NETGEAR, Inc. (NTGR) Earnings Call Transcript & Summary

Good morning, and thank you for joining us for NETGEAR's 2021 Financial Analyst Day. We're excited to share presentations with you today on our progress for the business and our expectations for the future. But, before we begin, we advise you that today's presentation contains forward-looking statements. Forward-looking statements include statements regarding expected revenue, operating margins, tax rates, expenses and future business outlook. Actual results or trends could differ materially from those contemplated by these forward-looking statements. For more information, please refer to the risk factors discussed in NETGEAR's periodic filings with the SEC, including the most recent on our Form 10-Q. Any forward-looking statements that we make today are based on assumptions as of today, and NETGEAR undertakes no obligation to update these statements as a result of new information or future events. Now on to the agenda. Patrick will start us off with an introduction and overview. David Henry will recap our strategy for our Connected Home business and what we see going forward. Heidi Cormack will talk about our success with our direct-to-consumer marketing strategy. Bill Shapiro will show details on how we're strengthening and expanding our subscription services. Vikram Mehta will then talk about our -- the tailwinds driving our SMB business. And to wrap it up, Bryan Murray will discuss the financials along with our outlook. After that, we will hold an interactive Q&A session. If you have a question, please feel free to type it into the question portion of the webcast interface, and we will try to address it during Q&A. And with that, I'll hand it off to Patrick.

Thank you, Erik, and welcome, everyone, to NETGEAR's 2021 Analyst Day, and thank you for joining. The world right now is still learning how to fight COVID. However, there are a few trends that we're seeing that would definitely last beyond the pandemic era. First and foremost, for most office workers, going back to the office 5 days a week will be a thing of the past. Hybrid remote work is going to stay. As such, WiFi is becoming a utility and necessity. Second, online shopping is not going to go away. Actually, it's going to continue to expand. And there are a group of people who would put preference on online shopping versus going to the stores again. And thirdly, there is a heightened awareness amount consumers on the Internet security and privacy, given all the publicity about hacks, as well as the social media platform behavior. Also, we are seeing many, many working people decided that they would like to become their own bosses and start their own businesses at home. As a matter of fact, this year in the United States more than 4.5 million new businesses have been registered, highest since 2004. Last but not the least, governments around the world are learning how to live with COVID. They are putting in the correct measures to encourage business to reopen safely. As such, businesses are introducing new technologies to enhance productivity and the workers' safety. Examples are like cloud computing, online collaborative tours as well as a lot of other new things. One of the things that interest us the most is the rapid transition for the transmission and processing of audio and video from traditional analog HDMI cable to digital Ethernet. Today, we're going to have a robust discussion among all these 5 trends and how are we going to capitalize on them to really further accelerate our top and bottom line growth. Namely for WiFi, we're going to talk about how we capitalize on the super premium end of the mesh segment. And then we're going to also talk about what progress we have made in building our web stores worldwide to accelerate our direct-to-consumer sales. Our subscription services installed base has grown significantly, but we will have bigger targets to do to meet and how we're going to do that. On the SMB side, we're going to discuss how we're winning with our work-from-home business solutions based on WiFi. And last but not the least, we have made tremendous strides in the last year on ProAV, which we started about 2 years ago. So I'm sure that you'll be just as excited as we are in all these opportunities that will give us tremendous opportunities to grow in the next 3 years, both top and bottom lines. So without further ado, I would like to start today's presentation with David Henry who's going to talk about the consumer home WiFi market.

Hello. Today, I'm going to give more detail on the progress of our premium product strategy and how we will continue the amazing growth we've seen in this segment. I will also introduce my colleagues to discuss our marketing, direct-to-consumer and subscription services strategies, which complement our premium product direction. But first, I'd like to give you some insight into the trends we are seeing in the home WiFi market. While we are still grappling with COVID, schools have been reopened and holiday celebrations in person are back. A lot of businesses have been restarted and office workers are starting to trickle back into offices. However, hybrid work, online shopping and entertainment as the new norm. And that reality has yielded an expanded market for home networking around 15% larger than it was prior to the pandemic. As you can see in this chart, the most popular home WiFi upgrades are mesh WiFi systems replacing routers or adding extenders to existing routers. The market has expanded both in units and in value with a unit growth driven by products that solve a very common customer problem: WiFi coverage. Home users are replacing single routers with mesh systems to expand WiFi coverage at home or in other cases, simply adding extenders as a cheaper alternative to do the same, usually at lower speeds. As more Americans move from their smaller in-city homes to larger suburban homes allowed by remote work, whole home WiFi coverage becomes a necessity. For those customers who are reluctant to replace their ISP provided equipment, range extenders are the quick fix to get WiFi coverage to that upstairs bedroom, that is now a home office or to that basement that is now used to run a home-based business. But for those who want their full broadband speeds extended to all corners of their homes, WiFi mesh systems are the products of choice, of course, led by our tri-band Orbi mesh products. NETGEAR's push to higher-performing products have also grown ASPs, especially among routers and cable modems and gateways. Range extender ASP did not rise due to the accessory nature of this category. They are quick dead spot fixes on the cheap. Interesting to point out in this chart is that the ASP of WiFi mesh systems hasn't grown at all in the last 2 years despite NETGEAR's push to higher-priced tri-band mesh. This is because of the downward price pressures exerted by Google and Amazon in this category. Without our push to higher ASP, the ASP of mesh would actually come down. In contrast, in routers and cable categories where they do not compete, ASPs have all gone up substantially. However, through shifting the product mix from single WiFi routers to higher ASP WiFi systems, the ASP of routers and mesh combined still rose appreciably. The shift from WiFi routers to systems has been happening for the past 5 years, and we expect it to continue as we engage with even more bandwidth intensive applications like streaming, video conferencing and virtual reality gaming. Our aim is to push the ASP up in the entire mesh segment despite the heavy downward price drives from Google and Amazon. Our strategy is to focus on educating the market on the merits of the super premium end of the category. Another key driver of ASP growth is the increase of home broadband speed itself as shown in a huge uptick in the ASP or the cable products. Cable ISPs have been upgrading their network to DOCSIS 3.1 for higher speed, thus necessitating cable modem and gateway upgrades to run these elevated speeds. DOCSIS 3.1 cable CPEs are much more expensive than DOCSIS 3.0 CPEs. The average broadband speed in the United States has grown 36% just in the last year. And in many cases, we are paying less for it. For example, in 2019, customers would pay between $100 and $140 per month per gigabit service from cable Internet providers like Comcast. Today, they can get between 1.2 and 1.4 gigabit service for $70 to $80 per month, and it's broadly available, no longer just in the large metro areas. As a result, more households are upgrading to this new 1.2 to 1.4 gig speed tiers or at least to 500 megabit per second. The faster the Internet speed a customer subscribes to, the more likely they will experience bottlenecks in performance due to their outdated WiFi 5 networks. So they are driven to upgrade typically for a higher-performance, higher-priced solution. At last year's Analyst Day, we introduced a new segment within the home WiFi market, the premium tri-band segment. These are customers with large homes, loads of the latest connected gadgets and an uncompromising need for best-in-class performance, privacy and security that only NETGEAR can deliver with our innovative tri-band WiFi 6 Orbi mesh products. In the last 2 years, tri-band WiFi 6 systems have grown from virtually nothing to over 33% of the overall WiFi systems market. And a subset of this segment is well over $500 in ASP: the ultra-premium segment. This segment has grown to over 13% of the mesh systems market in the last 2 years. We believe we have over 60% share in this ultra-premium segment with our recent introduction of quad-band Orbi 6E. We are laser-focused on growing this segment to over 25% of the total mesh market in dollars in the next 2 years, and we intend to maintain or increase our 60-plus percent share in this ultra-premium segment. NETGEAR has, by far, the most robust portfolio of tri-band WiFi 6 mesh systems, covering all of the premium price points. Our Nighthawk Mesh and Orbi 7 series for the sub-$500 customer; the Orbi 8 series, which has been the best-in-class WiFi system for the past 2 years covering the sub-$1,000 market; and we are now pushing our high-end price points to $1,500 a with our new quad-band WiFi 6E Orbi 9 series. It's been just over a month, but we are very pleased with the reception of this new solution. Our Orbi 9 series is the world's first quad-band system. It pushes the limits of home networking by leveraging new 6 gigahertz spectrum, which has much less congestion to deliver more capacity and bandwidth to home networks than ever before. Packed with powerful features, including 10 gig ports, a dedicated backhaul and an advanced antenna design, this is the new best of the best. With over 25 years' experience in innovation and networking, NETGEAR is the only company in the world who can develop such a unique and powerful WiFi solution. We have over 150 wireless patents covering all aspects of our Orbi technology. For example, coexistence and multiband operation, which allows our tri-band and quad-band products to achieve high performance without wireless radios interfering with each other. Dedicated backhaul, which gives our Orbi a huge performance advantage in homes with large numbers of devices. Channel steering and roaming make sure WiFi devices are always connected to the best node on the network. Machine learning and topology optimization, which ensures the correct connection between Orbis especially in those very large homes and properties that have 4 or more Orbi satellites. Our technology partnerships with silicon providers and with RF front-end component suppliers keep us ahead of the curve. In most cases, we are codeveloping designs with custom components with our partners. Our RF system design is light years ahead of competition, placing antennas in just the right locations to reduce interference and deliver optimal performance and range. Our investment in the wireless domain is what will give us a sustainable competitive advantage in this premium segment for years to come. Now I'd like to share a short video showcasing our wireless innovation with our new WiFi 6E quad-band Orbi. [Presentation]

There is no end in sight to the growth of the ultra-premium segment. Broadband speeds continue to increase. For example, Comcast recently announced their successful testing of 10G technology. The path towards delivering 10 gigabit to the home across the United States. The number of connected devices will continue to grow, especially in the homes of the high-end customer. 485 million connected devices are expected to be sold in the U.S. in 2021, growing to 520 in 2022. WiFi 6E will transition to WiFi 7 in 2023, again, raising the bar on performance to 10-gig network capacity and resistance to wireless interference. And just a few years later, we will have WiFi 8, which will power the applications of the future. The metaverse for home and office uses with its 3D graphics, virtual and augmented reality will have tremendous demands on our network and WiFi in particular. Even today, virtual reality requires between 5 to 6 gigabit per second and latency equivalent to wired network connections. The bar will certainly go up in the coming years, and NETGEAR will be at the forefront of WiFi to support it. As we move from WiFi 6E to WiFi 7 and then to WiFi 8 to support these demanding applications, our radio frequency expertise becomes even more valuable. In the last few years, we've gone from dual-band to inventing tri-band to now inventing quad-band WiFi 6E. The more WiFi bands used in a home network, the better the performance, capacity and efficiency, but also the more challenging as the wireless radios in those bands have tendency to interfere with each other without NETGEAR's specialized designs for coexistence. As we move into WiFi 7 and 8, more frequency will be available, and the best performance will come from using 5 or more WiFi bands simultaneously. This plays directly to NETGEAR's core competency, cutting-edge WiFi for the ultra-premium customer segment. I've talked a lot about this ultra-premium market and these customers. But who are they? Well, our customer surveys give us insight. They subscribe to the fastest broadband speeds, in most cases, up to 1 gigabit or more, and they don't want their broadband connection to be bottlenecked by poor WiFi. They are loyal NETGEAR customers. Over [ 3/4s ] owned a NETGEAR product in the past experiencing firsthand our product superiority. They are, therefore, more likely to purchase additional NETGEAR products like our mobile hotspots for remote work or a second and even a third home. They love the latest and greatest technology. Over half have more than 25 WiFi devices and 3 or more wired devices on their home networks. They have very large homes which means they not only have a lot of area to cover with WiFi, but also they are higher income and can, therefore, afford the best of the best. Last but not least, around 15% of them subscribe to one or more of our services. For the recently introduced quad-band, the paid subscription rates are more than 45%. Not only is the ultra-premium customer aligned with our product and service subscription directions, but they are also aligned with our direct-to-consumer sales strategy for the ultra premium products. Our subscription attach rates on our netgear.com direct store are over 40% for those purchasing our $500-plus products and 65% for those buying $1,000 solutions. As the market and our business moves upstream, we will convert more and more of our customers to long-term recurring revenue subscribers. Key to our strategy of targeting the ultra-premium segment is growing our direct-to-consumer business through netgear.com web stores worldwide. As you can see, our product mix on our direct store is highly skewed towards the high end. Our premium customers choose to engage with NETGEAR directly. They come to our site for the curated shopping experience to find the right product for their needs and purchase directly from NETGEAR. In summary, we are moving to a post-pandemic world where we are all going to depend on WiFi connectivity more than ever before. Nobody more so than the high-end customer, who demands the best and is willing to pay over $500 to get it. This segment is large, it's growing, and NETGEAR is the only company who can deliver to the customer needs. It is also a profitable segment as these customers are not just loyal but most likely to subscribe to our value-added subscription services. So now I'd like to introduce our Chief Marketing Officer, Heidi Cormack to discuss how we will market to these customers and bring them to our online stores worldwide.

Good morning. I'm Heidi Cormack, Chief Marketing Officer at NETGEAR. As you've heard from David, the customers that make up the super premium portion of the market have incredibly high expectations when it comes to connectivity and demand and uncompromised WiFi experience. These customers choose NETGEAR because of our trusted brand and reputation over the last 25 years, the best-in-class performance, the very latest WiFi technology and secure, reliable, high-performance whole home WiFi coverage. NETGEAR is the brand of choice for ultra-premium WiFi powering sophisticated smart homes around the world. Our netgear.com direct stores are perfectly poised to serve these customers who want a direct, personalized and ongoing relationship with our brand because they are highly invested in the products that they choose to deliver the best-in-class WiFi solutions for their uncompromising needs. And it's where we are able to serve them more completely with the curated premium brand experience. Our strategy focuses on 3 key areas: building a premium brand that powerfully defines our unique position in the market and capitalizes on the exceptional quality of our superior WiFi solutions and rival performance and market leadership. And we're investing in highly targeted performance media campaigns, utilizing insights and data to target the right customer with the right content at the right time. We're meeting these consumers where they are online and distinctively engaging with them at each stage of the consideration journey, bringing thousands of qualified customers every day around the world to our netgear.com sites. And we're also providing an exclusive destination to engage with these customers with a premium and differentiated experience through rich content, product selectors and a live chat concierge service to discover, learn, shop and buy the best WiFi solutions for home available on the market today. Our focus over the last 18 months has been to build a digital platform where both new and loyal customers have the opportunity to explore and learn about our full assortment of world-first technologies with uncompromising WiFi performance. You can get an exclusive first look and be able to preorder the newest product introductions that deliver exactly what the NETGEAR brand is known for, such as the recently announced Orbi 9 series quad-band WiFi 6E mesh system. Along with access to unique offers only available on netgear.com such as the Orbi Black Edition, the Nighthawk M5 unlocked mobile hotspot and Orbi WiFi 6 bundles combined with our value-added services. And subscriptions and elevating the premium shopping experience even further, NETGEAR concierge provides direct access for customers to engage with the Concierge product expert in real time via live chat, phone or e-mail for prepurchase advice and product and service recommendations. And to round out the end-to-end premium shopping experience on netgear.com, we are now rolling out in-home installation services, already live in 6 regions around the world with more to follow. These programs, combined with a specific focus on new products at the super premium end of the market are driving rapid growth of our NETGEAR online stores worldwide. We are encouraged by the growth we are seeing on netgear.com with premium mesh products making up over 50% of total sales, an average order value increasing every quarter over the last 6 quarters and customers engaging with our concierge product experts result in higher spend per order and higher service attach rates. And as David mentioned, customers who purchased premium products directly on our netgear.com store are much more likely to subscribe to our value-added subscription services, such as Armor network security and ProSupport, adding extended warranty and 24/7 support to their purchase. And we're scaling globally with direct stores now available in 15 countries around the world, and we continue to enhance our digital experiences and capabilities worldwide. In closing, I want to reiterate how excited we are about the future of netgear.com stores where we can precisely curate our expression of the NETGEAR premium brand and provide a comprehensive nation to introduce, educate and provide ongoing support to our customers and ultimately build a direct business that drives a substantial portion of total CHP sales worldwide. Our target for 2022 is 10% and will grow from there. And now I would like to introduce Bill Shapiro to share the update on subscription services.

Hi. I am Bill Shapiro, Vice President of Product for Apps and Services at NETGEAR. I want to give you an update on our progress in building a substantial recurring revenue business within NETGEAR. As Heidi described, we are seeing significant and growing interest in services. As the number of smart home devices in the average home continues to increase, WiFi systems need to do much more than just provide reliable WiFi. Our research shows significant consumer needs around 4 broad areas: security, privacy, performance and support. We have focused on building services that cater to each of these needs. For security and privacy, NETGEAR Armor and smart parental controls. For performance, we are initially targeting gamers who have some of the most extreme performance needs with game booster, and for support with our ProSupport offering. In fact, in the last year, consumer interest in network services in these areas has roughly doubled. As the complexity of the home network continues to increase, we expect services to become increasingly essential. Consumer needs around security are evolving quickly. In the '90s, after computer viruses became commonplace, antivirus software usage grew rapidly into what is now a $3.5 billion per year business. We are starting to generation of that trend. In the first half of this year, cyber attacks on smart home devices grew more than 100% with attackers looking to steal data, extract a ransom, mine crypto currency or build botnets that allow them to launch large-scale attacks. You have probably heard about some of these threats in the news, phishing e-mails asking for proof of vaccination that convince users to enter sensitive information like their date of birth and social security number, which can then be used to steal their identity. Insurers are reducing cybersecurity coverage because they are losing money from ransomware attacks. Cyber criminals are taking over poorly secured smart home devices to mine cryptocurrency. And smart home devices are becoming ripe targets for hackers to build bot nets which they can then use to launch large-scale distributed attacks using consumer smart TVs, security cameras, smart appliances and other devices. These next-generation threats require next-generation solutions. NETGEAR Armor is a cybersecurity solution that is built into the router and protects all the devices on a consumer's network. It also includes software that can be installed on PCs or phones for on-the-go protection and VPN. We recently released a new version of NETGEAR Armor that includes significant security and privacy enhancements focused on smart home devices. Pricing is now $99, up from $69 to reflect the value the service provides. Armor provides an all-in-one solution that is more comprehensive than traditional solutions that are installed on PCs. And we expect that most consumers will great network-based security solutions over the next several years. Approximately 15% of our new premium Orbi customers are subscribing to NETGEAR Armor and approximately 85% are renewing after 1 year, which shows that users are seeing the value in the solution. Consumers are increasingly concerned about keeping their personal information and Internet activity private from their ISPs, from governments and especially from advertisers. Unlike many of our competitors, NETGEAR has no advertising business. so we can credit simply help prevent consumers' Internet activities from being tracked. Today, we offer VPN as an add-on service to Armor. In the next year, we plan to significantly enhance our privacy capabilities with the goal of having among the most comprehensive and trusted consumer privacy safeguards available. We have rolled out Smart Parental Controls across our premium Orbi devices now providing a comprehensive solution for parents to keep their kids safe online and create healthy Internet habits. Smart Parental Controls allows parents to set age-appropriate content filters for their children, monitor what websites their children are accessing, limit the amount of total screen time, enforce a bedtime and give extra screen time as a reward. Smart Parental Controls is the most comprehensive solution for parents available for WiFi. We will soon be releasing our first service focused on performance for gamers. Game Booster will reduce lag when playing games by prioritizing local servers and minimizing ping times, making players more competitive. It also allows subscribers to prioritize traffic, whether gaming, Zoom or other applications and to block ads and trackers on all devices. Heavy gamers are particularly important segment as they are among the most likely to upgrade their WiFi and none of our competitors offer a comparable solution for gamers. We plan to continue to expand our offerings around performance beyond gamers focusing on work from home, buffer-free high-quality streaming and other important consumer needs. Armor, Smart Parental Controls and ProSupport are all strong offerings, but we are seeing that consumers adopt them at even higher rates and higher ASPs when bundled together. As an example, approximately 45% of customers that purchase premium Orbi products on the NETGEAR store choose a bundle that includes services. Based on these learnings, we are working on a membership that is an essential companion to users' WiFi devices and will offer a compelling set of functionality around security, privacy, performance and support at an incredible value to users. We are on track to grow subscriptions by more than 30% in 2021 to 575,000 and we project that subscriptions in 2022 will also grow at a similar rate with the goal of 1 million subscriptions in the next few years and 2 million subscriptions within several years. ARPU is currently more than $50 with gross margins greater than 50%. We expect ARPU to increase to the $60 to $70 range in the next few years and continue higher from there with gross margins greater than 50%. When consumers subscribe to a service, we typically offer promotional pricing in the first year but consumers then renew at full price. As our subscription business matures and consumers renew for a second year and beyond, ARPU increases. We are also doubling down on the success we are seeing when bundling services together. We will increasingly be offering all-in-one packages that provide more compelling value to consumers at a higher overall price. 2 million subscriptions at a $70 ARPU would be $140 million per year high-margin subscription business. In summary, we created a new premium WiFi segment that is more profitable and is growing. Premium customers attach services at a high rate, helping to fuel the growth of our subscription business to more than $140 million per year in the next several years. NETGEAR's online store is an accelerant for both premium Orbi and services. When we are able to directly engage with our customers and present the full value of what we can offer, they choose both premium Orbi and services at very high rates. I'd now like to introduce our Senior Vice President of SMB, Vikram Mehta.

Hello, everyone. It's good to be back with you. My name is Vikram and I lead NETGEAR's SMB business. 2021 has been a year of progress in fighting the pandemic and reopening for businesses small and large. At last year's Analyst Day, we predicted that the work-from-home model was here to stay. And as such, we had a long runway to grow our wireless LAN business. During the first 3 quarters of 2021, our wireless LAN business grew well over 70% over the same period in 2020. We are winning over small and home business customers by providing the latest in WiFi 6 technology with VLAN capabilities to separate business traffic from home network traffic. Just last month, we added a VPN service to our home office network offering, so professionals can be cloud connected to their office network from wherever they are, as if they are working from their office location. Growth in our wireless LAN business in 2021, despite supply challenges, has been impressive. However, the start of the SMB business has been our managed switch portfolio which has also grown well over 70% over the same period in 2021. And this is the result of our focus on the ProAV market. The ProAV market is about purpose-built Ethernet network equipment that will reliably transport audio and video signals for an endless list of video and audio rich applications. Examples include next-generation recording studios, digital umpiring of sporting events, robot-assisted surgical procedures, resort, casino, commercial and residential video walls, digital signage at transportation hubs, home automation and AV entertainment, e-gaming lounges, corporate communications, digital classrooms, data visualization for sporting and other events, digital green screens for the movie industry and the list goes on and on and on. We, at NETGEAR spent 2020 and the early part of 2021 bringing to market a family of managed Ethernet switch products that were specifically tailored to the unique needs of the AV industry, low latency, low jitter, lossless transport of audio and video packets, ports in the back and LED identifiers in the front, consistent with other AV equipment in the rack, APIs to allow seamless integration of the network switch with other AV equipment and configuration presets that reduce AV deployment times by as much as 75%. As a result, the world's leading AV equipment OEMs are taking advantage of the rich feature set of our AV line, including its APIs and configuration preset capabilities to deliver robust and more comprehensive AV solutions. At the end of our fiscal Q3 2020, we were doing business with 3 of North America's 50 largest AV integrators. A year on, we're doing business with each of the countries largest integrators. Internationally, we're doing business with the most prestigious names in the European and Asian AV integration industry. Today, marquee businesses around the world from a multitude of industries rely on NETGEAR's AV line of products to successfully integrate audio and video streams into their business workflows without compromising security and all while enhancing employee productivity. And this list of integrators that we are working with keeps growing. Take a look at this brief video to see how NETGEAR SMB is changing the way people live, work and play. [Presentation]

In the post pandemic world as businesses embrace a hybrid working model, NETGEAR SMB is in pole position to accelerate growth and build momentum. In summary, despite supply chain challenges that have consumed our industry NETGEAR SMB has seen impressive growth in both our wireless LAN and ProAV business. And in 2022, you can expect us to double down our focus on these vital growth segments. Thank you for your time, and I wish you and your loved ones a safe and restful holiday season and the very best for 2022. And now I'm going to turn it over to our CFO, Bryan Murray.

Hello. I'm Bryan Murray, Chief Financial Officer of NETGEAR. I'd like to begin with a review of our anticipated 2021 performance relative to the expectations that we shared at this time a year ago. during our 2020 Analyst Day. From a top line standpoint, we continue to see the TAM for CHP products remain elevated above pre-pandemic levels. After seeing the market elevated at 40% over the first half of 2021, we believe the market is now settling at about 15% above the 2019 market size, albeit this is lower than we had expected entering into the year. However, our SMB business exceeded our expectations throughout the year, all in the face of significant supply chain challenges. We'd expected this business to grow 10% for the year, but believe we are on track to deliver over 27% growth. This has clearly been driven by growth in our wireless LAN offerings, and as Vikram touched on earlier, our ProAV switching products that continue to gain momentum as AV applications upgrade to Ethernet-based platforms. Taking a deeper look at our 2021 expected revenue performance for our 2 business segments starting with CHP, we expect 2021 revenue to be above pre-pandemic levels using 2019 by approximately 20%. Similarly, if we look at our SMB business, while we continue to operate in a supply-constrained environment, we expect 2021 revenue will be about 10% higher than 2019. Furthermore, we expect this trend to continue into 2022, and we anticipate about 10% growth in SMB revenue. Looking at our non-GAAP operating margin performance and referencing current consensus of 8%, we will fall short of our expectations entering the year of 9% to 10%. We encountered 2 challenges during the year that shaped this result. First, the CHP market subsiding as economies around the world started to reopen as vaccinations were administered. And while our SMB business outperformed our expectations, that wasn't enough to offset the lost top line leverage that we had expected, costing us nearly 200 basis points. Secondly, the cost of transportation continued to impact us throughout the year and even accelerated in the second half, we saw the cost of sea freight increased to about 8 to 10x historical levels, coupled with increasing component costs. This contributed to about 120 basis points of margin degradation from what we had thought at the start of the year. While the increased mix of SMB business added approximately 100 basis points to our margin, it was not enough to offset the aforementioned headwinds. As we look towards 2022, we see the cost of sea transportation remaining elevated with expectations that they will reduce in the second half of the year. But still remaining at a level of 3 to 4x what historical costs were. We think relative to 2021, this will be about a 200 basis point headwind in our non-GAAP operating margins. With that impact being cut in half as we look to reduce airfreight from 2021 levels. Additionally, we have seen cost of components on the rise in the latter part of 2021 with many chip manufacturers announcing meaningful price increases, which we believe is 400 basis point impact to our operating margins. We are considering these costs when pricing new products, and we do expect to selectively increase pricing on our existing portfolio in 2022, which we are aiming to offset the cost pressures over time, especially in the second half of the year when we expect the cost of sea transportation to reduce. We remain focused on 4 very promising market opportunities that we believe will drive our top line growth. The first such opportunity is ProAV. And as you heard from Vikram, there continues to be strong momentum in this space, and we believe it can be an incremental $100 million in revenue for us in the next 3 years. Secondly, SMB wireless LAN products have shown tremendous growth for us, albeit from a relatively smaller base. We see this to generate an incremental $50 million in top line growth for us in the next 3 years. On the CHP side, the super premium mesh tri and quad-band Orbi that are $500 plus and ASP will generate an incremental $100 million in revenue for CHP in the next 3 years. And for the subscription services, we see there is another $50 million incremental revenue opportunity. So together, we are looking at approximately 300 million in incremental top line opportunities in the next 3 years. Most of the benefits will be expected to start after the supply challenges eased beginning in the second half of 2022. These 4 growth areas should put us into mid- to high single-digit top line growth, which we believe will begin in the second half of 2022. For the first half of 2022, we will have tougher comparisons for the retail portion of CHP business versus the first half of 2021, which was still deep and pandemic shutdown. We do see a couple of factors driving seasonality of our top line in 2022. Starting with our CHP business, expecting to return to more normal patterns where we typically see decreases in the retail portion of the business of 10% to 15% in Q1 off the holiday promotional period from an end-user sales perspective. However, we believe the impact will be muted on our revenue given the efforts we've taken in the second half of 2021 to optimize our channel partners inventory positions. Additionally, we expect to continue to face supply challenges in our SME business in the first half of the year, with anticipated improvement in the second half. Accordingly, we expect the first and second quarter revenues to be relatively flat to Q4 2021 and then see a 20% increase in the second half relative to the first half of the year. We continue to be excited about the margin opportunity provided by our services business. As you heard Bill share some of the exciting efforts that we are planning for in 2022 and beyond, we expect services to be a meaningful contributor to our overall operating margin performance. Continuing on with framing this in a similar light as in years past, you can infer from this sensitivity analysis where things stand today with our ARPU currently just over $50 and with expectations that we will exit 2022 with 750,000 subscribers, we would expect services to be contributing over 120 basis points to 2022 margins. As we continue to work towards milestones such as 1 million subscribers, which we believe we can reach in the next 3 years, or our long-term target of 2 million, you can really see the margin expansion opportunity this business offers, especially as we find opportunities to increase ARPU by increasing the value of these services to our customers. As we expected, 2021 was a year of investment for working capital needs as we look to replenish our inventory position that was constrained coming into the year. While we still have work to do in regards to SMB supply, we believe the most significant work is behind us. Accordingly, we would expect to return to a more normal cash conversion ratio of approximately 100% of non-GAAP net income. As we look at uses of our cash, there are really 3 main areas of focus. First will be operational uses and investments in R&D and marketing, especially with those efforts is tied to services, and our direct-to-consumer experience as both Heidi and Bill touched on. Secondly, M&A, as we continue to look for strategic assets that can further our growth in any of the areas that the team has touched on today. Lastly, you can see we have been meaningful repurchasers of our common stock with $157 million spent in less than 3 years or 102% of the free cash flow generated over this time. With the Board's recent authorization, we currently have 4 million shares remaining under our program. I wanted to revisit and summarize some of the opportunities and headwinds that we see heading into this next year before providing guidance. In the near term, we are faced with increased cost of production and transportation. We also continue to face supply constraints on many of our SMB offerings, which we expect will continue through the first half of 2022. That said, we are very encouraged by some of the tailwinds that will support our future growth. To start, we maintain that hybrid work is here to stay, placing a higher value for high-performance WiFi throughout the home for consumers. We continue to see the fastest-growing sections of the market being the premium, which carries higher product margins as well as higher attach rates of our service offerings. Lastly, we continue to see growth in our higher-margin SME business, largely driven by wireless LAN upgrades and installations for many newly formed businesses and the impressive momentum in the ProAV space. While we take this opportunity to provide annual guidance for 2022, we do so with the caveat that we are still dealing with a challenging marketplace with a number of risks and uncertainties. I would urge you to look through our most recent filing with the SEC, which detail these risks. From a top line standpoint, we expect 2022 revenue to be a tale of 2 halves. For the first half of 2022, we expect our overall revenue will be down approximately 15% as compared to the first half of 2021. In the second half of 2022, with supply constraints are expected to ease and the comparisons improve, we expect our overall revenue to be up 15% to 20% as compared to the second half of 2021. As such, overall 2022 revenue is expected to be flat to 2021. From 2023 on, we expect we will be able to maintain mid- to high single-digit top line growth. While we expect with the continued growth in SMB, which carries higher margins and further expansion from services, we are faced with headwinds from rising costs of both components and transportation, which we are aiming to offset through higher-margin new product introductions and selective price increases throughout the year in 2022. So from a margin perspective, 2022 will again be a tale of 2 halves. We expect our non-GAAP operating margin to be in the range of 3% to 4% in the first half of the year and 8% to 9% in the second half. We believe this will deliver 6% to 7% for the full year. Also, while it remains uncertain what if any tax legislation will be implemented, we are currently guiding our non-GAAP tax rate to be approximately 25%. We expect to generate free cash flow at a rate of 100% of non-GAAP net income. And last but not least, we expect to exit the year with approximately 750,000 subscribers of our value-added service offerings. Looking at the longer-term model, the continuous double-digit growth of the 4 areas namely premium mesh WiFi, home and micro business WiFi, ProAV, and subscription services combined should enable us to aim for mid- to high single-digit overall revenue growth as we look beyond the first half of 2022. While we're aiming to get to 1 million paid subscribers in the next 3 years, we do believe we can go beyond that with an aim to reach 2 million, which propels us towards the target non-GAAP operating margin of 15%. All of this contributing to low double-digit non-GAAP EPS growth from the second half of 2022 on. With that, I'll now turn it back over to Patrick.

Hi, everyone. So as you can see, everyone at NETGEAR is very excited about all of these top and bottom line growth opportunities. I think, it is the most exciting time for the last few years that we could see these trends materializing. And everyone is going to be focused very, very much on expanding this. As Bryan Murray just said, these growth opportunities gave us at least a $300 million incremental top line and an even better bottom line in the next 3 years, but we believe these trends actually will go beyond 3 years and will offer even more growth opportunities beyond. So with that, I would like to open it up for Q&A. So operator, could you introduce the Q&A procedures.

[Operator Instructions] Your first question comes from the line of Adam Tindle with Raymond James.

Okay. I wanted to start with Bryan's comments and maybe Patrick can weigh in a little bit as well. But on the shape of the year for next year, with the back half revenue being 20% above the first half. Just wondering what kind of visibility that you have to commit to that sort of an uplift at this point. I was going back to the model, and I don't know what a normal year is, but 2019 would be the closest one, and that split was less than 10%. So more than double what a normal year would be. I know you have a lot of moving parts in there. So maybe you can unpack that level of comfort to go out and talk about that big back half uplift at this point.

Yes. First, I would like to just lay in on the supply side. As everybody knows right now, the chip supply lead time is somewhere around 36 to 50 weeks. So our visibility of supply, especially on the SMB side is clearer for the second half of next year, and that will really add tailwind to our SMB revenue growth. Other than that, I mean, we know in the first half of 2020, at least we're still in the pandemic era, so the comparison will be tougher. But then in the second half, clearly, we have some channel optimization of inventory to do in 2021, so into 2022, it will be a much better comparison for us. So these 2 factors together give us some confidence why the second halves will be characteristically much bigger than the first half. So maybe, Bryan, you could add someone to it?

Yes, Patrick, I think you covered a lot of it. I would just add that the momentum that we continue to see on the premium WiFi system market, we've talked already about the introduction of the quad-band WiFi 6E product that's now out in the market. The vast majority of those sales are going through our direct-to-consumer sites. So we have real-time information there. We know what the real demand is, including back orders when product is out of stock. So I think all of those things, the supply challenge that we faced in the first half that Patrick touched on with regards SMB. And then going back to kind of a normal seasonal uplift and likely a more normal seasonal promotional period with some of our channel partners. I think all those factors, what's compelling us to show a slightly higher uptick in the back half of 2022.

Okay. And I think one other factor that you mentioned was potentially thinking about some pricing that was more in the conversation to offset some of the costs that you're incurring, but just wondering if you could maybe double click on to what level of pricing and magnitude are you thinking about the timing for that? And then the competitive response. You're already talking about Amazon and Google, really commoditizing pricing and then into 2022, you're going to look to raise prices. So maybe just a little bit more conversation around strategy for pricing.

Yes, we had experienced before when there is industrial disruption. And our experience was that raising prices on existing products, especially in the more the mid- to low end will be detrimental to the overall business. So the best way for us to do, number one, is to continue to introduce new products with higher margin at the super premium end and as well as to selectively raise prices on premium products that we have much less competition where there is much less price elasticity. So that's what we're going to do. And you'll see us, for example, like just the introduction of the quad-band at $1499, a significantly higher ASP than our existing product and also higher margin. And then across the board, we'll select a few products that we do not see a lot of competition that will increase prices. Now throughout the 2022, we will have more of the premium products introduction that will enable us to continue to shift the mix of our products into higher margin. So maybe, Bryan, you could layer on that.

Yes. I think you touched on it. As you said, we're going to be very selective on where we raise prices. To your question, Adam, with regards to the competitors, again, as you've been hearing throughout this whole presentation that we're focusing on the premium portion of the market, which our competitors are not. So I don't know that reaction there, what impacts [indiscernible] impact our strategy. As we raise prices, it is likely that some of the lower price, lower margin components to the market that we will lose some volume, but that's almost by design, as we've said, the strategy is to go upmarket.

Got it. And one last one for me, just a strategic question on the DTC initiatives, which makes a lot of sense. Just wondered if you could maybe touch on your competitive advantage in this sort of a world. You've always outlined in physical retail, how those retailers appreciated, how NETGEAR push price higher. You guys are experts at shelf space and end caps, that sort of a strategy. When it comes to DTC, what would you kind of say that your competitive advantage relative to that physical retail? And why accelerate that strategy now? Is there any comment on the physical retail economics that have changed that are pushing you to accelerate that initiative?

Well, there are two areas that are particularly relevant to direct contact with customers as we push to the super ultra premium end the market. The buying experience and the customer engagement with suppliers are very different. So as Heidi mentioned, the concierge service, in-home installation service, the product selectors, you just cannot get that experience in any of our reselling partners. So we believe the best way to really satisfy that user experience is through our direct sale and it's already giving us results. So maybe, Heidi, you could add on to that?

Yes, sure, Patrick. So I think we've all seen and you mentioned this at the start of the presentation. Over the last 2 years, we've certainly seen the accelerated shift to online and consumers are much more comfortable shopping online, and they're much more comfortable engaging directly with the brand and buying directly from their site. And we're particularly seeing that at the premium end of the market. And as Patrick mentioned, our customers have incredibly high expectations and they are making a significant investment in a top-of-the-line product, right? And so having that direct access for that presale support with our concierge service, the in-home installation product selectors to help them choose, has certainly been a benefit. And we're seeing great success on our direct stores offering those services along with the fact that we can offer our value-added services directly on our stores as well. And as Bill mentioned, customers are enjoying that value that they're able to get when they buy directly from NETGEAR as well bundling the premium products and the services together.

Yes, I just would like to lay on top of that. A good example is the recent introduction of our quad-band Orbi 9 series. We have it available not just on our own website, but also on 2 other important channel partners as well. Given the ASP at $1499, as it turns out that our own website, which are mostly catering to our installed base, as you have seen on the presentation, these outer premium customers are usually repeat NETGEAR customers, they know to come to our website to look for help and look for products. So with the quad-band Orbi 9 series, we actually -- even though it's available in other channels, we outsell any one channel 3 to 1 -- more than 3 to 1 on our own website. So that proves the point that is important for this direct customer engagement.

Understood. I just wanted to quickly clarify with Bryan. I noticed that you talked about 100% free cash flow conversion, which I think is an improvement and fairly significant. You already have a lot of net cash on the balance sheet. Did you touch on capital allocation? Could you maybe just talk about priorities for that given the amount of cash that you [indiscernible] on the balance sheet and cash flow coming?

Yes. So go ahead, Bryan.

Yes. So the free cash flow conversion that we're citing for next year. It's kind of back to our norm level. So we think we'll return this year, obviously, 2021 was a year of replenishing our inventory level. So we knew this was going to be an exceptional year for us. In terms of uses, I touched on a bit of this earlier in the presentation, but certainly, internal organic investment in areas that support our subscription services business growing that as quickly as we can. And as we were just talking about the direct-to-consumer store, right, creating that premium experience and investing in that is 2 areas that we'll be investing in internally. Externally, again, M&A, we look at opportunities all the time. Any of the areas that we touched on today, I think, are good candidates for us to explore. It's about finding the right fit, the right value. And then share repurchase, we're going to continue to be opportunistic buyers of our stock. You saw back in October that we increased our authorization and the Board increased an additional $3 million taking us to about 4 million shares available as of right now. So those would be the 3 areas of using our cash.

Our next question comes from the line of Jeffrey Rand with Deutsche Bank.

You talked about going from being integrated with 3 of the top 50 U.S. ProAV integrators at the end of 3Q '20 to now all 50. Can you talk about what allowed you to expand your partnerships so quickly? And how should we think about the size of the revenue contribution from ProAV in 2022?

Yes. I think in the presentation of Vikram, the most important thing was, in 2021, actually towards the end of 2020, we introduced a new line of 1 gigabit ProAV switches, the M4250, with the LEDs in the front and the ports in the back which is really well integrated with the AV equipments. And with this, we gained a lot of momentum in recruiting the AV integrators. So maybe, Vikram, you could add to that and what's that momentum driving us from 3 in the U.S. into the top 50 in all regions? Vikram?

Okay. Patrick, can you hear me?

Yes, go ahead.

Okay. Sorry about that. So yes, we're very excited, first of all, about this whole ProAV opportunity. Over the last 12 months, we've introduced something like 11 products in the portfolio to very specifically address the unique gigabit and 10-gigabit and aggregation requirements of the ProAV market. Customers have very unique deployment requirements, such as they want products to be famous. They want products to be very low ambient noise because they're deployed in conference rooms, et cetera. They have very specific requirements with regards to form factors. They have very specific requirements with respect to reducing the amount of installation time it takes to be able to pair these things up and marry them up with other AV equipment, the software features, et cetera, and a tremendous amount of work in that area to be able to enhance our capabilities. And as I mentioned in my presentation, the fact that we are doing business with 50, all 50 of the largest AV integrators in the United States I think bears testimony to the fact that people have really taken to the products that we have introduced in this market. And we're a newcomer, we're newcomer to this market. So we are clearly taking market share from other people.

Yes. So the bottom line in one word is product.

Got you. Great. And the consumer WiFi market in the second half of 2021 was obviously not as strong as you had expected earlier this year. Can you give us some insight into why you think the market underperformed? Was it consumer spending just shifted more towards other goods? Did consumer spending just disappoint? Kind of just some color on the main causes of demand not being as strong as you originally expected.

Right. So as you could see, even during the pandemic, the unit growth of overall routers plus mesh combined is not that huge. So all the purchases was driven by upgrades, upgrades in coverage and upgrade in speed. And since the upgrade was done mostly during the lockdown, once the lockdown is over, the desire to upgrade is not keeping up the momentum. So that's why in the second half of this year, it was lower than what we expected. But on the other hand, what we have just found out is, so rather than depending on mass upgrade of everyone in the market, now remember, WiFi penetration is almost 100% everywhere, right? So it's all the replacement market. So for us, we'd like to focus on the top end of the market, the top 10%. And these people tend to upgrade more frequently, and they tend to be willing to spend more money to get to much better WiFi experience. So we believe that, that's the strategy we take, and we're seeing that panning out with the introduction of our quad-band. David, you'd like to add anything to it?

Sure. Yes. I think as you pointed out, as the market was roughly up 15% in the second half, which was lower than we expected, the mesh systems category was up close to 40%, it looks like in the second half of the year. So that piece of the category, which is where we're investing, where we see the growth is still growing very quickly. And within that, the premium portion of WiFi system is expanding as a percentage of that mix. So while the overall market may not be upgrading as much, that premium segment definitely is.

Great. And just a final question for me is you mentioned about a home installation option from netgear.com. How big of an opportunity do you think this is? And how are you pricing this opportunity?

Yes. As a matter of fact, for the home installation, it's not so much about making money on the installation service itself. It's by providing the premium end-to-end experience to our super ultra-premium customers to get them to be comfortable to get upgraded all the time. And the last thing they have is time, that's the least they have. So if somebody could do the upgrade for them without them having to worry about it, then they will -- they have a higher propensity to upgrade along the way. So Heidi, would like to add anything to it?

Yes. Just to add to that, Patrick, the customers who are typically that we're seeing are using installation services, they're buying bundles as well. 4, 5, 6 satellites that they're adding to their kits. So the extra support to get that installed into their home and delivering the performance that they're expecting is important. So feedback from our customers through our concierge service is certainly encouraging. And we're seeing that in all of the regions around the world where we have the installation service available. It's certainly those premium customers who are buying those kits with more satellites that are definitely taking up the offer on in-home installation.

Your next question comes from the line of Paul Silverstein with Cowen.

If you've already addressed this, I apologize. I missed the very early part of the presentation. But with respect to your growth projection of $300 million incremental, including $100 million if I heard correctly from the premium portion of the market. What's the departure point? What are you doing in premium today? Can you remind us how you define premium? Is that any mesh system? Is it above certain price points, what's the definition? What's the size of that market? And then I have some follow-up questions. What's the size of revenue, excuse me?

Well, we don't break out the revenue by product segments. The super premium segment we talked all along in the presentation related to tri-band and quad-band mesh systems that's above $500 ASP and that's what we are talking about, and we believe that we are in a controlling driving seat to expand that market. Because as we said in the presentation, 75% of those customers are repeat customers. So it's pretty much our ability to continue to convince them to upgrade and shorten the upgrade time from 5 years to 3 years, from 3 years or 2.5 years. And every time the upgrade will be $500 more from the last time mean that's pretty much all determined by ourselves rather than by the market and the competitors. So that's why we see there's a tremendous opportunity. Now the experience we gained in the last 2 years and in the last 2 months are tremendous. All right. Two years ago, we introduced the Orbi 8 series at $1,000 ASP. We're just doing trial and error. We never knew that it would take off. And as a matter of fact, we did not prepare enough capacity or production to do it. And 6 to 7 months into the introduction in the gray market, that system was actually selling at $1,600. So we say, wow, there is a demand there. And then we started, well if somebody is going to buy in the secondary market for $1,600, maybe we should introduce one that really is $1,600. So that's why we worked on it and introduced a quad-band Orbi 9. And again, I mean we did not produce a huge quantity because we don't know what the demand is. But 2 months into the introduction and we only have it introduced in the U.S. and taking preorders in China and in the U.K. Again, the demand has just reaffirmed our belief that we can make this market as big as we want, all right, as long as we really could produce the right product and marketing the right message to our install base.

So Patrick, I appreciate and I'm aware that you have not provided the historical revenue base for ProAV or for your premium. And unless the answer is, Paul, we just entered the super premium segment, and that's what we're referring to in terms of the $100 million of incremental revenue. If you're projecting $100 million over 3 years from the premium segment, if you're projecting $50 million of growth for ProAV, and I'm not trying to be argumentative here. I'm just trying to understand. So don't you think it would be helpful for us to understand what the revenue base that's coming off of in terms of gauging just how realistic or not or the opportunity to exceed those goals or to come up short? Anything would be helpful to provide us with that revenue base? Again, perhaps the answer is it's de minimis, so it doesn't matter.

So as I said, we don't want to open the new behavior of breaking down our revenue by product line. But I think we have given enough hints, all right. As you say, the mesh market, all right, we have always been saying is more than half of the overall routing and mesh market. And 33% of that, all right, is of the tri-band and 14% of that is the $500 plus. I think -- and we also said the U.S. market is roughly worth about $1.2 billion a year. I mean you can do the math and figure that out. And on the ProAV side, we say the incremental growth is $100 million, not $50 million. It's $100 million. But if you look at it, I mean, today, our overall SMB business is roughly $320 million, all right? So you can kind of figure out what this $100 million mean. So I think there will be a good basis to start.

And what does the AV market look like today in terms of size, growth and competitive landscape?

I think in previous discussion, presentation, if you dig back into our previous discussion, we estimate initially the AV market -- ProAV market is roughly about $200 million opportunity. But as we introduced it, as Vikram said, now that market has expanded significantly because there are more applications coming online, all right? When we first introduced that, the market was probably worth $200 million. It's mostly about signage, it's mostly about video wall display. But as Vikram said, it has gone way beyond that now in the applications. Vikram, you may want to add some to color to that.

Yes, yes, sure. When I spoke to you last year and I spoke to you the year before that, we had a very narrow view of what the ProAV market opportunity was, primarily based on guidance that we were getting from the marketplace. However, the one thing that the pandemic has done, I bring up an example of this very call that is happening here, right. You would typically have to go into a studio, you would have to use complicated protocols like [ SMT ], et cetera to be able to broadcast to a wide audience like yourselves on Wall Street. Well, the pandemic did away with all of that. And now you have to have a professional studio environment set up in your home. That in and of itself is a multi, multi-hundred-million-dollar opportunity. You look at some of the things that are happening with businesses setting up remote capabilities, trade shows and other events that are happening in the marketplace, sporting events that are upgrading all of their infrastructure. So the opportunity from when I first spoke to you about this 2 years ago, at the analyst conference in New York, has increased multifold. And as I said in my presentation now, we've been growing way more than 70%. And we don't see that trend slow down at all.

As a matter of fact, when I add to it. I mean we talk about both the super premium WiFi, $100 million in the next 2 years. ProAV, $100 million for the next 3 years, but that's just for the next 3 years, it's not going to stop there. It will continue to go. Just a simple math, if, let's say, the super premium and ASP becomes $2,000, it doesn't really need that many units to get to $100 million a year. Do the math. All right.

Patrick, in the ProAV market, who's your success coming at the expenses?

Who is our success ...

Who are you competing against? Who is the major competitor?

Who -- so Vikram, who are your competitors, Vikram?

Yes, sure. Our principal competitor that we have taken a lot of market share from is Luxul, which is a Legrand company followed by Extreme. And I would say if I had to sort of go as far and say, "Hey, who is the third competitor that has been playing in this marketplace that we've been taking some market share from" is [ Dell ].

And there are no further questions. I'd like to turn the call back over to Patrick.

Yes. I hope everybody got a good understanding of why everyone in NETGEAR is so excited about all these growth opportunities. These are unique opportunities that is 100% fit to our technology leadership with a lot less competition with a lot higher margin than our traditional businesses. And the whole team and NETGEAR are really focused in executing the strategy, the product plans, the channel plans to make this $300 million incremental revenue happen and then go beyond that. So I would love to give everybody more progress on all these fronts in the next Analyst Day meeting in 2022, but I hope to see you all in more discussion in the interim in February. So thank you so much for joining us today.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.