Windward Management Issues Letter to NETGEAR Board Strongly Advising the Immediate Repurchase of at Least 25% of the Shares Outstanding (~$100M) & the Formation of a Strategic Review Committee to Examine Splitting off and/or Selling the NFB Segment
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Current net cash is equal to ~
80% of NETGEAR’s market cap & recent company-provided 2024 free cash flow guidance implies a de minimis, to potentially negative, enterprise value by year-end - Windward believes splitting off the NFB segment would create significant shareholder value as diligence and comp analysis suggest this historically growing and highly profitable enterprise business is likely worth the entirety of the market cap, let alone the paltry enterprise value
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Market is ascribing almost no value to NETGEAR’s business, despite the Company being a market leader in Consumer WiFi (~
35% market share) and possessing a hidden gem in NFB - Implores board to act swiftly to reward shareholders with highly accretive actions ahead of a significant and impending fundamental inflection over the next 6-12 months: WiFi 7 upgrade cycle, COVID replacement cycle/demand, channel restocking off of historically low inventory levels, and a potential easing of competitive dynamics, should the bipartisan ROUTERS Act gain traction
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Windward believes shares have
150% + upside potential over the next 12-18 months as excess cash is used accretively to shrink dirt-cheap shares, Consumer segment (CHP) returns to normal profitability and the unrecognized value of (NFB) is highlighted/monetized
May 24, 2024
NETGEAR, Inc.
Attn: The Board of Directors
350 E. Plumeria Drive
Members of the Board of Directors,
Windward Management LP (collectively with its affiliates, “Windward”, “we”, “our” or “us”) controls ~
We appreciate the Company and the Board’s efforts to navigate a multitude of headwinds coming out of COVID, including substantial supply chain disruption and working down significantly bloated inventories from a COVID-driven “hangover”; only further amplified by massive multi-quarter channel destocking, and an increasingly challenged macroeconomic environment. If that were not enough, this litany of headwinds was only further exacerbated by some misguided operational decisions under the prior CEO/Founder, and thus far we are aligned with several of the operational business decisions under the new CEO CJ Prober to reverse some of the damage shareholders have recently suffered through. Namely, pulling forward destocking to align sell-in with sell-through ahead of the imminent WiFi 7 upgrade cycle and going back to a “good, better, best” approach to recapture lost shelf space, both we believe are smart decisions. However, we strongly believe that the cash position of the business in the context of the Company’s current valuation necessitates swift and decisive actions on the capital allocation front:
1. As of the end of Q1 2024, NETGEAR has over
2. Given the market is ascribing close to zero value for a market-leading business that’s generating cash, it’s imperative that the Company increases its repurchase authorization to at least
3. We urge the Company to create a strategic review committee to explore splitting up its Connected Home and NETGEAR for Business (NFB) segments. NFB has consistently posted contribution margins of
While these capital allocation initiatives would create substantial shareholder value, we are further emboldened by our belief that there are significant and underappreciated tailwinds behind NETGEAR’s business fundamentals moving forward. Channel inventory levels are at historic and unsustainable lows, a WiFi 7 upgrade cycle is on the horizon, consumers are due to refresh their routing equipment, NETGEAR remains a market leader in home networking (~
Shareholders would clearly benefit from aggressive and timely share repurchases in advance of that inflection. It’s unacceptable to sit on the sidelines with the magnitude of liquidity NETGEAR has at its disposal and with where shares currently trade. We urge the Board to consider the timeliness and gravity of the matter at hand.
Sincerely,
Marc Chalfin
Chief Investment Officer, Windward Management LP
View source version on businesswire.com: https://www.businesswire.com/news/home/20240529218081/en/
Theodore Woo
Chief Operating Officer
(786) 206-3126
ted@windwardmg.com
Source: Windward Management