NETGEAR, INC. 10-Q

Item 1. Financial Statements NETGEAR, INC. UNAUDITED CONDENSED CONS OLIDATED BALANCE SHEETS (In thousands) March 31, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 172,656 $ 176,717 Short-term investments 116,765 106,931 Accounts receivable, net of allowance for doubtful accounts of $ 338 as of March 31, 2024 and December 31, 2023, respectively 172,771 185,059 Inventories 211,270 248,851 Prepaid expenses and other current assets 30,178 30,421 Total current assets 703,640 747,979 Property and equipment, net 9,353 8,273 Operating lease right-of-use assets 34,713 37,285 Goodwill 36,279 36,279 Other non-current assets 17,294 17,326 Total assets $ 801,279 $ 847,142 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 38,451 $ 46,850 Accrued employee compensation 22,193 21,286 Other accrued liabilities 154,567 168,084 Deferred revenue 28,393 27,091 Income taxes payable 713 1,037 Total current liabilities 244,317 264,348 Non-current income taxes payable 11,885 12,695 Non-current operating lease liabilities 26,742 29,698 Other non-current liabilities 6,973 4,906 Total liabilities 289,917 311,647 Commitments and contingencies (Note 8) Stockholders’ equity: Common stock 29 30 Additional paid-in capital 974,181 967,651 Accumulated other comprehensive income 21 136 Accumulated deficit ( 462,869 ) ( 432,322 ) Total stockholders’ equity 511,362 535,495 Total liabilities and stockholders’ equity $ 801,279 $ 847,142 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 Table of Contents NETGEAR, INC. UNAUDITED CONDENSED CONSOLIDA TED STATEMENTS OF OPERATIONS (In thousands, except per share data) Three Months Ended March 31, 2024 April 2, 2023 Net revenue $ 164,586 $ 180,908 Cost of revenue 116,349 120,526 Gross profit 48,237 60,382 Operating expenses: Research and development 20,227 22,134 Sales and marketing 30,529 33,879 General and administrative 18,067 16,236 Other operating expenses, net 1,062 108 Total operating expenses 69,885 72,357 Loss from operations ( 21,648 ) ( 11,975 ) Other income, net 2,850 1,406 Loss before income taxes ( 18,798 ) ( 10,569 ) Benefit from income taxes ( 148 ) ( 857 ) Net loss $ ( 18,650 ) $ ( 9,712 ) Net loss per share Basic $ ( 0.63 ) $ ( 0.33 ) Diluted $ ( 0.63 ) $ ( 0.33 ) Weighted average shares used to compute net loss per share: Basic 29,395 29,040 Diluted 29,395 29,040 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents NETGEAR, INC. UNAUDITED CONDENSED CONSOLIDATED S TATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) Three Months Ended March 31, 2024 April 2, 2023 Net loss $ ( 18,650 ) $ ( 9,712 ) Other comprehensive income (loss), before tax: Change in unrealized gains and losses on derivatives 58 465 Change in unrealized gains and losses on available-for-sale investments ( 166 ) 241 Other comprehensive income (loss), before tax ( 108 ) 706 Tax provision related to derivatives ( 7 ) ( 59 ) Tax provision related to available-for-sale investments — ( 59 ) Other comprehensive income (loss), net of tax ( 115 ) 588 Comprehensive loss $ ( 18,765 ) $ ( 9,124 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents NETGEAR, INC. UNAUDITED CONDENSED CONSOLIDATED S TATEMENTS OF STOCKHOLDERS' EQUITY (In thousands) Common Stock Shares Amount Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholder's Equity Balance as of December 31, 2023 29,616 $ 30 $ 967,651 $ 136 $ ( 432,322 ) $ 535,495 Change in unrealized gains and losses on available-for-sale investments, net of tax — — — ( 166 ) — ( 166 ) Change in unrealized gains and losses on derivatives, net of tax — — — 51 — 51 Net loss — — — — ( 18,650 ) ( 18,650 ) Stock-based compensation — — 4,544 — — 4,544 Repurchase of common stock ( 783 ) ( 1 ) — — ( 11,443 ) ( 11,444 ) Restricted stock unit withholdings ( 32 ) — — — ( 454 ) ( 454 ) Issuance of common stock under stock-based compensation plans 270 — 1,986 — — 1,986 Balance as of March 31, 2024 29,071 $ 29 $ 974,181 $ 21 $ ( 462,869 ) $ 511,362 Common Stock Shares Amount Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholder's Equity Balance as of December 31, 2022 28,908 $ 29 $ 946,123 $ ( 535 ) $ ( 324,762 ) 620,855 Change in unrealized gains and losses on available-for-sale investments, net of tax — — — 182 — 182 Change in unrealized gains and losses on derivatives, net of tax — — — 406 — 406 Net loss — — — — ( 9,712 ) ( 9,712 ) Stock-based compensation — — 4,665 — — 4,665 Restricted stock unit withholdings ( 6 ) — — — ( 120 ) ( 120 ) Issuance of common stock under stock-based compensation plans 154 — 2,286 — — 2,286 Balance as of April 2, 2023 29,056 $ 29 $ 953,074 $ 53 $ ( 334,594 ) $ 618,562 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents NETGEAR, INC. UNAUDITED CONDENSED CONSOLIDA TED STATEMENTS OF CASH FLOWS (In thousands) Three Months Ended March 31, 2024 April 2, 2023 Cash flows from operating activities: Net loss $ ( 18,650 ) $ ( 9,712 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 1,488 2,011 Stock-based compensation 4,544 4,665 (Gain) Loss on investments, net ( 883 ) ( 663 ) Deferred income taxes 84 ( 4,629 ) Provision for excess and obsolete inventory 1,132 1,174 Changes in assets and liabilities: Accounts receivable, net 12,288 84,945 Inventories 36,449 ( 38,747 ) Prepaid expenses and other assets 367 ( 1,778 ) Accounts payable ( 8,516 ) ( 5,922 ) Accrued employee compensation 907 ( 2,425 ) Other accrued liabilities ( 12,605 ) ( 23,665 ) Deferred revenue 1,719 1,609 Income taxes payable ( 1,134 ) 2,259 Net cash provided by operating activities 17,190 9,122 Cash flows from investing activities: Purchases of short-term investments ( 38,829 ) ( 38,733 ) Proceeds from maturities of short-term investments 30,000 25,006 Purchases of property and equipment ( 2,510 ) ( 870 ) Net cash used in investing activities ( 11,339 ) ( 14,597 ) Cash flows from financing activities: Repurchases of common stock ( 11,444 ) — Restricted stock unit withholdings ( 454 ) ( 120 ) Proceeds from issuance of common stock under employee stock purchase plan 1,986 2,286 Net cash provided by (used in) financing activities ( 9,912 ) 2,166 Net decrease in cash and cash equivalents ( 4,061 ) ( 3,309 ) Cash and cash equivalents, at beginning of period 176,717 146,500 Cash and cash equivalents, at end of period $ 172,656 $ 143,191 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 NETGEAR, INC. NOTES TO UNAUDITED CONDENSED CO NSOLIDATED FINANCIAL STATEMENTS Note 1. The Company and Basis of Presentation NETGEAR, Inc. (“NETGEAR” or the “Company”) is a global company, incorporated in Delaware in January 1996. The Company turns ideas into innovative, high-performance and premium networking products that connect people, power businesses and advance the way we live. The Company is 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. Its 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, the Company continually invests in research and development to create new technologies and services and to capitalize on technological inflection points and trends, such as WiFi 7, audio and video over Ethernet, and future technologies. Its product line consists of devices that create and extend wired and wireless networks, as well as services that complement and enhance the Company's product line offerings. These products are available in multiple configurations to address the changing needs of the Company's customers in each geographic region. The Company sells networking products through multiple sales channels worldwide, including traditional retailers, online retailers, wholesale distributors, direct market resellers (“DMRs”), value-added resellers (“VARs”), broadband service providers and its direct online store at www.netgear.com . The accompanying unaudited condensed consolidated financial statements include the accounts of NETGEAR, Inc. and its wholly owned subsidiaries. They have been prepared in accordance with established guidelines for interim financial reporting and the instructions of Form 10-Q and Article 10 of Regulation S-X. All significant intercompany balances and transactions have been eliminated in consolidation. The balance sheet dated December 31, 2023, has been derived from audited financial statements at such date. These unaudited condensed consolidated financial statements do not include all of the information and footnotes typically found in the audited consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K. In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments considered necessary to fairly state the Company's financial position, results of operations, comprehensive income (loss), stockholder's equity and cash flows for the periods indicated. These unaudited condensed consolidated financial statements should be read in conjunction with the notes to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Annual Report”). The Company's fiscal year begins on January 1 of the year stated and ends on December 31 of the same year. The Company reports its results on a fiscal quarter basis rather than on a calendar quarter basis. Under the fiscal quarter basis, each of the first three fiscal quarters ends on the Sunday closest to the calendar quarter end, with the fourth quarter ending on December 31. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the financial statements, and (iii) the reported amounts of net revenue and expenses during the reported period. The Company bases these estimates on historical and anticipated results, trends and various other assumptions that it believes are reasonable under the circumstances. As of the date of issuance of these condensed consolidated financial statements, the Company is not aware of any specific event or circumstance that would require it to update its estimates, judgments or revise the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ materially from those estimates and operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024, or any future period. Segment Recast In the first fiscal quarter of 2024, resulting from certain segment structure changes, the Company revised its allocation method by allocating certain historically unallocated operating expenses to its individual operating segments. This change impacted Note 11, Segment Information . The prior-year segment financial information has been recast to conform to the 8 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) current-year presentation. None of the changes impact previously reported consolidated net revenue, income (loss) from operations, net income (loss) per share, total assets, or stockholders’ equity. Note 2. Summary of Signif icant Accounting Policies No material changes have been made to the Company’s significant accounting policies disclosed in Note 1, The Company and Summary of Significant Accounting Policies , in Part II, Item 8 “Financial Statements and Supplementary Data” in its Annual Report. Recent Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for the Company for the year ended 2024 and early adoption is permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. The Company does not expect that the guidance will have material impacts on its financial position, results of operations or cash flows. The Company is evaluating the impact that the updated standard will have on its financial statement disclosures. In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which improves the transparency of income tax disclosures. ASU 2023-09 is effective for the Company for the year ended December 31, 2025 and early adoption is permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. The Company is evaluating the impact that the updated standard will have on its financial statement disclosures. With the exception of the new standards discussed above, there have been no other new accounting pronouncements that have significance, or potential significance, to the Company’s financial position, results of operations and cash flows. Note 3. Rev enue Revenue from contracts with customers is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Transaction Price Allocated to the Remaining Performance Obligations Remaining performance obligations represent the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period. Unsatisfied and partially unsatisfied performance obligations consist of contract liabilities, in-transit orders with destination terms, and non-cancellable backlog. Non-cancellable backlog includes goods for which customer purchase orders have been accepted, that are scheduled or in the process of being scheduled for shipment, and that are not yet invoiced. The following table summarizes estimated revenue expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of March 31, 2024 : (In thousands) Less than 1 year 1 to 2 years Beyond 2 years Total Performance obligations $ 53,158 $ 2,908 $ 2,518 $ 58,584 Contract Balances The Company records accounts receivable when it has an unconditional right to consideration. Contract liabilities are recorded when cash payments are received or due in advance of performance. Contract liabilities consist of advance payments and deferred revenue, where the Company has unsatisfied performance obligations. Contract liabilities are mainly classified as Deferred revenue on the unaudited condensed consolidated balance sheets. 9 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Payment terms vary by customer. The time between invoicing and when payment is due is not significant. For certain products or services and customer types, payment is required before the products or services are delivered to the customer. The following table reflects the contract balances: (In thousands) Balance Sheet Location March 31, 2024 December 31, 2023 Accounts receivable, net Accounts receivable, net $ 172,771 $ 185,059 Contract liabilities – current Deferred revenue $ 28,393 $ 27,091 Contract liabilities – non-current Other non-current liabilities $ 5,321 $ 4,903 The difference in the balances of the Company’s contract assets and liabilities as of March 31, 2024 and December 31, 2023, primarily results from the timing difference between the Company’s performance and the customer’s payment. During the three months ended March 31, 2024 , $ 12.9 million of revenue was deferred primarily due to unsatisfied performance obligations for service contracts, $ 11.2 million of revenue was recognized for the satisfaction of performance 10 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) obligations and $ 9.9 million of this recognized revenue was included in the contract liability balance at the beginning of the period. There were no significant changes in estimates during the period that would affect the contract balances. Disaggregation of Revenue In the following tables, net revenue is disaggregated by geographic region and sales channel. The Company conducts business across three geographic regions: Americas; Europe, Middle East and Africa (“EMEA”); and Asia Pacific (“APAC”). The tables also include reconciliations of the disaggregated revenue by reportable segment. The Company operates and reports in two segments: Connected Home and NETGEAR for Business (formerly known as Small and Medium Business, or SMB). Sales and usage-based taxes are excluded from n et revenue. Three Months Ended March 31, 2024 April 2, 2023 (In thousands) Connected Home NETGEAR for Business Total Connected Home NETGEAR for Business Total Geographic regions (1) : Americas $ 77,995 $ 31,933 $ 109,928 $ 84,001 $ 37,921 $ 121,922 EMEA 8,010 23,177 31,187 12,064 27,114 39,178 APAC 9,958 13,513 23,471 6,681 13,127 19,808 Total $ 95,963 $ 68,623 $ 164,586 $ 102,746 $ 78,162 $ 180,908 Sales channels: Service provider $ 27,553 $ 243 $ 27,796 $ 14,027 $ 190 $ 14,217 Non-service provider 68,410 68,380 136,790 88,719 77,972 166,691 Total $ 95,963 $ 68,623 $ 164,586 $ 102,746 $ 78,162 $ 180,908 (1) No i ndividual foreign country represented more than 10 % of the Company ’ s total net revenue in the periods presented. Note 4. Balance Sheet Components Available-for-sale investments Amortized cost and estimated fair market value of investments classified as available-for-sale, excluding cash equivalents, as of March 31, 2024 and December 31, 2023, were as follows: March 31, 2024 (In thousands) Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value U.S. treasury securities $ 108,138 $ — $ ( 38 ) $ 108,100 Convertible debt 173 — — 173 Total $ 108,311 $ — $ ( 38 ) $ 108,273 December 31, 2023 (In thousands) Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value U.S. treasury securities $ 98,326 $ 128 $ — $ 98,454 Convertible debt 173 — — 173 Total $ 98,499 $ 128 $ — $ 98,627 11 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The contractual maturities on the U.S. treasury securities as of March 31, 2024 are all due within one year. Accrued interest receivable as of March 31, 2024 was $ 0.5 million and was recorded within Prepaid expenses and other current assets on the unaudited condensed consolidated balance sheet. The following table summarizes investments classified as available-for-sale in a continuous unrealized loss position for which an allowance for credit losses was not recorded as of March 31, 2024 and December 31, 2023: March 31, 2024 Less Than 12 Months 12 Months or Longer Total (In thousands) Estimated Fair Market Value Gross Unrealized Losses Estimated Fair Market Value Gross Unrealized Losses Estimated Fair Market Value Gross Unrealized Losses U.S. treasury securities $ 108,100 $ ( 38 ) $ — $ — $ 108,100 $ ( 38 ) Total $ 108,100 $ ( 38 ) $ — $ — $ 108,100 $ ( 38 ) December 31, 2023 Less Than 12 Months 12 Months or Longer Total (In thousands) Estimated Fair Market Value Gross Unrealized Losses Estimated Fair Market Value Gross Unrealized Losses Estimated Fair Market Value Gross Unrealized Losses U.S. treasury securities $ 98,454 $ — $ — $ — $ 98,454 $ — Total $ 98,454 $ — $ — $ — $ 98,454 $ — In the three months ended March 31, 2024 and April 2, 2023 , no unrealized losses on available-for-sale securities were recognized in income. The Company does not intend to sell, and it is unlikely that it will be required to sell the investments in an unrealized loss position prior to their anticipated recovery. The investments are high-quality U.S. treasury securities and the decline in fair value is largely due to changes in interest rates and other market conditions with the fair value expected to recover as they reach maturity. There were no other-than-temporary impairments for these securities during the three months ended March 31, 2024 and April 2, 2023. Refer to Note 12, Fair Value Measurements, for detailed disclosures regarding fair value measurements. Inventories (In thousands) March 31, 2024 December 31, 2023 Raw materials $ 21,714 $ 19,955 Finished goods 189,556 228,896 Total $ 211,270 $ 248,851 The Company records provisions for excess and obsolete inventory based on assumptions about future demand and market conditions and the amounts incurred were $ 1.1 million and $ 1.2 million for the three months ended March 31, 2024 and April 2, 2023, respectively. While management believes the estimates and assumptions underlying its current forecasts are reasonable, there is risk that additional charges may be necessary if current forecasts are greater than actual demand. 12 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Property and equipment, net (In thousands) March 31, 2024 December 31, 2023 Computer equipment $ 5,335 $ 5,458 Furniture, fixtures, and leasehold improvements 18,637 18,205 Software 24,428 25,760 Machinery and equipment 49,442 47,826 Total property and equipment, gross 97,842 97,249 Accumulated depreciation ( 88,489 ) ( 88,976 ) Total $ 9,353 $ 8,273 Other non-current assets (In thousands) March 31, 2024 December 31, 2023 Non-current deferred income taxes $ 3,251 $ 3,343 Long-term investments 8,266 8,367 Other 5,777 5,616 Total $ 17,294 $ 17,326 Long-term equity investments The Company’s long-term investments are comprised of equity investments without readily determinable fair values, investments in convertible debt securities and investments in limited partnership funds. The changes in the carrying value of equity investments without readily determinable fair values were as follows: Three months ended (In thousands) March 31, 2024 April 2, 2023 Carrying value as of the beginning of the period (1) $ 6,053 $ 6,053 Carrying value as of the end of the period (1) $ 6,053 $ 6,053 (1) The balances excluded an investment in limited partnership funds of $ 2.2 million as of March 31, 2024 , $ 1.6 million as of April 2, 2023 , $ 2.3 million as of December 31, 2023, and $ 1.7 million as of December 31, 2022. Additionally, the balance excluded an investment in convertible debt securities of $ 0.2 million as of March 31, 2024, December 31, 2023, April 2, 2023 , and December 31, 2022, respectively. For such equity investments without readily determinable fair values still held at March 31, 2024 , there were no cumulative downward adjustments for price changes and impairment and the cumulative upward adjustments for price changes was $ 0.3 million. 13 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Other accrued liabilities (In thousands) March 31, 2024 December 31, 2023 Current operating lease liabilities $ 11,306 $ 11,869 Sales and marketing 65,725 75,535 Warranty obligations 5,087 5,738 Sales returns (1) 35,713 34,824 Freight and duty 3,412 2,837 Other 33,324 37,281 Total $ 154,567 $ 168,084 (1) Inventory expected to be received from future sales returns amounted to $ 17.4 million and $ 16.9 million as of March 31, 2024 and December 31, 2023, respectively. Provisions to write down expected returned inventory to net realizable value amounted to $ 8.6 million and $ 9.7 million as of March 31, 2024 and December 31, 2023 , respectively. Note 5. Derivative F inancial Instruments The Company’s subsidiaries have material future cash flows related to revenue and expenses denominated in currencies other than the U.S. dollar, the Company’s functional currency worldwide. The Company executes currency forward contracts that typically mature in less than 6 months to mitigate its currency risk, in currencies including Australian dollars, British pounds, euros, Canadian dollars, and Japanese yen. The Company does not enter into derivatives transactions for trading or speculative purposes. The Company’s foreign currency forward contracts do not contain any credit-risk-related contingent features. The Company enters into derivative contracts with high-quality financial institutions and limits the amount of credit exposure to any individual counterparty. The Company typically executes ten cash flow hedges per quarter with maturities under six months and with an average USD notional amount of approximately $ 5.4 million that are designated as cash flow hedges. The Company enters into non-designated hedges that are generally expected to offset the changes in value of its net non-functional currency asset and liability position resulting from foreign exchange rate fluctuations. The Company adjusts its non-designated hedges monthly and typically executes about seven non-designated forwards per quarter with maturities less than three months and an average USD notional amount of approximately $ 2.8 million. Fair Value of Derivative Instruments The fair values of the Company’s derivative instruments and the line items on the unaudited condensed consolidated balance sheets to which they were recorded were summarized as follows: Balance Sheet Balance Sheet (In thousands) Location March 31, 2024 December 31, 2023 Location March 31, 2024 December 31, 2023 Derivatives not designated as hedging instruments Prepaid expenses and other current assets $ 167 $ 284 Other accrued liabilities $ 43 $ 1,672 Derivatives designated as hedging instruments Prepaid expenses and other current assets 1 7 Other accrued liabilities 2 19 Total $ 168 $ 291 $ 45 $ 1,691 Refer to Note 12, Fair Value Measurements for detailed disclosures regarding fair value measurements. Refer to Note 9, Stockholders ’ Equity , for details on the accumulated other comprehensive income (loss) activity related to derivatives and refer to Note 11, Segment Information , for details on gain/(loss), net pertaining to derivatives not designated as hedging instruments that were recognized in Other income (expenses), net. 14 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 6. Net I ncome (Loss) Per Share Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. Potentially dilutive common shares include common shares issuable upon exercise of stock options, vesting of Restricted Stock Units (“RSUs”) and performance shares, and issuances of shares under the Employee Stock Purchase Plan (the “ESPP”), which are reflected in diluted net income (loss) per share by application of the treasury stock method. Potentially dilutive common shares are excluded from the computation of diluted net income (loss) per share when their effect is anti-dilutive. Net income (loss) per share consisted of the following: Three Months Ended (In thousands, except per share data) March 31, 2024 April 2, 2023 Numerator: Net loss $ ( 18,650 ) $ ( 9,712 ) Denominator: Weighted average common shares – basic 29,395 29,040 Weighted average common shares – dilutive 29,395 29,040 Basic net income (loss) per share $ ( 0.63 ) $ ( 0.33 ) Diluted net income (loss) per share $ ( 0.63 ) $ ( 0.33 ) Anti-dilutive employee stock-based awards, excluded 2,085 1,318 Note 7. In come Taxes The income tax benefit for the three months ended March 31, 2024 was $ 0.1 million, or an effective tax rate of 0.8 %. The income tax benefit for the three months ended April 2, 2023 was $ 0.9 million, or an effective tax rate of 8.1 %. The change in taxes for the three months ended March 31, 2024, compared to the prior year period, was primarily due to the continued full valuation allowance on deferred tax assets for U.S. federal and state purposes that was established during the period ended October 1, 2023. The Company evaluated the current results as of the period ended March 31, 2024, coupled with the expectations for the remainder of the year, and determined that it continued to not be more likely than not that the deferred tax assets would be realized, and accordingly, recorded no benefit for the forecasted tax loss for the three months ended March 31, 2024. By comparison, for the three months ended April 2, 2023, a tax benefit was recorded on the pre-tax loss since the valuation allowance on deferred tax assets had not yet been established. The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. The 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. The Company is under examination in various U.S. and foreign jurisdictions. The Company files income tax returns in the U.S. federal jurisdiction as well as various state, local, and foreign jurisdictions. Due to the uncertain nature of ongoing tax audits, the Company has recorded its liability for uncertain tax positions as part of its long-term liability as payments cannot be anticipated over the next twelve months. The existing tax positions of the Company continue to generate an increase in the liability for uncertain tax positions. The liability for uncertain tax positions may be reduced for liabilities that are settled with taxing authorities or on which the statute of limitations could expire without assessment from tax authorities. The possible reduction in liabilities for uncertain tax positions in multiple jurisdictions in the next twelve months is approximately $ 0.7 million excluding the interest, penalties and the effect of any related deferred tax assets or liabilities. The Company is currently under examination in various U.S. and foreign jurisdictions. The Company accounts 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 treatment for tax versus accounting for certain items, such as accruals and allowances not currently deductible for tax purposes. The deferred 15 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) tax assets and liabilities represent the future tax return consequences of these differences, which will either be taxable or deductible when assets and liabilities are recovered or settled, as well as operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheets. The Company must then assess the likelihood that the Company’s deferred tax assets will be recovered from future taxable income and to the extent the Company believes that recovery is not more likely than not, the Company must establish a valuation allowance. The Company’s assessment considers the recognition of deferred tax assets on a jurisdictional basis. Accordingly, in assessing its future taxable income on a jurisdictional basis, the Company considers the effect of its transfer pricing policies on that income. As of the period ended October 1, 2023, the Company determined that recovery of its U.S. federal and state deferred tax assets was no longer more likely than not and established a full valuation allowance on those net assets, based on evaluation of all available evidence, including actual and anticipated business results. Accordingly, the balance sheet net deferred tax assets from the U.S. federal and state jurisdictions reported in “Other Non-current Assets” were reduced after the effect of establishing the valuation allowance. Note 8. Commitment s and Contingencies Purchase Obligations The Company has entered into various inventory-related purchase agreements with suppliers. Generally, under these agreements, 50 % of orders are cancelable by giving notice 46 to 60 days prior to the expected shipment date and 25 % of orders are cancelable by giving notice 31 to 45 days prior to the expected shipment date. As of March 31, 2024, the Company had approximately $ 77.0 million , as compared to $ 42.6 million as of December 31, 2023, in short-term non-cancelable purchase commitments with suppliers or where the suppliers had procured unique materials and components upon receipts of the Company’s purchase orders. Due to an elongation of the time from order placement to production that occurred several years ago, the Company issued purchase orders to supply chain partners beyond contractual termination periods. As of March 31, 2024 , $ 274.2 million of purchase orders beyond contractual termination periods remained outstanding. Consequently, the Company 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 those orders not governed by master purchase agreements, the commitments are governed by the commercial terms on the Company’s purchase orders subject to acknowledgment from its suppliers. The Company establishes a loss liability for all products it does not expect to sell or orders it anticipates cancelling for which it has committed purchases from suppliers. Such loss liability is included in Other accrued liabilities on the Company’s unaudited condensed consolidated balance sheets. Losses incurred in relation to purchase commitments, including unique materials and components, amounted to $ 1.1 million and $ 0.5 million for the three months ended March 31, 2024 and April 2, 2023, respectively. Non-Trade Commitments As of March 31, 2024, the Company had non-cancellable purchase commitments of $ 13.1 million pertaining to non-trade activities. Warranty Obligations Changes in the Company’s warranty obligations, which is included in Other accrued liabilities on the unaudited condensed consolidated balance sheets, were as follows: Three Months Ended (In thousands) March 31, 2024 April 2, 2023 Balance as of beginning of the period $ 5,738 $ 6,320 Provision for warranty liability made 608 1,417 Settlements made ( 1,259 ) ( 1,386 ) Balance as of the end of the period $ 5,087 $ 6,351 16 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Litigation and Other Legal Matters The Company is involved in disputes, litigation, and other legal actions, including, but not limited to, the matters described below. In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. In such cases, the Company accrues for the amount, or if a range, the Company accrues the low end of the range, only if there is not a better estimate than any other amount within the range, as a component of legal expense within litigation reserves, net. The Company monitors developments in these legal matters that could affect the estimate the Company had previously accrued. In relation to such matters, the Company currently believes that there are no existing claims or proceedings that are likely to have a material adverse effect on its financial position within the next twelve months , or the outcome of these matters is currently not determinable. There are many uncertainties associated with any litigation, and these actions or other third-party claims against the Company may cause the Company to incur costly litigation and/or substantial settlement charges. In addition, the resolution of any intellectual property litigation may require the Company to make royalty payments, which could have an adverse effect in future periods. If any of those events were to occur, the Company’s business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from the Company’s estimates, which could result in the need to adjust the liability and record additional expenses. Huawei v. NETGEAR Inc., NETGEAR Deutschland GmbH, and Exertis-Connect GmbH On or around March of 2022, Huawei filed two patent infringement lawsuits at the District Court of Dusseldorf, Germany, against NETGEAR Inc., NETGEAR Deutschland GmbH, and Exertis-Connect GmbH, a third-party webstore selling NETGEAR products in Germany. Huawei asserted one EU patent in each suit, EP 3 337 077 B1 (the ’077 Patent) in case no. 08/22 and EP 3 143 741 B1 (the ’741 Patent) in case no. 09/22. In its complaints, Huawei alleged that the Company’s WiFi 6 products infringed the two patents, which Huawei further claimed are standard-essential patents. On or around February 9, 2023, the Federal Patent Court issued preliminary opinions finding both asserted patents invalid. The Company attended an oral hearing for both infringement cases on March 21, 2023 before the Dusseldorf District Court and the Court dismissed case no. 09/22 for the ‘741 Patent and stayed case no. 08/22 for the ‘077 Patent. Huawei is appealing the dismissal of case no. 09/22, and the hearing for the appeal is set for May 23, 2024. On March 20, 2024, the Patent Court maintained the validity of ‘741 Patent, but with an amended claim. Case no. 08/22 remains stayed while the nullity action is ongoing. On or around May 10, 2022, the Company was served with two suits that Huawei filed before the Jinan Intermediate People’s Court of China asserting Patent Nos. ZL 201811536087.9 (case no 407) and ZL 201810757332.2 (case no. 408) against the Company’s WiFi 6 products. The Company’s challenge of the Jinan Court’s jurisdiction in both cases was denied by the Supreme Court of China. The parties attended an evidentiary hearing for the cases on July 3, 2023. Licensing and technical hearings followed on July 24, 2023 and July 25, 2023. After the July 25th hearing, the Court indicated it will advise the parties of further action. Huawei v. NETGEAR Inc., NETGEAR Deutschland GmbH, and NETGEAR International Limited On or around July 3, 2023, Huawei filed a new infringement suit, asserting patent EP 3 611 989 (the ’989 Patent), against NETGEAR Inc., NETGEAR Deutschland GmbH, and NETGEAR International Limited at the Unified Patent Court (UPC) in Munich, Germany. The Company filed its Statement of Defense on November 7, 2023 and the Court held an interim conference on February 19, 2024. The deadline for the parties to complete briefing is June 3, 2024 and the oral hearing is scheduled for June 18, 2024. On around December 11, 2023, Huawei filed a second UPC suit, asserting EP 3 678 321 (“EP 321”), against the Company and requested that the Court allow it to amend the pending EP 989 case to add EP 321. The Company disagreed and filed an objection. The Appeal Court found in favor of the Company and designated the EP 321 matter as a separate case. The Company filed its Statement of Defense on April 18, 2024, to include a counterclaim for revocation of the patent at the UPC. The Company, at this time, is not able to reasonably estimate any financial impact to the Company resulting from these litigation matters. 17 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company does not believe that it is reasonably possible that a material loss has been incurred for any of the matters disclosed above, and consequently has not established any loss provisions. Note 9. Stock holders’ Equity Stock Repurchases From time to time, the Company’s Board of Directors has authorized programs under which the Company may repurchase shares of its common stock, depending on market conditions, in the open market or through privately negotiated transactions. 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 the Company’s common stock. During the three months ended March 31, 2024 , the Company repurchased and retired, reported based on trade date, approximately 0.8 million shares of common stock, at a cost of approximately $ 11.4 million under the repurchase authorization. The Company did not repurchase any shares of common stock during the three months ended April 2, 2023. As of March 31, 2024 , 1.7 million shares remained authorized for repurchase under the repurchase program. The Company repurchased, reported based on trade date, approxima tely 32,000 and 6,000 shares of common stock, at a cost of approximately $ 0.5 million and $ 0.1 million, during the three months ended March 31, 2024 and April 2, 2023, respectively, to administratively facilitate the withholding and subsequent remittance of personal income and payroll taxes for individuals receiving RSUs. These shares were retired upon repurchase. The Company’s policy related to repurchases of its common stock is to charge the excess of cost over par value to retained earnings. All repurchases were made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. Accumulated Other Comprehensive Income (Loss) The following tables set forth the changes in accumulated other comprehensive income (loss) (“AOCI”) by component: (In thousands) Unrealized gains (losses) on available -for-sale investments Unrealized gains (losses) on derivatives Estimated tax benefit (provision) Total Balance as of December 31, 2023 $ 126 $ 7 $ 3 $ 136 Other comprehensive income (loss) before reclassifications ( 166 ) ( 5 ) 6 ( 165 ) Less: Amount reclassified from accumulated other comprehensive income (loss) — ( 63 ) 13 ( 50 ) Net current period other comprehensive income (loss) ( 166 ) 58 ( 7 ) ( 115 ) Balance as of March 31, 2024 $ ( 40 ) $ 65 $ ( 4 ) $ 21 (In thousands) Unrealized gains (losses) on available -for-sale investments Unrealized gains (losses) on derivatives Estimated tax benefit (provision) Total Balance as of December 31, 2022 $ ( 322 ) $ ( 338 ) $ 125 $ ( 535 ) Other comprehensive income (loss) before reclassifications 241 1,046 ( 240 ) 1,047 Less: Amount reclassified from accumulated other comprehensive income (loss) — 581 ( 122 ) 459 Net current period other comprehensive income (loss) 241 465 ( 118 ) 588 Balance as of April 2, 2023 $ ( 81 ) $ 127 $ 7 $ 53 18 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table provides details about significant amounts reclassified out of each component of AOCI: Three Months Ended (In thousands) March 31, 2024 April 2, 2023 Amount Reclassified from AOCI Gains (losses) on cash flow hedge: Foreign currency forward contracts Affected line item in the statement of operations Net revenue $ ( 79 ) $ 689 Cost of revenue — ( 1 ) Research and development ( 1 ) ( 8 ) Sales and marketing 9 ( 83 ) General and administrative 8 ( 16 ) Total before tax ( 63 ) 581 Tax impact 13 ( 122 ) Total, net of tax $ ( 50 ) $ 459 Note 10. Employe e Benefit Plans The Company grants options, RSUs, and performance shares under the 2016 Incentive Plan (the “2016 Plan”), under which awards may be granted to all employees. Vesting periods under this plan are generally four years for options and RSUs and three years for performance shares. As of March 31, 2024, approximately 2.8 million shares were reserved for future grants under the 2016 Plan. In February 2024, the Company’s Board of Directors approved 2024 Inducement Equity Incentive Plan (the “2024 Inducement Plan”), under which Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units, Performance Shares, and other stock or cash awards can be granted to personnel for positions of substantial responsibility. As of March 31, 2024 , approximately 0.9 million shares were reserved for future grants under the 2024 Inducement Plan. Additionally, the Company sponsors an Employee Stock Purchase Plan (the “ESPP”). The terms of the plan include a look-back feature that enables employees to purchase stock semi-annually at a price equal to 85 % of the lesser of the fair market value at the beginning of the offering period or the purchase date. The duration of each offering period is generally six months. As of March 31, 2024, approximately 0.6 million shares were available for issuance under the ESPP. Option Activity Stock option activity was as follows: (In thousands, except per share amounts) Number of Shares Weighted Average Exercise Price Per Share Outstanding as of December 31, 2023 866 $ 30.70 Granted — $ — Exercised — $ — Cancelled — $ — Expired — $ — Outstanding as of March 31, 2024 866 $ 30.70 19 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Time-Based RSU Activity Time-based RSU activity was as follows: (In thousands, except per share amounts) Number of Shares Weighted Average Grant Date Fair Value Per Share Outstanding as of December 31, 2023 1,567 $ 22.83 Granted 459 $ 14.90 Vested ( 85 ) $ 19.93 Cancelled ( 41 ) $ 22.15 Outstanding as of March 31, 2024 1,900 $ 20.87 Performance-Based RSU Activity Since 2020, the Company’s executive officers were granted performance-based restricted stock units (“PSUs”) under the 2016 Plan with vesting occurring at the end of a three-year period if performance conditions are met. The number of PSUs earned and eligible to vest are determined based on achievement of the pre-determined performance conditions and the recipients’ continued service with the Company. The number of stock units to vest could range from 0 % to 150 % of the target shares granted. At the end of each reporting period, the Company evaluates the probability of achieving the performance conditions and records the related stock-based compensation expense based on performance to date over the service period. In February 2024, the Company granted PSUs under the 2024 Inducement Plan to its newly-hired Chief Executive Officer with 1/3 of the target PSUs being allocated to each tranche and vesting occurring at the end of each anniversary of the vesting commencement date over a three-year period. The number of PSUs to vest could range from 0 % to 150 % of the target shares granted and are determined based on achievement of the pre-determined market condition and the recipients’ continued service with the Company. T he grant date fair value was determined using the Monte Carlo valuation method. The stock-based compensation expense relating to PSUs with a market condition is recognized ratably from the service inception date to the vesting date for each tranche. PSU activity was as follows: (In thousands, except per share amounts) Number of Shares Weighted Average Grant Date Fair Value Per Share Outstanding as of December 31, 2023 417 $ 24.76 Granted 456 $ 20.71 Vested — $ — Cancelled ( 296 ) $ 27.36 Outstanding as of March 31, 2024 577 $ 20.23 Valuation and Expense Information The following table sets forth the stock-based compensation expense resulting from stock options, RSUs (time-based and performance-based) and the ESPP included in the Company’s unaudited condensed consolidated statements of operations: Three Months Ended (In thousands) March 31, 2024 April 2, 2023 Cost of revenue $ 365 $ 351 Research and development 698 1,065 Sales and marketing 1,237 1,431 General and administrative 2,244 1,818 Total $ 4,544 $ 4,665 20 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As of March 31, 2024, $ 36.8 million of unrecognized compensation cost related to unvested RSUs ( time-based and performance-based) expected to be recognized over a weighted-average period of 2.4 years. Note 11. Segme nt Information Operating segments are components of an enterprise about which separate financial information is available and is evaluated quarterly by management, namely the Chief Operating Decision Maker (“CODM”) of an organization, in order to determine operating and resource allocation decisions. By this definition, the Company has identified its CEO as the CODM. The Company operates and reports in two segments: Connected Home and NETGEAR for Business: • Connected Home: 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, and routers, 4G/5G mobile products, and subscription services that provide consumers a range of value-added services focused on performance, security, privacy, and premium support; and • NETGEAR for Business: Focuses on small and medium sized 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. The Company believes that this structure reflects its current operational and financial management, and that it provides the best structure for the Company to focus on growth opportunities while maintaining financial discipline. The leadership team of each segment is focused on product and service development efforts, both from a product marketing and engineering standpoint, to service the unique needs of their customers. The results of the reportable segments are derived directly from the Company’s management reporting system. The results are based on the Company’s method of internal reporting and are not necessarily in conformity with accounting principles generally accepted in the United States. Management measures the performance of each segment based on several metrics, including contribution income (loss). Segment contribution income (loss) includes all product line segment revenues less the related cost of sales, research and development and sales and marketing costs. Contribution income (loss) is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. Certain operating expenses are not allocated to segments because they are separately managed at the corporate level. These unallocated indirect costs include corporate costs, such as corporate research and development, corporate marketing expense and general and administrative costs, amortization of intangibles, stock-based compensation expense, restructuring and other charges, litigation reserves, net, and other income (expenses), net. 21 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Effective on January 1, 2024, resulting from certain segment structure changes, the Company revised its allocation method by allocating certain historically unallocated operating expenses to its individual operating segments. The prior-year segment financial information has been recast to conform to the current-year presentation. Financial information for each reportable segment and a reconciliation of segment contribution income (loss) to loss before income taxes is as follows: Three Months Ended (In thousands) March 31, 2024 April 2, 2023* Net Revenue: Connected Home $ 95,963 $ 102,746 NETGEAR for Business 68,623 78,162 Total net revenue $ 164,586 $ 180,908 Contribution Income (loss): Connected Home $ ( 6,140 ) $ ( 1,756 ) Contribution margin ( 6.4 )% ( 1.7 )% NETGEAR for Business $ 9,904 $ 14,057 Contribution margin 14.4 % 18.0 % Total segment contribution income $ 3,764 $ 12,301 Corporate and unallocated costs ( 19,806 ) ( 19,374 ) Amortization of intangibles — ( 129 ) Stock-based compensation expense ( 4,544 ) ( 4,665 ) Restructuring and other charges ( 1,032 ) ( 108 ) Litigation reserves, net ( 30 ) — Other income, net (1) 2,850 1,406 Loss before income taxes $ ( 18,798 ) $ ( 10,569 ) (1) Amounts included gain/(loss), net from derivatives not designated as hedging instruments of $ 1.5 million and $( 0.2 ) million, for the three months ended March 31, 2024 and April 2, 2023 , respectively. * F inancial information for each reportable segment were recast to conform to the current reportable segment structure. The CODM does not evaluate operating segments using discrete asset information. Operations by Geographic Region For reporting purposes, revenue is generally attributed to each geographic region based on the location of the customer. The following table shows net revenue by geography: Three Months Ended (In thousands) March 31, 2024 April 2, 2023 United States (U.S.) $ 107,289 $ 117,798 Americas (excluding U.S.) 2,639 4,124 EMEA (1) 31,187 39,178 APAC (1) 23,471 19,808 Total net revenue $ 164,586 $ 180,908 (1) No in dividual foreign country represented more than 10 % of the Company’s total net revenue in the periods presented. 22 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Long-lived assets by Geographic Region The following table presents the Company’s long-lived assets located in geographic areas, which consist of property and equipment, net, and operating lease right-of-use assets: (In thousands) March 31, 2024 December 31, 2023 United States (U.S.) $ 23,757 $ 25,051 Canada 4,712 4,714 Americas (excluding U.S. and Canada) 64 68 EMEA 3,582 3,739 Singapore 5,995 6,218 APAC (excluding Singapore) (1) 5,956 5,768 Total $ 44,066 $ 45,558 (1) No individual country represented more than 10 % of the Company’s total long-lived assets in the periods presented. Note 12. Fair V alue Measurements The following tables summarize assets and liabilities measured at fair value on a recurring basis: March 31, 2024 (In thousands) Total Quoted market prices in active markets (Level 1) Significant other observable inputs (Level 2) Assets: Cash equivalents: money-market funds $ 27,848 $ 27,848 $ — Available-for-sale investments: U.S. treasury securities (1) 108,100 — 108,100 Trading securities: mutual funds (1) 8,492 8,492 — Available-for-sale investments: convertible debt securities (1) 173 — 173 Foreign currency forward contracts (2) 168 — 168 Total assets measured at fair value $ 144,781 $ 36,340 $ 108,441 Liabilities: Foreign currency forward contracts (3) $ 45 $ — $ 45 Total liabilities measured at fair value $ 45 $ — $ 45 23 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 2023 (In thousands) Total Quoted market prices in active markets (Level 1) Significant other observable inputs (Level 2) Assets: Cash equivalents: money-market funds $ 25,986 $ 25,986 $ — Available-for-sale investments: U.S. treasury securities (1) 98,454 — 98,454 Trading securities: mutual funds (1) 8,304 8,304 — Available-for-sale investments: convertible debt securities (1) 173 — 173 Foreign currency forward contracts (2) 291 — 291 Total assets measured at fair value $ 133,208 $ 34,290 $ 98,918 Liabilities: Foreign currency forward contracts (3) $ 1,691 $ — $ 1,691 Total liabilities measured at fair value $ 1,691 $ — $ 1,691 (1) Included in Short-term investments on the Company’s unaudited condensed consolidated balance sheets. (2) Included in Prepaid expenses and other current assets on the Company’s unaudited condensed consolidated balance sheets. (3) Included in Other accrued liabilities on the Company's unaudited condensed consolidated balance sheets. The Company’s investments in money-market funds and mutual funds are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company’s investments in U.S. treasury securities are classified within Level 2 of the fair value hierarchy because they are valued based on readily available pricing sources for comparable or identical instruments in less active markets. The Company’s investments in convertible debt securities issued by a publicly held company are classified within Level 2 of the fair value hierarchy as the fair value for the instrument approximates its cost based on the contractual terms of the arrangement. The Company’s foreign currency forward contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that consider the contract terms as well as currency rates and counterparty credit rates. The Company verifies the reasonableness of these pricing models using observable market data for related inputs into such models. The Company enters into foreign currency forward contracts with only those counterparties that have long-term credit ratings of A-/A3 or higher. The carrying value of non-financial assets and liabilities measured at fair value in the financial statements on a recurring basis, including accounts receivable and accounts payable, approximate fair value due to their short maturities. Note 13. Restructuring and Other Charges The Company accounts for its restructuring plans under the authoritative guidance for exit or disposal activities. The Company includes expenses related to restructuring and other charges in Other operating expenses (income), net in the condensed consolidated statements of operations. Accrued restructuring and other charges are classified within Accrued employee compensation and Other accrued liabilities on the condensed consolidated balance sheets. Restructuring and other charges recognized in the three months ended March 31, 2024 and April 2, 2023, respectively, were primarily for severance, and other costs in relation to the reorganization of our business to better align the cost structure of the business with projected revenue levels. The liabilities as of March 31, 2024 are expected to be settled in 2024. 24 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table provides a summary of the activity related to accrued restructuring and other charges: (In thousands) Accrued Restructuring and Other Charges at December 31, 2023 Additions Cash Payments Adjustments Accrued Restructuring and Other Charges at March 31, 2024 Restructuring Employee termination charges $ 257 $ 924 $ ( 665 ) $ ( 14 ) $ 502 Lease contract termination and other charges 30 108 ( 3 ) ( 114 ) 21 Total Restructuring and other charges $ 287 $ 1,032 $ ( 668 ) $ ( 128 ) $ 523 (In thousands) Accrued Restructuring and Other Charges at December 31, 2022 Additions Cash Payments Adjustments Accrued Restructuring and Other Charges at April 2, 2023 Restructuring Employee termination charges $ 1,912 $ 108 $ ( 1,149 ) $ 21 $ 892 Total Restructuring and other charges $ 1,912 $ 108 $ ( 1,149 ) $ 21 $ 892 25 Table of Contents