Second Quarter Revenue of $309 Million – 10.3% Growth Year over Year
Strong SMB Growth Year over Year Fueled by Reopening
Continued Market Share Gains in U.S. Retail WiFi Market
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 second quarter ended June 27, 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, “Second quarter revenue came in at $308.8 million, representing 10.3% topline growth year over year. Worldwide supply chain constraints, however, such as component shortages, increased freight costs and transit times, and factory closures due to COVID-19, led to a perfect storm of factors that held back our revenue number and saw us fall short of our operating margin goals. As we continue to navigate through this rapidly changing environment, our long-term thesis that premium WiFi will drive the growth of the consumer networking market and our service subscriber base remains intact. With vaccination rates rising and businesses reopening, work from anywhere and hybrid work models are here to stay and we anticipate that the U.S. consumer networking market will grow 20% above pre-pandemic levels in the second half of this year. Meanwhile, demand for our SMB products rebounded strongly in the second quarter as businesses reopened post-COVID. Despite supply constraints, SMB net revenue grew approximately 58% year over year.”
Mr. Lo continued, “We continue to regain market share in the U.S. consumer WiFi market, adding three points to end the quarter at 46%. In addition, we added 33,000 subscribers in the quarter and remain confident in our ability to achieve our goal of 650,000 subscribers by the end of the year. We also launched our smart parental controls service on select Nighthawk WiFi routers in Q2, with plans to roll it out across our WiFi 6 Orbi line in the third quarter. These are important milestones as we build our recurring subscription services business. Finally, I’m delighted to welcome David Henry to the NETGEAR Board of Directors and would like to congratulate him on his promotion to President and General Manager of Connected Home Products and Services.”
Bryan Murray, Chief Financial Officer of NETGEAR, added, “During the second quarter of 2021, we repurchased approximately 654,000 shares of common stock for $25.0 million. With a meaningful portion of our targeted inventory position established, we plan to continue to opportunistically repurchase shares in future quarters.”
Business Outlook
Mr. Murray continued, “With hindsight, the first half of 2021 saw the U.S. consumer networking market grow 40% over the same period in 2019. While a very strong showing, this turned out to be 10% below our expectations. As such, we plan to proactively work with our channel partners to optimize their inventory levels in the third quarter. Looking ahead to the second half of 2021, we expect the market growth to moderate further to approximately 20% above second half 2019 levels. We also expect SMB to continue to be supply-bound, and thus expect our third quarter net revenue to be in the range of $285 million to $300 million. With reduced leverage from our topline, our GAAP operating margin for the third quarter is expected to be in the range of 2.1% to 3.1%, and non-GAAP operating margin is expected to be in the range of 5.0% to 6.0%. Our GAAP tax rate is expected to be approximately 27.5%, and our non-GAAP tax rate is expected to be 24.5% for the third 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 closure of our manufacturing partners operations or 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
October 3, 2021
Operating Margin
Rate
Tax Rate
GAAP
2.1% - 3.1%
27.5%
Estimated adjustments for1:
Amortization of intangibles
0.1%
-
Stock-based compensation expense
2.6%
Restructuring and other charges
0.2%
Non-GAAP tax adjustments
(3.0)%
Non-GAAP
5.0% - 6.0%
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 second quarter results and discuss management's expectations for the third quarter of 2021 today, Wednesday, July 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 9796754. 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 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 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 manage channel inventory levels; 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 March 28, 2021, filed with the Securities and Exchange Commission on April 30, 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
June 27,
2021
December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents
$
328,941
346,460
Short-term investments
6,378
6,858
Accounts receivable, net
290,598
337,052
Inventories
251,764
172,112
Prepaid expenses and other current assets
34,110
30,696
Total current assets
911,791
893,178
Property and equipment, net
14,217
16,080
Operating lease right-of-use assets, net
25,798
29,411
Intangibles, net
2,184
3,899
Goodwill
80,721
Other non-current assets
77,496
82,750
Total assets
1,112,207
1,106,039
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
70,381
90,902
Accrued employee compensation
32,729
35,020
Other accrued liabilities
222,903
218,375
Deferred revenue
15,620
13,458
Income taxes payable
1,719
7,318
Total current liabilities
343,352
365,073
Non-current income taxes payable
20,370
19,174
Non-current operating lease liabilities
21,887
25,512
Other non-current liabilities
3,598
6,896
Total liabilities
389,207
416,655
Stockholders’ equity:
Common stock
31
30
Additional paid-in capital
906,327
882,709
Accumulated other comprehensive income (loss)
82
(35
)
Accumulated deficit
(183,440
(193,320
Total stockholders’ equity
723,000
689,384
Total liabilities and stockholders’ equity
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and percentage data)
Three Months Ended
Six Months Ended
March 28,
June 28,
Net revenue
308,811
317,925
280,052
626,736
510,015
Cost of revenue
215,455
206,984
198,751
422,439
362,473
Gross profit
93,356
110,941
81,301
204,297
147,542
Gross margin
30.2
%
34.9
29.0
32.6
28.9
Operating expenses:
Research and development
22,586
23,829
21,144
46,415
40,883
Sales and marketing
35,740
37,815
34,384
73,555
67,415
General and administrative
15,623
15,405
15,481
31,028
28,615
Other operating expenses (income), net
(2,097
2,565
1,425
468
1,093
Total operating expenses
71,852
79,614
72,434
151,466
138,006
Income from operations
21,504
31,327
8,867
52,831
9,536
Operating margin
7.0
9.9
3.2
8.4
1.9
Interest income
3
10
49
13
311
Other income (expense), net
696
(562
314
134
(4,272
Income before income taxes
22,203
30,775
9,230
52,978
5,575
Provision for income taxes
4,369
7,815
3,247
12,184
3,765
Net income
17,834
22,960
5,983
40,794
1,810
Net income per share:
Basic
0.58
0.75
0.20
1.33
0.06
Diluted
0.57
0.72
1.29
Weighted average shares used to compute net income per share:
30,574
30,665
29,617
30,614
29,608
31,464
31,814
30,070
31,648
30,079
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
357
362
834
1,501
1,196
2,206
Non-GAAP gross profit
93,896
111,954
82,981
205,850
150,105
Non-GAAP gross margin
30.4
35.2
29.6
32.8
29.4
GAAP research and development
(1,272
(1,146
(1,707
(2,418
(2,741
Non-GAAP research and development
21,314
22,683
19,437
43,997
38,142
GAAP sales and marketing
—
(1,266
(1,340
(2,681
(1,953
(1,780
(1,890
(3,733
(3,669
Non-GAAP sales and marketing
33,787
34,769
31,154
68,556
61,065
GAAP general and administrative
(3,315
(3,200
(4,074
(6,515
(6,892
Non-GAAP general and administrative
12,308
12,205
11,407
24,513
21,723
GAAP other operating expenses (income), net
Change in fair value of contingent consideration
3,003
(311
(89
(886
(2,270
(1,117
(3,156
(982
Litigation reserves, net
(20
(295
(315
(22
Non-GAAP other operating expenses, net
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)
STATEMENT OF OPERATIONS DATA (CONTINUED):
GAAP total operating expenses
(6,540
(6,126
(7,671
(12,666
(13,302
Non-GAAP total operating expenses
67,409
69,657
61,998
137,066
120,930
GAAP operating income
GAAP operating margin
1,445
1,519
1,623
3,038
6,902
6,960
9,172
13,862
15,508
(3,003
89
886
2,270
1,117
3,156
982
20
295
(3
315
22
Non-GAAP operating income
26,487
42,297
20,983
68,784
29,175
Non-GAAP operating margin
8.6
13.3
7.5
11.0
5.7
GAAP other income (expense), net
Gain/loss on investments, net
(41
8
4,530
Non-GAAP other income (expense), net
655
(513
142
258
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED )
(In thousands, except per share data)
GAAP net income
(1,971
(2,416
(1,778
(4,387
(3,289
Non-GAAP net income
20,805
31,563
16,321
52,368
22,690
NET INCOME PER DILUTED SHARE:
GAAP net income per diluted share
0.01
0.05
0.10
0.22
0.31
0.44
0.52
(0.10
(0.09
0.00
0.03
0.07
0.04
(0.00)
0.15
(0.07
(0.08
(0.15
(0.11
Non-GAAP net income per diluted share
0.66
0.99
0.54
1.65
SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory, headcount and percentage data)
September 27,
Cash, cash equivalents and short-term investments
335,319
370,656
353,318
306,818
258,552
Cash, cash equivalents and short-term investments per diluted share
10.66
11.65
11.31
9.98
8.60
312,922
340,004
277,490
Days sales outstanding (DSO)
86
87
90
215,705
144,302
150,585
Ending inventory turns
3.4
3.8
5.9
7.3
5.3
Weeks of channel inventory:
U.S. retail channel
12.9
11.8
6.4
U.S. distribution channel
3.6
4.9
2.8
4.2
EMEA distribution channel
7.8
6.8
4.7
APAC distribution channel
11.5
7.6
8.2
10.1
11.9
Deferred revenue (current and non-current)
18,482
18,116
16,623
13,813
10,792
Headcount
769
775
818
803
788
Non-GAAP diluted shares
31,235
30,741
NET REVENUE BY GEOGRAPHY
Americas
212,634
69
219,150
202,246
72
431,784
360,436
70
EMEA
61,772
61,090
19
48,359
17
122,862
90,507
18
APAC
34,405
11
37,685
12
29,447
72,090
59,072
Total
100
SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
NET REVENUE BY SEGMENT
Connected Home
229,863
240,918
230,017
470,781
394,680
SMB
78,948
77,007
50,035
155,955
115,335
Total net revenue
SERVICE PROVIDER NET REVENUE
35,391
22,238
44,152
57,629
70,839
522
799
871
1,321
1,668
Total service provider net revenue
35,913
23,037
45,023
58,950
72,507
View source version on businesswire.com: https://www.businesswire.com/news/home/20210721005867/en/
NETGEAR Investor Relations Erik Bylin investors@netgear.com
Source: NETGEAR, Inc.