Revenue of $378 Million - 42% Growth Year over Year Record Quarterly Earnings Per Share Expects Strong Demand Trend to Continue into 2021
SAN JOSE, Calif.--(BUSINESS WIRE)-- NETGEAR, Inc. (NASDAQ: NTGR), a global networking company that delivers innovative networking and Internet connected products to consumers and businesses, today reported financial results for the third quarter ended September 27, 2020.
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, “The robust demand for WiFi that reliably covers the entire household continued in Q3 and signs point to this trend continuing well into next year. We entered the quarter sharply focused on delivering to this demand and our team worked tightly with our supply chain and retail partners to produce outstanding results. In Q3 we grew revenue 42% year over year to $378 million. With the elevated revenue level unlocking leverage in the business, the result was record earnings per share. As the pandemic persists, it is clear that families are adapting their lives to accommodate the need to pursue more of their daily activities virtually from home. This “more from home” transition is stretching well beyond work and school to include movie premieres, doctor visits, grocery shopping, fitness classes and visiting loved ones, and they now all require a whole home, fast and reliable WiFi connection. As the innovation and technology leader, NETGEAR is uniquely suited to help families seamlessly adjust to this new environment.”
Mr. Lo continued, “This trend naturally buoys the CHP side of the business, where our growth is strong across wireless routers and mesh systems and mobile hot spots. We continued to adapt our SMB offerings in Q3 to drive more sophisticated home office setups, including low port count switches and commercial grade WiFi, generating 23% sequential growth. In Q3 we added seventy six thousand subscribers for a total of three hundred and sixty nine thousand, and have already exceeded our full year goal of doubling our subscribers from the end of last year. We are poised to continue this momentum.”
Bryan Murray, Chief Financial Officer of NETGEAR, added, “We had another quarter of strong cash flow, generating $42.9 million in cash from operations in the third quarter. Preserving strong liquidity and generating cash are paramount during these uncertain times, and we are confident in our ability to do so in the near term. Although the full economic impact and duration of the current pandemic remain unclear, we believe we remain well positioned to serve the demand trends we are currently seeing in the marketplace.”
Business Outlook
Mr. Murray continued, “We expect continued strength in our end market demand for home networks. With that said, new cases of COVID-19 have reaccelerated across many countries and there is still considerable uncertainty around the effects on many of our major markets. This makes our business difficult to forecast, and heightens the risk of supply chain disruption. Given this, we feel it is prudent to continue to suspend our practice of giving guidance for the fourth quarter of 2020.”
Investor Conference Call / Webcast Details
NETGEAR will review the third quarter results and discuss management's expectations for the fourth quarter of 2020 today, Wednesday, October 21, 2020 at 5 p.m. ET (2 p.m. PT). The toll free dial-in number for the live audio call is (844) 709-2008. The international dial-in number for the live audio call is (647) 253-8663. The conference ID for the call is 5065579. A live webcast of the conference call will be available on NETGEAR's Investor Relations website at http://investor.netgear.com. A replay of the call will be available via the web at http://investor.netgear.com.
About NETGEAR, Inc.
NETGEAR (NASDAQ: NTGR) has pioneered advanced networking technologies for homes, businesses, and service providers around the world since 1996 and leads the industry with a broad range of award-winning products designed to simplify and improve people’s lives. By enabling people to collaborate and connect to a world of information and entertainment, NETGEAR is dedicated to delivering innovative and advanced connected solutions ranging from mobile and cloud-based services for enhanced control and security, to smart networking products, video over Ethernet for Pro AV applications, easy-to-use WiFi solutions and performance gaming routers to enhance online game play. NETGEAR products are sold in approximately 24,000 retail locations around the globe, and through approximately 21,000 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 20 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.
© 2020 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: NETGEAR’s future operating performance and financial condition, including expectations regarding continued profitability and cash generation; expectations regarding continuing market demand for the Company’s products and the Company’s ability to respond to this demand; the timing, distribution, sales momentum and market acceptance of recent and anticipated new product introductions that position the Company for growth and market share gain; and expectations regarding NETGEAR's paid subscriber base growth. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including the following: uncertainty surrounding the duration and impact of the global COVID-19 pandemic; future demand for the Company's products may be lower than anticipated; the Company may be unsuccessful, or experience delays, in manufacturing and distributing its new and existing products; consumers may choose not to adopt the Company's new product offerings or adopt competing products; the Company may be unable to continue to grow its number of registered users, its number of registered app users and/or its paid subscriber base; product performance may be adversely affected by real world operating conditions; 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, including the Company’s ability to collect receivables as they become due. 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” in the Company's quarterly report on Form 10-Q for the fiscal quarter ended June 28, 2020, filed with the Securities and Exchange Commission on July 31, 2020. Given these circumstances, you should not place undue reliance on these forward-looking statements. 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, except as required by law.
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 other operating expenses, net, 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, separation expense, change in fair value of contingent consideration, restructuring and other charges, litigation reserves, net, gain/loss on investments, net, 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 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: separation expense, change in fair value of contingent consideration, restructuring and other charges, litigation reserves, net, and gain/loss on investments, net. 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 often 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 the various above 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
NETGEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
As of
September 27, 2020
December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
$
300,492
190,208
Short-term investments
6,326
5,499
Accounts receivable, net
340,004
277,168
Inventories
144,302
235,489
Prepaid expenses and other current assets
31,588
35,745
Total current assets
822,712
744,109
Property and equipment, net
15,313
17,683
Operating lease right-of-use assets, net
31,181
28,917
Intangibles, net
5,390
10,104
Goodwill
80,721
Other non-current assets
72,954
74,279
Total assets
1,028,271
955,813
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
87,747
80,531
Accrued employee compensation
29,772
20,024
Other accrued liabilities
196,297
189,547
Deferred revenue
10,883
6,450
Income taxes payable
1,299
1,839
Total current liabilities
325,998
298,391
Non-current income taxes payable
18,290
15,307
Non-current operating lease liabilities
27,395
25,434
Other non-current liabilities
10,321
7,988
Total liabilities
382,004
347,120
Stockholders’ equity:
Common stock
30
Additional paid-in capital
868,985
831,365
Accumulated other comprehensive income (loss)
(112
)
21
Accumulated deficit
(222,636
(222,723
Total stockholders’ equity
646,267
608,693
Total liabilities and stockholders’ equity
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and percentage data)
Three Months Ended
Nine Months Ended
June 28, 2020
September 29, 2019
Net revenue
378,114
280,052
265,858
888,129
745,792
Cost of revenue
264,620
198,751
188,666
627,093
521,147
Gross profit
113,494
81,301
77,192
261,036
224,645
Gross margin
30.0
%
29.0
29.4
30.1
Operating expenses:
Research and development
24,529
21,144
19,537
65,412
57,183
Sales and marketing
39,794
34,384
33,491
107,209
103,887
General and administrative
16,467
15,481
11,887
45,082
35,467
Other operating expenses, net
538
1,425
212
1,631
1,709
Total operating expenses
81,328
72,434
65,127
219,334
198,246
Income from operations
32,166
8,867
12,065
41,702
26,399
Operating margin
8.5
3.2
4.5
4.7
3.5
Interest income
98
49
639
409
2,122
Other income (expense), net
(515
314
(403
(4,787
425
Income before income taxes
31,749
9,230
12,301
37,324
28,946
Provision (benefit) for income taxes
6,214
3,247
(228
9,979
2,735
Net income
25,535
5,983
12,529
27,345
26,211
Net income per share:
Basic
0.85
0.20
0.41
0.92
0.84
Diluted
0.83
0.39
0.90
0.81
Weighted average shares used to compute net income per share:
30,037
29,617
30,933
29,746
31,221
30,741
30,070
31,819
30,341
32,327
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
STATEMENT OF OPERATIONS DATA:
GAAP gross profit
GAAP gross margin
Amortization of intangibles
179
536
Stock-based compensation expense
923
1,501
706
3,129
2,129
Non-GAAP gross profit
114,596
82,981
78,077
264,701
227,310
Non-GAAP gross margin
30.3
29.6
29.8
30.5
GAAP research and development
(1,138
(1,707
(1,496
(3,879
(3,976
Non-GAAP research and development
23,391
19,437
18,041
61,533
53,207
GAAP sales and marketing
(1,291
(1,340
(1,341
(3,972
(4,676
(1,927
(1,890
(2,097
(5,596
(6,223
Non-GAAP sales and marketing
36,576
31,154
30,053
97,641
92,988
GAAP general and administrative
(3,230
(4,074
(2,687
(10,122
(7,855
Non-GAAP general and administrative
13,237
11,407
9,200
34,960
27,612
GAAP other operating expenses, net
Separation expense
—
(264
Change in fair value of contingent consideration
(187
(311
(199
(276
Restructuring and other charges
(329
(1,117
77
(1,311
(1,146
Litigation reserves, net
(22
3
(90
(44
(100
Non-GAAP other operating expenses, net
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)
STATEMENT OF OPERATIONS DATA (CONTINUED):
GAAP total operating expenses
(6,295
(7,671
(6,280
(19,597
(18,054
Non-GAAP total operating expenses
73,204
61,998
57,294
194,134
173,807
GAAP operating income
GAAP operating margin
1,470
1,519
1,520
4,508
5,212
7,218
9,172
6,986
22,726
20,183
264
187
311
199
276
329
1,117
(77
1,311
1,146
22
(3
90
44
100
Non-GAAP operating income
41,392
20,983
20,783
70,567
53,503
Non-GAAP operating margin
10.9
7.5
7.8
7.9
7.2
GAAP other income (expense), net
Gain/loss on investments, net
842
223
5,372
Non-GAAP other income (expense), net
327
(180
585
648
(In thousands, except per share data)
GAAP net income
Tax effects of above non-GAAP adjustments
(912
(1,778
(725
(4,201
(4,138
Non-GAAP net income
34,691
16,321
20,745
57,381
49,400
NET INCOME PER DILUTED SHARE:
GAAP net income per diluted share
0.05
0.15
0.16
0.23
0.31
0.22
0.75
0.62
0.01
0.00
0.04
(0.00
0.03
0.18
(0.03
(0.07
(0.14
(0.12
Non-GAAP net income per diluted share
1.13
0.54
0.65
1.89
1.53
SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory, headcount and percentage data)
March 29, 2020
Cash, cash equivalents and short-term investments
306,818
258,552
209,714
195,707
171,917
Cash, cash equivalents and short-term investments per diluted share
9.98
8.60
6.98
6.35
5.40
277,490
257,582
248,070
Days sales outstanding (DSO)
82
102
85
150,585
180,602
275,584
Ending inventory turns
7.3
5.3
3.6
3.1
2.7
Weeks of channel inventory:
U.S. retail channel
5.7
6.4
7.0
8.0
8.6
U.S. distribution channel
2.8
4.2
5.4
EMEA distribution channel
6.8
6.7
5.9
5.8
APAC distribution channel
10.1
11.9
8.3
9.6
Deferred revenue (current and non-current)
13,813
10,792
8,963
8,511
7,712
Headcount
803
788
797
809
802
Non-GAAP diluted shares
30,045
30,800
NET REVENUE BY GEOGRAPHY
Americas
277,891
73
202,246
72
178,679
67
638,327
483,878
65
EMEA
63,705
17
48,359
49,554
19
154,212
149,608
20
APAC
36,518
10
29,447
11
37,625
14
95,590
112,306
15
Total
SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
NET REVENUE BY SEGMENT
Connected Home
316,739
230,017
190,672
711,419
527,532
SMB
61,375
50,035
75,186
176,710
218,260
Total net revenue
SERVICE PROVIDER NET REVENUE
73,343
44,152
35,482
144,182
99,201
712
871
972
2,380
3,370
Total service provider net revenue
74,055
45,023
36,454
146,562
102,571
View source version on businesswire.com: https://www.businesswire.com/news/home/20201021005950/en/
NETGEAR Investor Relations Erik Bylin investors@netgear.com
Source: NETGEAR, Inc.