NETGEAR, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-looking Statements This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, the words “believes,” “anticipates,” “plans,” “expects,” “intends,” “could,” “may,” “will,” and similar expressions are intended to identify forward-looking statements. The forward-looking statements represent NETGEAR’s expectations or beliefs concerning future events based on information available at the time such statements were made and include statements regarding: NETGEAR’s future operating performance and financial condition, including expectations regarding growth, revenue, expenses, operating margin, gross margin, continued profitability and cash generation; NETGEAR's reporting structure; NETGEAR's belief of the principal competitive factors in the business, consumer, and service provider markets for networking products; expectations regarding more predictable performance that is aligned to the market, including as a result of our efforts to work with our channel partners to optimize their inventory carrying levels; expectations regarding transportation costs; NETGEAR’s strategy of capitalizing on technological inflection points, developing products that serve a broader segment and simplifying and developing service offerings that build recurring service revenue streams; expectations regarding paid revenue from paid subscription service plans; expectations regarding product mix and market demand for NETGEAR’s products and services, including NETGEAR for Business, Mobile, and Home Networking products and subscription services and NETGEAR’s ability to respond to this demand; expectations regarding competition, competitive factors, consumer price sensitivity and demand for NETGEAR’s products and services; expectations regarding sales channels, direct online store and in-app offerings; expectations regarding macroeconomic conditions and impacts to NETGEAR’s operational and financial performance and business strategies; expectations regarding the consumer retail networking market; expectations regarding existing cash, cash equivalents and short-term investments and anticipated cash requirements; expectations regarding inventory levels, inventory management and inventory costs; expectations regarding research and development expenses, sales and marketing expenses and general and administration expenses; expectations regarding expected tax rates or tax expenses and changes in legislation related to the taxation of business entities; expectations regarding the impact of acquisitions, including the acquisition of Exium; and expectations regarding NETGEAR’s subscription services and service revenue. These statements are based on management’s current expectations and are subject to a number of risks and uncertainties, including but not limited to those described in “Part II—Item 1A—Risk Factors” and “Liquidity and Capital Resources” below and in our other SEC filings, including our Annual Report. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. All forward-looking statements in this document are based on information available to us as of the date hereof and we assume no obligation to update any such forward-looking statements except as required by law. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes contained in this quarterly report. Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us” and “NETGEAR” refer to NETGEAR, Inc. and its subsidiaries. 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. As we announced in February 2025, beginning with the first quarter of 2025, we realigned our business structure by separating the previously disclosed Connected Home segment into two distinct reportable segments: Mobile and Home 28 Table of Contents Networking. This realignment further strengthens our operational and financial management and enables us to further focus on growth opportunities while maintaining financial discipline. Effective January 1, 2025, we operate and report in three segments: NETGEAR for Business, Mobile, and Home Networking. The leadership team of each segment focuses on serving the unique needs of their customers through product and service development from both a product marketing and engineering standpoint, while also managing the sales and marketing functions that support their businesses. The NETGEAR for Business segment focuses on businesses and provides solutions for business networking, wireless local area network (“LAN”), audio and video over Ethernet for Pro AV applications, security and remote management providing enterprise-class functionality at an affordable price. The Mobile segment focuses on both consumers and businesses and provides high-performance Mobile (4G/5G) products, including WiFi 7, WiFi 6/6E-enabled portable mobile hotspots and mobile routers, designed to meet the growing demand for on-the-go, high-speed and reliable internet connectivity with advanced security features. The Home Networking segment focuses on consumers and provides high-performance, dependable and easy-to-use WiFi internet networking solutions such as WiFi 6, WiFi 6E and WiFi 7 multi-band mesh systems, routers, and subscription services that provide consumers a range of value-added services focused on performance, security, privacy, and premium support. The prior-year segment financial information has been recast to conform to the current-year presentation. We conduct business across three geographic regions: Americas, EMEA, and APAC. 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, 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, DMRs, 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, additionally customers are purchasing products and services directly from us. We expect revenue through our direct online store or in-app offerings to continue to increase for the foreseeable future. Financial Overview During the three months ended June 29, 2025, our net revenue increased by $26.6 million, compared to the prior year period, mainly due to inventory optimization efforts with our channel partners in the prior year, which primarily drove a $22.8 million increase in the NETGEAR for Business segment and a $7.8 million increase in the Home Networking segment, partially offset by a $3.9 million decline in the Mobile segment. The increase in NETGEAR for Business net revenue was primarily attributable to sustained strong demand for Pro AV managed switches, which delivered double-digit end-market sales growth. Growth in the Home Networking segment was mainly driven by higher retail channel sales, despite a continued, though moderating, overall consumer networking market decline, as well as increased service revenue. The decline in the Mobile segment reflected lower service provider channel sales as we await new product introductions to expand the portfolio later in the year. Gross margin improved by 1,540 basis points year-over-year, mainly due to a favorable product mix weighted toward NETGEAR for Business, reduced sales returns, and lower charges for excess and obsolete inventory. Operating loss decreased by $37.3 million, primarily attributable to higher net revenue, improved gross margin, and the absence of an $8.2 million 29 Table of Contents litigation reserve for a contingent liability related to success-based fees owed to outside legal counsel in connection with the favorable outcome of the TP-Link litigation. Geographically, net revenue from NETGEAR for Business segment increased in all three regions, while net revenue from Home Networking segment increased in Americas, but decreased in EMEA and APAC, and net revenue from Mobile segment decreased in in all three regions, during the three and six months ended June 29, 2025, compared to the prior year periods, respectively. On June 16, 2025, we completed the acquisition of Exium Inc. at a purchase price of approximately $12.5 million, with an additional $2.4 million in retention compensation. The transaction qualified as a business acquisition and was accounted for using the acquisition method. We believe this acquisition enhances our portfolio of cloud-based networking and security offerings, enabling us to deliver an integrated, all-in-one solution for our small and medium-sized business customers. For further details, refer to Note 4 , Business Acquisition, in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q . Global Events Affecting our Business and Operations Macroeconomic and geopolitical trends have continued to create uncertainty in the global economic environment. Contributing factors include persistent inflation, elevated interest rates, foreign exchange rate fluctuation, particularly involving the U.S. dollar, and ongoing trade policy shifts, including tariffs related to the U.S. and key international countries as well as recently proposed U.S. tariffs. Geopolitical tensions, such as the Russia-Ukraine conflict, the Israel-Hamas war, and the recently escalated Red Sea crisis, along with lingering supply chain disruptions, have further added to the complexity of the global landscape. 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 II of this Quarterly Report on Form 10-Q for various risks and uncertainties associated with the macroeconomic trends and uncertainty. Looking forward, we expect to continue to see more predictable performance that is aligned with the market for all of our businesses as the inventory optimization with our channel partners and our inventory reduction actions were completed. We expect to continue to experience strong net revenue in our NETGEAR for Business segment, led by strong end-user demand for the Pro AV line of managed switches. However, although we expect to make continued improvements in our supply position, we anticipate that supply constraints will persist, which may limit our ability to fully capture the revenue potential of this growing business. For our Home Networking segment, we are seeing signs of the benefit of our expanded product portfolio, including our more recently introduced WiFi 7 mesh and router products, addressing the market. For our Mobile segment, we expect revenue to be in line with the second fiscal quarter of 2025 level as we await new product introductions to expand the portfolio later in the year. 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 In preparing our condensed consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income, and net income, as well as on the value of certain assets and liabilities on our condensed consolidated balance sheets. We base these estimates on historical and anticipated results, trends and various other assumptions that we believe are reasonable under the circumstances. As of the date of issuance of these condensed consolidated financial statements, we are not aware of any specific event or circumstance that would require us to update our estimates, judgments or revise the carrying value of our 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 under different assumptions and conditions. For a complete description of what we believe to be the critical accounting estimates used in the preparation of our Unaudited Condensed Consolidated Financial Statements, refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report. 30 Table of Contents Results of Operations The following table sets forth the unaudited condensed consolidated statements of operations for the periods presented. Three Months Ended Six Months Ended (In thousands, except percentage data) June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 Net revenue $170,532 100.0 % $143,900 100.0 % $332,592 100.0% $308,486 100.0% Cost of revenue 106,554 62.5 % 112,077 77.9 % 212,288 63.8% 228,426 74.0% Gross profit 63,978 37.5 % 31,823 22.1 % 120,304 36.2% 80,060 26.0% Operating expenses: Research and development 20,845 12.2 % 19,851 13.8 % 39,154 11.8% 40,078 13.0% Sales and marketing 31,053 18.3 % 29,757 20.7 % 59,094 17.7% 60,286 19.6% General and administrative 20,683 12.1 % 19,186 13.3 % 38,753 11.7% 37,253 12.1% Litigation reserves, net 75 0.0 % 8,200 5.7 % 38 0.0% 8,230 2.7 % Restructuring and other charges 862 0.5 % 1,688 1.2 % 5,604 1.7% 2,720 0.8% Total operating expenses 73,518 43.1 % 78,682 54.7 % 142,643 42.9% 148,567 48.2% Loss from operations (9,540) (5.6)% (46,859) (32.6)% (22,339) (6.7)% (68,507) (22.2)% Other income, net 3,976 2.3 % 2,713 1.9 % 12,147 3.6 % 5,563 1.8 % Loss before income taxes (5,564) (3.3)% (44,146) (30.7)% (10,192) (3.1)% (62,944) (20.4)% Provision for income taxes 864 0.5 % 1,029 0.7 % 2,270 0.6 % 881 0.3 % Net loss $(6,428) (3.8)% $(45,175) (31.4)% $(12,462) (3.7)% $(63,825) (20.7)% 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. Three Months Ended Six Months Ended (In thousands, except percentage data) June 29, 2025 % Change June 30, 2024 June 29, 2025 % Change June 30, 2024 Americas $116,279 21.8 % $95,503 $224,040 9.1% $205,431 Percentage of net revenue 68.1 % 66.4 % 67.4% 66.6% EMEA $34,375 25.7 % $27,355 $66,504 13.6% $58,542 Percentage of net revenue 20.2 % 19.0 % 20.0% 19.0% APAC $19,878 (5.5)% $21,042 $42,048 (5.5)% $44,513 Percentage of net revenue 11.7 % 14.6 % 12.6% 14.4% Total net revenue $170,532 18.5 % $143,900 $332,592 7.8% $308,486 Americas Net revenue in Americas increased in the three and six months ended June 29, 2025, compared to the prior year periods, mainly due to prior-year inventory optimization efforts with our channel partners, which primarily drove increases in NETGEAR for the Business segment's net revenue of 42.7% and 34.4%, and in the Home Networking segment’s net revenue of 22.2% and 7.6%, partially offset by decreases in the Mobile segment’s net revenue of 18.5% and 27.4%, respectively. The increases in NETGEAR for Business segment's net revenue were primarily due to a higher demand for the Pro AV product line of managed switches, while the increases in Home Networking segment's net revenue were primarily driven by stronger sales 31 Table of Contents in the retail channel, compared to the prior year periods. The decreases in Mobile segment's net revenue were primarily attributable to lower sales in the service provider channel, compared to the prior year periods. EMEA Net revenue in EMEA increased in the three and six months ended June 29, 2025, compared to the prior year periods, mainly due to prior-year inventory optimization efforts with our channel partners, which primarily drove increases in the NETGEAR for Business segment’s net revenue of 46.5% and 23.4%. We continued to see growing demand for the Pro AV product line of managed switches. APAC Net revenue in APAC decreased in the three and six months ended June 29, 2025, compared to the prior year periods, primarily attributable to declines in the Home Networking segment’s net revenue of 42.4% and 42.9%, respectively, mainly driven by lower sales in both the retail and the service provider channels. These declines were partially offset by increases in the NETGEAR for Business segment’s net revenue of 14.2% and 10.1%, respectively, primarily attributable to higher demand for the Pro AV product line of managed switches. For further discussions specific to our NETGEAR for Business, Mobile, and Home Networking segments, 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 intangible assets 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 intangible assets and capitalized software development costs. The following table presents costs of revenue and gross margin, for the periods indicated: Three Months Ended Six Months Ended (In thousands, except percentage data) June 29, 2025 % Change June 30, 2024 June 29, 2025 % Change June 30, 2024 Cost of revenue $106,554 (4.9)% $112,077 $212,288 (7.1)% $228,426 Gross margin percentage 37.5% 22.1% 36.2% 26.0% Our gross margin increased for the three and six months ended June 29, 2025, compared to the prior year periods, primarily due to a higher mix of NETGEAR for Business products, which generally carry higher gross margins, as well as due to lower sales returns, reduced charges for excess and obsolete inventory and lower inventory costs reflecting the depletion of older, higher-cost inventory. We expect our gross margin in the third fiscal quarter of 2025 to be in line with or decrease slightly from the second quarter of 2025 level. Forecasting gross margin percentages is difficult, and there are a number of risks related to our ability to maintain or improve our current gross margin levels. Our cost of revenue as a percentage of net revenue can vary significantly based upon factors such as: uncertainties surrounding revenue levels, broad-based inflationary pressures and the uncertain macroeconomic environment, future pricing and/or potential discounts as a result of the economy or in response to the strengthening of the U.S. dollar in our international markets, competition, the timing of sales, and related production level variances; import customs duties and imposed tariffs; changes in technology; changes in product mix; expenses associated with writing off excessive or obsolete inventory; variability of stock-based compensation costs; royalties to third parties; fluctuations in freight costs; manufacturing and purchase price variances; changes in prices on commodity components; and warranty costs. We expect that revenue derived from paid subscription service plans will continue to increase in the future, which may have a 32 Table of Contents 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: Three Months Ended Six Months Ended (In thousands, except percentage data) June 29, 2025 % Change June 30, 2024 June 29, 2025 % Change June 30, 2024 Research and development $20,845 5.0% $19,851 $39,154 (2.3)% $40,078 Research and development expenses increased for the three months ended June 29, 2025, but decreased for the six months ended June 29, 2025, compared to the prior year periods. These movements reflected increases in personnel-related expenditures of $2.0 million and $1.8 million, respectively, primarily due to higher head count and higher variable compensation. These increases were partially offset or more than offset by decreases in IT and facility allocations of $0.6 million and $1.4 million, and in engineering projects and outside professional services of $0.4 million and $1.4 million, for the three- and six-month periods, respectively. The reductions were largely driven by the restructuring undertaken in January 2025, which primarily impacted our Home Networking segment. 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 in absolute dollar amount in the third fiscal quarter of 2025 to increase from the second quarter of 2025 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 continue to receive most of our incremental investments in the remainder of 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. We recently established an in-house research and development center in Chennai, India through the hiring of a team of experienced engineers, and completed the acquisition of Exium. These strategic initiatives are expected to accelerate the transition to internally managed software development, increase innovation velocity, reduce development costs, and reduce reliance on third-party vendors. The newly onboarded teams will focus on leveraging artificial intelligence or integrating networking security to significantly simplify networking solutions for small and medium-sized businesses. 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 intangible assets, 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: Three Months Ended Six Months Ended (In thousands, except percentage data) June 29, 2025 % Change June 30, 2024 June 29, 2025 % Change June 30, 2024 Sales and marketing $31,053 4.4% $29,757 $59,094 (2.0)% $60,286 Sales and marketing expenses increased for the three months ended June 29, 2025, but decreased for the six months ended June 29, 2025, compared to the prior year periods. These movements reflected increases in personnel-related expenditures of $3.7 million and $3.8 million, for the three- and six-month periods, respectively, primarily due to higher headcount and variable compensation. These increases were partially offset or more than offset by decreases in brand marketing expenditures of $1.5 million and $2.1 million, in outside professional services of $0.7 million and $1.5 million, and in outbound freight costs of $0.3 million and $1.2 million, for the three- and six-month periods, respectively. The reductions were 33 Table of Contents concentrated in our Home Networking and Mobile segments and were partially offset by increased investments in our NETGEAR for Business segment. We expect sales and marketing expenses in absolute dollar amount in the third fiscal quarter of 2025 to be in line with or slightly increase from the second quarter of 2025 level. We expect 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 and business acquisition related expenses, 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: Three Months Ended Six Months Ended (In thousands, except percentage data) June 29, 2025 % Change June 30, 2024 June 29, 2025 % Change June 30, 2024 General and administrative $20,683 7.8% $19,186 $38,753 4.0% $37,253 General and administrative expenses increased for the three and six months ended June 29, 2025, compared to the prior year periods, primarily driven by higher personnel-related expenditures of $0.9 million and $2.1 million, respectively, mainly due to higher variable compensation and increased stock-based compensation associated with executive transitions. The six-month increase also reflected higher IT and facility allocations of $1.0 million, partially offset by lower legal and professional service costs of $1.9 million. We expect general and administration expenses in absolute dollar amount in the third fiscal quarter of 2025 to be in line with or slightly increase from the second quarter of 2025 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 9, Commitments and Contingencies, in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q. Future increases or decreases in general and administrative expenses are difficult to predict in absolute dollars due to the lack of visibility of certain costs, including legal costs associated with defending claims against us, asserting and enforcing our intellectual property portfolio, acquisition related activities, and other factors. Litigation Reserves, Net Three Months Ended Six Months Ended (In thousands, except percentage data) June 29, 2025 % Change June 30, 2024 June 29, 2025 % Change June 30, 2024 Litigation reserves, net $75 ** $8,200 $38 ** $8,230 ** Percentage change not meaningful. The decreases in litigation reserves, net for the three and six months ended June 29, 2025, compared to the prior year periods, were primarily due to the absence of an $8.2 million reserve recorded in the prior year for a contingent liability related to success-based fees owed to outside legal counsel in connection with the favorable outcome of the TP-Link litigation. Restructuring and Other Charges Three Months Ended Six Months Ended (In thousands, except percentage data) June 29, 2025 % Change June 30, 2024 June 29, 2025 % Change June 30, 2024 Restructuring and other charges $862 (48.9)% $1,688 $5,604 ** $2,720 34 Table of Contents ** Percentage change not meaningful. Restructuring and other charges decreased for the three months ended June 29, 2025, but increased for six months ended June 29, 2025, compared to the prior year periods, primarily due to the restructuring undertaken in January 2025. This restructuring was aimed at reducing costs, and reinvesting into the business to capitalize on our highest priority opportunities to drive revenue growth and improve profitability. For a detailed discussion of restructuring and other charges, refer to Note 14, Restructuring and Other Charges , in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q. 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: Three Months Ended Six Months Ended (In thousands, except percentage data) June 29, 2025 % Change June 30, 2024 June 29, 2025 % Change June 30, 2024 Other income, net $3,976 46.6% $2,713 $12,147 ** $5,563 ** Percentage change not meaningful. The increase in other income, net for the three months ended June 29, 2025, compared to the prior year period was primarily due to higher interest income resulting from higher cash and short-term investment balances and higher net gains on transactions and contracts denominated in foreign currencies. The increase in other income, net for the six months ended June 29, 2025, compared to the prior year period, was primarily due to proceeds of $4.7 million from a sale of patents in the current year, as well as higher interest income resulting from higher cash and short-term investment balances. Provision for Income Taxes Three Months Ended Six Months Ended (In thousands, except percentage data) June 29, 2025 % Change June 30, 2024 June 29, 2025 % Change June 30, 2024 Provision for income taxes $864 (16.0%) $1,029 $2,270 ** $881 Effective tax rate (15.5)% (2.3)% (22.3)% (1.4)% ** Percentage change not meaningful. The changes in taxes for the three and six months ended June 29, 2025, compared to the prior year periods, were primarily due to tax benefits recorded for the reversal of a portion of the federal and state valuation allowances that offset deferred tax liabilities resulting from intangibles established in purchased accounting for the Exium acquisition. Further, in the period ended June 30, 2024, there were lower foreign profits combined with foreign reserve releases resulting from audits effectively settled in 2024. 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 under examination in various U.S. and foreign jurisdictions. The One Big Beautiful Bill Act (“OBBBA”) was enacted on July 4, 2025 and the Company continues to evaluate the impact on its financial position. The OBBBA is not currently expected to materially impact the Company’s effective tax rate or cash flows in the current fiscal year. 35 Table of Contents Segment Information As disclosed above, in the first fiscal quarter of 2025, we realigned our business structure by separating the Connected Home segment into two distinct reportable segments: Mobile and Home Networking. Effective January 1, 2025, we operate and report in three segments: NETGEAR for Business, Mobile, and Home Networking. The prior-year segment financial information has been recast to conform to the current-year presentation. Additional information on the realignment, 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 12, Segment Information , and information on net revenue by sales channels can be found in Disaggregation of Revenue in Note 3, Revenue , in the Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q. NETGEAR for Business Segment Three Months Ended Six Months Ended (In thousands, except percentage data) June 29, 2025 % Change June 30, 2024 June 29, 2025 % Change June 30, 2024 Net revenue $82,621 38.0% $59,867 $161,812 25.9% $128,490 Percentage of net revenue 48.4% 41.6% 48.6% 41.7% Contribution income $15,962 ** $2,061 $33,597 ** $11,965 Contribution margin 19.3% 3.4% 20.8% 9.3% ** Percentage change not meaningful. NETGEAR for Business net revenue increased in the three and six months ended June 29, 2025, primarily due to continued strong demand for Pro AV product line of managed switches, which experienced double digit growth in end market sales, compared to the prior year periods. We also began to see more predictable performance aligned to the market. Geographically, as a result of prior-year inventory optimization efforts with our channel partners and higher demand for the Pro AV product line of managed switches, NETGEAR for Business net revenue increased in all three regions. NETGEAR for Business segment's contribution income increased in the three and six months ended June 29, 2025, compared to the prior year periods, primarily due to higher net revenue and improved gross margins, mainly driven by lower sales returns and reduced charges for excess or obsolete inventory. Mobile Segment Three Months Ended Six Months Ended (In thousands, except percentage data) June 29, 2025 % Change June 30, 2024 June 29, 2025 % Change June 30, 2024 Net revenue $20,408 (16.1)% $24,332 $41,890 (21.1)% $53,071 Percentage of net revenue 12.0% 16.9% 12.6% 17.2% Contribution income (loss) $133 ** $(1,167) $390 ** $(2,148) Contribution margin 0.7% (4.8)% 0.9% (4.0)% ** Percentage change not meaningful. Mobile segment's net revenue decreased in the three and six months ended June 29, 2025, compared to the prior year periods, primarily due to declines in net revenue in service provider channel as we await new product introductions to expand the portfolio later in the year. Geographically, Mobile net revenue in the three and six months ended June 29, 2025 decreased in all three regions, compared to the prior year period. Mobile segment generated contribution income in the three and six months ended June 29, 2025, compared to contribution losses in the prior year periods. The improvements were primarily due to higher gross margins, mainly driven by lower product cost, lower charges for excess or obsolete inventory, and favorable changes in product mix. 36 Table of Contents Home Networking Segment Three Months Ended Six Months Ended (In thousands, except percentage data) June 29, 2025 % Change June 30, 2024 June 29, 2025 % Change June 30, 2024 Net revenue $67,503 13.1% $59,701 $128,890 1.5% $126,925 Percentage of net revenue 39.6% 41.5% 38.8% 41.1% Contribution income (loss) $3,154 ** $(12,627) $1,432 ** $(17,786) Contribution margin 4.7% (21.2)% 1.1% (14.0)% ** Percentage change not meaningful. Home Networking segment's net revenue increased in the three and six months ended June 29, 2025, compared to the prior year periods, primarily due to increases in net revenue in the retail channel, despite continued, though moderating, overall consumer networking market declines. Our premium portfolio of products continued to outperform the market, and we saw growth in our service revenue, compared to the prior year periods. Geographically, Home Networking segment's net revenue in the three and six months ended June 29, 2025 increased in Americas, but decreased in EMEA and APAC, compared to the prior year periods. Home Networking segment generated contribution income in the three and six months ended June 29, 2025, compared to contribution losses in the prior year periods. The improvements were primarily driven by higher gross margins, which benefited from a more favorable product mix of WiFi 7 products, lower product costs, reduced sales returns, decreased contra-revenue marketing expenses, and lower charges for excess and obsolete inventory. Additionally, operating expenses declined, largely due to the restructuring undertaken in January 2025. Liquidity and Capital Resources Our principal sources of liquidity are cash, cash equivalents, short-term investments and cash generated from operations. As of June 29, 2025, we had cash, cash equivalents and short-term investment of $363.5 million, a decrease of $45.2 million from December 31, 2024. As of June 29, 2025, approximately 27% of our cash and cash equivalents and short-term investments were outside of the U.S., which 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. Six Months Ended (In thousands) June 29, 2025 June 30, 2024 Cash provided by (used in) operating activities $(10,520) $35,635 Cash used in investing activities (16,900) (12,905) Cash used in financing activities (18,004) (22,343) Net cash increase (decrease) $(45,424) $387 Operating activities Net cash used in operating activities was $10.5 million for the six months ended June 29, 2025, compared to $35.6 million provided in the prior year period, primarily due to unfavorable working capital movements, partially offset by lower net loss. Accounts receivable decreased from $156.2 million as of December 31, 2024 to $144.9 million as of June 29, 2025, primarily due to the timing of cash collections. Our inventory decreased from $162.5 million as of December 31, 2024 to $157.3 million as of June 29, 2025, as we continued in optimizing our inventory levels. Accounts payable (excluding payables related to property and equipment) decreased from $57.4 million as of December 31, 2024 to $56.0 million as of June 29, 2025, primarily due to the timing of inventory receipts and supplier payments. 37 Table of Contents Investing activities Net cash used in investing activities increased by $4.0 million for the six months ended June 29, 2025, compared to the prior year period, mainly due to $12.2 million payments related to the acquisition of Exium, partially offset by lower net purchases of short-term investments. Financing activities Net cash used in financing activities decreased by $4.3 million for the six months ended June 29, 2025, compared to the prior year period, primarily due to lower repurchases of our common stock and higher proceeds from the exercise of stock options, partially offset by higher payments for restricted stock unit tax withholdings. 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 in the short-term and long-term. 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. As of June 29, 2025, approximately 2.8 million shares remained authorized for repurchase under the repurchase program. We repurchased, retired and reported, based on trade date, approximately 0.5 million and 1.6 million shares of common stock, at a cost of approximately $15.0 million and $21.4 million under the repurchase authorization during the six months ended June 29, 2025 and June 30, 2024, respectively. We also repurchased, retired, and reported based on trade date, approximately 370,000 shares and 197,000 shares of common stock, at a cost of approximately $9.7 million and $2.9 million during the six months ended June 29, 2025 and June 30, 2024, 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 10, Stockholders’ Equity , in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q. Contractual and Other Obligations Except as follows, there were no material changes outside of the ordinary course of business in our contractual obligations as of June 29, 2025, from those as of December 31, 2024, disclosed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report. As of June 29, 2025, we had $60.2 million of purchase obligations which represented short-term non-cancellable inventory-related purchase agreements with suppliers, as compared to $57.4 million as of December 31, 2024. Due to an elongation of the time from order placement to production that occurred several years ago, we issued purchase orders to supply chain partners beyond contractual termination periods. As of June 29, 2025, $208.7 million of purchase orders beyond contractual termination periods remained outstanding. These purchase orders may be cancelled by either party, however we may incur expenses for materials and components, such as chipsets purchased by the supplier to fulfill the purchase order, in the event of cancellation. Expenses incurred in respect of cancelled purchase orders have historically not been significant relative to the original order value. As of June 29, 2025, we entered into an office lease that has not yet commenced with short-term and long-term future lease payments of $2.3 million and $40.6 million, respectively, that are not yet recorded on our unaudited consolidated balance sheets. This lease will commence in the third fiscal quarter of 2025 with a non-cancelable lease term of 11 years. For a detailed discussion, refer to Note 9, Commitments and Contingencies , in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q. 38 Table of Contents Recent Accounting Pronouncements Information with respect to this item may be found in Note 2, Summary of Significant Accounting Policies, in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q, which are hereby incorporated by reference. Item 3. Quantitative and Qualitative Disclosures About Market Risk During the six months ended June 29, 2025, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report.