SOURCE: NETGEAR

NETGEAR

April 24, 2014 16:00 ET

NETGEAR® Reports First Quarter 2014 Results

SAN JOSE, CA--(Marketwired - Apr 24, 2014) -  NETGEAR, Inc. (NASDAQ: NTGR)

  • First quarter 2014 net revenue of $349.4 million, as compared to $293.4 million in the comparable prior year quarter, increase of 19.1% year-over-year
  • First quarter 2014 non-GAAP net income of $22.0 million, as compared to $19.4 million in the comparable prior year quarter, increase of 13.3% year-over-year
  • First quarter 2014 non-GAAP diluted earnings per share of $0.59, as compared to $0.50 in the comparable prior year quarter, increase of 18.0% year-over-year
  • Company expects second quarter 2014 net revenue to be in the range of $335 million to $350 million, with non-GAAP operating margin in the range of 9% to 10%

NETGEAR, Inc. (NASDAQ: NTGR), a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the first quarter ended March 30, 2014.

Net revenue for the first quarter ended March 30, 2014 was $349.4 million, as compared to $293.4 million in the first quarter ended March 31, 2013, and $356.6 million in the fourth quarter ended December 31, 2013. Net income, computed in accordance with GAAP, in the first quarter of 2014 was $14.4 million, or $0.39 per diluted share. This compared to GAAP net income of $15.3 million, or $0.39 per diluted share, in the first quarter of 2013, and GAAP net income of $11.4 million, or $0.30 per diluted share, in the fourth quarter of 2013. 

Gross margin on a non-GAAP basis in the first quarter of 2014 was 28.9%, as compared to 30.5% in the year ago comparable quarter, and 29.2% in the fourth quarter of 2013. Non-GAAP operating margin was 9.7% in the first quarter of 2014, as compared to 10.0% in the first quarter of 2013, and 10.6% in the fourth quarter of 2013. Non-GAAP net income was $0.59 per diluted share in the first quarter of 2014, as compared to non-GAAP net income of $0.50 per diluted share in the first quarter of 2013, and non-GAAP net income of $0.59 per diluted share in the fourth quarter of 2013.

Our non-GAAP tax rate was 35.2% in the first quarter 2014, as compared to 34.6% in the first quarter of 2013, and 39.6% in the fourth quarter of 2013.

The differences between GAAP and non-GAAP financial measures include adjustments, net of any tax effect, for amortization of purchased intangibles, stock-based compensation, restructuring and other charges, acquisition-related expense and litigation reserves. The accompanying schedules provide a reconciliation of financial measures computed on a GAAP basis to financial measures computed on a non-GAAP basis.

"We are pleased with our results for the first quarter of 2014, which came in at the high end of our guidance range," said Patrick Lo, Chairman and CEO of NETGEAR. "The Service Provider Business Unit had a strong first quarter, while the Commercial Business Unit grew on a sequential and year-over-year basis. For the remainder of 2014, we plan to continue to hold our position as the worldwide market leader in 11ac WiFi routers and extenders, 4G LTE Advanced mobile hotspots and gateways, bonded channel cable and xDSL gateways, 10Gig and PoE SMB switches, and enterprise class SMB storage."

Christine Gorjanc, Chief Financial Officer of NETGEAR, added, "During the first quarter of 2014, we continued to leverage our strong balance sheet and cash position, and under our share repurchase program we bought approximately 495,000 shares of NETGEAR common stock for $15.9 million, or an average price of $32.09 per share. This leaves approximately 2.3 million shares remaining in our open buyback program, and we expect to continue to opportunistically repurchase shares during the second quarter of 2014."

Mr. Lo continued, "For the second quarter of 2014, we are expecting net revenue to be in the range of approximately $335 million to $350 million and non-GAAP operating margin to be in the range of 9% to 10%."

Investor Conference Call / Webcast Details
NETGEAR will review the first quarter results and discuss management's expectations for the second quarter of 2014 today, Thursday, April 24, 2014 at 5 p.m. ET (2 p.m. PT). The dial-in number for the live audio call is (201) 689-8471. A live webcast of the conference call will be available on NETGEAR's website at http://investor.netgear.com. A replay of the call will be available 2 hours following the call through midnight ET (9 p.m. PT) on Thursday, May 1, 2014 by telephone at (858) 384-5517 and via the web at http://investor.netgear.com. The account number to access the phone replay is 13579917.

About NETGEAR, Inc.
NETGEAR (NASDAQ: NTGR) is a global networking company that delivers innovative products to consumers, businesses and service providers. For consumers, the company makes high performance, dependable and easy to use home networking, storage and digital media products to connect people with the Internet and their content and devices. For businesses, NETGEAR provides networking, storage and security solutions without the cost and complexity of Big IT. The company also supplies top service providers with retail proven, whole home solutions for their customers. NETGEAR products are built on a variety of proven technologies such as wireless, Ethernet and powerline, with a focus on reliability and ease-of-use. NETGEAR products are sold in approximately 49,000 retail locations around the globe, and through approximately 39,000 value-added resellers. The company's headquarters are in San Jose, Calif., with additional offices in 25 countries. NETGEAR is an ENERGY STAR partner. More information is available at http://investor.netgear.com or by calling (408) 907-8000. Connect with NETGEAR at http://twitter.com/NETGEAR and http://www.facebook.com/NETGEAR.

© 2014 NETGEAR, Inc. NETGEAR and the NETGEAR logo are trademarks or registered trademarks of NETGEAR, Inc. and its affiliates in the United States and/or other countries. Other brand and product names are trademarks or registered trademarks of their respective holders. The information contained herein is subject to change without notice. NETGEAR shall not be liable for technical or editorial errors or omissions contained herein. All rights reserved.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 for NETGEAR, Inc.:
This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The words "anticipate," "expect," "believe," "will," "may," "should," "estimate," "project," "outlook," "forecast" or other similar words are used to identify such forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. The forward-looking statements represent NETGEAR, Inc.'s expectations or beliefs concerning future events based on information available at the time such statements were made and include statements regarding: expected net revenue and non-GAAP operating margin; expectations regarding the timing and market acceptance of recent and anticipated new product introductions that position the Company for growth; expectations regarding the Company's market share and leadership position in various product categories; and expectations regarding repurchases of the Company's common stock. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including the following: future demand for the Company's products may be lower than anticipated; consumers may choose not to adopt the Company's new product offerings or adopt competing products; product performance may be adversely affected by real world operating conditions; the Company may be unsuccessful or experience delays in manufacturing and distributing its new and existing products; telecommunications service providers may choose to slow their deployment of the Company's products or utilize competing products; the Company may be unable to collect receivables as they become due; the Company may fail to manage costs, including the cost of developing new products and manufacturing and distribution of its existing offerings; the Company may fail to successfully continue to effect operating expense savings; changes in the level of NETGEAR's cash resources and the Company's planned usage of such resources, including potential repurchases of the Company's common stock; changes in the Company's stock price and developments in the business that could increase the Company's cash needs; fluctuations in foreign exchange rates; and the actions and financial health of the Company's customers. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Further information on potential risk factors that could affect NETGEAR and its business are detailed in the Company's periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled "Part I - Item 1A. Risk Factors," pages 10 through 32, in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2013, filed with the Securities and Exchange Commission on February 25, 2014. NETGEAR undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Use of Non-GAAP Financial Information:
To supplement our consolidated financial statements presented on a GAAP basis, NETGEAR uses non-GAAP financial measures, which are adjusted to exclude certain expenses and tax benefits, where applicable. We believe non-GAAP financial measures are appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of NETGEAR's underlying operational results and trends and our marketplace performance. For example, the non-GAAP results are an indication of our baseline performance before charges that are considered by management to be outside of our core operating results. In addition, these adjusted non-GAAP results are among the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial measures prepared in accordance with generally accepted accounting principles in the United States. 

-Financial Tables Attached-

 
 
NETGEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
    March 30,
2014
    December 31,
2013
               
ASSETS              
Current assets:              
  Cash and cash equivalents   $ 129,656     $ 143,009
  Short-term investments     110,605       105,145
  Accounts receivable, net     291,251       266,484
  Inventories     201,630       224,456
  Deferred income taxes     28,515       27,239
  Prepaid expenses and other current assets     37,047       33,778
    Total current assets     798,704       800,111
Property and equipment, net     26,005       27,194
Intangibles, net     79,649       84,118
Goodwill     155,916       155,916
Other non-current assets     29,822       26,591
    Total assets   $ 1,090,096     $ 1,093,930
               
LIABILITIES AND STOCKHOLDERS' EQUITY              
Current liabilities:              
  Accounts payable   $ 96,285     $ 114,531
  Accrued employee compensation     18,534       16,551
  Other accrued liabilities     141,052       143,218
  Deferred revenue     30,096       24,496
  Income taxes payable     1,744       1,287
    Total current liabilities     287,711       300,083
Non-current income taxes payable     13,917       13,804
Other non-current liabilities     6,053       6,260
    Total liabilities     307,681       320,147
Stockholders' equity:              
  Common stock     37       37
  Additional paid-in capital     432,231       421,901
  Cumulative other comprehensive income     (132 )     69
  Retained earnings     350,279       351,776
    Total stockholders' equity     782,415       773,783
    Total liabilities and stockholders' equity   $ 1,090,096     $ 1,093,930
               
               
               
NETGEAR, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(In thousands, except per share data)  
(Unaudited)  
    Three Months Ended  
    March 30,
2014
    December 31,
2013
    March 31,
2013
 
                         
Net revenue   $ 349,391     $ 356,620     $ 293,399  
Cost of revenue     251,466       255,831       205,662  
Gross profit     97,925       100,789       87,737  
Operating expenses:                        
Research and development     22,181       22,529       15,338  
  Sales and marketing     39,911       37,544       36,389  
  General and administrative     11,375       12,339       12,327  
  Restructuring and other charges     842       3,378       (30 )
  Litigation reserves, net     117       1,446       48  
    Total operating expenses     74,426       77,236       64,072  
Income from operations     23,499       23,553       23,665  
Interest income     57       85       149  
Other (expense) income, net     (108 )     (494 )     74  
Income before income taxes     23,448       23,144       23,888  
Provision for income taxes     9,037       11,712       8,545  
Net income   $ 14,411     $ 11,432     $ 15,343  
                         
Net income per share:                        
  Basic   $ 0.39     $ 0.30     $ 0.40  
  Diluted   $ 0.39     $ 0.30     $ 0.39  
                         
Weighted average shares outstanding used to compute net income per share:                        
  Basic     36,630       37,845       38,433  
  Diluted     37,305       38,408       39,050  
                         
                         
                         
NETGEAR, INC.  
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES  
(In thousands, except per share data)  
(Unaudited)  
   
STATEMENT OF OPERATIONS DATA:  
   
    Three Months Ended  
    March 30,
2014
    December 31,
2013
    March 31,
2013
 
                         
GAAP gross profit   $ 97,925     $ 100,789     $ 87,737  
  Amortization of intangible assets     2,619       2,664       1,471  
  Stock-based compensation expense     471       503       189  
Non-GAAP gross profit   $ 101,015     $ 103,956     $ 89,397  
Non-GAAP gross margin     28.9 %     29.2 %     30.5 %
                         
GAAP research and development   $ 22,181     $ 22,529     $ 15,338  
  Stock-based compensation expense     (1,396 )     (1,089 )     (672 )
Non-GAAP research and development   $ 20,785     $ 21,440     $ 14,666  
                         
GAAP sales and marketing   $ 39,911     $ 37,544     $ 36,389  
  Amortization of intangible assets     (1,771 )     (1,771 )     --  
  Stock-based compensation expense     (1,949 )     (1,508 )     (1,230 )
Non-GAAP sales and marketing   $ 36,191     $ 34,265     $ 35,159  
                         
GAAP general and administrative   $ 11,375     $ 12,339     $ 12,327  
  Stock-based compensation expense     (1,314 )     (1,870 )     (1,499 )
  Acquisition related expense     (8 )     (16 )     (710 )
Non-GAAP general and administrative   $ 10,053     $ 10,453     $ 10,118  
                         
GAAP total operating expenses   $ 74,426     $ 77,236     $ 64,072  
  Amortization of intangible assets     (1,771 )     (1,771 )     --  
  Stock-based compensation expense     (4,659 )     (4,467 )     (3,401 )
  Restructuring and other charges     (842 )     (3,378 )     30  
  Acquisition related expense     (8 )     (16 )     (710 )
  Litigation reserves, net     (117 )     (1,446 )     (48 )
Non-GAAP total operating expenses   $ 67,029     $ 66,158     $ 59,943  
                         
                         
                         
NETGEAR, INC.  
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)  
(In thousands, except per share data)  
(Unaudited)  
   
STATEMENT OF OPERATIONS DATA (CONTINUED):  
   
    Three Months Ended  
    March 30,
2014
    December 31,
2013
    March 31,
2013
 
                         
GAAP operating income   $ 23,499     $ 23,553     $ 23,665  
  Amortization of intangible assets     4,390       4,435       1,471  
  Stock-based compensation expense     5,130       4,970       3,590  
  Restructuring and other charges     842       3,378       (30 )
  Acquisition-related expense     8       16       710  
  Litigation reserves, net     117       1,446       48  
Non-GAAP operating income   $ 33,986     $ 37,798     $ 29,454  
Non-GAAP operating margin     9.7 %     10.6 %     10.0 %
                         
                         
GAAP net income   $ 14,411     $ 11,432     $ 15,343  
  Amortization of intangible assets     4,390       4,435       1,471  
  Stock-based compensation expense     5,130       4,970       3,590  
  Restructuring and other charges     842       3,378       (30 )
  Acquisition-related expense     8       16       710  
  Litigation reserves, net     117       1,446       48  
  Tax effect     (2,904 )     (3,075 )     (1,718 )
Non-GAAP net income   $ 21,994     $ 22,602     $ 19,414  
                         
                         
                         
NETGEAR, INC.  
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)  
(In thousands, except per share data)  
(Unaudited)  
   
STATEMENT OF OPERATIONS DATA (CONTINUED):  
   
    Three Months Ended  
    March 30,
2014
    December 31,
2013
    March 31,
2013
 
                   
NET INCOME PER DILUTED SHARE:              
GAAP net income per diluted share   $ 0.39     $ 0.30     $ 0.39  
  Amortization of intangible assets     0.12       0.12       0.04  
  Stock-based compensation expense     0.14       0.13       0.09  
  Restructuring and other charges     0.02       0.09       0.00  
  Acquisition-related expense     0.00       0.00       0.02  
  Litigation reserves, net     0.00       0.04       0.00  
  Tax effect     (0.08 )     (0.09 )     (0.04 )
Non-GAAP net income per diluted share   $ 0.59     $ 0.59     $ 0.50  
                         
                         
                         
SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory and headcount)
(Unaudited)
 
    Three Months Ended
    March 30,
2014
  December 31, 2013   September 29, 2013   June 30,
2013
  March 31,
2013
                               
Cash, cash equivalents and short-term investments   $ 240,261   $ 248,154   $ 301,418   $ 288,103   $ 422,412
Cash, cash equivalents and short-term investments per diluted share   $ 6.44   $ 6.46   $ 7.69   $ 7.37   $ 10.82
                               
Accounts receivable, net   $ 291,251   $ 266,484   $ 269,964   $ 288,483   $ 237,896
Days sales outstanding (DSO)     74     69     68     73     73
                               
Inventories   $ 201,630   $ 224,456   $ 211,275   $ 185,383   $ 158,555
Ending inventory turns     5.0     4.6     4.9     5.5     5.2
                               
Weeks of channel inventory:                              
  U.S. retail channel 1     9.7     9.4     10.5     9.5     9.0
  U.S. distribution channel     9.8     11.2     9.9     9.0     8.9
  EMEA distribution channel     4.1     4.6     4.5     5.1     4.1
  APAC distribution channel     7.1     8.5     8.2     7.3     7.2
                               
Deferred revenue (current and non-current)   $ 32,070   $ 26,433   $ 28,049   $ 33,717   $ 28,961
                               
Headcount     1,023     1,029     1,100     1,095     866
Non-GAAP diluted shares     37,305     38,408     39,198     39,074     39,050
                               
1 Beginning in Q1'14, the Company began including certain ecommerce retailers in the U.S. retail channel weeks of channel inventory data. Prior periods have been updated to include this change for comparability.
   
   
   
NET REVENUE BY GEOGRAPHY  
    Three Months Ended  
    March 30,
2014
        December 31,
2013
        March 31,
2013
     
Americas   $ 194,779   55 %   $ 211,307   59 %   $ 156,676   53 %
EMEA     106,793   31 %     99,976   28 %     107,125   37 %
APAC     47,819   14 %     45,337   13 %     29,598   10 %
Total   $ 349,391   100 %   $ 356,620   100 %   $ 293,399   100 %
                                     
                                     
NET REVENUE BY SEGMENT  
   
    Three Months Ended  
    March 30,
2014
        December 31,
2013
        March 31,
2013
     
Retail   $ 118,232   33 %   $ 135,906   38 %   $ 126,322   43 %
Commercial     78,863   23 %     75,007   21 %     70,851   24 %
Service Provider     152,296   44 %     145,707   41 %     96,226   33 %
Total   $ 349,391   100 %   $ 356,620   100 %   $ 293,399   100 %

Contact Information

  • Contact:
    NETGEAR Investor Relations
    Christopher Genualdi
    Email Contact
    (408) 890-3520