# NETGEAR, INC. (NTGR) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from NETGEAR, INC.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1122904/000095017025021413/ntgr-20241231.htm
Accession: 0000950170-25-021413
Filing date: 2025-02-14
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/NTGR/
All MD&A years: /company/NTGR/mda/
Previous year: /company/NTGR/mda/fy2023/ (FY 2023)
Next year: /company/NTGR/mda/fy2025/ (FY 2025)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations together with the audited consolidated financial statements and notes to the financial statements included elsewhere in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed under “Risk Factors” in Part I, Item 1A above.

This section generally discusses the results of our operations for the year ended December 31, 2024 (“fiscal 2024”) compared to the year ended December 31, 2023 (“fiscal 2023”). For a discussion of the year ended December 31, 2023 compared to the year ended December 31, 2022, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023.

Business and Executive Overview

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.

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”).

As we announced in February 2025, beginning with the first quarter of 2025, the Connected Home segment will be separated into two segments, consisting of Mobile and Home Networking, in order to further strengthen operational and financial management and enable further focus on growth opportunities while maintaining financial discipline. Following this separation, the Company will operate and report in three segments: NETGEAR for Business, Mobile and Home Networking. In mid-January 2025, we conducted a restructuring activity to reduce targeted costs that we are reinvesting into the business to capitalize on our highest priority opportunities to expand revenue and profitability.

Business Overview

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,

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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.

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.

Financial Overview

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.

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.

Global Events Affecting our Business and Operations

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.

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In 2024, we completed efforts to work with our channel partners to optimize their inventory carrying levels for both the NETGEAR for Business and Connected Home businesses and started to see more predictable performance aligned to the market during the second half of the year. The ongoing uncertain macroeconomic environment, elevated interest rates and cost of inventory, and significant destocking of the channel impacted our net revenue and profitability. We believe these factors will improve in 2025 and, combined with our positioning to take advantage of the highest growth market opportunities we are facing, we should expect growth and demonstrably improved profitability in the coming year, when normalized for the TP Link settlement.

Looking forward, we expect to continue to see more predictable performance that is aligned with the market for both of our businesses as now both our destocking and inventory reduction actions are substantially completed. We expect to experience continued net revenue growth in our NETGEAR For Business segment, led by our ProAV line of managed switches, along with a product portfolio that reaches the market more broadly, including our more recently introduced WiFi 7 mesh and router products, and 5G and WiFi 7 mobile hotspots. However, for NETGEAR for Business segment, although end user demand for our ProAV line of managed switches remains strong, we are facing lengthy lead times for supply, which will result in us under shipping in the first fiscal quarter of 2025. For our Connected Home segment, we are seeing signs of market stability and expect to experience normal seasonality in the retail portion of this business. We aim to execute on our strategy of capitalizing on the technological inflection points of audio and video over Ethernet, WiFi 7, WiFi 6E, WiFi 6, and 5G, to develop products that serve a broader segment of the market with a good, better, best product strategy, and to simplify, develop and roll out service offerings that build recurring service revenue streams.

Critical Accounting Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The preparation of these financial statements requires management to make assumptions, judgments and estimates that can have a significant impact on the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. Actual results could differ significantly from these estimates. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. On a regular basis, we evaluate our assumptions, judgments and estimates and make changes accordingly. We also discuss our critical accounting estimates with the Audit Committee of the Board of Directors. Note 1, The Company and Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K describes the significant accounting policies used in the preparation of the consolidated financial statements.

We have listed below our critical accounting estimates that we believe to have the greatest potential impact on our consolidated financial statements. Historically, our assumptions, judgments and estimates relative to our critical accounting estimates have not differed materially from actual results. We do not expect the estimates and assumptions are likely to change materially.

Revenue Recognition

We enter into contracts with customers to sell products and services, and while some sales agreements contain standard terms and conditions, there are agreements that contain non-standard terms and conditions and include promises to transfer multiple goods or services. As a result, significant interpretation and judgment is sometimes required to determine the appropriate accounting for these transactions including: (1) whether performance obligations are considered distinct and required to be accounted for separately or combined, including allocation of transaction price; (2) combining contracts that may impact the allocation of the transaction price between product and services; and (3) estimating and accounting for variable consideration, including rights of return, sales incentives, and price protection as a reduction of the transaction price.

Our standard obligation to our direct customers generally provides for a full refund if such products are not merchantable or are found to be damaged or defective. In determining estimates for future returns, we estimate variable consideration at the expected value based on management’s analysis of historical data, channel inventory levels, current economic trends and changes in customer demand. Sales incentives and price protection are determined based on a combination of the actual amounts committed and through estimating future expenditure based upon historical customary business practice, historical pricing information, current pricing trends, and channel inventory levels. We

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continue to assess variable consideration estimates such that it is probable that a significant reversal of revenue will not occur.

Provisions for Excess and Obsolete Inventory

On a quarterly basis we assess the value of our inventory and write down its value for estimated excess and obsolete inventory based upon assumptions about the future demand by reviewing inventory quantities on hand and on order under non-cancelable purchase commitments in comparison to our estimated forecast of product demand to determine what inventory, if any, is not saleable at or above cost. Our analysis is based on the demand forecast which takes into account market conditions, product development plans, product life expectancy and other factors. Based on this analysis, we write down the affected inventory value for estimated excess and obsolescence charges. At the point of loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. As demonstrated during prior years, demand for our products can fluctuate significantly. If actual demand is lower than our forecasted demand and we fail to reduce our manufacturing accordingly, we could be required to write down the value of additional inventory, which would have a negative effect on our gross profit.

Goodwill

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.

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.

For our NETGEAR for Business reporting unit, we do not believe it is likely that there will be a material change in the estimates or assumptions we use to test for impairment losses on goodwill. However, if the actual results are not consistent with our estimates or assumptions, we may be exposed to a future impairment charge that could be material.

Income Taxes

We account for income taxes under an asset and liability approach. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences resulting from different treatments for tax versus accounting of certain items, such as accruals and allowances not currently deductible for tax purposes. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not more likely than not, we must establish a valuation allowance. Our assessment considers the recognition of deferred tax assets on a jurisdictional basis. Accordingly, in assessing our future taxable income on a jurisdictional basis, we consider the effect of its transfer pricing policies on that income. We have recorded a full valuation allowance against U.S. federal and state deferred tax assets since the recovery of the assets is considered uncertain. We believe that deferred tax assets recorded for foreign jurisdictions are recoverable; however, if there were a change in our ability to recover these assets, we would be required to take a charge in the period in which we determined that recovery was not more likely than not.

Uncertain tax provisions are recognized under guidance that provides that a company should use a more-likely-than-not recognition threshold based on the technical merits of the income tax position taken. Income tax positions that meet the more-likely-than-not recognition threshold should be measured in order to determine the tax benefit to

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be recognized in the financial statements. We include interest expense and penalties related to uncertain tax positions as additional tax expense.

The Company made an accounting policy election related to accounting for the tax effects of Global Intangible Low-Taxed Income (“GILTI”) that was implemented as part of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), enacted on December 22, 2017. With regard to GILTI, the Company accounts for the tax effects as a period cost, if and when incurred.

Recent Accounting Pronouncements

For a complete description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on financial condition and results of operations, refer to Note 1, The Company and Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

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Results of Operations

The following table sets forth, for the periods presented, the consolidated statements of operations data, which is derived from the accompanying consolidated financial statements:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(In thousands, except percentage data)","","2024","","","2023","","","2022"],["Net revenue","","$","673,759","","","","100.0","%","","$","740,840","","","","100.0","%","","$","932,472","","","","100.0","%"],["Cost of revenue","","","477,832","","","","70.9","%","","","491,588","","","","66.4","%","","","681,923","","","","73.1","%"],["Gross profit","","","195,927","","","","29.1","%","","","249,252","","","","33.6","%","","","250,549","","","","26.9","%"],["Operating expenses:"],["Research and development","","","81,082","","","","12.0","%","","","83,295","","","","11.2","%","","","88,443","","","","9.5","%"],["Sales and marketing","","","123,694","","","","18.4","%","","","127,778","","","","17.4","%","","","139,675","","","","15.0","%"],["General and administrative","","","63,468","","","","9.4","%","","","66,243","","","","8.9","%","","","56,316","","","","6.0","%"],["Litigation reserves, net","","","(89,012",")","","","(13.2",")%","","","178","","","","0.0","%","","","20","","","","0.0","%"],["Restructuring and other charges","","","4,479","","","","0.7","%","","","3,962","","","","0.5","%","","","4,577","","","","0.5","%"],["Goodwill impairment","","","\u2014","","","","\u2014","%","","","\u2014","","","","\u2014","%","","","44,442","","","","4.8","%"],["Intangibles impairment","","","\u2014","","","","\u2014","%","","","1,071","","","","0.1","%","","","\u2014","","","","\u2014","%"],["Total operating expenses","","","183,711","","","","27.3","%","","","282,527","","","","38.1","%","","","333,473","","","","35.8","%"],["Income (loss) from operations","","","12,216","","","","1.8","%","","","(33,275",")","","","(4.5",")%","","","(82,924",")","","","(8.9",")%"],["Other income, net","","","12,672","","","","1.9","%","","","14,139","","","","1.9","%","","","902","","","","0.1","%"],["Income (loss) before income taxes","","","24,888","","","","3.7","%","","","(19,136",")","","","(2.6",")%","","","(82,022",")","","","(8.8",")%"],["Provision for (benefit from) income taxes","","","12,525","","","","1.9","%","","","85,631","","","","11.5","%","","","(13,035",")","","","(1.4",")%"],["Net income (loss)","","$","12,363","","","","1.8","%","","$","(104,767",")","","","(14.1",")%","","$","(68,987",")","","","(7.4",")%"]]
[[/GREPCENT_TABLE]]

Net Revenue by Geographic Region

Our net revenue consists of gross product shipments and service revenue, less allowances for estimated sales returns, price protection, end-user customer rebates and other channel sales incentives deemed to be a reduction of revenue per the authoritative guidance for revenue recognition, and net changes in deferred revenue.

For reporting purposes, revenue is generally attributed to each geographic region based upon the location of the customer.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(In thousands, except percentage data)","","2024","","","% Change","","","2023","","","% Change","","","2022"],["Americas","","$","456,040","","","","(9.6",")%","","$","504,349","","","","(18.3",")%","","$","617,211"],["Percentage of net revenue","","","67.7","%","","","","","","68.1","%","","","","","","66.2","%"],["EMEA","","$","127,260","","","","(14.5",")%","","$","148,922","","","","(17.0",")%","","$","179,358"],["Percentage of net revenue","","","18.9","%","","","","","","20.1","%","","","","","","19.2","%"],["APAC","","$","90,459","","","","3.3","%","","$","87,569","","","","(35.6",")%","","$","135,903"],["Percentage of net revenue","","","13.4","%","","","","","","11.8","%","","","","","","14.6","%"],["Total net revenue","","$","673,759","","","","(9.1",")%","","$","740,840","","","","(20.6",")%","","$","932,472"]]
[[/GREPCENT_TABLE]]

2024 vs 2023

Americas

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.

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EMEA

Net revenue in EMEA decreased in fiscal 2024, compared to the prior year, attributable to declines in NETGEAR for Business segment's net revenue of 13.7% and in Connected Home segment's net revenue of 16.5%. The net revenue decline in NETGEAR for Business was mainly driven by lower net revenue for our traditional transaction switches and our work with our channel partners to optimize their inventory carrying levels in the first half of 2024. The net revenue decline in Connected Home was mainly due to market contraction, leading to a year-over-year decline in both the retail and service provider channels.

APAC

Net revenue in APAC increased in fiscal 2024, compared to the prior year, mainly attributable to an increase in NETGEAR for Business segment’s net revenue of 21.3%, primarily driven by the higher demand for the Pro AV product line of managed switches. The net revenue increase in APAC in fiscal 2024, compared to the prior year, was partially offset by a decrease in our Connected Home segment’s net revenue of 15.8%, primarily driven by the lower demand for traditional broadband gateways.

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

Cost of Revenue and Gross Margin

Cost of revenue consists primarily of the following: the cost of finished products from our third-party manufacturers; overhead costs, including purchasing, product planning, inventory control, warehousing and distribution logistics; third-party software licensing fees; inbound freight; import duties/tariffs; warranty costs associated with returned goods; write-downs for excess and obsolete inventory; amortization of certain acquired intangibles and software development costs; and costs attributable to the provision of service offerings.

We outsource our manufacturing, warehousing and distribution logistics. We believe this outsourcing strategy allows us to better manage our product costs and gross margin. Our gross margin can be affected by a number of factors, including fluctuation in foreign exchange rates, sales returns, changes in average selling prices, end-user customer rebates and other channel sales incentives, changes in our cost of goods sold due to fluctuations and increases in prices paid for components, net of vendor rebates, royalty and licensing fees, warranty and overhead costs, inbound freight and duty/tariffs, conversion costs, charges for excess or obsolete inventory, amortization of acquired intangibles and capitalized software development costs. The following table presents costs of revenue and gross margin for the periods indicated:

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[[/GREPCENT_TABLE]]

2024 vs 2023

Gross margin percentage decreased for fiscal 2024, compared to the prior year, primarily attributable to higher cost of inventory and 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.

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

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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.

Operating Expenses

Research and Development

Research and development expenses consist primarily of personnel expenses, payments to suppliers for design services, safety and regulatory testing, product certification expenditures to qualify our products for sale into specific markets, prototypes, IT and facility allocations, and other consulting fees. Research and development expenses are recognized as they are incurred. Our research and development organization is focused on enhancing our ability to introduce innovative and easy-to-use products and services. The following table presents research and development expenses, for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(In thousands, except percentage data)","","2024","","","% Change","","","2023","","","% Change","","","2022"],["Research and development","","$","81,082","","","","(2.7",")%","","$","83,295","","","","(5.8",")%","","$","88,443"]]
[[/GREPCENT_TABLE]]

2024 vs 2023

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.

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.

Sales and Marketing

Sales and marketing expenses consist primarily of advertising, trade shows, corporate communications and other marketing expenses, product marketing expenses, outbound freight costs, amortization of certain intangibles, personnel expenses for sales and marketing staff, technical support expenses, and IT and facility allocations. The following table presents sales and marketing expenses, for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(In thousands, except percentage data)","","2024","","","% Change","","","2023","","","% Change","","","2022"],["Sales and marketing","","$","123,694","","","","(3.2",")%","","$","127,778","","","","(8.5",")%","","$","139,675"]]
[[/GREPCENT_TABLE]]

2024 vs 2023

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.

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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.

General and Administrative

General and administrative expenses consist of salaries and related expenses for executives, finance and accounting, human resources, information technology, professional fees, including legal costs associated with defending claims against us, allowance for doubtful accounts, IT and facility allocations, and other general corporate expenses. The following table presents general and administrative expenses, for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(In thousands, except percentage data)","","2024","","","% Change","","","2023","","","% Change","","","2022"],["General and administrative","","$","63,468","","","","(4.2",")%","","$","66,243","","","","17.6","%","","$","56,316"]]
[[/GREPCENT_TABLE]]

2024 vs 2023

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.

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.

Litigation Reserves, Net

The following table presents litigation reserves, net for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(In thousands, except percentage data)","","2024","","","% Change","","2023","","","% Change","","2022"],["Litigation reserves, net","","$","(89,012",")","","**","","$","178","","","**","","$","20"]]
[[/GREPCENT_TABLE]]

___________________

** Percentage change not meaningful.

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2024 vs 2023

The decrease in litigation reserves, net for fiscal 2024, compared to the prior year, was mainly attributable to a contra-expense of $92.7 million associated with the litigation settlement payment from TP-Link, partially offset by a $3.6 million litigation reserve associated with a liability from a settlement.

Restructuring and Other Charges

The following table presents restructuring and other charge for the periods indicated:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(In thousands, except percentage data)","","2024","","","% Change","","","2023","","","% Change","","","2022"],["Restructuring and other charges","","$","4,479","","","","13.0","%","","$","3,962","","","","(13.4",")%","","$","4,577"]]
[[/GREPCENT_TABLE]]

2024 vs 2023

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.

Other Income, Net

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:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(In thousands, except percentage data)","","2024","","","% Change","","","2023","","","% Change","","2022"],["Other income, net","","$","12,672","","","","(10.4",")%","","$","14,139","","","**","","$","902"]]
[[/GREPCENT_TABLE]]

___________________

** Percentage change not meaningful.

2024 vs 2023

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.

Provision for (Benefit from) Income Taxes

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(In thousands, except percentage data)","","2024","","","% Change","","","2023","","","% Change","","2022"],["Provision for (benefit from) income taxes","","$","12,525","","","","(85.4",")%","","$","85,631","","","**","","$","(13,035",")"],["Effective tax rate","","","50.3","%","","","","","","(447.5",")%","","","","","15.9","%"]]
[[/GREPCENT_TABLE]]

___________________

** Percentage change not meaningful.

2024 vs 2023

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

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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.

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.

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our future foreign tax rate could be affected by changes in the composition in earnings in countries with tax rates differing from the U.S. federal rate. We are currently under examination in various U.S. and foreign jurisdictions.

Segment Information

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.

NETGEAR for Business Segment

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(In thousands, except percentage data)","","2024","","","% Change","","","2023","","","% Change","","","2022"],["Net revenue","","$","287,812","","","","(2.1",")%","","$","293,975","","","","(21.3",")%","","$","373,649"],["Percentage of net revenue","","","42.7","%","","","","","","39.7","%","","","","","","40.1","%"],["Contribution income","","$","44,005","","","","(22.5",")%","","$","56,765","","","","(22.8",")%","","$","73,542"],["Contribution margin","","","15.3","%","","","","","","19.3","%","","","","","","19.7","%"]]
[[/GREPCENT_TABLE]]

2024 vs 2023

NETGEAR for Business net revenue decreased in fiscal 2024, compared to the prior year, primarily due to our work with our channel partners to optimize their inventory carrying levels in the first half of 2024. In the second half of fiscal 2024, we started to see more predictable performance aligned to the market, led by continuous strong demand for the Pro AV product line of managed switches, which experienced double digit growth in end market sales. Geographically, NETGEAR for Business net revenue increased in APAC but decreased in EMEA and Americas, compared to the prior year.

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.

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Connected Home Segment

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(In thousands, except percentage data)","","2024","","","% Change","","","2023","","","% Change","","","2022"],["Net revenue","","$","385,947","","","","(13.6",")%","","$","446,865","","","","(20.0",")%","","$","558,823"],["Percentage of net revenue","","","57.3","%","","","","","","60.3","%","","","","","","59.9","%"],["Contribution (loss) income","","$","(26,011",")","","**","","","$","9,545","","","**","","","$","(17,531",")"],["Contribution margin","","","(6.7",")%","","","","","","2.1","%","","","","","","(3.1",")%"]]
[[/GREPCENT_TABLE]]

___________________

** Percentage change not meaningful.

2024 vs 2023

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.

Connected Home contribution income decreased in fiscal 2024, compared to the prior year, primarily due to lower net revenue, and lower gross margin achievements due to higher cost of inventory, and higher freight costs, partially offset by lower warranty expense as a percentage of net revenue, which also represented a lower warranty in absolute dollar amount.

Liquidity and Capital Resources

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.

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.

Cash Flows

The following table presents our cash flows for the periods presented:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["(In thousands)","","2024","","","2023","","","2022"],["Cash provided by (used in) operating activities","","$","164,797","","","$","56,853","","","$","(13,732",")"],["Cash used in investing activities","","","(26,157",")","","","(27,433",")","","","(79,517",")"],["Cash provided by (used in) financing activities","","","(28,913",")","","","797","","","","(24,023",")"],["Net cash increase (decrease)","","$","109,727","","","$","30,217","","","$","(117,272",")"]]
[[/GREPCENT_TABLE]]

2024 vs 2023

Operating activities

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

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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.

Investing activities

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.

Financing activities

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.

Based on our current plans and market conditions, we believe that our existing cash, cash equivalents and short-term investments, together with cash generated from operations, will be sufficient to satisfy our anticipated cash requirements, including contractual and other obligations, capital expenditures, and commitments for business operations, for the next twelve months and the foreseeable future. However, we may require or desire additional funds to support our operating expenses and capital requirements or for other purposes, such as acquisitions, and may seek to raise such additional funds through public or private equity financing or from other sources. We cannot assure you that additional financing will be available at all or that, if available, such financing would be obtainable on terms favorable to us and would not be dilutive. Our future liquidity and cash requirements will depend on numerous factors, including the introduction of new products and potential acquisitions of related businesses or technology.

Stock Repurchases

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.

During the years ended December 31, 2024 and 2023, we repurchased and retired, reported based on trade date, approximately 226,000 and 198,000 shares of common stock at a cost of $3.4 million and $2.8 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.

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Contractual and Other Obligations

The following table summarizes our non-cancelable short-term and long-term contractual and other obligations as of December 31, 2024:

[[GREPCENT_TABLE]]
[["(In thousands)","","Short-term","","","Long-term","","","Total"],["Purchase obligations (1) (6)","","$","57,430","","","$","\u2014","","","$","57,430"],["Operating leases (2)","","","13,149","","","","65,401","","","","78,550"],["Other non-trade purchase commitments (3) (6)","","","1,914","","","","9,368","","","","11,282"],["Tax Act payables (4) (5)","","","3,756","","","","\u2014","","","","3,756"],["","","$","76,249","","","$","74,769","","","$","151,018"]]
[[/GREPCENT_TABLE]]

(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.

Our commitments for property and equipment purchases as of December 31, 2024 were not material.

(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.

As of December 31, 2024, we entered into an office lease that has not yet commenced with short-term and long-term future lease payments of $0.8 million and $42.1 million, respectively, that are not yet recorded on our Consolidated Balance Sheets. This lease will commence in 2025 with a non-cancelable lease term of 11 years.

(3) Represent non-cancellable purchase commitments pertaining to non-trade activities.

(4) Represent estimated liability related to a one-time transaction tax that resulted from the passage of the Tax Act.

(5) Included on our consolidated balance sheets.

(6) For a detailed discussion, 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.

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.

Our contractual and other obligations are expected to be funded by our existing cash, cash equivalents and short-term investments, together with cash generated from operations.

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