First Quarter Revenue of $318 Million - 38% Growth Year over Year
SMB Delivers Double Digit Year over Year Growth in First Quarter
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 first quarter ended March 28, 2021.
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, “With both businesses performing well, Q1 marks a strong beginning to the year for us. The NETGEAR team again navigated the ongoing challenges in the supply chain to deliver strong revenue growth. Our revenue came in at $317.9 million for year over year growth of 38.3%, and we delivered record non-GAAP operating profit of $42.3 million, a non-GAAP operating margin of 13.3%. The higher than anticipated demand for SMB products propelled us over the high end of our topline guidance range. Non-GAAP operating margin significantly exceeded expectations, buoyed by a higher mix of SMB and higher margin e-commerce revenue as well as lower air freight expense.”
Mr. Lo continued, “Our outstanding first quarter was powered by strong demand across both of our businesses. Our SMB business benefited from the reopening of economies worldwide, notching strong sequential growth of 8.5% and year over year growth of 17.9%. Our CHP business again saw strong growth year on year, led by the premium segment, and we continue to hold a leading market share position in this fast growing, highly lucrative segment. This allowed us to gain share globally, and most notably we saw our US market share in consumer WiFi climb two points in the first quarter. All of this has translated into continued success in our efforts to grow our recurring subscription services business, as we added 44,000 subscribers, exiting the quarter with 481,000, and keeping us on track to reach our goal of 650,000 subscribers by the end of the year.”
Bryan Murray, Chief Financial Officer of NETGEAR, added, “We had another solid quarter of cash flow, generating $13.7 million in cash from operations in the first quarter, while with strong operational execution, we were also able to make further progress replenishing our inventory, all while using less air freight than originally expected. Preserving strong liquidity and generating cash remain paramount as the pandemic continues into 2021.”
Business Outlook
Mr. Murray continued, “While we expect supply constraints to ease, our second quarter net revenue is expected to be in the range of $305 million to $320 million. Our GAAP operating margin for the second quarter is expected to be in the range of 6.5% to 7.5%, and non-GAAP operating margin is expected to be in the range of 9.0% to 10.0%. Given continuing challenges in moving freight for global supply chains, we have seen the costs for sea freight increase meaningfully. Also, as we enter the second quarter with a healthier inventory position in the channel, we expect to selectively participate in promotional activities planned by some key channel partners, which will steer us towards further share gains. Our GAAP tax rate is expected to be approximately 27%, and our non-GAAP tax rate is expected to be 24.5% for the second quarter of 2021. While we are confident in our ability to provide guidance at this time, we do so with the caveat that, while conditions are improving, considerable uncertainty remains in the market due to the COVID-19 pandemic and, should unforeseen events occur, in particular challenges related to transportation delays into any of our regional distribution centers, our actual results could differ from the foregoing guidance.”
A reconciliation between the Business Outlook on a GAAP and non-GAAP basis is provided in the following table:
Three months ending
June 27, 2021
Operating Margin
Rate
Tax Rate
GAAP
6.5% - 7.5%
27.0%
Estimated adjustments for1:
Amortization of intangibles
0.1%
-
Stock-based compensation expense
2.2%
Restructuring and other charges
0.2%
Non-GAAP tax adjustments
(2.5)%
Non-GAAP
9.0% - 10.0%
24.5%
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 first quarter results and discuss management's expectations for the second quarter of 2021 today, Wednesday, April 21, 2021 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 2708348. 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.
For more than 25 years, NETGEAR® (NASDAQ: NTGR) has been the innovative leader in connecting the world to the internet with advanced networking technologies for homes, businesses and service providers around the world. As staying connected has become more important than ever, NETGEAR delivers award-winning network solutions for remote work, distance learning, ultra high def streaming, online game play and more. To enable people to collaborate and connect to a world of information and entertainment, NETGEAR is dedicated to providing a range of connected solutions. From ultra-premium Orbi Mesh WiFi systems and high performance Nighthawk routers, to high-speed cable modems and 5G mobile wireless products to cloud-based subscription services for network management and security, to smart networking products and Video over Ethernet for Pro AV applications, NETGEAR keeps you connected. NETGEAR is headquartered in San Jose, California. Learn more on the NETGEAR Investor Page or by calling (408) 907-8000. Connect with NETGEAR: Twitter, Facebook, Instagram, LinkedIn and the NETGEAR blog at NETGEAR.com.
© 2021 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 innovate and 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; expectations regarding the easing of supply constraints; expectations regarding the ability to participate in promotional activities leading to further market share gains; expectations regarding expected tax rates; 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, including with respect to the Company’s supply chain and potential disruptions in the Company’s transportation network, including with respect to the Company’s distribution centers; 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 air freight and ocean freight and 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 I - Item 1A. Risk Factors” in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission on February 16, 2021. 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, change in fair value of contingent consideration, restructuring and other charges, litigation reserves, net, gain/loss on investments, net, 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: 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.
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. 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
March 28,
2021
December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents
$
363,514
346,460
Short-term investments
7,142
6,858
Accounts receivable, net
312,922
337,052
Inventories
215,705
172,112
Prepaid expenses and other current assets
31,592
30,696
Total current assets
930,875
893,178
Property and equipment, net
14,897
16,080
Operating lease right-of-use assets, net
27,743
29,411
Intangibles, net
2,409
3,899
Goodwill
80,721
Other non-current assetss
80,770
82,750
Total assets
1,137,415
1,106,039
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
87,348
90,902
Accrued employee compensation
26,648
35,020
Other accrued liabilities
220,322
218,375
Deferred revenue
15,134
13,458
Income taxes payable
11,876
7,318
Total current liabilities
361,328
365,073
Non-current income taxes payable
20,906
19,174
Non-current operating lease liabilities
24,050
25,512
Other non-current liabilities
6,708
6,896
Total liabilities
412,992
416,655
Stockholders’ equity:
Common stock
31
30
Additional paid-in capital
896,710
882,709
Accumulated other comprehensive income (loss)
6
(35
)
Accumulated deficit
(172,324
(193,320
Total stockholders’ equity
724,423
689,384
Total liabilities and stockholders’ equity
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and percentage data)
Three Months Ended
March 29,
Net revenue
317,925
367,073
229,963
Cost of revenue
206,984
255,957
163,722
Gross profit
110,941
111,116
66,241
Gross margin
34.9
%
30.3
28.8
Operating expenses:
Research and development
23,829
23,376
19,739
Sales and marketing
37,815
40,645
33,031
General and administrative
15,405
16,066
13,134
Other operating expenses (income), net
2,565
(2,813
(332
Total operating expenses
79,614
77,274
65,572
Income from operations
31,327
33,842
669
Operating margin
9.9
9.2
0.3
Interest income
10
27
262
Other income (expense), net
(562
(390
(4,586
Income (loss) before income taxes
30,775
33,479
(3,655
Provision for income taxes
7,815
2,531
518
Net income (loss)
22,960
30,948
(4,173
Net income (loss) per share:
Basic
0.75
1.02
(0.14
Diluted
0.72
0.99
Weighted average shares used to compute net income (loss) per share:
30,665
30,331
29,583
31,814
31,235
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
STATEMENT OF OPERATIONS DATA:
GAAP gross profit
GAAP gross margin
179
178
834
962
705
Non-GAAP gross profit
111,954
112,256
67,124
Non-GAAP gross margin
35.2
30.6
29.2
GAAP research and development
(1,146
(1,304
(1,034
Non-GAAP research and development
22,683
22,072
18,705
GAAP sales and marketing
(1,266
(1,341
(1,780
(2,038
(1,779
Non-GAAP sales and marketing
34,769
37,341
29,911
GAAP general and administrative
(3,200
(3,475
(2,818
Non-GAAP general and administrative
12,205
12,591
10,316
GAAP other operating expenses (income), net
Change in fair value of contingent consideration
—
3,204
222
(2,270
(391
135
Litigation reserves, net
(295
(25
Non-GAAP other operating expenses, net
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)
STATEMENT OF OPERATIONS DATA (CONTINUED):
GAAP total operating expenses
(6,126
(6,817
(5,631
Non-GAAP total operating expenses
69,657
72,004
58,932
GAAP operating income
GAAP operating margin
1,445
1,444
1,519
6,960
7,779
6,336
(3,204
(222
2,270
391
(135
295
25
Non-GAAP operating income
42,297
40,252
8,192
Non-GAAP operating margin
13.3
11.0
3.6
GAAP other income (expense), net
Gain/loss on investments, net
49
850
4,530
Non-GAAP other income (expense), net
(513
460
(56
(In thousands, except per share data)
GAAP net income (loss)
(2,416
(7,246
(1,511
Non-GAAP net income
31,563
30,962
6,369
NET INCOME (LOSS) PER DILUTED SHARE:
GAAP net income (loss) per diluted share
0.05
0.22
0.25
0.21
(0.10
(0.01
0.07
0.01
(0.00
0.00
0.03
0.15
(0.08
(0.24
(0.05
Non-GAAP net income per diluted share 1
Shares used in computing GAAP net income (loss) per diluted share
Shares used in computing non-GAAP net income per diluted share
30,045
1 The per share reconciliation of GAAP to non-GAAP may not aggregate due to both calculations utilizing a different share basis. The GAAP net loss per diluted share calculation uses a lower share count as it excludes potentially dilutive shares included in the non-GAAP net income per diluted share calculation.
SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory, headcount and percentage data)
September 27,
June 28,
Cash, cash equivalents and short-term investments
370,656
353,318
306,818
258,552
209,714
11.65
11.31
9.98
8.60
6.98
340,004
277,490
257,582
Days sales outstanding (DSO)
86
87
82
90
100
144,302
150,585
180,602
Ending inventory turns
3.8
5.9
7.3
5.3
Weeks of channel inventory:
U.S. retail channel
11.8
8.6
5.7
6.4
7.0
U.S. distribution channel
4.9
2.8
4.2
EMEA distribution channel
6.8
4.7
6.7
APAC distribution channel
7.6
8.2
10.1
11.9
8.3
Deferred revenue (current and non-current)
18,116
16,623
13,813
10,792
8,963
Headcount
775
818
803
788
797
Non-GAAP diluted shares
30,741
30,070
NET REVENUE BY GEOGRAPHY
Americas
219,150
69
259,644
71
158,190
EMEA
61,090
19
67,453
18
42,148
APAC
37,685
12
39,976
11
29,625
13
Total
SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
NET REVENUE BY SEGMENT
Connected Home
240,918
296,126
164,663
SMB
77,007
70,947
65,300
Total net revenue
SERVICE PROVIDER NET REVENUE
22,238
48,532
26,687
799
770
Total service provider net revenue
23,037
49,302
27,484
View source version on businesswire.com: https://www.businesswire.com/news/home/20210421005899/en/
NETGEAR Investor Relations Erik Bylin investors@netgear.com
Source: NETGEAR, Inc.