NETGEAR® Reports Third Quarter 2012 Results
SAN JOSE, Calif., Oct. 25, 2012 /PRNewswire/ — NETGEAR, Inc. (NASDAQGM: 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 30, 2012.
Net revenue for the third quarter ended September 30, 2012 was $315.2 million, as compared to $301.8 million for the third quarter ended October 2, 2011, and $320.7 million in the second quarter ended July 1, 2012. Net income, computed in accordance with GAAP, for the third quarter of 2012 was $23.8 million, or $0.61 per diluted share. This compared to GAAP net income of $26.7 million, or $0.70 per diluted share, for the third quarter of 2011, and GAAP net income of $21.5 million, or $0.56 per diluted share, in the second quarter of 2012.
Gross margin on a non-GAAP basis in the third quarter of 2012 was 31.6%, as compared to 32.4% in the year ago comparable quarter, and 29.9% in the second quarter of 2012. Non-GAAP operating margin was 11.5% in the third quarter of 2012, as compared to 12.5% in the third quarter of 2011, and 11.0% in the second quarter of 2012. Non-GAAP net income was $0.65 per diluted share in the third quarter of 2012, as compared to non-GAAP net income of $0.79 per diluted share in the third quarter of 2011, and non-GAAP net income of $0.64 per diluted share in the second quarter of 2012. Our tax rate in the third quarter 2012 reflects a one-time benefit which accounts for an incremental $0.05 per diluted share of earnings. This compares to a one-time tax rate benefit in the third quarter 2011, which accounted for an incremental $0.09 per diluted share of earnings.
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 compensation, impact to cost of sales from acquisition accounting adjustments to inventory, litigation reserves, and gain on sale of cost method investment. 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, “NETGEAR’s financial results for the third quarter of 2012 are a reflection of the current difficult economic climate. The uncertainty in the European and Australian markets has affected consumer, small business, and service provider sales for the quarter.”
“Our Retail Business Unit revenue for the quarter ended September 30, 2012 was up 9% quarter-on-quarter, driven by back-to-school seasonal demand and market share gains in North America. On a year-over-year basis, Retail was down 3% as a result of the challenging European market. Commercial was down 2% on a sequential basis and down 13% year-over-year. This reflects the tightened spending of European and Australian businesses facing widespread economic uncertainty. Our Service Provider Business Unit revenues were up 34% on a year-over-year basis, and down 11% quarter-over-quarter as service providers reduced their purchases in Q3.”
Christine Gorjanc, Chief Financial Officer of NETGEAR, said, “Despite the current challenges we are facing in Europe and Australia, we are continuing our increased investment in research and development. This increased investment positions us for the long term success we believe we can achieve in all geographies, especially when the economic environment improves. We expect that the continuous flow of innovative new products from our R&D team will enable us to gain market share worldwide now and in the future. However, facing the current weakened market demand in Europe, we are shifting our sales and marketing resources to the emerging markets where we believe there is growth to achieve and market share to be gained. We will continue to spend wisely and streamline our operations to achieve more efficiency. As always, we are very focused on managing expenses, inventory levels, and cash.”
Mr. Lo added, “Looking forward, we expect to continue to face a challenging economic climate in Europe. We are also seeing a further reduction in capital expenditures budget for broadband gateways in Q4 among our service provider customers in Europe and Australia. Despite the difficult market situation, we continue to innovate and expect to release approximately 25 new products in Q4, setting us up for growth in 2013. Specifically, for the fourth quarter of 2012, we expect net revenue to be in the range of approximately $300 million to $315 million, with non-GAAP operating margin to be in the range of 11% to 12%.”
Investor Conference Call / Webcast Details
NETGEAR will review the third quarter 2012 results and discuss management’s expectations for the third quarter of 2012 today, Thursday, October 25, 2012 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 EDT (9 p.m. PDT) on Thursday, November 1, 2012 by telephone at (858) 384-5517 and via the web at http://investor.netgear.com. The account number to access the phone replay is 401042.
About NETGEAR, Inc.
NETGEAR (NASDAQGM: 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 32,000 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.
© 2012 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.
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, among others, regarding NETGEAR’s expected revenue and operating margin, investment in research and development, expectations of the economic environment especially in Europe and Australia, expectations on growth and market share gains, expectations on emerging markets, our intent to continue to spend wisely and streamline operations, reductions in capital expenditures budget for broadband gateways in Q4 for service provider customers in Europe and Australia, and the number of new products to be introduced in the fourth quarter. These statements are based on management’s current expectations and are subject to certain risks and uncertainties, including, without limitation, 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; channel inventory information reported is estimated based on the average number of weeks of inventory on hand on the last Saturday of the quarter, as reported by certain of NETGEAR’s customers; 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 45 through 63, in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2012, filed with the Securities and Exchange Commission on August 8, 2012. 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.
NETGEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, December 31,
2012 2011
---- ----
ASSETS
Current assets:
Cash and cash equivalents $134,601 $208,898
Short-term investments 227,819 144,797
Accounts receivable, net 248,862 261,307
Inventories 178,916 163,724
Deferred income taxes 22,705 23,088
Prepaid expenses and other current assets 38,173 32,415
------ ------
Total current assets 851,076 834,229
Property and equipment, net 18,927 15,884
Intangibles, net 27,701 20,956
Goodwill 100,880 85,944
Other non-current assets 20,053 14,357
------ ------
Total assets $1,018,637 $971,370
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $91,070 $117,285
Accrued employee compensation 21,116 26,896
Other accrued liabilities 120,829 120,480
Deferred revenue 28,205 40,093
Income taxes payable 1,829 4,207
Total current liabilities 263,049 308,961
Non-current income taxes payable 17,525 18,657
Other non-current liabilities 5,286 4,995
----- -----
Total liabilities 285,860 332,613
Stockholders' equity:
Common stock 38 38
Additional paid-in capital 388,812 364,243
Cumulative other comprehensive (loss) income (171) 23
Retained earnings 344,098 274,453
Total stockholders' equity 732,777 638,757
------- -------
Total liabilities and stockholders' equity $1,018,637 $971,370
========== ========
NETGEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine
Months
Ended
------------------ ---
September 30, July October September October
1, 2, 30, 2,
2012
2012 2012 2011 2011
---- --- --- ---
Net revenue $315,210 $320,655 $301,800 $961,485 $871,863
Cost of
revenue 217,522 226,017 205,490 669,310 597,390
Gross
profit 97,688 94,638 96,310 292,175 274,473
------ --- --- --- ---
Operating expenses:
Research and development 17,399 14,757 12,738 46,277 35,102
Sales
and
marketing 37,600 37,677 39,600 114,247 115,284
General
and
administrative 11,888 11,219 10,851 33,520 31,044
Restructuring
and
other
charges - - - - 2,094
Litigation
reserves,
net 269 - 44 420 (234)
Total
operating
expenses 67,156 63,653 63,233 194,464 183,290
------ --- --- --- ---
Income
from
operations 30,532 30,985 33,077 97,711 91,183
Interest
income 109 116 115 344 350
Other
income
(expense),
net 3,070 354 (267) 2,823 (938)
----- --- --- --- ---
Income
before
income
taxes 33,711 31,455 32,925 100,878 90,595
Provision
for
income
taxes 9,920 9,933 6,178 30,418 22,062
----- --- --- --- ---
Net
income $23,791 $21,522 $26,747 $70,460 $68,533
==== ==== ==== ==== ====
Net income per share:
Basic $0.62 $0.57 $0.71 $1.86 $1.85
===== ===== ===== ===== =====
Diluted $0.61 $0.56 $0.70 $1.82 $1.81
===== ===== ===== ===== =====
Weighted average shares outstanding used to compute net income per
share:
Basic 38,162 37,978 37,483 37,978 36,967
====== === === === ===
Diluted 38,802 38,595 38,080 38,682 37,812
====== === === === ===
Stock-based compensation expense was allocated as follows:
Cost of revenue $473 $278 $259 $1,021 $737
Research
and
development 778 677 606 2,066 1,873
Sales
and
marketing 1,238 1,191 1,264 3,623 3,949
General
and
administrative 1,530 1,249 1,325 4,096 3,775
NETGEAR, INC.
NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Excluding amortization of purchased intangibles, stock-based compensation, restructuring and other charges, acquisition related compensation, impact to cost of sales from acquisition accounting adjustments to inventory, litigation reserves, net of tax, and gain on sale of cost method investment.
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine
Months
Ended
------------------ ---
September 30, July October September October
1, 2, 30, 2,
2012 2012 2011 2012 2011
---- --- --- --- ---
Net revenue $315,210 $320,655 $301,800 $961,485 $871,863
Cost of
revenue 215,695 224,723 204,167 664,972 592,434
Gross
profit 99,515 95,932 97,633 296,513 279,429
------ --- --- --- ---
Operating expenses:
Research and development 16,621 14,080 12,132 44,211 33,189
Sales
and
marketing 36,362 36,486 38,336 110,624 111,335
General
and
administrative 10,358 9,970 9,526 29,424 27,269
Total
operating
expenses 63,341 60,536 59,994 184,259 171,793
------ --- --- --- ---
Income
from
operations 36,174 35,396 37,639 112,254 107,636
Interest
income 109 116 115 344 350
Other
income
(expense),
net (56) 354 (267) (303) (938)
--- --- --- --- ---
Income
before
income
taxes 36,227 35,866 37,487 112,295 107,048
Provision
for
income
taxes 10,959 11,262 7,561 34,315 28,300
------ --- --- --- ---
Net
income $25,268 $24,604 $29,926 $77,980 $78,748
==== ==== ==== ==== ====
Net income per share:
Basic $0.66 $0.65 $0.80 $2.05 $2.13
===== ===== ===== ===== =====
Diluted $0.65 $0.64 $0.79 $2.02 $2.08
===== ===== ===== ===== =====
Weighted average shares outstanding used to compute net income per
share:
Basic 38,162 37,978 37,483 37,978 36,967
====== === === === ===
Diluted 38,802 38,595 38,080 38,682 37,812
====== === === === ===
NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except per share data)
(Unaudited)
STATEMENT OF OPERATIONS DATA:
Three Months Ended Nine
Months
Ended
------------------ ---
September 30, July October September October
1, 2, 30, 2,
2012 2012 2011 2012 2011
---- --- --- --- ---
GAAP gross profit $97,688 $94,638 $96,310 $292,175 $274,473
Amortization
of
intangible
assets 1,354 1,016 1,064 3,317 3,610
Stock-based
compensation
expense 473 278 259 1,021 737
Impact to
cost of
sales from
acquisition
accounting
adjustments
to
inventory - - - - 609
--- --- --- --- ---
Non-GAAP
gross
profit $99,515 $95,932 $97,633 $296,513 $279,429
==== ==== ==== ==== ====
Non-GAAP
gross
margin 31.6% 29.9% 32.4% 30.8% 32.0%
GAAP research and development $17,399 $14,757 $12,738 $46,277 $35,102
Stock-based
compensation
expense (778) (677) (606) (2,066) (1,873)
Acquisition
related
compensation - - - - (40)
Non-GAAP
research
and
development $16,621 $14,080 $12,132 $44,211 $33,189
==== ==== ==== ==== ====
GAAP sales and marketing $37,600 $37,677 $39,600 $114,247 $115,284
Stock-based
compensation
expense (1,238) (1,191) (1,264) (3,623) (3,949)
Non-GAAP
sales and
marketing $36,362 $36,486 $38,336 $110,624 $111,335
==== ==== ==== ==== ====
GAAP general and administrative $11,888 $11,219 $10,851 $33,520 $31,044
Stock-based
compensation
expense (1,530) (1,249) (1,325) (4,096) (3,775)
Non-GAAP
general and
administrative $10,358 $9,970 $9,526 $29,424 $27,269
==== ==== ==== ==== ====
GAAP total operating expenses $67,156 $63,653 $63,233 $194,464 $183,290
Stock-based
compensation
expense (3,546) (3,117) (3,195) (9,785) (9,597)
Restructuring
and other
charges - - - - (2,094)
Acquisition
related
compensation - - - - (40)
Litigation
reserves,
net (269) - (44) (420) 234
Non-GAAP
total
operating
expenses $63,341 $60,536 $59,994 $184,259 $171,793
==== ==== ==== ==== ====
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 30, July October September October
1, 2, 30, 2,
2012 2012 2011 2012 2011
---- --- --- --- ---
GAAP operating income $30,532 $30,985 $33,077 $97,711 $91,183
Amortization
of
intangible
assets 1,354 1,016 1,064 3,317 3,610
Stock-based
compensation
expense 4,019 3,395 3,454 10,806 10,334
Restructuring
and other
charges - - - - 2,094
Acquisition
related
compensation - - - - 40
Impact to
cost of
sales from
acquisition
accounting
adjustments
to
inventory - - - - 609
Litigation
reserves,
net 269 - 44 420 (234)
Non-GAAP
operating
income $36,174 $35,396 $37,639 $112,254 $107,636
==== ==== ==== ==== ====
Non-GAAP
operating
margin 11.5% 11.0% 12.5% 11.7% 12.3%
GAAP other income (expense),net $3,070 $354 $(267) $2,823 $(938)
Gain on sale
of cost
method
investment (3,126) - - (3,126) -
Non-GAAP
other
income
(expense),
net $(56) $354 $(267) $(303) $(938)
==== ==== ==== ==== ====
GAAP net income $23,791 $21,522 $26,747 $70,460 $68,533
Amortization
of
intangible
assets 1,354 1,016 1,064 3,317 3,610
Stock-based
compensation
expense 4,019 3,395 3,454 10,806 10,334
Restructuring
and other
charges - - - - 2,094
Acquisition
related
compensation - - - - 40
Impact to
cost of
sales from
acquisition
accounting
adjustments
to
inventory - - - - 609
Litigation
reserves,
net 269 - 44 420 (234)
Gain on sale
of cost
method
investment (3,126) - - (3,126) -
Tax effect (1,039) (1,329) (1,383) (3,897) (6,238)
Non-GAAP
net income $25,268 $24,604 $29,926 $77,980 $78,748
==== ==== ==== ==== ====
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 30, July October September October
1, 2, 30, 2,
2012 2012 2011 2012 2011
---- --- --- --- ---
NET INCOME PER DILUTED SHARE:
GAAP net income per diluted share $0.61 $0.56 $0.70 $1.82 $1.81
Amortization
of
intangible
assets 0.03 0.03 0.03 0.09 0.10
Stock-
based
compensation
expense 0.10 0.09 0.09 0.28 0.27
Restructuring
and
other
charges - - - - 0.06
Acquisition
related
compensation - - - - 0.00
Impact
to
cost
of
sales
from
acquisition
accounting
adjustments
to
inventory - - - - 0.02
Litigation
reserves,
net 0.01 - 0.00 0.01 (0.01)
Gain on
sale
of
cost
method
investment (0.08) - - (0.08) -
Tax
effect (0.02) (0.04) (0.03) (0.10) (0.17)
Non-
GAAP
net
income
per
diluted
share $0.65 $0.64 $0.79 $2.02 $2.08
===== ===== ===== ===== =====
SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory and headcount)
(Unaudited)
Three Months Ended
------------------
September 30, July 1, April 1, December 31, October 2,
2012 2012 2012 2011 2011
---- ---- ---- ---- ----
Cash, cash equivalents and short-term investments $362,420 $360,428 $369,420 $353,695 $321,059
Cash, cash equivalents and short-term investments per diluted share $9.34 $9.34 $9.58 $9.24 $8.43
Accounts receivable, net $248,862 $271,769 $249,208 $261,307 $218,653
Days sales outstanding (DSO) 72 77 70 76 66
Inventories $178,916 $152,820 $134,314 $163,724 $135,963
Ending inventory turns 4.9 5.9 6.7 5.2 6.0
Weeks of channel inventory:
U.S. retail channel 9.8 12.3 9.8 7.3 10.0
U.S. distribution channel 8.4 8.6 8.6 9.0 6.6
EMEA distribution channel 4.4 4.1 5.0 5.4 4.3
APAC distribution channel 4.7 5.7 5.6 6.7 3.9
Deferred revenue $28,205 $25,478 $25,156 $40,093 $23,934
Headcount 854 818 810 791 756
Non-GAAP diluted shares 38,802 38,595 38,576 38,260 38,080
NET REVENUE BY GEOGRAPHY
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, July 1, October 2, September 30, October 2,
2012 2012 2011 2012 2011
---- ---- ---- ---- ----
Americas $177,647 56% $163,438 51% $149,009 49% $509,440 53% $430,482 50%
EMEA 104,368 33% 117,815 37% 119,735 40% 347,264 36% 352,686 40%
APAC 33,195 11% 39,402 12% 33,056 11% 104,781 11% 88,695 10%
Total $315,210 100% $320,655 100% $301,800 100% $961,485 100% $871,863 100%
======== === ======== === ======== === ======== === ======== ===
NET REVENUE BY SEGMENT
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, July 1, October 2, September 30, October 2,
2012 2012 2011 2012 2011
---- ---- ---- ---- ----
Retail $123,457 39% $113,824 36% $127,082 42% $366,258 38% $352,076 41%
Commercial 79,240 25% 80,626 25% 91,059 30% 234,498 24% 247,793 28%
Service
Provider 112,513 36% 126,205 39% 83,659 28% 360,729 38% 271,994 31%
Total $315,210 100% $320,655 100% $301,800 100% $961,485 100% $871,863 100%
-------- --- -------- --- -------- --- -------- --- -------- ---
SOURCE NETGEAR, Inc.
