Q3 net revenue of $182.9 million, above the high end of guidance
Achieved GAAP and non-GAAP profitability, above the high end of guidance
Fifth consecutive quarter of free cash flow generation
Added more than $100 million to cash and cash equivalents to end Q3 with $395.7 million
SAN JOSE, Calif.--(BUSINESS WIRE)-- NETGEAR, Inc. (NASDAQ: NTGR), a global leader in intelligent networking solutions for businesses, homes, and service providers, today reported financial results for the third quarter ended September 29, 2024.
The accompanying schedules provide a reconciliation of financial measures computed on a GAAP basis to financial measures computed on a non-GAAP basis.
CJ Prober, Chief Executive Officer of NETGEAR, commented, "Today marks my nine-month anniversary with NETGEAR, and I am thrilled with our progress and the speed at which we are executing on our transformation. Q3 was an excellent quarter where we exceeded revenue and operating income guidance, achieved profitability, and increased our cash balance by over $100 million.”
Mr. Prober continued, “Our ProAV business had another record quarter in end user sales, and we added over 30 new manufacturing partners to strengthen our differentiation and software leadership in this category. We also launched several innovative products, including the M7 Pro, the industry’s first mobile hotspot that combines 5G and WIFI 7. With great executives joining the team and already driving positive early results, we are confident that we are positioning NETGEAR to fully capitalize on numerous market opportunities to generate long-term growth and profitability and we remain focused on creating long-term value for shareholders.”
Bryan Murray, Chief Financial Officer of NETGEAR, added, “We continued to execute on our plan to reduce our inventory, which declined by $27.0 million sequentially and represents less than 4 months of inventory, including finished goods and components, for the first time in over 3 years. Gross margin for the quarter exceeded 30% and NFB topline grew over 10% year over year and returned to historical levels on contribution margin. In Q3 we also delivered a fifth consecutive quarter of free cash flow generation, even after removing the effect of the TP-Link settlement, and we exited the quarter with $395.7 million in cash and cash equivalents, a $101.4 million sequential increase. In addition, we repurchased approximately $1.5 million of NETGEAR common stock before being restricted from further repurchases in the quarter due to trading restrictions associated with our TP-Link settlement negotiations. We expect to resume our share repurchase program in Q4 as we continue to believe that share repurchases are an important part of our capital allocation plan.”
Business Outlook
Mr. Murray continued, “As we experienced in the third quarter, we expect to continue to see more predictable performance that is aligned with the market for both of our businesses. Within NFB, we expect to experience continued growth led by our ProAV line of managed switches. While we are seeing the signs of market recovery in CHP, we expect increased promotional activity within our retail business due in part to the holiday period. As we were able to pull forward the launch of our M7 Pro mobile hotspot into the third quarter, we expect revenue from the service provider channel to be approximately $20 million in Q4, down slightly on a sequential basis. Accordingly, we expect fourth quarter net revenue to be in the range of $160 million to $175 million. We expect gross margins and operating margins to continue to be impacted by our inventory reduction efforts and higher than expected transportation costs due to a variety of factors, including the Red Sea shipping crisis. We also expect margins to be impacted from the increased promotional activities within our CHP retail business. Accordingly, we expect our fourth quarter GAAP operating margin to be in the range of (12.4)% to (9.4)%, and non-GAAP operating margin to be in the range of (8.0)% to (5.0)%. Our GAAP tax benefit is expected to be in the range of $2.0 million to $3.0 million, and our non-GAAP tax benefit is expected to be in the range of $0.0 million to $1.0 million for the fourth quarter of 2024.”
A reconciliation between the Business Outlook on a GAAP and non-GAAP basis is provided in the following table:
Three months ending
December 31, 2024
(In millions, except for percentage data)
Operating Margin Rate
Tax Expense (Benefit)
GAAP
(12.4)% - (9.4)%
$(3.0) - $(2.0)
Estimated adjustments for 1 :
Stock-based compensation expense
3.9%
-
Restructuring and other charges
0.5%
Non-GAAP tax adjustments
$2.0
Non-GAAP
(8.0)% - (5.0)%
$(1.0) - $0
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: litigation reserves, net; acquisition-related charges; impairment charges; restructuring and other charges and discrete tax benefits or detriments that cannot be forecasted (e.g., windfalls or shortfalls from equity awards or items related to the resolution of uncertain tax positions). 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 2024 today, Wednesday, October 30, 2024 at 5 p.m. ET (2 p.m. PT). The toll-free dial-in number for the live audio call is (888) 660-6392. The international dial-in number for the live audio call is (929) 203-0899. The conference ID for the call is 1030183. 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.
Founded in 1996 and headquartered in the USA, NETGEAR® (NASDAQ: NTGR) is a global leader in innovative networking technologies for businesses, homes, and service providers. NETGEAR delivers a wide range of award-winning, intelligent solutions designed to unleash the full potential of connectivity and power extraordinary experiences. For businesses, NETGEAR offers reliable, easy-to-use, high-performance networking solutions, including switches, routers, access points, software, and AV over IP technologies, tailored to meet the diverse needs of organizations of all sizes. NETGEAR’s Connected Home products deliver advanced connectivity, powerful performance, and enhanced security features right out of the box, designed to keep families safe online, whether at home or on the go. More information is available from the NETGEAR Press Room or by calling (408) 907-8000. Connect with NETGEAR: Facebook, Instagram and the NETGEAR blog at NETGEAR.com.
© 2024 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.
Source: NETGEAR-F
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 growth, revenue, operating margin and gross margin; creating long-term value for shareholders; positioning NETGEAR for long term success; long-term potential and profitable growth; NETGEAR’s continued NFB growth led by the ProAV line of managed switches; expectations regarding more predictable performance that is aligned to the market; expectations regarding volatility from shifting channel inventory levels; expectations regarding gross margins and operating margins being impacted by inventory reduction efforts and transportation costs; revenue from the service provider channel; timing of the launch of next generation 5G mobile hotspots; expectations regarding continuing market demand for the NETGEAR’s products and services; expectations regarding expected tax benefits or tax expenses; and plans to repurchase shares of NETGEAR common stock. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including the following: future demand for NETGEAR’s products and services may be lower than anticipated; NETGEAR may be unsuccessful, or experience delays, in manufacturing and distributing its new and existing products and services; consumers may choose not to adopt NETGEAR’s new product and services offerings or adopt competing products and services; NETGEAR may fail to manage costs, including the cost of key components, the cost of air freight and ocean freight, and the cost of developing new products and manufacturing and distribution of its existing offerings; NETGEAR may fail to successfully manage channel inventory levels; NETGEAR may fail to successfully continue to effect operating expense savings; changes in the level of NETGEAR's cash resources and NETGEAR’s planned usage of such resources, including potential repurchases of NETGEAR’s common stock; changes in NETGEAR’s stock price and developments in the business that could increase NETGEAR’s cash needs; fluctuations in foreign exchange rates; loss of services of key personnel may affect NETGEAR’s ability to executive on business strategy effectively; and the actions and financial health of NETGEAR’s customers, including NETGEAR’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 NETGEAR’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 NETGEAR’s quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2024, filed with the Securities and Exchange Commission on August 2, 2024. 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 total operating expenses, non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP other income (expenses), net, non-GAAP net income (loss) and non-GAAP net income (loss) per diluted share. These supplemental measures exclude adjustments for amortization of intangibles, stock-based compensation expense, intangibles impairment, restructuring and other charges, litigation reserves, net, gain/loss on investments, net, gain on litigation settlements, and adjust for effects related to non-GAAP tax adjustments. 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, performance shares 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, 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.
Non-GAAP tax adjustments consist of adjustments that we incorporate into non-GAAP measures in order to provide a more meaningful measure on non-GAAP net income (loss). We believe providing financial information with and without the income tax effects relating to our non-GAAP financial measures, as well as adjustments for valuation allowances on deferred tax assets, provides our management and users of the financial statements with better clarity regarding both current period performance and the on-going performance of our business. Non-GAAP income tax expense (benefit) is computed on a current and deferred basis with non-GAAP income (loss) consistent with use of non-GAAP income (loss) as a performance measure. The Non-GAAP tax provision (benefit) is calculated by adjusting the GAAP tax provision (benefit) for the impact of the non-GAAP adjustments, with specific tax provisions such as state income tax and Base-erosion and Anti-Abuse Tax recomputed on a non-GAAP basis, as well as adjustments for valuation allowances on deferred tax assets. The tax valuation allowance is a non-cash adjustment primarily reflecting our expectations of, and assumptions as to, future operating results and applicable tax laws, that are not directly attributable to the current quarter’s operating performance. For interim periods, the non-GAAP income tax provision (benefit) is calculated based on the forecasted annual non-GAAP tax rate before discrete items and adjusted for interim discrete items.
-Financial Tables Attached-
NETGEAR, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
September 29, 2024
December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents
$
273,767
176,717
Short-term investments
121,965
106,931
Accounts receivable, net
177,326
185,059
Inventories
161,976
248,851
Prepaid expenses and other current assets
34,302
30,421
Total current assets
769,336
747,979
Property and equipment, net
10,640
8,273
Operating lease right-of-use assets
30,758
37,285
Goodwill
36,279
Other non-current assets
15,623
17,326
Total assets
862,636
847,142
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
52,035
46,850
Accrued employee compensation
19,964
21,286
Other accrued liabilities
155,193
168,084
Deferred revenue
29,596
27,091
Income taxes payable
14,569
1,037
Total current liabilities
271,357
264,348
Non-current income taxes payable
8,510
12,695
Non-current operating lease liabilities
22,016
29,698
Other non-current liabilities
10,423
4,906
Total liabilities
312,306
311,647
Stockholders’ equity:
Common stock
29
30
Additional paid-in capital
987,576
967,651
Accumulated other comprehensive income
152
136
Accumulated deficit
(437,427
)
(432,322
Total stockholders’ equity
550,330
535,495
Total liabilities and stockholders’ equity
NETGEAR, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share and percentage data) (Unaudited)
Three Months Ended
Nine Months Ended
June 30, 2024
October 1, 2023
Net revenue
182,854
143,900
197,845
491,340
552,166
Cost of revenue
126,371
112,077
128,911
354,797
368,550
Gross profit
56,483
31,823
68,934
136,543
183,616
Gross margin
30.9
%
22.1
34.8
27.8
33.3
Operating expenses:
Research and development
20,905
19,851
20,738
60,983
63,703
Sales and marketing
31,196
29,757
30,865
91,482
97,226
General and administrative
8,357
19,186
16,364
45,610
49,136
Litigation reserves, net
(100,855
8,200
178
(92,625
1,072
1,688
366
3,792
2,703
Intangibles impairment
—
1,071
Total operating expenses
(39,325
78,682
69,582
109,242
214,017
Income (loss) from operations
95,808
(46,859
(648
27,301
(30,401
Operating margin
52.4
(32.6
)%
(0.3
5.6
(5.5
Other income, net
3,485
2,713
2,280
9,048
11,685
Income (loss) before income taxes
99,293
(44,146
1,632
36,349
(18,716
Provision for income taxes
14,219
1,029
86,431
15,100
84,382
Net income (loss)
85,074
(45,175
(84,799
21,249
(103,098
Net income (loss) per share:
Basic
2.96
(1.56
(2.87
0.73
(3.52
Diluted
2.90
0.72
Weighted average shares used to compute net income (loss) per share:
28,705
28,883
29,524
28,992
29,266
29,364
29,389
NETGEAR, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Cash flows from operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
4,761
5,491
Stock-based compensation
16,052
13,637
Gain on investments, net
(2,971
(2,301
Deferred income taxes
254
82,205
Provision for excess and obsolete inventory
5,084
2,705
Changes in assets and liabilities:
7,733
76,585
81,790
15,990
Prepaid expenses and other assets
3,146
(3,020
4,727
(38,443
(1,322
(4,952
(9,608
(46,929
3,073
4,771
9,347
(3,130
Net cash provided by operating activities
143,315
582
Cash flows from investing activities:
Purchases of short-term investments
(107,454
(97,291
Proceeds from maturities of short-term investments
90,290
85,006
Purchases of property and equipment
(6,502
(3,601
Purchases of long-term investments
(225
(585
Net cash used in investing activities
(23,891
(16,471
Cash flows from financing activities:
Repurchases of common stock
(22,917
Restricted stock unit withholdings
(3,330
(2,742
Proceeds from exercise of stock options
308
Proceeds from issuance of common stock under employee stock purchase plan
3,565
3,590
Net cash (used in) provided by financing activities
(22,374
848
Net increase (decrease) in cash and cash equivalents
97,050
(15,041
Cash and cash equivalents, at beginning of period
146,500
Cash and cash equivalents, at end of period
131,459
NETGEAR, INC. RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (In thousands, except percentage data) (Unaudited)
STATEMENT OF OPERATIONS DATA:
GAAP gross profit
GAAP gross margin
Amortization of intangibles
257
444
413
354
1,222
1,047
Non-GAAP gross profit
56,927
32,236
69,288
137,765
184,920
Non-GAAP gross margin
31.1
22.4
35.0
28.0
33.5
GAAP research and development
(868
(844
(841
(2,410
(3,050
Non-GAAP research and development
20,037
19,007
19,897
58,573
60,653
GAAP sales and marketing
(1,520
(1,235
(1,271
(3,992
(4,099
Non-GAAP sales and marketing
29,676
28,522
29,594
87,490
93,127
GAAP general and administrative
(2,788
(3,396
(1,819
(8,428
(5,441
Non-GAAP general and administrative
5,569
15,790
14,545
37,182
43,695
NETGEAR, INC. RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED) (In thousands, except percentage data) (Unaudited)
STATEMENT OF OPERATIONS DATA (CONTINUED):
GAAP total operating expenses
(5,176
(5,475
(3,931
(14,830
(12,590
(1,071
(1,072
(1,688
(366
(3,792
(2,703
100,855
(8,200
(178
92,625
Non-GAAP total operating expenses
55,282
63,319
64,036
183,245
197,475
GAAP operating income (loss)
GAAP operating margin
5,620
5,888
4,285
Non-GAAP operating income (loss)
1,645
(31,083
5,252
(45,480
(12,555
Non-GAAP operating margin
0.9
(21.6
2.7
(9.3
(2.3
GAAP other income, net
Gain/loss on investments, net
(49
(69
(14
(17
16
Gain on litigation settlements
(6,000
Non-GAAP other income, net
3,436
2,644
2,266
9,031
5,701
NETGEAR, INC. RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED) (In thousands, except per share data) (Unaudited)
GAAP net income (loss)
14,203
8,025
85,781
26,816
87,724
Non-GAAP net income (loss)
5,065
(21,443
6,868
(24,733
(3,512
NET INCOME (LOSS) PER DILUTED SHARE:
GAAP net income (loss) per diluted share
0.01
0.19
0.20
0.14
0.55
0.47
0.04
0.06
0.13
0.09
(3.43
0.28
(3.19
(0.21
0.94
2.99
Non-GAAP net income (loss) per diluted share 1
0.17
(0.74
0.23
(0.85
(0.12
Shares used in computing GAAP net income (loss) per diluted share
Shares used in computing non-GAAP net income (loss) per diluted share
29,581
The per share reconciliation of GAAP to non-GAAP may not aggregate due to both calculations utilizing a different share basis. The net loss per diluted share calculation uses a lower share count as it excludes potentially dilutive shares included in the net income per diluted share calculation.
NETGEAR, INC. SUPPLEMENTAL FINANCIAL INFORMATION (In thousands, except per share data, DSO, inventory turns, weeks of channel inventory, headcount and percentage data) (Unaudited)
March 31, 2024
Cash, cash equivalents and short-term investments
395,732
294,339
289,421
283,648
228,045
Cash, cash equivalents and short-term investments per diluted share
13.48
10.19
9.85
9.56
7.71
147,069
172,771
200,900
Days sales outstanding (DSO)
88
93
96
89
92
188,936
211,270
280,918
Ending inventory turns
3.1
2.4
2.2
2.0
1.8
Weeks of channel inventory:
U.S. retail channel
9.5
11.2
10.8
11.8
U.S. distribution channel
2.8
4.0
7.9
5.8
EMEA distribution channel
5.3
5.2
5.9
6.4
7.4
APAC distribution channel
8.3
8.0
10.0
13.1
Deferred revenue (current and non-current)
35,068
34,216
33,714
31,994
29,796
Headcount
638
622
628
635
644
Non-GAAP diluted shares
29,395
29,683
NET REVENUE BY GEOGRAPHY
Americas
127,752
70
95,503
66
141,018
71
333,183
67
379,551
69
EMEA
32,798
18
27,355
19
35,684
91,340
111,023
20
APAC
22,304
12
21,042
15
21,143
11
66,817
14
61,592
Total
100
NETGEAR, INC. SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED) (In thousands) (Unaudited)
NET REVENUE BY SEGMENT
NETGEAR for Business
78,530
59,867
70,510
207,020
223,679
Connected Home
104,324
84,033
127,335
284,320
328,487
Total net revenue
SERVICE PROVIDER NET REVENUE
268
202
219
713
427
22,949
19,732
32,403
70,234
71,346
Total service provider net revenue
23,217
19,934
32,622
70,947
71,773
NETGEAR Investor Relations Erik Bylin investors@netgear.com