SOURCE: NETGEAR

NETGEAR

October 22, 2015 16:05 ET

NETGEAR® Reports Third Quarter 2015 Results

SAN JOSE, CA--(Marketwired - Oct 22, 2015) -  NETGEAR, Inc. (NASDAQ: NTGR)

  • Third quarter 2015 net revenue of $341.9 million, as compared to $353.3 million in the comparable prior year quarter, decrease of 3.2%.
  • Third quarter 2015 GAAP net income of $15.1 million, as compared to $20.0 million in the comparable prior year quarter.
    • Third quarter 2015 non-GAAP net income of $21.7 million, as compared to $26.2 million in the comparable prior year quarter.
  • Third quarter 2015 GAAP net income per diluted share of $0.47, as compared to $0.55 in the comparable prior year quarter.
    • Third quarter 2015 non-GAAP net income per diluted share of $0.67, as compared to $0.72 in the comparable prior year quarter.
  • Company expects fourth quarter 2015 net revenue to be in the range of $335 million to $350 million, with non-GAAP operating margin in the range of 9.5% to 10.5%. Additionally the Company expects non-GAAP tax expense to be in the range of $13 million to $15 million, an implied effective tax rate of approximately 41%.

NETGEAR, Inc. (NASDAQ: NTGR), a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the third quarter ended September 27, 2015.

Net revenue for the third quarter ended September 27, 2015 was $341.9 million, as compared to $353.3 million in the third quarter ended September 28, 2014, and $288.8 million in the second quarter ended June 28, 2015. Net income, computed in accordance with GAAP, for the third quarter of 2015 was $15.1 million, or $0.47 net income per diluted share. This compared to GAAP net income of $20.0 million, or $0.55 net income per diluted share, in the third quarter of 2014, and GAAP net income of $3.7 million, or $0.11 net income per diluted share, in the second quarter of 2015. Non-GAAP net income was $0.67 per diluted share in the third quarter of 2015, as compared to non-GAAP net income of $0.72 per diluted share in the third quarter of 2014 and $0.29 per diluted share in the second quarter of 2015. The third quarter of 2014 included a $0.04 per diluted share benefit as a result of a year-to-date catch up that reduced the tax expense for that quarter.

Operating margin, computed in accordance with GAAP, for the third quarter of 2015 was 7.6%, as compared to 7.5% in the year ago comparable quarter, and 3.9% in the second quarter of 2015. Non-GAAP operating margin was 10.3% in the third quarter of 2015, as compared to 10.6% in the third quarter of 2014 and 7.1% in the second 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, litigation reserves, net and gain on litigation settlements. 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 third quarter of 2015 exceeded expectations, driven by strength in North America and a robust back-to-school season. Our revenue in Q3 was further augmented by higher than normal demand from our service provider customers. The Retail Business Unit had an all-time record quarter in sales, powered by our fast-growing Arlo and Nighthawk product lines. The success of both product lines continued to drive up average selling prices for NETGEAR retail products, and led to a healthy 24.9% year-over-year increase in revenue for the Retail Business Unit for Q3. We were also pleased with the sequential growth shown by the Commercial Business Unit, which was led by our switching products. With many new products in the pipeline, we see the momentum of our switching products rolling into the coming quarters. Meanwhile, we continued to closely manage the Service Provider Business Unit with a focus on profitability."

Mr. Lo continued, "We remain committed to being a leader in the connected home space by leveraging our home WiFi expertise and providing cutting edge, unique products for consumers. We continue to see a greenfield opportunity in the Internet of Things for NETGEAR following on the heels of our highly successful Arlo wire-free cameras. We are committed to investing significant R&D dollars in order to bring more exciting products to the rapidly growing Smart Home market."

Christine Gorjanc, Chief Financial Officer of NETGEAR, added, "During the third quarter of 2015, we continued to leverage the strength of our balance sheet and cash position by repurchasing approximately 642,000 shares of NETGEAR common stock for $20.6 million, at an average price of $32.04 per share. Since the start of our recent repurchase activity in Q4 2013, we have repurchased approximately 8.2 million shares, or approximately 21% 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."

Mr. Lo continued, "Looking forward, we expect fourth quarter net revenue to be in the range of $335 million to $350 million. We are especially looking forward to our Retail Business Unit's performance this holiday season. We also expect that our shipments to service providers should be back to the normalized $100 million level that we previously guided. Non-GAAP operating margin is expected to be in the range of 9.5% to 10.5%. Our non-GAAP tax expense is expected to be approximately $13 million to $15 million, which implies an effective tax rate of 41% for the fourth quarter of 2015."

Investor Conference Call / Webcast Details
NETGEAR will review the third quarter results and discuss management's expectations for the fourth quarter of 2015 today, Thursday, October 22, 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, October 29, 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 13622145.

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 (WiFi and LTE), 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 38,000 retail locations around the globe, and through approximately 30,000 value-added resellers, as well as multiple major cable, mobile and wireline service providers around the world. 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 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 40 through 60, in the Company's quarterly report on Form 10-Q for the fiscal quarter ended June 28, 2015, filed with the Securities and Exchange Commission on July 31, 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)
 
    September 27,
2015
    December 31,
2014
ASSETS              
Current assets:              
  Cash and cash equivalents   $ 202,429     $ 141,234
  Short-term investments     61,419       115,895
  Accounts receivable, net     274,173       275,689
  Inventories     170,013       222,883
  Deferred income taxes     29,430       29,039
  Prepaid expenses and other current assets     31,019       38,225
    Total current assets     768,483       822,965
Property and equipment, net     23,951       29,694
Intangibles, net     53,191       66,230
Goodwill     81,721       81,721
Other non-current assets     47,405       48,077
    Total assets   $ 974,751     $ 1,048,687
               
LIABILITIES AND STOCKHOLDERS' EQUITY              
Current liabilities:              
  Accounts payable   $ 98,171     $ 106,357
  Accrued employee compensation     21,414       21,588
  Other accrued liabilities     132,911       143,742
  Deferred revenue     30,722       30,023
  Income taxes payable     5,258       2,406
    Total current liabilities     288,476       304,116
Non-current income taxes payable     14,402       15,252
Other non-current liabilities     10,412       7,754
    Total liabilities     313,290       327,122
Stockholders' equity:              
  Common stock     32       35
  Additional paid-in capital     474,875       454,144
  Accumulated other comprehensive income (loss)     (43 )     38
  Retained earnings     186,597       267,348
    Total stockholders' equity     661,461       721,565
    Total liabilities and stockholders' equity   $ 974,751     $ 1,048,687
               
               
               
NETGEAR, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(In thousands, except per share and percentage data)  
(Unaudited)  
   
  Three Months Ended     Nine Months Ended  
  September 27, 2015     June 28,
2015
    September 28, 2014     September 27, 2015     September 28, 2014  
                                       
Net revenue $ 341,893     $ 288,782     $ 353,338     $ 939,832     $ 1,040,333  
Cost of revenue   245,566       211,126       251,005       677,569       742,889  
Gross profit   96,327       77,656       102,333       262,263       297,444  
  Gross margin   28.2 %     26.9 %     29.0 %     27.9 %     28.6 %
Operating expenses:                                      
    Research and development   21,572       21,102       23,337       63,126       67,994  
    Sales and marketing   35,923       34,013       39,283       107,538       117,373  
    General and administrative   11,803       10,366       11,726       33,192       34,995  
    Restructuring and other charges   1,016       974       1,360       6,384       2,190  
    Litigation reserves, net   --       --       69       (2,690 )     254  
      Total operating expenses   70,314       66,455       75,775       207,550       222,806  
Income from operations   26,013       11,201       26,558       54,713       74,638  
  Operating margin   7.6 %     3.9 %     7.5 %     5.8 %     7.2 %
Interest income   65       67       68       184       174  
Other income (expense), net   (199 )     (343 )     2,246       (67 )     1,911  
Income before income taxes   25,879       10,925       28,872       54,830       76,723  
Provision for income taxes   10,780       7,258       8,847       28,053       27,582  
Net income $ 15,099     $ 3,667     $ 20,025     $ 26,777     $ 49,141  
                                       
Net income per share:                                      
    Basic $ 0.47     $ 0.11     $ 0.56     $ 0.80     $ 1.36  
    Diluted $ 0.47     $ 0.11     $ 0.55     $ 0.79     $ 1.34  
                                       
Weighted average shares used to compute net income per share:                                      
    Basic   31,979       33,792       35,643       33,473       36,133  
    Diluted   32,335       34,308       36,250       34,002       36,806  
                                           
                                           
                                           
NETGEAR, INC.  
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES  
(In thousands, except percentage data)  
(Unaudited)  
   
STATEMENT OF OPERATIONS DATA:  
   
  Three Months Ended     Nine Months Ended  
  September 27, 2015     June 28,
2015
    September 28, 2014     September 27, 2015     September 28, 2014  
                                       
GAAP gross profit $ 96,327     $ 77,656     $ 102,333     $ 262,263     $ 297,444  
  Amortization of intangibles   2,394       2,506       2,625       7,490       7,863  
  Stock-based compensation expense   358       336       573       1,190       1,533  
  Losses on inventory commitments due to restructuring   --       --       --       407       --  
Non-GAAP gross profit $ 99,079     $ 80,498     $ 105,531     $ 271,350     $ 306,840  
Non-GAAP gross margin   29.0 %     27.9 %     29.9 %     28.9 %     29.5 %
                                       
GAAP research and development $ 21,572     $ 21,102     $ 23,337     $ 63,126     $ 67,994  
  Stock-based compensation expense   (877 )     (773 )     (1,255 )     (2,495 )     (3,878 )
Non-GAAP research and development $ 20,695     $ 20,329     $ 22,082     $ 60,631     $ 64,116  
                                       
GAAP sales and marketing $ 35,923     $ 34,013     $ 39,283     $ 107,538     $ 117,373  
  Amortization of intangibles   (1,771 )     (1,737 )     (1,771 )     (5,314 )     (5,314 )
  Stock-based compensation expense   (1,173 )     (1,272 )     (1,409 )     (3,836 )     (4,759 )
Non-GAAP sales and marketing $ 32,979     $ 31,004     $ 36,103     $ 98,386     $ 107,300  
                                       
GAAP general and administrative $ 11,803     $ 10,366     $ 11,726     $ 33,192     $ 34,995  
  Stock-based compensation expense   (1,703 )     (1,677 )     (1,925 )     (4,994 )     (5,056 )
  Acquisition related expense   --       --       --       --       (8 )
Non-GAAP general and administrative $ 10,100     $ 8,689     $ 9,801     $ 28,198     $ 29,931  
                                       
GAAP total operating expenses $ 70,314     $ 66,455     $ 75,775     $ 207,550     $ 222,806  
  Amortization of intangibles   (1,771 )     (1,737 )     (1,771 )     (5,314 )     (5,314 )
  Stock-based compensation expense   (3,753 )     (3,722 )     (4,589 )     (11,327 )     (13,693 )
  Restructuring and other charges   (1,016 )     (974 )     (1,360 )     (6,384 )     (2,190 )
  Acquisition related expense   --       --       --       --       (8 )
  Litigation reserves, net   --       --       (69 )     2,690       (254 )
Non-GAAP total operating expenses $ 63,774     $ 60,022     $ 67,986     $ 187,215     $ 201,347  
                                       
                                       
                                       
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     Nine Months Ended  
  September 27, 2015     June 28,
2015
    September 28,
2014
    September 27,
2015
    September 28,
2014
 
                                       
GAAP operating income $ 26,013     $ 11,201     $ 26,558     $ 54,713     $ 74,638  
  Amortization of intangibles   4,165       4,243       4,396       12,804       13,177  
  Stock-based compensation expense   4,111       4,058       5,162       12,517       15,226  
  Restructuring and other charges   1,016       974       1,360       6,384       2,190  
  Acquisition-related expense   --       --       --       --       8  
  Losses on inventory commitments due to restructuring   --       --       --       407       --  
  Litigation reserves, net   --       --       69       (2,690 )     254  
Non-GAAP operating income $ 35,305     $ 20,476     $ 37,545     $ 84,135     $ 105,493  
Non-GAAP operating margin   10.3 %     7.1 %     10.6 %     9.0 %     10.1 %
                                       
GAAP other income (expense), net $ (199 )   $ (343 )   $ 2,246     $ (67 )   $ 1,911  
  Gain on litigation settlements   --       --       (2,800 )     --       (2,800 )
Non-GAAP other income (expense), net $ (199 )   $ (343 )   $ (554 )   $ (67 )   $ (889 )
                                       
GAAP net income $ 15,099     $ 3,667     $ 20,025     $ 26,777     $ 49,141  
  Amortization of intangibles   4,165       4,243       4,396       12,804       13,177  
  Stock-based compensation expense   4,111       4,058       5,162       12,517       15,226  
  Restructuring and other charges   1,016       974       1,360       6,384       2,190  
  Acquisition-related expense   --       --       --       --       8  
  Losses on inventory commitments due to restructuring   --       --       --       407       --  
  Litigation reserves, net   --       --       69       (2,690 )     254  
  Gain on litigation settlements   --       --       (2,800 )     --       (2,800 )
  Tax effect and tax related adjustments   (2,652 )     (3,028 )     (2,030 )     (8,251 )     (7,579 )
Non-GAAP net income $ 21,739     $ 9,914     $ 26,182     $ 47,948     $ 69,617  
                                       
                                       
                                       
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     Nine Months Ended  
  September 27, 2015     June 28,
2015
    September 28, 2014     September 27, 2015     September 28,
2014
 
                                       
NET INCOME PER DILUTED SHARE:                                  
GAAP net income per diluted share $ 0.47     $ 0.11     $ 0.55     $ 0.79     $ 1.34  
  Amortization of intangibles   0.13       0.12       0.12       0.38       0.36  
  Stock-based compensation expense   0.13       0.12       0.14       0.37       0.41  
  Restructuring and other charges   0.03       0.03       0.04       0.19       0.06  
  Acquisition-related expense   --       --       --       --       0.00  
  Losses on inventory commitments due to restructuring   --       --       --       0.01       --  
  Litigation reserves, net   --       --       0.00       (0.08 )     0.01  
  Gain on litigation settlements   --       --       (0.08 )     --       (0.08 )
  Tax effect and tax related adjustments   (0.09 )     (0.09 )     (0.05 )     (0.25 )     (0.21 )
Non-GAAP net income per diluted share $ 0.67     $ 0.29     $ 0.72     $ 1.41     $ 1.89  
                                       
                                       
                                       
SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory, headcount and percentage data)
(Unaudited)
 
    Three Months Ended
    September 27, 2015   June 28,
2015
  March 29,
2015
  December 31,
2014
  September 28,
2014
                               
Cash, cash equivalents and short-term investments   $ 263,848   $ 212,915   $ 247,405   $ 257,129   $ 242,648
Cash, cash equivalents and short-term investments per diluted share   $ 8.16   $ 6.21   $ 7.01   $ 7.40   $ 6.69
                               
Accounts receivable, net   $ 274,173   $ 246,493   $ 254,745   $ 275,689   $ 278,568
Days sales outstanding (DSO)     73     78     73     73     72
                               
Inventories   $ 170,013   $ 188,668   $ 200,948   $ 222,883   $ 206,494
Ending inventory turns     5.8     4.5     4.4     4.5     4.9
                               
Weeks of channel inventory:                              
  U.S. retail channel     9.2     7.0     7.7     7.8     7.7
  U.S. distribution channel     7.9     10.1     11.5     12.0     10.6
  EMEA distribution channel     5.3     4.8     4.4     5.4     4.4
  APAC distribution channel     7.3     7.1     7.4     7.2     6.8
                               
Deferred revenue (current and non-current)   $ 34,154   $ 31,116   $ 25,802   $ 31,621   $ 35,654
                               
Headcount     959     967     979     1,038     1,047
Non-GAAP diluted shares     32,335     34,308     35,285     35,348     36,250
                               
                               
                               
NET REVENUE BY GEOGRAPHY   
   
  Three Months Ended     Nine Months Ended  
  September 27, 2015     June 28,
2015
    September 28, 2014     September 27,
2015
    September 28, 2014  
Americas $ 219,736   64 %   $ 172,459   59 %   $ 193,904   55 %   $ 565,981   60 %   $ 576,217   56 %
EMEA   77,725   23 %     67,993   24 %     108,421   31 %     234,827   25 %     315,650   30 %
APAC   44,432   13 %     48,330   17 %     51,013   14 %     139,024   15 %     148,466   14 %
  Total $ 341,893   100 %   $ 288,782   100 %   $ 353,338   100 %   $ 939,832   100 %   $ 1,040,333   100 %
                                                           
                                                           
NET REVENUE BY SEGMENT   
   
  Three Months Ended     Nine Months Ended  
  September 27,
2015
    June 28,
2015
    September 28,
2014
    September 27, 2015     September 28, 2014  
Retail $ 164,081   48 %   $ 131,809   45 %   $ 131,341   38 %   $ 416,847   45 %   $ 360,236   34 %
Commercial   65,187   19 %     63,017   22 %     71,974   20 %     200,935   21 %     226,284   22 %
Service Provider   112,625   33 %     93,956   33 %     150,023   42 %     322,050   34 %     453,813   44 %
  Total $ 341,893   100 %   $ 288,782   100 %   $ 353,338   100 %   $ 939,832   100 %   $ 1,040,333   100 %
                                                             

Contact Information

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