October 26, 2016

NETGEAR® Reports Third Quarter 2016 Results

  • Third quarter 2016 net revenue of $338.5 million, as compared to $341.9 million in the comparable prior year quarter, a decrease of 1.0%.
  • Third quarter 2016 GAAP net income of $21.1 million, as compared to $15.1 million in the comparable prior year quarter.
    • Third quarter 2016 non-GAAP net income of $25.9 million, as compared to $21.7 million in the comparable prior year quarter.
  • Third quarter 2016 GAAP net income per diluted share of $0.62, as compared to $0.47 in the comparable prior year quarter.
    • Third quarter 2016 non-GAAP net income per diluted share of $0.76, as compared to $0.67 in the comparable prior year quarter.
  • Business outlook1 : Company expects fourth quarter 2016 net revenue to be in the range of $340 million to $355 million, with GAAP operating margin in the range of 7.9% to 8.9% and non-GAAP operating margin in the range of 10.5% to 11.5%. Additionally, the Company expects the GAAP tax rate to be approximately 37% and non-GAAP tax rate to be approximately 34%.

SAN JOSE, Calif., Oct. 26, 2016 (GLOBE NEWSWIRE) -- 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 October 2, 2016.

Net revenue for the third quarter ended October 2, 2016 was $338.5 million, as compared to $341.9 million in the third quarter ended September 27, 2015, and $311.7 million in the second quarter ended July 3, 2016. Net income, computed in accordance with GAAP, for the third quarter of 2016 was $21.1 million, or $0.62 net income per diluted share. This compared to GAAP net income of $15.1 million, or $0.47 net income per diluted share, in the third quarter of 2015, and GAAP net income of $16.0 million, or $0.48 net income per diluted share, in the second quarter of 2016. Non-GAAP net income was $0.76 per diluted share in the third quarter of 2016, as compared to non-GAAP net income of $0.67 per diluted share in the third quarter of 2015 and $0.72 per diluted share in the second quarter of 2016.

Operating margin, computed in accordance with GAAP, for the third quarter of 2016 was 8.8%, as compared to 7.6% in the year ago comparable quarter, and 8.2% in the second quarter of 2016. Non-GAAP operating margin was 11.5% in the third quarter of 2016, as compared to 10.3% in the third quarter of 2015 and 11.6% in the second quarter of 2016.

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 were pleased with our financial results for the third quarter of 2016, which came in higher than we had expected in revenue and at the high end of our guidance range for non-GAAP operating margin. The outperformance during the quarter was led by our Nighthawk routers, cable gateways, Arlo cameras and 10 Gig switches. Overall, our financial results reinforce that the Company remains on a strong trajectory."

Mr. Lo continued, "During the quarter we saw continued strength in North America for the back-to-school season, healthy year-over-year growth in APAC, while EMEA continued to be a challenging environment."

Business Outlook

Christine Gorjanc, Chief Financial Officer of NETGEAR, added, "Looking forward to the fourth quarter of 2016, we expect net revenue to be in the range of $340 million to $355 million. Our revenue outlook reflects holiday seasonality for the Retail Business Unit, but a reduced service provider revenue forecast. GAAP operating margin is expected to be in the range of 7.9% to 8.9% and non-GAAP operating margin is expected to be in the range of 10.5% to 11.5%. Our GAAP tax rate is expected to be approximately 37% and our non-GAAP tax rate is expected to be 34% for the fourth quarter of 2016."

A reconciliation between the Business Outlook on a GAAP and non-GAAP basis is provided in the following table:

  Three months ended
  December 31, 2016
  Operating Margin
Rate
 Tax Rate
GAAP 7.9% - 8.9%  37%
Estimated adjustments for1:    
Amortization of intangibles  1.2%  __ 
Stock-based compensation expense  1.4%  __ 
Tax effect of non-GAAP adjustments  __   (3)%
Non-GAAP 10.5% - 11.5%  34 %

1 Business outlook does not include estimates for any currently unknown income and expense items which, by their nature, could arise late in a quarter, including: restructuring and other charges; litigation reserves, net; acquisition-related charges; and impairment charges. New material income and expense items such as these could have a significant effect on our guidance and future GAAP results.

Investor Conference Call / Webcast Details
NETGEAR will review the third quarter results and discuss management's expectations for the fourth quarter of 2016 today, Wednesday, October 26, 2016 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 Wednesday, November 2, 2016 by telephone at (412) 317-6671 and via the web at http://investor.netgear.com. The account number to access the phone replay is 13647702.

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 28,000 retail locations around the globe, and through approximately 27,000 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.

© 2016 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, GAAP and non-GAAP operating margins, and GAAP and non-GAAP tax rates; expectations regarding the timing, distribution, sales momentum and market acceptance of recent and anticipated new product introductions that position the Company for growth; and expectations regarding seasonal changes in the Company's business performance. 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 42 through 62, in the Company's quarterly report on Form 10-Q for the fiscal quarter ended July 3, 2016, filed with the Securities and Exchange Commission on August 5, 2016. 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.

Non-GAAP Financial Information:
To supplement our unaudited selected financial data presented on a basis consistent with Generally Accepted Accounting Principles ("GAAP"), we disclose certain non-GAAP financial measures that exclude certain charges, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP research and development, non-GAAP sales and marketing, non-GAAP general and administrative, non-GAAP total operating expenses, non-GAAP operating income, non-GAAP operating margin, non-GAAP other income (expense), net, non-GAAP net income and non-GAAP net income per diluted share. These supplemental measures exclude adjustments for amortization of intangibles, stock-based compensation expense, restructuring and other charges, losses on inventory commitments due to restructuring, litigation reserves, net, gain on litigation settlements, loss pertaining to cost method investment and the related tax effects. These non-GAAP measures are not in accordance with or an alternative for GAAP, and may be different from non-GAAP measures used by other companies. We believe that these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.  The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. We compensate for the limitations of non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance.

In calculating non-GAAP financial measures, we exclude certain items to facilitate a review of the comparability of our operating performance on a period-to-period basis because such items are not, in our view, related to our ongoing operational performance. We use non-GAAP measures to evaluate the operating performance of our business, for comparison with forecasts and strategic plans, and for benchmarking performance externally against competitors. In addition, management's incentive compensation is determined using certain non-GAAP measures. Since we find these measures to be useful, we believe that investors benefit from seeing results "through the eyes" of management in addition to seeing GAAP results. We believe that these non-GAAP measures, when read in conjunction with our GAAP financials, provide useful information to investors by offering:

  • the ability to make more meaningful period-to-period comparisons of our on-going operating results;
  • the ability to better identify trends in our underlying business and perform related trend analyses;
  • a better understanding of how management plans and measures our underlying business; and
  • an easier way to compare our operating results against analyst financial models and operating results of competitors that supplement their GAAP results with non-GAAP financial measures.

The following are explanations of the adjustments that we incorporate into non-GAAP measures, as well as the reasons for excluding them in the reconciliations of these non-GAAP financial measures:

Amortization of intangibles consists primarily of non-cash charges that can be impacted by, among other things, the timing and magnitude of acquisitions. We consider our operating results without these charges when evaluating our ongoing performance and forecasting our earnings trends, and therefore exclude such charges when presenting non-GAAP financial measures. We believe that the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of our competitors.

Stock-based compensation expense consists of non-cash charges for the estimated fair value of stock options, restricted stock units and shares under the employee stock purchase plan granted to employees. We believe that the exclusion of these charges provides for more accurate comparisons of our operating results to peer companies due to the varying available valuation methodologies, subjective assumptions and the variety of award types. In addition, we believe it is useful to investors to understand the specific impact stock-based compensation expense has on our operating results.

Other items consist of certain items that are the result of either unique or unplanned events, including, when applicable: restructuring and other charges, losses on inventory commitments due to restructuring, litigation reserves, net, gain on litigation settlements, and loss pertaining to cost method investment. It is difficult to predict the occurrence or estimate the amount or timing of these items in advance. Although these events are reflected in our GAAP financial statements, these unique transactions may limit the comparability of our on-going operations with prior and future periods. The amounts result from events that arise from unforeseen circumstances, which often occur outside of the ordinary course of continuing operations. Therefore, the amounts do not accurately reflect the underlying performance of our continuing business operations for the period in which they are incurred.

Tax effects consist of various adjustments that we incorporate into non-GAAP measures in order to provide a more meaningful measure on non-GAAP net income. We also believe providing financial information with and without the income tax effects relating to our non-GAAP financial measures provides our management and users of the financial statements with better clarity regarding the on-going performance of our business.
               
Source: NETGEAR-F

-Financial Tables Attached-

 
NETGEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 October 2,
 2016
 December 31,
 2015
ASSETS   
Current assets:   
Cash and cash equivalents$273,720  $181,945  
Short-term investments129,296  96,321 
Accounts receivable, net233,911  290,642 
Inventories217,621  213,118 
Prepaid expenses and other current assets30,519  39,117 
Total current assets885,067  821,143 
Property and equipment, net19,476  22,384 
Intangibles, net 36,216  48,947 
Goodwill81,721  81,721 
Other non-current assets74,268  76,374 
Total assets$1,096,748  $1,050,569 
    
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current liabilities:   
Accounts payable$95,991  $90,546 
Accrued employee compensation24,026  27,868 
Other accrued liabilities142,751   166,282 
Deferred revenue26,515  29,125 
Income taxes payable1,866  1,951 
Total current liabilities291,149  315,772 
Non-current income taxes payable15,610  14,444 
Other non-current liabilities12,793  11,643 
Total liabilities319,552  341,859 
Stockholders' equity:   
Common stock33  33 
Additional paid-in capital555,167  513,047 
Accumulated other comprehensive income242  3 
Retained earnings221,754  195,627 
Total stockholders' equity777,196  708,710 
Total liabilities and stockholders' equity$1,096,748  $1,050,569 
        


NETGEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and percentage data)
(Unaudited)
 
 Three Months Ended Nine Months Ended
 October 2,
 2016
 July 3,
 2016
 September 27,
 2015
 October 2,
 2016
 September 27,
 2015
           
Net revenue$338,458  $311,655  $341,893  $960,369  $939,832 
Cost of revenue235,336  213,867  245,566  658,894  677,569 
Gross profit103,122  97,788  96,327  301,475  262,263 
Gross margin30.5% 31.4% 28.2% 31.4% 27.9%
Operating expenses:                   
Research and development21,935  21,804  21,572  65,876  63,126 
Sales and marketing37,337  36,089  35,923  110,703  107,538 
General and administrative14,111  13,035  11,803  39,995  33,192 
Restructuring and other charges(130) 1,311  1,016  3,859  6,384 
Litigation reserves, net13  35    58  (2,690)
Total operating expenses73,266  72,274  70,314  220,491   207,550 
Income from operations29,856  25,514  26,013  80,984  54,713 
Operating margin8.8% 8.2% 7.6% 8.4% 5.8%
Interest income291  279  65  804  184 
Other income (expense), net116  (332) (199) (582)  (67)
Income before income taxes30,263  25,461  25,879   81,206  54,830 
Provision for income taxes9,144  9,427  10,780   27,464  28,053 
Net income$21,119  $16,034  $15,099  $53,742  $26,777 
          
Net income per share:         
Basic$0.64  $0.49  $0.47  $1.64  $0.80 
Diluted$0.62  $0.48   $0.47  $1.60  $0.79 
          
Weighted average shares used to compute net income per share:         
Basic32,913  32,639  31,979  32,688  33,473 
Diluted33,913  33,493  32,335  33,624  34,002 
               


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
 October 2,
 2016
 July 3,
 2016
 September 27,
 2015
 October 2,
 2016
 September 27,
 2015
          
GAAP gross profit$103,122  $97,788   $96,327  $301,475  $262,263 
GAAP gross margin30.5% 31.4% 28.2% 31.4% 27.9%
Amortization of intangibles2,394  2,394  2,394  7,182  7,490 
Stock-based compensation expense426  451  358  1,316  1,190 
Losses on inventory commitments due to restructuring        407 
Non-GAAP gross profit$105,942  $100,633  $99,079  $309,973  $271,350 
Non-GAAP gross margin31.3% 32.3% 29.0% 32.3% 28.9%
          
GAAP research and development$21,935  $21,804  $21,572  $65,876  $63,126 
Stock-based compensation expense(1,087) (1,118) (877) (3,071) (2,495)
Non-GAAP research and development$20,848  $20,686  $20,695  $62,805  $60,631 
          
GAAP sales and marketing$37,337  $36,089  $35,923  $110,703  $107,538 
Amortization of intangibles(1,771)  (1,772) (1,771) (5,314) (5,314)
Stock-based compensation expense(1,300) (1,338) (1,173) (3,835) (3,836)
Non-GAAP sales and marketing$34,266  $32,979  $32,979  $101,554  $98,386 
          
GAAP general and administrative$14,111  $13,035  $11,803  $39,995  $33,192 
Stock-based compensation expense(2,057) (2,112) (1,703) (6,078) (4,994)
Non-GAAP general and administrative$12,054  $10,923  $10,100  $33,917  $28,198 
          
GAAP total operating expenses$73,266  $72,274  $70,314  $220,491  $207,550 
Amortization of intangibles(1,771) (1,772) (1,771) (5,314) (5,314)
Stock-based compensation expense(4,444) (4,568) (3,753) (12,984)  (11,327)
Restructuring and other charges130  (1,311) (1,016) (3,859) (6,384)
Litigation reserves, net(13) (35)   (58) 2,690 
Non-GAAP total operating expenses$67,168  $64,588  $63,774  $198,276  $187,215 
                    


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
 October 2,
 2016
 July 3,
 2016
 September 27,
 2015
 October 2,
 2016
 September 27,
 2015
          
GAAP operating income$29,856  $25,514  $26,013  $80,984  $54,713 
GAAP operating margin8.8% 8.2% 7.6% 8.4% 5.8%
Amortization of intangibles4,165  4,166  4,165  12,496  12,804 
Stock-based compensation expense4,870  5,019  4,111  14,300  12,517 
Restructuring and other charges(130) 1,311  1,016  3,859  6,384 
Losses on inventory commitments due to restructuring        407  
Litigation reserves, net13  35    58  (2,690)
Non-GAAP operating income$38,774  $36,045  $35,305  $111,697  $84,135 
Non-GAAP operating margin11.5% 11.6% 10.3 % 11.6% 9.0%
          
GAAP other income (expense), net$116  $(332) $(199) $(582) $(67)
Gain on litigation settlements      (5)  
Loss pertaining to cost method investment68   479    547   
Non-GAAP other income (expense), net$184  $147  $(199)  $(40) $(67)
          
GAAP net income$21,119  $16,034  $15,099  $53,742  $26,777 
Amortization of intangibles4,165  4,166  4,165  12,496  12,804 
Stock-based compensation expense4,870  5,019   4,111  14,300  12,517 
Restructuring and other charges(130) 1,311  1,016  3,859  6,384 
Losses on inventory commitments due to restructuring        407 
Litigation reserves, net13  35    58  (2,690)
Gain on litigation settlements      (5)  
Loss pertaining to cost method investment68  479    547   
Tax effect of non-GAAP adjustments(4,197) (2,960) (2,652) (10,400)  (8,251)
Non-GAAP net income$25,908  $24,084  $21,739  $74,597  $47,948 
                     


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
 October 2,
 2016
 July 3,
 2016
 September 27,
 2015
 October 2,
 2016
 September 27,
 2015
          
NET INCOME PER DILUTED SHARE:         
GAAP net income per diluted share$0.62  $0.48  $0.47  $1.60  $0.79 
Amortization of intangibles0.12  0.12  0.13  0.37  0.38 
Stock-based compensation expense0.14  0.15  0.13  0.43  0.37 
Restructuring and other charges0.00  0.04  0.03  0.11  0.19 
Losses on inventory commitments due to restructuring        0.01 
Litigation reserves, net0.00  0.00    0.00  (0.08)
Gain on litigation settlements      0.00   
Loss pertaining to cost method investment0.00  0.01    0.02   
Tax effect of non-GAAP adjustments(0.12) (0.08) (0.09) (0.31) (0.25)
Non-GAAP net income per diluted share$0.76  $0.72  $0.67  $2.22  $1.41 
                    


SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory, headcount and percentage data)
(Unaudited)
 
 Three Months Ended
 October 2,
 2016
 July 3,
 2016
 April 3,
 2016
 December 31,
 2015
 September 27,
 2015
          
Cash, cash equivalents and short-term investments$403,016  $352,672  $333,304  $278,266  $263,848 
Cash, cash equivalents and short-term investments per diluted share$11.88  $10.53  $10.02  $8.40  $8.16 
          
Accounts receivable, net$233,911  $230,550  $218,421  $290,642  $274,173 
Days sales outstanding (DSO)  63   67   66   77   73 
          
Inventories$217,621  $207,841  $215,307  $213,118  $170,013 
Ending inventory turns 4.3   4.1   3.9   4.8   5.8 
                    
Weeks of channel inventory:                   
U.S. retail channel 8.9   8.8   8.8   8.4   9.2 
U.S. distribution channel 4.5   5.0   5.6   5.7   7.9 
EMEA distribution channel 4.5   3.8   4.4    4.6   5.3 
APAC distribution channel 6.8   6.7   6.3   7.0   7.3 
          
Deferred revenue (current and non-current)$31,526  $ 32,973  $29,732  $33,331  $34,154 
          
Headcount944  928  937  963  959 
Non-GAAP diluted shares33,913  33,493  33,269  33,110  32,335 
               


NET REVENUE BY GEOGRAPHY
 
 Three Months Ended Nine Months Ended
 October 2,
 2016
 July 3,
 2016
 September 27,
 2015
 October 2,
 2016
 September 27,
 2015
Americas$225,235 66%  $210,908 67% $219,736 64% $629,993 66% $565,981 60%
EMEA60,034 18%  51,653 17% 77,725 23% 176,192 18% 234,827 25%
APAC53,189 16% 49,094 16% 44,432 13% 154,184 16% 139,024 15%
Total$338,458 100% $311,655 100% $341,893 100% $960,369 100% $939,832 100%
                              


NET REVENUE BY SEGMENT
 
 Three Months Ended  Nine Months Ended
 October 2,
 2016
 July 3,
 2016
 September 27,
 2015
   October 2,
 2016
 September 27,
 2015
Retail$194,203 57% $170,646 54% $164,081 48%  $522,392 55% $416,847 45%
Commercial73,405 22% 73,671 24% 65,187 19%  215,508 22%  200,935 21%
Service Provider70,850 21% 67,338 22% 112,625 33%  222,469 23% 322,050 34%
Total$338,458 100% $311,655 100% $341,893 100 %  $960,369 100% $939,832 100%
                               

 

Contact:

NETGEAR Investor Relations

Christopher Genualdi

netgearIR@netgear.com

(408) 890-3520

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Source: NETGEAR, Inc.

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Copyright 2017 NETGEAR, Inc.