SOURCE: NETGEAR

NETGEAR

February 06, 2014 16:00 ET

NETGEAR® Reports Fourth Quarter and Full Year 2013 Results

SAN JOSE, CA--(Marketwired - Feb 6, 2014) - NETGEAR, Inc. (NASDAQ: NTGR)

  • Fourth quarter 2013 net revenue of $356.6 million, as compared to $310.4 million in the comparable prior year quarter, increase of 14.9% year-over-year
  • Fourth quarter 2013 non-GAAP net income of $22.6 million, as compared to $21.5 million in the comparable prior year quarter, increase of 5.3% year-over-year
  • Fourth quarter 2013 non-GAAP diluted earnings per share of $0.59, as compared to $0.55 in the comparable prior year quarter, increase of 7.3% year-over-year
  • 2013 net revenue was $1.37 billion, as compared to $1.27 billion in 2012, increase of 7.7% year-over-year
  • 2013 non-GAAP net income of $89.3 million, as compared to $99.4 million in 2012, decrease of 10.2% year-over-year
  • 2013 non-GAAP diluted earnings per share of $2.29, as compared to $2.57 in 2012, decrease of 10.9% year-over-year
  • Company expects first 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 fourth quarter and full year ended December 31, 2013.

Net revenue for the fourth quarter ended December 31, 2013 was $356.6 million, as compared to $310.4 million for the fourth quarter ended December 31, 2012, and $361.9 million in the third quarter ended September 29, 2013. Net income, computed in accordance with GAAP, for the fourth quarter of 2013 was $11.4 million, or $0.30 per diluted share. This compared to GAAP net income of $16.1 million, or $0.41 per diluted share, for the fourth quarter of 2012, and GAAP net income of $14.5 million, or $0.37 per diluted share, in the third quarter of 2013.

Gross margin on a non-GAAP basis in the fourth quarter of 2013 was 29.2%, as compared to 30.0% in the year ago comparable quarter, and 28.9% in the third quarter of 2013. Non-GAAP operating margin was 10.6% in the fourth quarter of 2013, as compared to 11.4% in the fourth quarter of 2012, and 9.9% in the third quarter of 2013. Non-GAAP net income was $0.59 per diluted share in the fourth quarter of 2013, as compared to non-GAAP net income of $0.55 per diluted share in the fourth quarter of 2012, and non-GAAP net income of $0.58 per diluted share in the third quarter of 2013.

Our non-GAAP tax rate was 39.6% in the fourth quarter 2013, as compared to 39.4% in the fourth quarter of 2012, and 37.2% in the third quarter of 2013.

Net revenue for the full year 2013 was $1.37 billion, a 7.7% increase as compared to $1.27 billion for 2012. Non-GAAP income from operations for the full year 2013 was $139.9 million, as compared to non-GAAP income from operations of $147.7 million for the full year 2012. Net income, computed in accordance with GAAP, for 2013 was $55.2 million, or $1.42 per diluted share. This net income was a 36.2% decrease compared to net income of $86.5 million for 2012. Earnings per share, computed in accordance with GAAP, was $2.23 per diluted share for the full year 2012.

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, impact to cost of sales from acquisition accounting adjustments to inventory, gain on sale of cost method investment, impairment charges, 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.

"Fiscal 2013 was an important year for NETGEAR, highlighted by our acquisition of the AirCard team from Sierra Wireless, our ground breaking product launch of the Nighthawk 802.11ac router, the refresh of our entire ReadyNAS storage line for the Commercial Business Unit, and our introduction of the world's fastest 4G LTE mobile hotspots," said Patrick Lo, Chairman and CEO of NETGEAR. "In 2014 we plan to maintain our position as the market leader in WiFi routers and extenders, 4G LTE Advanced mobile hotspots and gateways, bonded channel cable and xDSL gateways, 10Gig switches, and enterprise class SMB storage."

Christine Gorjanc, Chief Financial Officer of NETGEAR, added, "Leveraging our strong balance sheet and working capital management, we repurchased over $63 million of NETGEAR common stock, about 2 million shares, on the open market during the fourth quarter, with an average price of $31.47 per share, resulting in a $0.02 per share benefit to non-GAAP diluted earnings per share for the fourth quarter. This leaves approximately 2.8 million shares remaining in our open buyback program under which we are continuing to repurchase shares in a disciplined manner."

Mr. Lo continued, "For the first quarter of 2014, we are expecting 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 fourth quarter and full year 2013 results and discuss management's expectations for the first quarter of 2014 today, Thursday, February 6, 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, February 13, 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 13574806.

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 50,000 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 over 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, ReadyNAS, AirCard, Nighthawk 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 market share gains in various product categories; estimates of sales data and market demand for the Company's new products; the ability of the Company's products to satisfy customers' needs better than competing products; 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; 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 II - Item 1A. Risk Factors," pages 55 through 76 in the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 29, 2013, filed with the Securities and Exchange Commission on November 5, 2013. 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)
         
    December 31,
 2013
  December 31,
 2012
             
ASSETS            
Current assets:            
  Cash and cash equivalents   $ 143,009   $ 149,032
  Short-term investments     105,145     227,845
  Accounts receivable, net     266,484     256,014
  Inventories     224,456     174,903
  Deferred income taxes     27,239     22,691
  Prepaid expenses and other current assets     33,778     33,724
    Total current assets     800,111     864,209
Property and equipment, net     27,194     19,025
Intangibles, net     84,118     27,621
Goodwill     155,916     100,880
Other non-current assets     26,591     22,834
    Total assets   $ 1,093,930   $ 1,034,569
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities:            
  Accounts payable   $ 114,531   $ 87,310
  Accrued employee compensation     16,551     18,338
  Other accrued liabilities     143,218     126,255
  Deferred revenue     24,496     27,645
  Income taxes payable     1,287     1,382
    Total current liabilities     300,083     260,930
Non-current income taxes payable     13,804     13,735
Other non-current liabilities     6,260     5,293
    Total liabilities     320,147     279,958
Stockholders' equity:            
  Common stock     37     38
  Additional paid-in capital     421,901     394,427
  Cumulative other comprehensive income     69     4
  Retained earnings     351,776     360,142
    Total stockholders' equity     773,783     754,611
    Total liabilities and stockholders' equity   $ 1,093,930   $ 1,034,569
             
             
 
 
NETGEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
    Three Months Ended     Twelve Months Ended
    December   September  December     December     December
    31, 2013     29, 2013   31, 2012     31, 2013     31, 2012
                                     
Net revenue   $ 356,620     $ 361,895   $ 310,436     $ 1,369,633     $ 1,271,921
Cost of revenue     255,831       260,236     219,058       976,018       888,368
Gross profit     100,789       101,659     91,378       393,615       383,553
Operating expenses:                                    
  Research and development     22,529       23,320     14,789       85,168       61,066
  Sales and marketing     37,544       39,465     35,519       153,804       149,766
  General and administrative     12,339       11,930     11,507       48,915       45,027
  Restructuring and other charges     3,378       400     1,190       5,335       1,190
  Litigation reserves, net     1,446       305     (30 )     5,354       390
  Impairment charges     --       2,000     --       2,000       --
    Total operating expenses     77,236       77,420     62,975       300,576       257,439
Income from operations     23,553       24,239     28,403       93,039       126,114
Interest income     85       71     154       400       498
Other (expense) income, net     (494 )     511     (153 )     (457 )     2,670
Income before income taxes     23,144       24,821     28,404       92,982       129,282
Provision for income taxes     11,712       10,364     12,325       37,765       42,743
Net income   $ 11,432     $ 14,457   $ 16,079     $ 55,217     $ 86,539
                                     
Net income per share:                                    
  Basic   $ 0.30     $ 0.37   $ 0.42     $ 1.44     $ 2.27
  Diluted   $ 0.30     $ 0.37   $ 0.41     $ 1.42     $ 2.23
                                     
Weighted average shares outstanding used to compute net income per share:                                    
  Basic     37,845       38,700     38,293       38,379       38,057
  Diluted     38,408       39,198     38,924       38,948       38,747
                                     
                                     
 
 
NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except per share data)
(Unaudited)
 
STATEMENT OF OPERATIONS DATA:
 
    Three Months Ended     Twelve Months Ended  
    December 31, 2013     September 29, 2013     December 31, 2012     December 31, 2013     December 31, 2012  
                                         
GAAP gross profit   $ 100,789     $ 101,659     $ 91,378     $ 393,615     $ 383,553  
  Amortization of intangible assets     2,664       2,414       1,446       8,803       4,763  
  Stock-based compensation expense     503       479       326       1,577       1,347  
  Impact to cost of sales from acquisition accounting adjustments to inventory     --       --       --       568       --  
Non-GAAP gross profit   $ 103,956     $ 104,552     $ 93,150     $ 404,563     $ 389,663  
Non-GAAP gross margin     29.2 %     28.9 %     30.0 %     29.5 %     30.6 %
                                         
GAAP research and development   $ 22,529     $ 23,320     $ 14,789     $ 85,168     $ 61,066  
  Stock-based compensation expense     (1,089 )     (1,047 )     (721 )     (3,943 )     (2,787 )
Non-GAAP research and development   $ 21,440     $ 22,273     $ 14,068     $ 81,225     $ 58,279  
                                         
GAAP sales and marketing   $ 37,544     $ 39,465     $ 35,519     $ 153,804     $ 149,766  
  Amortization of intangible assets     (1,771 )     (2,025 )     --       (6,414 )     --  
  Stock-based compensation expense     (1,508 )     (1,331 )     (1,128 )     (5,379 )     (4,751 )
Non-GAAP sales and marketing   $ 34,265     $ 36,109     $ 34,391     $ 142,011     $ 145,015  
                                         
GAAP general and administrative   $ 12,339     $ 11,930     $ 11,507     $ 48,915     $ 45,027  
  Stock-based compensation expense     (1,870 )     (1,654 )     (1,391 )     (6,563 )     (5,487 )
  Acquisition related expense     (16 )     --       (833 )     (940 )     (833 )
Non-GAAP general and administrative   $ 10,453     $ 10,276     $ 9,283     $ 41,412     $ 38,707  
                                         
GAAP total operating expenses   $ 77,236     $ 77,420     $ 62,975     $ 300,576     $ 257,439  
  Amortization of intangible assets     (1,771 )     (2,025 )     --       (6,414 )     --  
  Stock-based compensation expense     (4,467 )     (4,032 )     (3,240 )     (15,885 )     (13,025 )
  Restructuring and other charges     (3,378 )     (400 )     (1,190 )     (5,335 )     (1,190 )
  Acquisition related expense     (16 )     --       (833 )     (940 )     (833 )
  Litigation reserves, net     (1,446 )     (305 )     30       (5,354 )     (390 )
  Impairment charges     --       (2,000 )     --       (2,000 )     --  
Non-GAAP total operating expenses   $ 66,158     $ 68,658     $ 57,742     $ 264,648     $ 242,001  
                                         
                                         
 
 
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     Twelve Months Ended  
    December 31, 2013     September 29, 2013     December 31, 2012     December 31, 2013     December 31, 2012  
                                         
GAAP operating income   $ 23,553     $ 24,239     $ 28,403     $ 93,039     $ 126,114  
  Amortization of intangible assets     4,435       4,439       1,446       15,217       4,763  
  Stock-based compensation expense     4,970       4,511       3,566       17,462       14,372  
  Restructuring and other charges     3,378       400       1,190       5,335       1,190  
  Acquisition-related expense     16       --       833       940       833  
  Impact to cost of sales from acquisition accounting adjustments to inventory     --       --       --       568       --  
  Litigation reserves, net     1,446       305       (30 )     5,354       390  
  Impairment charges     --       2,000       --       2,000       --  
Non-GAAP operating income   $ 37,798     $ 35,894     $ 35,408     $ 139,915     $ 147,662  
Non-GAAP operating margin     10.6 %     9.9 %     11.4 %     10.2 %     11.6 %
                                         
GAAP other (expense) income, net   $ (494 )   $ 511     $ (153 )   $ (457 )   $ 2,670  
  Gain on sale of cost method investment     --       --       --       --       (3,126 )
Non-GAAP other (expense) income, net   $ (494 )   $ 511     $ (153 )   $ (457 )   $ (456 )
                                         
GAAP net income   $ 11,432     $ 14,457     $ 16,079     $ 55,217     $ 86,539  
  Amortization of intangible assets     4,435       4,439       1,446       15,217       4,763  
  Stock-based compensation expense     4,970       4,511       3,566       17,462       14,372  
  Restructuring and other charges     3,378       400       1,190       5,335       1,190  
  Acquisition-related expense     16       --       833       940       833  
  Impact to cost of sales from acquisition accounting adjustments to inventory     --       --       --       568       --  
  Litigation reserves, net     1,446       305       (30 )     5,354       390  
  Impairment charges     --       2,000       --       2,000       --  
  Gain on sale of cost method investment     --       --       --       --       (3,126 )
  Tax effect     (3,075 )     (3,220 )     (1,626 )     (12,813 )     (5,523 )
Non-GAAP net income   $ 22,602     $ 22,892     $ 21,458     $ 89,280     $ 99,438  
                                         
                                         
 
 
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     Twelve Months Ended  
    December 31, 2013     September
29, 2013
    December 31, 2012     December 31, 2013     December 31, 2012  
                                         
NET INCOME PER DILUTED SHARE:                                  
GAAP net income per diluted share   $ 0.30     $ 0.37     $ 0.41     $ 1.42     $ 2.23  
  Amortization of intangible assets     0.12       0.11       0.04       0.39       0.12  
  Stock-based compensation expense     0.13       0.12       0.09       0.45       0.37  
  Restructuring and other charges     0.09       0.01       0.03       0.14       0.03  
  Acquisition-related expense     --       --       0.02       0.02       0.02  
  Impact to cost of sales from acquisition accounting adjustments to inventory     --       --       --       0.01       --  
  Litigation reserves, net     0.04       0.01       0.00       0.14       0.01  
  Impairment charges     --       0.05       --       0.05       --  
  Gain on sale of cost method investment     --       --       --       --       (0.08 )
  Tax effect     (0.09 )     (0.09 )     (0.04 )     (0.33 )     (0.13 )
Non-GAAP net income per diluted share   $ 0.59     $ 0.58     $ 0.55     $ 2.29     $ 2.57  
                                         
                                         
 
 
SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory and headcount)
(Unaudited)
 
    Three Months Ended
    December
31, 2013
  September
29, 2013
  June
30, 2013
  March
31, 2013
  December
31, 2012
                               
Cash, cash equivalents and short-term investments   $ 248,154   $ 301,418   $ 288,103   $ 422,412   $ 376,877
Cash, cash equivalents and short-term investments per diluted share   $ 6.46   $ 7.69   $ 7.37   $ 10.82   $ 9.68
                               
Accounts receivable, net   $ 266,484   $ 269,964   $ 288,483   $ 237,896   $ 256,014
Days sales outstanding (DSO)     69     68     73     73     76
                               
Inventories   $ 224,456   $ 211,275   $ 185,383   $ 158,555   $ 174,903
Ending inventory turns     4.6     4.9     5.5     5.2     5.0
                               
Weeks of channel inventory:                              
  U.S. retail channel     10.4     11.5     10.4     9.9     8.8
  U.S. distribution channel     11.2     9.9     9.0     8.9     10.2
  EMEA distribution channel     4.6     4.5     5.1     4.1     4.4
  APAC distribution channel     8.5     8.2     7.3     7.2     7.2
                               
Deferred revenue (current and non-current)   $ 26,433   $ 28,049   $ 33,717   $ 28,961   $ 27,645
                               
Headcount     1,029     1,100     1,095     866     850
Non-GAAP diluted shares     38,408     39,198     39,074     39,050     38,924
                               
                               
 
 
NET REVENUE BY GEOGRAPHY
   
    Three Months Ended     Twelve Months Ended  
    December 31,
 2013
        September 29,
 2013
        December 31,
 2012
        December 31,
 2013
        December 31,
 2012
     
Americas   $ 211,307   59 %   $ 220,487   61 %   $ 169,979   54 %   $ 789,318   58 %   $ 679,419   53 %
EMEA     99,976   28 %     97,220   27 %     110,460   36 %     412,688   30 %     457,724   36 %
APAC     45,337   13 %     44,188   12 %     29,997   10 %     167,627   12 %     134,778   11 %
Total   $ 356,620   100 %   $ 361,895   100 %   $ 310,436   100 %   $ 1,369,633   100 %   $ 1,271,921   100 %
                                                             
                                                             
 
 
NET REVENUE BY SEGMENT
   
    Three Months Ended     Twelve Months Ended  
    December 31,
 2013
        September 29,
 2013
        December 31,
 2012
        December 31,
 2013
        December 31,
 2012
     
Retail   $ 135,906   38 %   $ 130,301   36 %   $ 138,539   44 %   $ 509,924   37 %   $ 504,797   40 %
Commercial     75,007   21 %     76,957   21 %     73,447   24 %     311,261   23 %     307,945   24 %
Service Provider     145,707   41 %     154,637   43 %     98,450   32 %     548,448   40 %     459,179   36 %
Total   $ 356,620   100 %   $ 361,895   100 %   $ 310,436   100 %   $ 1,369,633   100 %   $ 1,271,921   100 %
                                                             

Contact Information

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