NETGEAR, INC. 
By SAN JOSE, Calif., July 25, 2013 /PRNewswire/ -- NETGEAR, Inc. (NASDAQGS: 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 30, 2013.
Net revenue for the second quarter ended June 30, 2013 was $357.7 million, as compared to $320.7 million for the second quarter ended July 1, 2012, and $293.4 million in the first quarter ended March 31, 2013. The second quarter 2013 results reflect the full quarter effect of the AirCard business acquired from Sierra Wireless. Net income, computed in accordance with GAAP, for the second quarter of 2013 was $14.0 million, or $0.36 per diluted share. This compared to GAAP net income of $21.5 million, or $0.56 per diluted share, for the second quarter of 2012, and GAAP net income of $15.3 million, or $0.39 per diluted share, in the first quarter of 2013.
Gross margin on a non-GAAP basis in the second quarter of 2013 was 29.8%, as compared to 29.9% in the year ago comparable quarter, and 30.5% in the first quarter of 2013. Non-GAAP operating margin was 10.3% in the second quarter of 2013, as compared to 11.0% in the second quarter of 2012, and 10.0% in the first quarter of 2013. Non-GAAP net income was $0.62 per diluted share in the second quarter of 2013, as compared to non-GAAP net income of $0.64 per diluted share in the second quarter of 2012, and non-GAAP net income of $0.50 per diluted share in the first quarter of 2013.
The Company's non-GAAP tax rate was 32.9% in the second quarter 2013, as compared to 31.4% in the second quarter of 2012, and 34.6% in the first 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, impact to cost of sales from acquisition accounting adjustments to inventory, 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.
Patrick Lo, Chairman and Chief Executive Officer of NETGEAR commented, "We are pleased with our results for the second quarter of 2013. Our Retail Business grew on a year-over-year basis, and we have confidence in the pace of the 802.11ac upgrade cycle, as well as the increasing realization of the Smart Home for developed markets. The integration of the AirCard business into our Service Provider Business Unit has been progressing very well, and we are excited about our combined R&D capabilities in the fast growing LTE gateway market segment. Our Commercial Business Unit generated impressive sequential and year-over-year growth driven by the success of our new storage products and 10 Gigabit switches."
"Our Retail Business Unit (RBU) revenue for the quarter ended June 30, 2013 was down 7% sequentially, which represents typical seasonality for the second quarter. On a year-over-year basis, our Retail Business Unit revenue was up 3%. Our strong year on year growth for RBU in North America and Asia was offset by weakness in the European region. Our Service Provider Business Unit revenue was up 58% sequentially, and up 20% over the prior year quarter. This substantial increase reflects the incremental revenue of the recent AirCard acquisition. Our Commercial Business Unit revenue was up 25% sequentially, and up 10% over the prior year quarter. Our new line of storage products was well received by the market, and we believe that the unique product portfolio we have built for storage, 10 Gigabit switches, Power over Ethernet switches and wireless LAN will continue to drive growth for this business unit in future quarters."
Christine Gorjanc, Chief Financial Officer of NETGEAR, said, "We ended the second quarter of 2013 with $288.1 million in cash, cash equivalents and short-term investments, compared to $360.4 million at the end of the second quarter of 2012, and $422.4 million at the end of the first quarter of 2013. The reduction in the cash level reflects the payment of $140.0 million to Sierra Wireless, Inc. for the AirCard business. Our balance sheet remains strong and provides plenty of flexibility for us to invest in the fast growing markets of the Smart Home, access networks to cloud computing, and LTE gateways and data devices."
Mr. Lo added, "The worldwide spread of broadband internet access and the proliferation of connected devices continue to create opportunities for us to put multiple NETGEAR products into every home and office. Looking forward, for the third quarter of 2013, we expect net revenue to be in the range of $345 to $360 million and non-GAAP operating margin to be between 9.5% and 10.5%. Furthermore, we expect our non-GAAP tax rate to be approximately 37% in the third quarter of 2013."
Investor Conference Call / Webcast Details
NETGEAR will review the second quarter results and discuss management's expectations for the second quarter of 2013 today, Thursday, July 25, 2013 at 5 p.m. EDT (2 p.m. PDT). 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 Eastern (9 p.m. Pacific) on Thursday, August 1, 2013 by telephone at (858) 384-5517 and via the web at http://investor.netgear.com. The account number to access the phone replay is 417736.
About NETGEAR, Inc.
NETGEAR (NASDAQGS: 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 45,000 retail locations around the globe, and through approximately 40,000 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.
© 2013 NETGEAR, Inc. NETGEAR, ReadyNAS, AirCard 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.
Contact:
NETGEAR Investor Relations
Christopher Genualdi
netgearIR@netgear.com
(408) 890-3520
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, non-GAAP operating margin and non-GAAP tax rate; expectations for intermediate and long term growth in our business units; expectations regarding new product introductions that position the Company for growth; opening new channels; penetrating developing markets; and entering new product categories. 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 42 through 63, in the Company's quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2013, filed with the Securities and Exchange Commission on May 7, 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)
June 30, December 31,
2013 2012
---- ----
ASSETS
Current assets:
Cash and
cash
equivalents $146,934 $149,032
Short-
term
investments 141,169 227,845
Accounts
receivable,
net 288,483 256,014
Inventories 185,383 174,903
Deferred
income
taxes 25,228 22,691
Prepaid
expenses
and other
current
assets 41,708 33,724
------ ------
Total
current
assets 828,905 864,209
Property
and
equipment,
net 26,397 19,025
Intangibles,
net 95,149 27,621
Goodwill 155,405 100,880
Other non-
current
assets 22,884 22,834
------ ------
Total
assets $1,128,740 $1,034,569
======== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current
liabilities:
Accounts
payable $129,535 $87,310
Accrued
employee
compensation 16,275 18,338
Other
accrued
liabilities 134,884 126,255
Deferred
revenue 31,838 27,645
Income
taxes
payable - 1,382
Total
current
liabilities 312,532 260,930
Non-
current
income
taxes
payable 12,972 13,735
Other non-
current
liabilities 6,657 5,293
----- -----
Total
liabilities 332,161 279,958
Stockholders'
equity:
Common
stock 39 38
Additional
paid-in
capital 407,505 394,427
Cumulative
other
comprehensive
income 48 4
Retained
earnings 388,987 360,142
Total
stockholders'
equity 796,579 754,611
------- -------
Total
liabilities
and
stockholders'
equity $1,128,740 $1,034,569
======== ==========
NETGEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months
Ended
------------------ -----------
June March 31, July 1, June
30, 30, July 1,
2013 2013 2012 2013 2012
---- ---- ---- ---- ----
Net revenue $357,719 $293,399 $320,655 $651,118 $646,275
Cost of revenue 254,289 205,662 226,017 459,951 451,788
Gross profit 103,430 87,737 94,638 191,167 194,487
------- ------ ------ ------- -------
Operating expenses:
Research and development 23,981 15,338 14,757 39,319 28,878
Sales and marketing 40,406 36,389 37,677 76,795 76,647
General and administrative 12,319 12,327 11,219 24,646 21,632
Restructuring and other 1,587 (30) - 1,557 -
charges
Litigation reserves, net 3,555 48 - 3,603 151
Total operating expenses 81,848 64,072 63,653 145,920 127,308
------ ------ ------ ------- -------
Income from operations 21,582 23,665 30,985 45,247 67,179
Interest income 95 149 116 244 235
Other income (expense), net (548) 74 354 (474) (247)
---- --- --- ---- ----
Income before income taxes 21,129 23,888 31,455 45,017 67,167
Provision for income taxes 7,144 8,545 9,933 15,689 20,498
----- ----- ----- ------ ------
Net income $13,985 $15,343 $21,522 $29,328 $46,669
======= ======= ======= ======= =======
Net income per share:
Basic $0.36 $0.40 $0.57 $0.76 $1.23
===== ===== ===== ===== =====
Diluted $0.36 $0.39 $0.56 $0.75 $1.21
===== ===== ===== ===== =====
Weighted average shares
outstanding used to compute net
income per share:
Basic 38,539 38,433 37,978 38,493 37,886
====== ====== ====== ====== ======
Diluted 39,074 39,050 38,595 39,077 38,612
====== ====== ====== ====== ======
NETGEAR, INC.
NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Excluding 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, and litigation reserves, net of tax.
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
June 30, March 31, July 1, June 30, July 1,
2013 2013 2012 2013 2012
---- ---- ---- ---- ----
Net revenue $357,719 $293,399 $320,655 $651,118 $646,275
Cost of revenue 251,061 204,002 224,723 455,063 449,277
Gross profit 106,658 89,397 95,932 196,055 196,998
------- ------ ------ ------- -------
Operating expenses:
Research and development 22,846 14,666 14,080 37,512 27,590
Sales and marketing 36,478 35,159 36,486 71,637 74,262
General and administrative 10,565 10,118 9,970 20,683 19,066
Total operating expenses 69,889 59,943 60,536 129,832 120,918
------ ------ ------ ------- -------
Income from operations 36,769 29,454 35,396 66,223 76,080
Interest income 95 149 116 244 235
Other income (expense), net (548) 74 354 (474) (247)
---- --- --- ---- ----
Income before income taxes 36,316 29,677 35,866 65,993 76,068
Provision for income taxes 11,944 10,263 11,262 22,207 23,356
------ ------ ------ ------ ------
Net income $24,372 $19,414 $24,604 $43,786 $52,712
======= ======= ======= ======= =======
Net income per share:
Basic $0.63 $0.51 $0.65 $1.14 $1.39
===== ===== ===== ===== =====
Diluted $0.62 $0.50 $0.64 $1.12 $1.37
===== ===== ===== ===== =====
Weighted average shares
outstanding used to compute net
income per share:
Basic 38,539 38,433 37,978 38,493 37,886
====== ====== ====== ====== ======
Diluted 39,074 39,050 38,595 39,077 38,612
====== ====== ====== ====== ======
NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except per share data)
(Unaudited)
STATEMENT OF OPERATIONS DATA:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, March 31, July 1, June 30, July 1,
2013 2013 2012 2013 2012
---- ---- ---- ---- ----
GAAP gross profit $103,430 $87,737 $94,638 $191,167 $194,487
Amortization of intangible assets 2,254 1,471 1,016 3,725 1,963
Stock-based compensation expense 406 189 278 595 548
Impact to cost of sales from 568 - - 568 -
acquisition accounting adjustments to
inventory
Non-GAAP gross profit $106,658 $89,397 $95,932 $196,055 $196,998
====== ===== ===== ====== ======
Non-GAAP gross margin 29.8% 30.5% 29.9% 30.1% 30.5%
GAAP research and development $23,981 $15,338 $14,757 $39,319 $28,878
Stock-based compensation expense (1,135) (672) (677) (1,807) (1,288)
Non-GAAP research and development $22,846 $14,666 $14,080 $37,512 $27,590
======= ===== ===== ======= =======
GAAP sales and marketing $40,406 $36,389 $37,677 $76,795 $76,647
Amortization of intangible assets (2,618) - - (2,618) -
Stock-based compensation expense (1,310) (1,230) (1,191) (2,540) (2,385)
Non-GAAP sales and marketing $36,478 $35,159 $36,486 $71,637 $74,262
======= ===== ===== ======= =======
GAAP general and administrative $12,319 $12,327 $11,219 $24,646 $21,632
Stock-based compensation expense (1,540) (1,499) (1,249) (3,039) (2,566)
Acquisition related expense (214) (710) - (924) -
---- ---- --- ---- ---
Non-GAAP general and administrative $10,565 $10,118 $9,970 $20,683 $19,066
======= ===== ====== ======= =======
GAAP total operating expenses $81,848 $64,072 $63,653 $145,920 $127,308
Amortization of intangible assets (2,618) - - (2,618) -
Stock-based compensation expense (3,985) (3,401) (3,117) (7,386) (6,239)
Restructuring and other charges (1,587) 30 - (1,557) -
Acquisition related expense (214) (710) - (924) -
Litigation reserves, net (3,555) (48) - (3,603) (151)
Non-GAAP total operating expenses $69,889 $59,943 $60,536 $129,832 $120,918
======= ===== ===== ====== ======
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 30, March 31, July 1, June 30, July 1,
2013 2013 2012 2013 2012
---- ---- ---- ---- ----
GAAP operating income $21,582 $23,665 $30,985 $45,247 $67,179
Amortization of intangible assets 4,872 1,471 1,016 6,343 1,963
Stock-based compensation expense 4,391 3,590 3,395 7,981 6,787
Restructuring and other charges 1,587 (30) - 1,557 -
Acquisition related expense 214 710 - 924 -
Impact to cost of sales from 568 - - 568 -
acquisition accounting adjustments to
inventory
Litigation reserves, net 3,555 48 - 3,603 151
Non-GAAP operating income $36,769 $29,454 $35,396 $66,223 $76,080
===== ===== ===== ===== =====
Non-GAAP operating margin 10.3% 10.0% 11.0% 10.2% 11.8%
GAAP net income $13,985 $15,343 $21,522 $29,328 $46,669
Amortization of intangible assets 4,872 1,471 1,016 6,343 1,963
Stock-based compensation expense 4,391 3,590 3,395 7,981 6,787
Restructuring and other charges 1,587 (30) - 1,557 -
Acquisition related expense 214 710 - 924 -
Impact to cost of sales from 568 - - 568 -
acquisition accounting adjustments to
inventory
Litigation reserves, net 3,555 48 - 3,603 151
Tax effect (4,800) (1,718) (1,329) (6,518) (2,858)
Non-GAAP net income $24,372 $19,414 $24,604 $43,786 $52,712
===== ===== ===== ===== =====
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 March 31, July June July
30, 1, 30, 1,
2013 2013 2012 2013 2012
---- ---- ---- ---- ----
NET INCOME PER DILUTED SHARE:
GAAP net income per diluted share $0.36 $0.39 $0.56 $0.75 $1.21
Amortization of intangible assets 0.12 0.04 0.03 0.16 0.05
Stock-based compensation expense 0.11 0.09 0.09 0.20 0.18
Restructuring and other charges 0.04 0.00 - 0.04 -
Acquisition related expense 0.01 0.02 - 0.02 -
Impact to cost of sales from 0.01 - - 0.01 -
acquisition accounting adjustments to
inventory
Litigation reserves, net 0.09 0.00 - 0.09 0.00
Tax effect (0.12) (0.04) (0.04) (0.15) (0.07)
Non-GAAP net income per diluted share $0.62 $0.50 $0.64 $1.12 $1.37
===== ===== ===== ===== =====
SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory and headcount)
(Unaudited)
Three Months Ended
------------------
June
30, March 31, December 31, September 30, July 1,
2013 2013 2012 2012 2012
---- ---- ---- ---- ----
Cash, cash equivalents and short-term investments $288,103 $422,412 $376,877 $362,420 $360,428
Cash, cash equivalents and short-term investments $7.37 $10.82 $9.68 $9.34 $9.34
per diluted share
Accounts receivable, net $288,483 $237,896 $256,014 $248,862 $271,769
Days sales outstanding (DSO) 73 73 76 72 77
Inventories $185,383 $158,555 $174,903 $178,916 $152,820
Ending inventory turns 5.5 5.2 5.0 4.9 5.9
Weeks of channel inventory:
U.S. retail channel 10.4 9.9 8.8 9.8 12.3
U.S. distribution channel 9.0 8.9 10.2 8.4 8.6
EMEA distribution channel 5.1 4.1 4.4 4.4 4.1
APAC distribution channel 7.3 7.2 7.2 4.7 5.7
Deferred revenue $33,717 $28,961 $27,645 $28,205 $25,478
Headcount 1,095 866 850 854 818
Non-GAAP diluted shares 39,074 39,050 38,924 38,802 38,595
NET REVENUE BY GEOGRAPHY
Three Months Ended Six Months Ended
------------------ ----------------
June March 31, July 1, June
30, 30, July 1,
2013 2013 2012 2013 2012
---- ---- ---- ---- ----
Americas $200,848 56% $156,676 53% $163,438 51% $357,524 55% $331,793 51%
EMEA 108,367 30% 107,125 37% 117,815 37% 215,492 33% 242,896 38%
APAC 48,504 14% 29,598 10% 39,402 12% 78,102 12% 71,586 11%
Total $357,719 100% $293,399 100% $320,655 100% $651,118 100% $646,275 100%
====== === ======== === ====== === ====== === ====== ===
NET REVENUE BY SEGMENT
Three Months Ended Six Months Ended
------------------ ----------------
June March 31, July 1, June
30, 30, July 1,
2013 2013 2012 2013 2012
---- ---- ---- ---- ----
Retail $117,395 33% $126,322 43% $113,824 36% $243,717 38% $242,801 38%
Commercial 88,446 25% 70,851 24% 80,626 25% 159,297 24% 155,258 24%
Service Provider 151,878 42% 96,226 33% 126,205 39% 248,104 38% 248,216 38%
Total $357,719 100% $293,399 100% $320,655 100% $651,118 100% $646,275 100%
====== === ======== === ====== === ====== === ====== ===
SOURCE NETGEAR, Inc.
