July 28, 2011

NETGEAR® Reports Record Second Quarter 2011 Results

  • Second quarter 2011 net revenue of $291.2 million, as compared to $195.9 million in the comparable prior year quarter, 49% year-over-year growth
  • Second quarter 2011 non-GAAP net income of $24.7 million, as compared to $13.7 million in the comparable prior year quarter, 80% year-over-year growth
  • Second quarter 2011 non-GAAP diluted earnings per share of $0.65, as compared to $0.38 in the comparable prior year quarter, 71% year-over-year growth
  • Company expects third quarter 2011 net revenue to be in the range of $290 million to $300 million, with non-GAAP operating margin in the range of 11% to 12%
  • SAN JOSE, California - July 28, 2011 - NETGEAR, Inc. (NASDAQGM: NTGR), a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the second quarter ended July 3, 2011.

    Net revenue for the second quarter ended July 3, 2011 was $291.2 million, as compared to $195.9 million for the second quarter ended June 27, 2010, and as compared to $278.8 million in the first quarter ended April 3, 2011. Net income, computed in accordance with GAAP, for the second quarter of 2011 was $20.6 million, or $0.54 per diluted share. This compared to GAAP net income of $10.5 million, or $0.29 per diluted share, for the second quarter of 2010, and to GAAP net income of $21.2 million, or $0.57 per diluted share, in the first quarter of 2011.

    Gross margin on a non-GAAP basis in the second quarter of 2011 was 31.7%, as compared to 36.3% in the year ago comparable quarter, and 32.1% in the first quarter of 2011. Non-GAAP operating margin was 11.9% in the second quarter of 2011, as compared to 13.1% in the second quarter of 2010, and 12.6% in the first quarter of 2011. Non-GAAP net income was $0.65 per diluted share in the second quarter of 2011, as compared to non-GAAP net income of $0.38 per diluted share in the second quarter of 2010, and non-GAAP net income of $0.65 per diluted share in the first quarter of 2011.

    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 charges, acquisition related compensation and transitional expenses, 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, "For the second quarter of 2011, we are extremely pleased with our year-over-year growth in all three geographic regions, especially sequential double digit growth in the Americas and APAC. We continue to carry positive momentum out of a very strong first quarter, and our new products continue to exceed our expectations and enable us to gain market share. Q2 2011 also marks another quarter of record revenue. Q2 2011 was powered by triple digit revenue growth from service providers, which accounted for approximately 37% of the Company's total revenue in the second quarter 2011, as compared to 16% in the prior year quarter and 29% in the first quarter of 2011. This includes revenue from our CNS division, which we acquired from Westell in mid-April 2011. Our service provider revenue in Q2 also benefited from a one-time $10 million order from a major service provider customer."

    "We introduced another 17 new products in Q2 2011 as we continue to build on our new product momentum. Notable new products include the compact WiFi repeater/booster for home use, the stackable 48 port Gigabit Smart Switch with 10Gig uplinks, and the mini travel router for the Asian market."

    Christine Gorjanc, Chief Financial Officer of NETGEAR, said, "We ended the second quarter of 2011 with $277.9 million in cash, cash equivalents and short-term investments, compared to $231.0 million at the end of the second quarter of 2010, and $279.2 million at the end of the first quarter of 2011. Our net inventory ended at $137.8 million, compared to $125.7 million at the end of the second quarter of 2010, and $140.1 million at the end of the first quarter of 2011."

    Net revenue by geography comprises gross revenue less such items as marketing incentives paid to customers, sales returns and price protection. The following table shows net revenue by geography for the periods indicated:

    As we previously announced, beginning this quarter, the Company's business is now managed in three specific business units: retail, commercial, and service provider. Each business unit is managed by a Senior Vice President/General Manager. We believe this new structure enables us to better focus our efforts on our core customer segments and allows us to be more nimble and opportunistic as a company overall. The Company has included financial information specific to these business units in the accompanying tables. Additionally, the Company will provide disclosure of financial information specific to each of these three business units in its quarterly report on Form 10-Q for the quarter ended July 3, 2011.

    Looking forward, Mr. Lo added, "We believe the third quarter 2011 will present sequential increase in market demand due to back to school for both our retail and commercial business units. However, we believe our service provider revenue will be down from Q2 which benefited from a one-time $10 million order. In the third quarter of 2011, we intend to roll out 20 new products to continue our momentum in innovation. For the third quarter of 2011, we expect net revenue in the range of approximately $290 million to $300 million, with non-GAAP operating margin to be in the range of 11% to 12%."

    Investor Conference Call / Webcast Details
    NETGEAR will review the second quarter 2011 results and discuss management's expectations for the third quarter of 2011 today, Thursday, July 28, 2011 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 www.netgear.com. A replay of the call will be available 2 hours following the call through midnight EDT (9 p.m. PDT) on Thursday, August 4, 2011 by telephone at (858) 384-5517 and via the web at www.netgear.com. The account number to access the phone replay is 375526.

    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 27,000 retail locations around the globe, and through more than 37,000 value-added resellers. The company's headquarters are in San Jose, Calif., with additional offices in 25 countries. NETGEAR is an ENERGY STAR partner. More information is available at http://www.netgear.com or by calling (408) 907-8000. Connect with NETGEAR at http://twitter.com/NETGEAR and http://www.facebook.com/NETGEAR.

    © 2011 NETGEAR, Inc. NETGEAR and the NETGEAR logo are trademarks or registered trademarks of NETGEAR, Inc. 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:
    Joseph Villalta
    The Ruth Group
    (646) 536-7003
    jvillalta@theruthgroup.com

    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, earnings, gross and operating margin and operating income on both a GAAP and non-GAAP basis, our ability and intent to launch new product offerings and continue product development efforts, our expectations regarding our new three-business unit structure, current and future demand for the Company's existing and anticipated new products, and our ability to increase market share for the Company's products globally. 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 35 through 51, in the Company's Quarterly Report on Form 10-Q for the quarter ended April 3, 2011, filed with the Securities and Exchange Commission on May 10, 2011. 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.


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