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NETGEAR® REPORTS FOURTH QUARTER AND FULL YEAR 2012 RESULTS

February 12, 2013
  • Fourth quarter 2012 net revenue of $310.4 million, as compared to $309.2 million in the comparable prior year quarter
  • Fourth quarter 2012 non-GAAP net income of $21.5 million, as compared to $26.5 million in the comparable prior year quarter, decrease of 18.9% year-over-year
  • Fourth quarter 2012 non-GAAP diluted earnings per share of $0.55, as compared to $0.69 in the comparable prior year quarter, decrease of 20.3% year-over-year
  • 2012 net revenue was $1.27 billion, as compared to $1.18 billion in 2011, 7.7% year-over-year growth
  • 2012 non-GAAP net income of $99.4 million, as compared to $105.2 million in 2011, decrease of 5.5% year-over-year
  • 2012 non-GAAP diluted earnings per share of $2.57, as compared to $2.77 in 2011, decrease of 7.2% year-over-year
  • Company expects first quarter 2013 net revenue to be in the range of $290 million to $305 million, with non-GAAP operating margin in the range of 11% to 12%

SAN JOSE, California - February 12, 2013 - NETGEAR, Inc. (NASDAQGM: NTGR), a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the fourth quarter and full year ended December 31, 2012.

Net revenue for the fourth quarter ended December 31, 2012 was $310.4 million, as compared to $309.2 million for the fourth quarter ended December 31, 2011, and $315.2 million in the third quarter ended September 30, 2012. Net income, computed in accordance with GAAP, for the fourth quarter of 2012 was $16.1 million, or $0.41 per diluted share. This compared to GAAP net income of $22.8 million, or $0.60 per diluted share, for the fourth quarter of 2011, and GAAP net income of $23.8 million, or 0.61 per diluted share, in the third quarter of 2012.

Gross margin on a non-GAAP basis in the fourth quarter of 2012 was 30.0%, as compared to 31.1% in the year ago comparable quarter, and 31.6% in the third quarter of 2012. Non-GAAP operating margin was 11.4% in the fourth quarter of 2012, as compared to 12.4% in the fourth quarter of 2011, and 11.5% in the third quarter of 2012. Non-GAAP net income was $0.55 per diluted share in the fourth quarter of 2012, as compared to non-GAAP net income of $0.69 per diluted share in the fourth quarter of 2011, and non-GAAP net income of $0.65 per diluted share in the third quarter of 2012.

Our non-GAAP tax rate was 39.4% in the fourth quarter 2012, as compared to 30.5% in the fourth quarter of 2011, and 30.3% in the third quarter of 2012. The higher fourth quarter 2012 tax rate reflects a shift in revenues and profits, to the Americas where tax rates are higher. The fourth quarter 2012 non-GAAP tax rate also did not include any one-time tax rate benefit which was included in the tax rate for the third quarter of 2012, and which accounted for an incremental $0.05 per diluted share of earnings for the third quarter of 2012.

Net revenue for the full year 2012 was $1.27 billion, a 7.7% increase as compared to $1.18 billion for 2011. Non-GAAP income from operations for the full year 2012 was $147.7 million, as compared to non-GAAP income from operations of $145.8 million for the full year 2011. Net income, computed in accordance with GAAP, for 2012 was $86.5 million, or $2.23 per diluted share. This net income was a 5.4% decrease compared to net income of $91.4 million, for 2011. Earnings per share, computed in accordance with GAAP, was $2.41 per diluted share for the full year 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 and other charges, acquisition related compensation and expense, 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, "The worldwide macroeconomic environment proved challenging for us during the second half of 2012. In the fourth quarter, we witnessed reduced spending among our service provider customers and Commercial Business Unit customers. Despite this, our Retail Business Unit experienced the best fourth quarter sequential growth in the last three years. We are very pleased with the share gain against our retail competitors worldwide. We introduced 32 new products in the fourth quarter of 2012 and once again, we were a double honoree this year in the CES Innovations Design and Engineering Awards competition."

"Our fourth quarter 2012 Retail Business Unit net revenue was up 12% sequentially, and up 5% for the full year. The fourth quarter was a record quarter in terms of net revenue for our Retail Business Unit driven by strong share gain in the U.S. and other international markets. Our fourth quarter 2012 Service Provider Business Unit net revenue was down 12% sequentially, but up an impressive 25% year-over-year for the full year of 2012. Upon closing, we expect our recently announced acquisition of the Sierra Wireless, Inc. AirCard business to drive global growth for our Service Provider Business Unit by combining a world-class LTE engineering team with our world-class Wi-Fi engineering team. We believe that fixed mobile broadband gateways will be the internet access device of choice for the estimated four and a half billion people currently not connected to high speed broadband internet because of poor wireline telecommunications infrastructure. The AirCard acquisition is a significant step forward in addressing this nascent market. Our fourth quarter 2012 Commercial Business Unit net revenue was down 7% sequentially and down 7% for the full year due to cautious spending for information technology in the uncertain business climate, especially in Europe."

Christine Gorjanc, Chief Financial Officer of NETGEAR, said, "While the slowdown faced in the second half of 2012 has been challenging, we remain committed to pursuing the growth opportunities we see in Smart Homes, Next Generation Service Providers and 21st Century SMBs. We are maintaining financial discipline while continuing to drive innovation with historically higher expenditures in research and development. Our research and development expenditure allows us to execute our first-to-market strategy and consistently meet the demand for next generation wireless connectivity products within the markets that we serve. We maintain a strong balance sheet and continue to closely manage our expenses, inventory and cash."

Mr. Lo added, "Looking forward, our plan for 2013 calls for organic growth in revenue and profits with further incremental growth once the AirCard acquisition is complete. We expect the first half of 2013 to be tempered by reduced spending from our service provider customers and macroeconomic uncertainty with growth in the second half of the year. Specifically, we expect first quarter 2013 net revenue to be in the range of $290 to $305 million and non-GAAP operating margin between 11% and 12%, which does not include revenues or costs associated with the AirCard acquisition. For the full year 2013, we expect our annualized non-GAAP tax rate to be approximately 33%."

"In 2013, we expect to continue to drive growth via aggressive new product introductions. We currently expect our 802.11ac WiFi equipment, 4G LTE fixed mobile gateways, Home Automation and Monitoring systems, 10Gigabit Ethernet switches, and Unified Storage to be key new revenue drivers. From a long-term perspective, we are confident in the growth prospects we see in providing Internet connectivity devices for homes, and small and medium businesses. As the number of connected devices worldwide grows at an increasing rate, we expect to expand our business to meet the demands of our customers in each of the markets that we serve."

Investor Conference Call / Webcast Details
NETGEAR will review the fourth quarter and full year 2012 results and discuss management's expectations for the first quarter of 2013 today, Tuesday, February 12, 2013 at 5 p.m. EDT (2 p.m. PDT). The dial-in number for the live audio call is (201) 689-8560. 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 Tuesday, February 19, 2013 by telephone at (858) 384-5517 and via the web at http://investor.netgear.com. The account number to access the phone replay is 407607.

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 35,000 retail locations around the globe, and through over 41,000 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.

© 2013 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 expectations on continuing to drive growth via aggressive new product introductions and the key new revenue drivers, expectations regarding our recent acquisition of the Sierra Wireless AirCard business driving global growth for our Service Provider Business Unit, expectations on fixed mobile broadband gateways, our commitment to pursuing growth opportunities, higher research and development expenditures, expectations on the 2013 non-GAAP tax rate, further reductions in spending among our existing service provider customers in the first half of 2013, growth in our Commercial Business Unit, expectations on our Retail Business Unit, our plans for 2013, expected net revenue and non-GAAP operating margin, and the expected expansion of our business to meet customer needs. 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 46 through 65, in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2012, filed with the Securities and Exchange Commission on November 6, 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.

-Financial Tables Attached-