Fourth Quarter Revenue of $367 Million - 45% Growth Year over Year SMB Returns to Year over Year Growth in Fourth 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 fourth quarter and full year ended December 31, 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, “NETGEAR ended 2020 with another outstanding quarter, delivering 45% revenue growth and 11% non-GAAP operating margin. In a year without parallel, the NETGEAR team rallied against countless obstacles to continually surpass our expectations while remaining efficient to produce strong operating leverage on our growth. At the heart of the strong demand for our products are families working and learning from home – these families need to solve for high speed, high-capacity bandwidth that stretches to every corner of the home. This is fueling rapid growth of a new premium segment that is defined by a WiFi 6 mesh system with tri-band architecture. At the forefront of this technology, NETGEAR has commanding share in this segment. We continued our pace of adding new subscribers, which were up by 68,000 in Q4 to 437,000 paid subscribers, and far surpassed our goal for the year. As a long-tenured market leader NETGEAR will continue to innovate to deliver the leading products and services that customers increasingly demand.”
Mr. Lo continued, “We sustained our strong momentum in Q4 in Connected Home and delivered more than 60% year over year growth in both the retail and service provider channels. On the SMB side, we continued to execute on our strategy to offer high performance ProAV and work-from-home solutions, with leading edge WiFi access points plus plug-and-play switches. This produced another quarter of strong sequential growth, coming in at 16%, and a return to year over year growth. We feel NETGEAR is on a great trajectory and are excited about 2021.”
Bryan Murray, Chief Financial Officer of NETGEAR, added, “We had another impressive quarter of strong cash flow, generating $46.1 million in cash from operations in the fourth quarter. Preserving strong liquidity and generating cash are paramount as the pandemic continues into 2021.”
Business Outlook
Mr. Murray continued, “As supply is expected to remain constrained, and with an anticipated sequential step-down in sales to service providers, our first quarter net revenue is expected to be in the range of $300 million to $315 million. Our GAAP operating margin for the first quarter is expected to be in the range of 4.5% to 5.5%, and non-GAAP operating margin is expected to be in the range of 8.0% to 9.0%. Our GAAP tax rate is expected to be approximately 28%, and our non-GAAP tax rate is expected to be 24.5% for the first quarter of 2021. While we are confident in our ability to provide guidance at this time, we do so with the caveat that considerable uncertainty remains in the market due to the COVID-19 pandemic, and should unforeseen events occur, in particular related to transportation delays in Southern California where our main distribution center is located, 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
March 28, 2021
Operating Margin Rate
Tax Rate
GAAP
4.5% - 5.5%
28.0%
Estimated adjustments for1:
Amortization of intangibles
0.5%
-
Stock-based compensation expense
2.3%
Restructuring and other charges
0.7%
Non-GAAP tax adjustments
(3.5)%
Non-GAAP
8.0% - 9.0%
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 fourth quarter and full year results and discuss management's expectations for the first quarter of 2021 today, Wednesday, February 3, 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 7797905. 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; 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 main distribution center located in Southern California; 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 September 27, 2020, filed with the Securities and Exchange Commission on October 30, 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 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: 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.
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
December 31, 2020
December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
$
346,460
190,208
Short-term investments
6,858
5,499
Accounts receivable, net
337,052
277,168
Inventories
172,112
235,489
Prepaid expenses and other current assets
30,696
35,745
Total current assets
893,178
744,109
Property and equipment, net
16,080
17,683
Operating lease right-of-use assets, net
29,411
28,917
Intangibles, net
3,899
10,104
Goodwill
80,721
Other non-current assets
82,750
74,279
Total assets
1,106,039
955,813
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
90,902
80,531
Accrued employee compensation
35,020
20,024
Other accrued liabilities
218,375
189,547
Deferred revenue
13,458
6,450
Income taxes payable
7,318
1,839
Total current liabilities
365,073
298,391
Non-current income taxes payable
19,174
15,307
Non-current operating lease liabilities
25,512
25,434
Other non-current liabilities
6,896
7,988
Total liabilities
416,655
347,120
Stockholders’ equity:
Common stock
30
Additional paid-in capital
882,709
831,365
Accumulated other comprehensive income (loss)
(35
)
21
Accumulated deficit
(193,320
(222,723
Total stockholders’ equity
689,384
608,693
Total liabilities and stockholders’ equity
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and percentage data)
Three Months Ended
Twelve Months Ended
September 27, 2020
Net revenue
367,073
378,114
252,971
1,255,202
998,763
Cost of revenue
255,957
264,620
183,388
883,050
704,535
Gross profit
111,116
113,494
69,583
372,152
294,228
Gross margin
30.3
%
30.0
27.5
29.6
29.5
Operating expenses:
Research and development
23,376
24,529
20,799
88,788
77,982
Sales and marketing
40,645
39,794
34,263
147,854
138,150
General and administrative
16,066
16,467
13,965
61,148
49,432
Other operating expenses (income), net
(2,813
538
767
(1,182
2,476
Total operating expenses
77,274
81,328
69,794
296,608
268,040
Income (loss) from operations
33,842
32,166
(211
75,544
26,188
Operating margin
9.2
8.5
(0.1
)%
6.0
2.6
Interest income
27
98
417
436
2,539
Other income (expense), net
(390
(515
419
(5,177
844
Income before income taxes
33,479
31,749
625
70,803
29,571
Provision for income taxes
2,531
6,214
1,045
12,510
3,780
Net income (loss)
30,948
25,535
(420
58,293
25,791
Net income (loss) per share:
Basic
1.02
0.85
(0.01
1.95
0.83
Diluted
0.99
1.90
0.81
Weighted average shares used to compute net income (loss) per share:
30,331
30,037
30,103
29,897
30,936
31,235
30,741
30,640
31,965
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
STATEMENT OF OPERATIONS DATA:
GAAP gross profit
GAAP gross margin
178
179
714
962
923
4,091
2,843
Non-GAAP gross profit
112,256
114,596
70,475
376,957
297,785
Non-GAAP gross margin
30.6
27.9
29.8
GAAP research and development
(1,304
(1,138
(2,556
(5,183
(6,532
Non-GAAP research and development
22,072
23,391
18,243
83,605
71,450
GAAP sales and marketing
(1,266
(1,291
(1,341
(5,238
(6,017
(2,038
(1,927
(2,846
(7,634
(9,069
Non-GAAP sales and marketing
37,341
36,576
30,076
134,982
123,064
GAAP general and administrative
(3,475
(3,230
(2,838
(13,597
(10,693
Non-GAAP general and administrative
12,591
13,237
11,127
47,551
38,739
GAAP other operating expenses (income), net
Separation expense
—
(264
Change in fair value of contingent consideration
3,204
(187
224
2,928
25
(391
(329
(931
(1,702
(2,077
Litigation reserves, net
(22
(60
(44
(160
Non-GAAP other operating expenses, net
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)
STATEMENT OF OPERATIONS DATA (CONTINUED):
GAAP total operating expenses
(6,817
(6,295
(8,240
(26,414
(26,294
Non-GAAP total operating expenses
72,004
73,204
59,446
266,138
233,253
GAAP operating income (loss)
GAAP operating margin
1,444
1,470
1,519
5,952
6,731
7,779
7,218
8,954
30,505
29,137
264
(3,204
187
(224
(2,928
(25
391
329
931
1,702
2,077
22
60
44
160
Non-GAAP operating income
40,252
41,392
11,029
110,819
64,532
Non-GAAP operating margin
11.0
10.9
4.4
8.8
6.5
GAAP other income (expense), net
Gain/loss on investments, net
850
842
6,222
223
Non-GAAP other income (expense), net
460
327
1,067
(In thousands, except per share data)
GAAP net income (loss)
(7,246
(912
(460
(11,447
(4,598
Non-GAAP net income
30,962
34,691
10,360
88,343
59,760
NET INCOME (LOSS) PER DILUTED SHARE:
GAAP net income (loss) per diluted share
0.05
0.19
0.21
0.25
0.23
0.29
1.00
0.91
0.01
(0.10
(0.00)
0.03
0.06
0.00
0.20
(0.24
(0.03
(0.37
(0.15
Non-GAAP net income per diluted share 1
1.13
0.34
2.88
1.87
Shares used in computing GAAP net income (loss) per diluted share
Shares used in computing non-GAAP net income per diluted share
30,800
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)
June 28, 2020
March 29, 2020
Cash, cash equivalents and short-term investments
353,318
306,818
258,552
209,714
195,707
Cash, cash equivalents and short-term investments per diluted share
11.31
9.98
8.60
6.98
6.35
340,004
277,490
257,582
Days sales outstanding (DSO)
87
82
90
100
102
144,302
150,585
180,602
Ending inventory turns
5.9
7.3
5.3
3.6
3.1
Weeks of channel inventory:
U.S. retail channel
8.6
5.7
6.4
7.0
8.0
U.S. distribution channel
4.9
2.8
4.2
4.5
EMEA distribution channel
6.8
4.7
6.7
APAC distribution channel
8.2
10.1
11.9
8.3
9.6
Deferred revenue (current and non-current)
16,623
13,813
10,792
8,963
8,511
Headcount
818
803
788
797
809
Non-GAAP diluted shares
30,070
30,045
NET REVENUE BY GEOGRAPHY
Americas
259,644
71
277,891
73
169,128
67
897,971
653,006
65
EMEA
67,453
18
63,705
17
50,491
20
221,665
200,099
APAC
39,976
11
36,518
10
33,352
13
135,566
145,658
15
Total
SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
NET REVENUE BY SEGMENT
Connected Home
296,126
316,739
183,859
1,007,545
711,391
SMB
70,947
61,375
69,112
247,657
287,372
Total net revenue
SERVICE PROVIDER NET REVENUE
48,532
73,343
29,651
192,714
128,852
770
712
1,095
3,150
4,465
Total service provider net revenue
49,302
74,055
30,746
195,864
133,317
View source version on businesswire.com: https://www.businesswire.com/news/home/20210203005881/en/
NETGEAR Investor Relations Erik Bylin investors@netgear.com
Source: NETGEAR, INC.