authoritative guidance.

Previous wording

The increase in general and administrative expenses for fiscal 2023, compared to the prior year, was primarily driven by an increase in legal and professional services fees of $7.5 million, mainly associated with litigation matters, which included fees incurred while reaching the favorable litigation settlement mentioned below in “Other income (expenses), net”, as well as an increase in personnel-related expenditures of $1.8 million, primarily due to increased deferred compensation benefits and stock-based compensation.

Current wording

The decrease in general and administrative expenses for fiscal 2024, compared to the prior year, was primarily due to a decrease in legal and professional services fees of $13.9 million, mainly attributable to a $10.9 million reduction in expenses to offset the legal fees incurred to date associated with the litigation settlement payment from TP-Link. The decrease in general and administrative expenses was partially offset by an increase in personnel-related expenditures of $10.2 million, primarily due to higher compensations, which also included stock-based compensation, associated with executives’ transition, and higher variable compensation.

Previous wording

We expect general and administration expenses as a percentage of net revenue in fiscal 2024 to be in line with or slightly below fiscal 2023 levels. General and administrative expenses could fluctuate depending on a number of factors, including the level and timing of expenditures associated with litigation defense costs in connection with the litigation matters described in Note 8, Commitments and Contingencies, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K. Future general and administrative expense increases or decreases in absolute dollars are difficult to predict due to the lack of visibility of certain costs, including legal costs associated with defending claims against us, as well as legal costs associated with asserting and enforcing our intellectual property portfolio and other factors.

Current wording

We expect general and administration expenses as a percentage of net revenue in the first fiscal quarter of 2025 to be below the same quarter of 2024 level. General and administrative expenses could fluctuate depending on a number of factors, including the level and timing of expenditures associated with litigation defense costs in connection with the litigation matters described in Note 8, Commitments and Contingencies, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K. Future general and administrative expense increases or decreases in absolute dollars are difficult to predict due to the lack of visibility of certain costs, including legal costs associated with defending claims against us, as well as legal costs associated with asserting and enforcing our intellectual property portfolio and other factors.

Previous wording

We incurred restructuring and other charges of $4.0 million and $4.6 million in fiscal 2023 and 2022, respectively, primarily associated with the reorganization of our business in each year to better align the cost structure of the business with projected revenue levels. For a detailed discussion of restructuring and other charges, refer to Note 13. Restructuring and Other Charges, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

Current wording

The restructuring and other charges were slightly higher in fiscal 2024, compared to the prior year. The charges were primarily associated with the reorganization of our business in each year to better align the cost structure of the business with the areas to deliver long-term growth and expanding profitability. For a detailed discussion of restructuring and other charges, refer to Note 13. Restructuring and Other Charges, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

Previous wording

Other income (expenses), net consists of interest income, which represents amounts earned and incurred on our cash, cash equivalents and short-term investments, and other income and expenses, which primarily represents gains and losses on transactions denominated in foreign currencies, gains and losses on investments, and other non-operating income and expenses, including gain on litigation settlements. The following table presents other income (expenses), net for the periods indicated:

Current wording

Other income, net consists of interest income, which represents amounts earned and incurred on our cash, cash equivalents and short-term investments, and other income and expenses, which primarily represents gains and losses on transactions denominated in foreign currencies, gains and losses on investments, and other non-operating income and expenses, including gain on litigation settlements. The following table presents other income, net for the periods indicated:

Previous wording

The change in other income (expenses), net for fiscal 2023 was primarily due to an increase of $7.1 million in higher interest earned on our investment in U.S. treasuries and money market funds and $6.0 million cash received relating to a favorable litigation settlement during the second fiscal quarter of 2023. For details on the changes in Other income (expenses), net, refer to Note 6, Other Income (Expenses), Net, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

Current wording

The decrease in other income, net for fiscal 2024 was primarily due to $6.0 million cash received relating to a favorable litigation settlement for false product marketing in the prior year but not in the current year, partially offset by higher interest income resulting from higher interest rates and higher cash and short-term investment balances. For details on the changes in Other income, net, refer to Note 6, Other Income, Net, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

Previous wording

The tax expense in 2023 resulted primarily from the full valuation allowance recorded against the U.S. federal and state deferred tax assets. The benefit from income taxes in fiscal 2022 resulted primarily from the year loss from operations as well as benefit from certain changes in estimate upon filing the 2021 U.S. federal tax return and the recognition of uncertain tax benefits related to the closing Internal Revenue Service (“IRS") tax audits for the 2018 and 2019 tax years. These benefits were partially offset by the impact of the write-off of non-deductible goodwill during the year.

Current wording

The tax expense in 2024 resulted primarily from the increase in profits, plus the change in valuation allowance, partially offset by the benefit from certain changes in estimate upon filing the 2023 U.S. federal tax return and the recognition of uncertain tax benefits. The tax expense in 2023 resulted primarily from the full valuation allowance recorded against the U.S. federal and state deferred tax assets.

Previous wording

During fiscal 2023, we evaluated the impact of the Global Intangible Low-Tax Income “GILTI”, Foreign Derived Intangible Income (“FDII”) and Base Erosion and Anti-abuse Tax “BEAT” provisions. These provisions resulted in a net reduction of tax of $0.3 million.

Current wording

During fiscal 2024, we evaluated the impact of the Global Intangible Low-Tax Income (“GILTI”), Foreign Derived Intangible Income (“FDII”) and Base Erosion and Anti-abuse Tax (“BEAT”) provisions. These provisions resulted in a net reduction of tax of $0.5 million.

Previous wording

A description of our products and services, as well as segment financial data, for each segment and a reconciliation of segment contribution income (loss) to income (loss) before income taxes can be found in Note 11, Segment Information, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

Current wording

In the first fiscal quarter of 2024, resulting from certain segment structure changes, we revised our allocation method by allocating certain historically unallocated operating expenses to our individual operating segments. The segment financial information from the prior years has been recast to conform to the current year presentation. Additional information on the change, a description of our products and services, as well as segment financial data, for each segment and a reconciliation of segment contribution income (loss) to income (loss) before income taxes can be found in Note 11, Segment Information, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

Previous wording

NETGEAR for Business contribution income decreased in fiscal 2023, compared to the prior year, primarily due to lower net revenue, partially offset by decreased transportation costs.

Current wording

NETGEAR for Business contribution income decreased in fiscal 2024, compared to the prior year, primarily due to lower net revenue, and lower gross margin achievement mainly attributable to higher cost of inventory, higher excess and obsolete inventory expense as we accelerated the depletion of our slower moving inventory, and higher freight costs.

Previous wording

Connected Home net revenue decreased in fiscal 2023, compared to the prior year, primarily due to a contraction of the U.S. retail market and lower net revenue from the service provider channel. Lower net revenue in APAC as a result of the challenging macroeconomic environment also contributed to the year-over-year decline. Despite a decline in the overall consumer networking market during fiscal 2023, our premium WiFi 6 mesh systems and 5G mobile hotspots continued to grow, bolstered by the addition of our recently released WiFi 7 mesh systems, and we saw growth in our services revenue, as compared to the prior year period. Geographically, net revenue decreased across all regions compared to the prior year.

Current wording

Connected Home net revenue decreased in fiscal 2024, compared to the prior year, primarily due to market contraction, leading to a year-over-year decline in the retail channel, and, to a lesser extent, a decline in net revenue in service provider channel. Despite the decline in the overall consumer networking market in fiscal year 2024, our premium portfolio of products continued to outperform the market, and we saw growth in our service revenue. Geographically, Connected Home net revenue decreased across all three regions, compared to the prior year.

Previous wording

Our principal sources of liquidity are cash, cash equivalents, short-term investments and cash generated from operations. As of December 31, 2023, we had cash, cash equivalents and short-term investment of $283.6 million, an increase of $56.2 million from December 31, 2022.

Current wording

Our principal sources of liquidity are cash, cash equivalents, short-term investments and cash generated from operations. As of December 31, 2024, we had cash, cash equivalents and short-term investment of $408.7 million, an increase of $125.0 million from December 31, 2023.

Previous wording

As of December 31, 2023, approximately 33% of our cash and cash equivalents and short-term investments were outside of the U.S. The cash and cash equivalents and short-term investments balances outside of the U.S. are subject to fluctuation based on the settlement of intercompany balances. As we repatriate these funds in accordance with our designation of funds not permanently reinvested outside of the U.S., we will be required to pay income taxes in certain U.S. states and applicable foreign withholding taxes during the period when such repatriation occurs. We have recorded deferred taxes for the tax effect of repatriating the funds to the U.S.

Current wording

As of December 31, 2024, approximately 23% of our cash and cash equivalents and short-term investments were outside of the U.S. The cash and cash equivalents and short-term investments balances outside of the U.S. are subject to fluctuation based on the settlement of intercompany balances. As we repatriate these funds in accordance with our designation of funds not permanently reinvested outside of the U.S., we will be required to pay income taxes in certain U.S. states and applicable foreign withholding taxes during the period when such repatriation occurs. We have recorded deferred taxes for the tax effect of repatriating the funds to the U.S.

Previous wording

Net cash provided by operating activities was $56.9 million, compared to net cash used of $13.7 million in the prior year, primarily due to favorable working capital movements. Our accounts payable (excluding payables related to property and equipment) decreased from $85.3 million as of December 31, 2022, to $46.4 million as of December 31, 2023, primarily due to the reduction and timing of inventory receipts and supplier payments. Accounts receivable decreased from $277.5 million as of December 31, 2022, to $185.1 million as of December 31, 2023, primarily due to lower revenue and the timing of cash collections. Inventory decreased from $299.6 million as of December 31, 2022 to $248.9 million as of December 31, 2023, as we make further progress in optimizing our inventory levels.

Current wording

Net cash provided by operating activities increased by $107.9 million in fiscal 2024, compared to the prior year, primarily due to a net proceed before tax of $103.6 million resulting from the litigation settlement payment from TP-Link and favorable working capital movements. Our accounts payable (excluding payables related to property and equipment) increased from $46.4 million as of December 31, 2023, to $57.4 million as of December 31, 2024, primarily due to the timing of inventory receipts and supplier payments. Accounts receivable decreased from $185.1 million as of December 31, 2023, to $156.2 million as of December 31, 2024, primarily due to the timing of cash collections and lower revenue. Inventory decreased from $248.9 million as of December 31, 2023 to $162.5 million as of December 31, 2024, as we made further progress in optimizing our inventory levels.

Previous wording

Net cash used in investing activities decreased by $52.1 million for fiscal 2023, compared to the prior year, mainly driven by lower net purchases of short-term investments.

Current wording

Net cash used in investing activities decreased by $1.3 million in fiscal 2024, compared to the prior year, mainly driven by lower net purchases of short-term investments, partially offset by higher purchases of property and equipment.

Previous wording

Net cash provided by financing activities was $0.8 million, compared to net cash used of $24.0 million in the prior year, primarily due to lower purchases of our common stock.

Current wording

Net cash used in financing activities was $28.9 million in fiscal 2024, compared to net cash provided of $0.8 million in the prior year, primarily due to repurchases of our common stock in the current year, partially offset by proceeds from exercise of stock options.

Previous wording

From time to time, our Board of Directors has authorized programs under which we may repurchase shares of our common stock. Under the authorizations, the timing and actual number of shares subject to repurchase are at the discretion of management and are contingent on a number of factors, such as levels of cash generation from operations, cash requirements for acquisitions and the price of our common stock. As of December 31, 2023, approximately 2.5 million shares remained authorized for repurchase under the repurchase program. We did not repurchase any shares of common stock during the year ended December 31, 2023 under the repurchase program. During the year ended December 31, 2022, we repurchased and retired, and reported based on trade date, approximately 1.0 million shares of common stock at a cost of $24.4 million under the repurchase program. During the years ended December 31, 2023 and 2022, we repurchased and retired, reported based on trade date, approximately 198,000 and 202,000 shares of common stock at a cost of $2.8 million and $4.8 million, respectively, to administratively facilitate the withholding and subsequent remittance of personal income and payroll taxes for individuals receiving Restricted Stock Units. For a detailed discussion of our common stock repurchases, refer to Note 9, Stockholders’ Equity, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K. We remain confident in our ability to generate meaningful levels of cash, and plan to continue to opportunistically repurchase shares in the future.

Current wording

From time to time, our Board of Directors has authorized programs under which we may repurchase shares of our common stock. Under the authorizations, the timing and actual number of shares subject to repurchase are at the discretion of management and are contingent on a number of factors, such as levels of cash generation from operations, cash requirements for acquisitions and the price of our common stock. On July 16, 2024, the Board of Directors authorized management to repurchase up to 3.0 million shares of the Company’s outstanding common stock, incremental to the remaining shares under the Company’s previous repurchase program. As of December 31, 2024, approximately 3.4 million shares remained authorized for repurchase under the repurchase program. During the year ended December 31, 2024, we repurchased and retired, reported based on trade date, approximately 2.1 million shares of common stock, at a cost of approximately $33.6 million under the repurchase authorization. As of December 31, 2024, common stock repurchases at a cost of approximately $0.5 million were pending settlement. We did not repurchase any shares of common stock during the year ended December 31, 2023. Under the Inflation Reduction Act signed into law in 2022, the exercise tax on stock repurchases was approximately $0.2 million for the year ended December 31, 2024.

Previous wording

(1) Represent non-cancellable inventory-related purchase agreements with suppliers. A further $323.7 million of purchase orders beyond contractual termination periods remained outstanding. Consequently, we may incur expenses for materials and components, such as chipsets purchased by the supplier to fulfill the purchase order if the purchase order is cancelled. Expenses incurred in respect of cancelled purchase orders have historically not been significant relative to the original order value. Our commitments for property and equipment purchases as of December 31, 2023 were not material.

Current wording

(1) Represent non-cancellable inventory-related purchase agreements with suppliers. A further $213.7 million of purchase orders beyond contractual termination periods remained outstanding. Consequently, we may incur expenses for materials and components, such as chipsets purchased by the supplier to fulfill the purchase order if the purchase order is cancelled. Expenses incurred in respect of cancelled purchase orders have historically not been significant relative to the original order value. For a detailed discussion on our purchase obligations, refer to Note 8, Commitments and Contingencies, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

Previous wording

(2)Represent undiscounted non-cancellable remaining lease payments. For a detailed discussion on our operating leases, refer to Note 14, Leases, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K. The amounts presented are consistent with contractual terms and are not expected to differ significantly, unless a substantial change in our headcount needs requires us to exit an office facility early or expand our occupied space.

Current wording

(2)Represent undiscounted non-cancellable remaining lease payments. These balances (excluding the amounts for the office lease described below) are included on our consolidated balance sheets. These lease payments are consistent with contractual terms and are not expected to differ significantly, unless a substantial change in our headcount needs requires us to exit an office facility early or expand our occupied space. For a detailed discussion on our operating leases, refer to Note 14, Leases, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

Previous wording

In addition, as of December 31, 2023, we had $8.9 million of total gross unrecognized tax benefits and related interest and penalties. The timing of any payments that could result from these unrecognized tax benefits will depend upon a number of factors. The unrecognized tax benefits have been excluded from the contractual obligations table because reasonable estimates cannot be made of whether, or when, any cash payments for such items might occur. The possible reduction in liabilities for uncertain tax positions in multiple jurisdictions that may impact the statements of operations in the next 12 months is approximately $0.7 million, excluding the interest, penalties and the effect of any related deferred tax assets or liabilities.

Current wording

In addition, as of December 31, 2024, we had $7.3 million of total gross unrecognized tax benefits and related interest and penalties. The timing of any payments that could result from these unrecognized tax benefits will depend upon a number of factors. The unrecognized tax benefits have been excluded from the contractual obligations table because reasonable estimates cannot be made of whether, or when, any cash payments for such items might occur. The possible reduction in liabilities for uncertain tax positions in multiple jurisdictions that may impact the statements of operations in the next 12 months was approximately $1.3 million, excluding the interest, penalties and the effect of any related deferred tax assets or liabilities.