SOURCE: NETGEAR

NETGEAR

July 23, 2015 16:00 ET

NETGEAR® Reports Second Quarter 2015 Results

SAN JOSE, CA--(Marketwired - Jul 23, 2015) -  NETGEAR, Inc. (NASDAQ: NTGR)

  • Second quarter 2015 net revenue of $288.8 million, as compared to $337.6 million in the comparable prior year quarter, decrease of 14.5%.
  • Second quarter 2015 GAAP net income of $3.7 million, as compared to $14.7 million in the comparable prior year quarter. 
    • Second quarter 2015 non-GAAP net income of $9.9 million, as compared to $21.4 million in the comparable prior year quarter.
  • Second quarter 2015 GAAP net income per diluted share of $0.11, as compared to $0.40 in the comparable prior year quarter. 
    • Second quarter 2015 non-GAAP net income per diluted share of $0.29, as compared to $0.58 in the comparable prior year quarter.
  • Company expects third quarter 2015 net revenue to be in the range of $315 million to $330 million, with non-GAAP operating margin in the range of 8.5% to 9.5%. Additionally the Company expects non-GAAP tax expense to be in the range of $11 million to $13 million, an implied effective tax rate of approximately 41%.
  • Board authorizes incremental repurchase of up to 3,000,000 shares.

NETGEAR, Inc. (NASDAQ: NTGR), a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the second quarter ended June 28, 2015.

Net revenue for the second quarter ended June 28, 2015 was $288.8 million, as compared to $337.6 million in the second quarter ended June 29, 2014, and $309.2 million in the first quarter ended March 29, 2015. Net income, computed in accordance with GAAP, for the second quarter of 2015 was $3.7 million, or $0.11 net income per diluted share. This compared to GAAP net income of $14.7 million, or $0.40 net income per diluted share, in the second quarter of 2014, and GAAP net income of $8.0 million, or $0.23 net income per diluted share, in the first quarter of 2015. Non-GAAP net income was $0.29 per diluted share in the second quarter of 2015, as compared to non-GAAP net income of $0.58 per diluted share in the second quarter of 2014 and $0.46 per diluted share in the first quarter of 2015.

Operating margin, computed in accordance with GAAP, for the second quarter of 2015 was 3.9%, as compared to 7.3% in the year ago comparable quarter, and 5.7% in the first quarter of 2015. Non-GAAP operating margin was 7.1% in the second quarter of 2015, as compared to 10.1% in the second quarter of 2014 and 9.2% in the first quarter of 2015.

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

Patrick Lo, Chairman and Chief Executive Officer of NETGEAR, commented, "Our financial results for the second quarter of 2015 show meaningful sequential growth in the Retail Business Unit, despite what is typically a seasonally down quarter. In particular, RBU's performance during the quarter was driven by our Arlo smart home security camera and our premium line of Nighthawk routers and gateways. The growth we are seeing in these two product lines has surpassed our expectations, and forms the cornerstone of our retail business going forward. This is the beginning of the age of the connected smart home, one in which we believe we will play a central role. We feel that the growth of WiFi connected devices in the home will be exponential over the next five to ten years, and we are committed to being a market leader in this space."

Mr. Lo added, "During the quarter we also continued to manage through the previously announced restructuring of the Service Provider Business Unit, which is substantially close to completion. Meanwhile, the strengthening U.S. dollar has continued to challenge EMEA results, particularly for the Commercial Business Unit."

Christine Gorjanc, Chief Financial Officer of NETGEAR, added, "During the second quarter of 2015, we continued to leverage the strength of our balance sheet and cash position by repurchasing approximately 2.5 million shares of NETGEAR common stock for $76.2 million, at an average price of $30.90 per share. Since the start of our recent repurchase activity in Q4 2013, we have repurchased approximately 7.6 million shares, or approximately 19% of the fully diluted share count at the beginning of that period. We continue to believe that stock repurchases are an effective way of returning capital to shareholders, and plan to be opportunistic buyers of our stock in the coming quarters."

Additionally, the Company announced that its Board of Directors has authorized a program to repurchase up to 3,000,000 shares of the Company's common stock, or approximately 9.3% of the outstanding shares at the end of the second quarter. This is incremental to the approximately 266,000 shares that remained under the Company's previous share repurchase program at the end of the second quarter. The stock repurchase authorization does not have an expiration date and the pace of repurchase activity will depend on factors such as levels of cash generation from operations, cash requirements for acquisitions, current stock price, and other factors. Under the program, NETGEAR may repurchase shares from time to time on the open market. The company will finance the repurchase program with available cash on hand. The stock repurchase program may be modified or discontinued at any time.

Mr. Lo continued, "Looking forward, we expect third quarter net revenue to be in the range of $315 million to $330 million, driven by typical back-to-school seasonality and the success of our latest products. Non-GAAP operating margin is expected to be in the range of 8.5% to 9.5%. Our non-GAAP tax expense is expected to be approximately $11 million to $13 million, which implies an effective tax rate of 41% for the third quarter of 2015."

Investor Conference Call / Webcast Details
NETGEAR will review the second quarter results and discuss management's expectations for the third quarter of 2015 today, Thursday, July 23, 2015 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, July 30, 2015 by telephone at (858) 384-5517 and via the web at http://investor.netgear.com. The account number to access the phone replay is 13614402.

About NETGEAR, Inc.
NETGEAR (NASDAQ: NTGR) is a global networking company that delivers innovative products to consumers, businesses and service providers. The Company's products are built on a variety of proven technologies such as wireless, Ethernet and powerline, with a focus on reliability and ease-of-use. The product line consists of wired and wireless devices that enable networking, broadband access and network connectivity. These products are available in multiple configurations to address the needs of the end-users in each geographic region in which the Company's products are sold. NETGEAR products are sold in approximately 39,000 retail locations around the globe, and through approximately 31,000 value-added resellers. The company's headquarters are in San Jose, Calif., with additional offices in approximately 25 countries. 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.

© 2015 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, distribution, sales momentum and market acceptance of recent and anticipated new product introductions that position the Company for growth; expectations regarding the timing and impact of restructuring activities; expectations regarding seasonal changes in the Company's business unit performance; 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 II - Item 1A. Risk Factors," pages 39 through 59, in the Company's quarterly report on Form 10-Q for the fiscal quarter ended March 29, 2015, filed with the Securities and Exchange Commission on May 1, 2015. 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 adjustments, 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. 

 
NETGEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
           
    June 28,
2015
    December 31,
2014
ASSETS              
Current assets:              
  Cash and cash equivalents   $ 136,755     $ 141,234
  Short-term investments     76,160       115,895
  Accounts receivable, net     246,493       275,689
  Inventories     188,668       222,883
  Deferred income taxes     26,476       29,039
  Prepaid expenses and other current assets     39,133       38,225
    Total current assets     713,685       822,965
Property and equipment, net     25,591       29,694
Intangibles, net     57,434       66,230
Goodwill     81,721       81,721
Other non-current assets     48,352       48,077
    Total assets   $ 926,783     $ 1,048,687
               
LIABILITIES AND STOCKHOLDERS' EQUITY              
Current liabilities:              
  Accounts payable   $ 71,217     $ 106,357
  Accrued employee compensation     18,588       21,588
  Other accrued liabilities     123,847       143,742
  Deferred revenue     28,412       30,023
  Income taxes payable     --       2,406
    Total current liabilities     242,064       304,116
Non-current income taxes payable     15,551       15,252
Other non-current liabilities     9,280       7,754
    Total liabilities     266,895       327,122
Stockholders' equity:              
  Common stock     32       35
  Additional paid-in capital     467,730       454,144
  Accumulated other comprehensive income (loss)     (57 )     38
  Retained earnings     192,183       267,348
    Total stockholders' equity     659,888       721,565
    Total liabilities and stockholders' equity   $ 926,783     $ 1,048,687
               
               
               
NETGEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and percentage data)
(Unaudited)
             
    Three Months Ended     Six Months Ended  
    June 28,
2015
    March 29,
2015
    June 29,
2014
    June 28,
2015
    June 29,
2014
 
                                         
Net revenue   $ 288,782     $ 309,157     $ 337,604     $ 597,939     $ 686,995  
Cost of revenue     211,126       220,877       240,418       432,003       491,884  
Gross profit     77,656       88,280       97,186       165,936       195,111  
  Gross margin     26.9 %     28.6 %     28.8 %     27.8 %     28.4 %
Operating expenses:                                        
    Research and development     21,102       20,452       22,476       41,554       44,657  
    Sales and marketing     34,013       37,602       38,179       71,615       78,090  
    General and administrative     10,366       11,023       11,894       21,389       23,269  
    Restructuring and other charges     974       4,394       (12 )     5,368       830  
    Litigation reserves, net     --       (2,690 )     68       (2,690 )     185  
      Total operating expenses     66,455       70,781       72,605       137,236       147,031  
Income from operations     11,201       17,499       24,581       28,700       48,080  
  Operating margin     3.9 %     5.7 %     7.3 %     4.8 %     7.0 %
Interest income     67       52       49       119       106  
Other income (expense), net     (343 )     475       (227 )     132       (335 )
Income before income taxes     10,925       18,026       24,403       28,951       47,851  
Provision for income taxes     7,258       10,015       9,698       17,273       18,735  
Net income   $ 3,667     $ 8,011     $ 14,705     $ 11,678     $ 29,116  
                                         
Net income per share:                                        
    Basic   $ 0.11     $ 0.23     $ 0.41     $ 0.34     $ 0.80  
    Diluted   $ 0.11     $ 0.23     $ 0.40     $ 0.34     $ 0.79  
                                         
Weighted average shares used to compute net income per share:                                        
    Basic     33,792       34,678       36,139       34,227       36,381  
    Diluted     34,308       35,285       36,808       34,790       37,052  
 
 
 
NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
(Unaudited)
 
STATEMENT OF OPERATIONS DATA:
 
    Three Months Ended     Six Months Ended  
    June 28,
2015
    March 29,
2015
    June 29,
2014
    June 28,
2015
    June 29,
2014
 
                                         
GAAP gross profit   $ 77,656     $ 88,280     $ 97,186     $ 165,936     $ 195,111  
  Amortization of intangibles     2,506       2,590       2,619       5,096       5,238  
  Stock-based compensation expense     336       496       489       832       960  
  Losses on inventory commitments due to restructuring     --       407       --       407       --  
Non-GAAP gross profit   $ 80,498     $ 91,773     $ 100,294     $ 172,271     $ 201,309  
Non-GAAP gross margin     27.9 %     29.7 %     29.7 %     28.8 %     29.3 %
                                         
GAAP research and development   $ 21,102     $ 20,452     $ 22,476     $ 41,554     $ 44,657  
  Stock-based compensation expense     (773 )     (845 )     (1,227 )     (1,618 )     (2,623 )
Non-GAAP research and development   $ 20,329     $ 19,607     $ 21,249     $ 39,936     $ 42,034  
                                         
GAAP sales and marketing   $ 34,013     $ 37,602     $ 38,179     $ 71,615     $ 78,090  
  Amortization of intangibles     (1,737 )     (1,806 )     (1,772 )     (3,543 )     (3,543 )
  Stock-based compensation expense     (1,272 )     (1,393 )     (1,401 )     (2,665 )     (3,350 )
Non-GAAP sales and marketing   $ 31,004     $ 34,403     $ 35,006     $ 65,407     $ 71,197  
                                         
GAAP general and administrative   $ 10,366     $ 11,023     $ 11,894     $ 21,389     $ 23,269  
  Stock-based compensation expense     (1,677 )     (1,614 )     (1,817 )     (3,291 )     (3,131 )
  Acquisition related expense     --       --       --       --       (8 )
Non-GAAP general and administrative   $ 8,689     $ 9,409     $ 10,077     $ 18,098     $ 20,130  
                                         
GAAP total operating expenses   $ 66,455     $ 70,781     $ 72,605     $ 137,236     $ 147,031  
  Amortization of intangibles     (1,737 )     (1,806 )     (1,772 )     (3,543 )     (3,543 )
  Stock-based compensation expense     (3,722 )     (3,852 )     (4,445 )     (7,574 )     (9,104 )
  Restructuring and other charges     (974 )     (4,394 )     12       (5,368 )     (830 )
  Acquisition related expense     --       --       --       --       (8 )
  Litigation reserves, net     --       2,690       (68 )     2,690       (185 )
Non-GAAP total operating expenses   $ 60,022     $ 63,419     $ 66,332     $ 123,441     $ 133,361  
 
 
 
NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)
(In thousands, except percentage data)
(Unaudited)
 
STATEMENT OF OPERATIONS DATA (CONTINUED):
 
    Three Months Ended     Six Months Ended  
    June 28,
2015
    March 29,
2015
    June 29,
2014
    June 28,
2015
    June 29,
2014
 
                                         
GAAP operating income   $ 11,201     $ 17,499     $ 24,581     $ 28,700     $ 48,080  
  Amortization of intangibles     4,243       4,396       4,391       8,639       8,781  
  Stock-based compensation expense     4,058       4,348       4,934       8,406       10,064  
  Restructuring and other charges     974       4,394       (12 )     5,368       830  
  Acquisition-related expense     --       --       --       --       8  
  Losses on inventory commitments due to restructuring     --       407       --       407       --  
  Litigation reserves, net     --       (2,690 )     68       (2,690 )     185  
Non-GAAP operating income   $ 20,476     $ 28,354     $ 33,962     $ 48,830     $ 67,948  
Non-GAAP operating margin     7.1 %     9.2 %     10.1 %     8.2 %     9.9 %
                                         
GAAP net income   $ 3,667     $ 8,011     $ 14,705     $ 11,678     $ 29,116  
  Amortization of intangibles     4,243       4,396       4,391       8,639       8,781  
  Stock-based compensation expense     4,058       4,348       4,934       8,406       10,064  
  Restructuring and other charges     974       4,394       (12 )     5,368       830  
  Acquisition-related expense     --       --       --       --       8  
  Losses on inventory commitments due to restructuring     --       407       --       407       --  
  Litigation reserves, net     --       (2,690 )     68       (2,690 )     185  
  Tax effect and tax related adjustments     (3,028 )     (2,571 )     (2,645 )     (5,599 )     (5,549 )
Non-GAAP net income   $ 9,914     $ 16,295     $ 21,441     $ 26,209     $ 43,435  
 
 
 
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     Six Months Ended  
    June 28,
2015
    March 29,
2015
    June 29,
2014
    June 28,
2015
    June 29,
2014
 
                                         
NET INCOME PER DILUTED SHARE:                                  
GAAP net income per diluted share   $ 0.11     $ 0.23     $ 0.40     $ 0.34     $ 0.79  
  Amortization of intangibles     0.12       0.12       0.12       0.25       0.24  
  Stock-based compensation expense     0.12       0.12       0.13       0.24       0.27  
  Restructuring and other charges     0.03       0.12       0.00       0.15       0.02  
  Acquisition-related expense     --       --       --       --       0.00  
  Losses on inventory commitments due to restructuring     --       0.01       --       0.01       --  
  Litigation reserves, net     --       (0.08 )     0.00       (0.08 )     0.00  
  Tax effect and tax related adjustments     (0.09 )     (0.06 )     (0.07 )     (0.16 )     (0.15 )
Non-GAAP net income per diluted share   $ 0.29     $ 0.46     $ 0.58     $ 0.75     $ 1.17  
 
 
 
SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory, headcount and percentage data)
(Unaudited)
 
    Three Months Ended
    June 28,
2015
  March 29,
2015
  December 31,
2014
  September 28,
2014
  June 29,
2014
                               
Cash, cash equivalents and short-term investments   $ 212,915   $ 247,405   $ 257,129   $ 242,648   $ 242,729
Cash, cash equivalents and short-term investments per diluted share   $ 6.21   $ 7.01   $ 7.40   $ 6.69   $ 6.59
                               
Accounts receivable, net   $ 246,493   $ 254,745   $ 275,689   $ 278,568   $ 282,900
Days sales outstanding (DSO)     78     73     73     72     76
                               
Inventories   $ 188,668   $ 200,948   $ 222,883   $ 206,494   $ 194,533
Ending inventory turns     4.5     4.4     4.5     4.9     4.9
                               
Weeks of channel inventory:                              
  U.S. retail channel     7.0     7.7     7.8     7.7     10.5
  U.S. distribution channel     10.1     11.5     12.0     10.6     12.0
  EMEA distribution channel     4.8     4.4     5.4     4.4     4.0
  APAC distribution channel     7.1     7.4     7.2     6.8     9.0
                               
Deferred revenue (current and non-current)   $ 31,116   $ 25,802   $ 31,621   $ 35,654   $ 35,229
                               
Headcount     967     979     1,038     1,047     1,033
Non-GAAP diluted shares     34,308     35,285     35,348     36,250     36,808
                               
                               

NET REVENUE BY GEOGRAPHY

  Three Months Ended     Six Months Ended  
  June 28,
2015
    March 29,
2015
    June 29,
2014
    June 28,
2015
    June 29,
2014
 
Americas $ 172,459   59 %   $ 173,786   56 %   $ 187,534   55 %   $ 346,245   58 %   $ 382,313   56 %
EMEA   67,993   24 %     89,109   29 %     100,436   30 %     157,102   26 %     207,229   30 %
APAC   48,330   17 %     46,262   15 %     49,634   15 %     94,592   16 %     97,453   14 %
  Total $ 288,782   100 %   $ 309,157   100 %   $ 337,604   100 %   $ 597,939   100 %   $ 686,995   100 %
                                                             
                                                             

NET REVENUE BY SEGMENT

    Three Months Ended     Six Months Ended  
    June 28,
2015
    March 29,
2015
    June 29,
2014
    June 28,
2015
    June 29,
2014
 
Retail   $ 131,809   45 %   $ 120,957   39 %   $ 110,663   33 %   $ 252,766   42 %   $ 228,895   34 %
Commercial     63,017   22 %     72,731   24 %     75,447   22 %     135,748   23 %     154,310   22 %
Service Provider     93,956   33 %     115,469   37 %     151,494   45 %     209,425   35 %     303,790   44 %
  Total   $ 288,782   100 %   $ 309,157   100 %   $ 337,604   100 %   $ 597,939   100 %   $ 686,995   100 %

Contact Information

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