Reached 627,000 Paid Subscribers for 30.4% Growth Year over Year
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 April 3, 2022.
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, “We ended the first quarter with net revenue of $210.6 million and non-GAAP operating margin of (4.4)%, within the range of our recently revised guidance. We continued to experience strong demand for our SMB products, especially on our ProAV switches; however, our ability to deliver meaningfully higher revenue was constrained by COVID-induced lockdowns in China which impacted supply of components to our supply chain partners. On the CHP side, we saw the continued year over year and sequential growth in end user sales of our super-premium mesh products represented by our Orbi 8 and Orbi 9. Meanwhile overall CHP sales were negatively impacted by the U.S. consumer WiFi market contracting from approximately 15% above 2019 levels entering the first quarter to roughly flat to 2019 exiting the first quarter. The lower top line performance negatively impacted our operating leverage and resulting margin performance in the quarter.”
Mr. Lo continued, “In spite of these challenges, it’s clear that our core long-term strategy of focusing on the premium, higher-margin segments of the WiFi mesh market and the ProAV revolution remains intact. As the pioneer of the Tri and Quad band WiFi segment we are seeing great reception of our $1,500 Quadband WiFi 6E Orbi. Buoyed by the success of our premium WiFi products, we ended the quarter with 627,000 paid subscribers for our services business and remain encouraged by this progress towards our full year target of 750,000 subscribers.”
Bryan Murray, Chief Financial Officer of NETGEAR, added, “During the first quarter of 2022, we repurchased approximately 354,000 shares of common stock for $9.4 million. Preserving strong liquidity and generating cash remain paramount as the pandemic and its related supply chain challenges continue to persist. We expect to continue to opportunistically repurchase shares in future periods.”
Business Outlook
Mr. Murray continued, “The U.S. consumer WiFi market is currently roughly flat to 2019 levels, lower than our expectations to start the year. Given the smaller market, we will be taking actions to optimize our retail channel partners’ inventory levels in the coming quarters to align them to current demand expectations. We will also be taking steps to better align the cost structure of the CHP business with its current projected revenue levels. Even in the face of significant supply chain challenges we expect second quarter revenue from the service provider channel to be approximately $30 million and SMB to perform slightly above Q1’22. Together, these factors lead us to expect our second quarter net revenue to be in the range of $205 million to $220 million. As a result of these factors, plus reduced leverage from our topline, our GAAP operating margin for the second quarter is expected to be in the range of (6.5)% to (5.5)%, and non-GAAP operating margin is expected to be in the range of (4.0)% to (3.0)%. Our GAAP tax rate is expected to be approximately 17.0%, and our non-GAAP tax rate is expected to be 16.0% for the second quarter of 2022. We remain hopeful that sea transportation costs will ease and our SMB supply will improve in the second half of the year and these factors will combine with our cost reduction efforts to create a much more favorable environment for our top and bottom lines. 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 supply chain conditions continuing to remain challenged and, should unforeseen events occur, in particular challenges related to closures affecting our manufacturing partners operations, increased transportation delays into any of our regional distribution or manufacturing centers, greater than expected freight or component costs, or lower than expected end market demand, 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
July 3, 2022
Operating Margin Rate
Tax Rate
GAAP
(6.5)% - (5.5)%
17.0
%
Estimated adjustments for1:
Stock-based compensation expense
2.4
-
Amortization of intangibles
0.1
Non-GAAP tax adjustments
(1.0
)%
Non-GAAP
(4.0)% - (3.0)%
16.0
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 first quarter results and discuss management's expectations for the second quarter of 2022 today, Wednesday, April 27, 2022 at 5 p.m. ET (2 p.m. PT). The toll free dial-in number for the live audio call is (888) 660-6468. The international dial-in number for the live audio call is (929) 201-5709. 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.
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.
© 2022 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 Company’s strategic shift to focusing on the premium, higher-margin segments of the market; 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 and inventory management; expectations regarding the ability to participate in promotional activities leading to further market share gains; expectations regarding expected tax rates; expectations regarding the impact of higher transportation and component costs and corresponding price increases; expectations regarding changes in transportation costs; 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’s shift in focus to premium products at the expense of lower end products may not prove to be successful; 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 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; 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 I - Item 1A. Risk Factors” in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission on February 18, 2022. 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 (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, 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: restructuring and other charges, litigation reserves, net, goodwill impairment charges, 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 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
April 3, 2022
December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents
$
206,826
263,772
Short-term investments
56,962
7,744
Accounts receivable, net
219,911
261,158
Inventories
327,309
315,667
Prepaid expenses and other current assets
27,130
34,752
Total current assets
838,138
883,093
Property and equipment, net
11,984
13,335
Operating lease right-of-use assets
42,013
23,176
Intangibles, net
1,719
1,856
Goodwill
36,279
80,721
Other non-current assets
83,912
76,350
Total assets
1,014,045
1,078,531
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
64,803
73,729
Accrued employee compensation
20,960
24,704
Other accrued liabilities
212,267
224,584
Deferred revenue
17,861
16,500
Income taxes payable
1,638
1,528
Total current liabilities
317,529
341,045
Non-current income taxes payable
19,154
18,990
Non-current operating lease liabilities
36,888
18,569
Other non-current liabilities
3,453
3,112
Total liabilities
377,024
381,716
Stockholders’ equity:
Common stock
29
Additional paid-in capital
931,276
923,228
Accumulated other comprehensive income
156
149
Accumulated deficit
(294,440
)
(226,591
Total stockholders’ equity
637,021
696,815
Total liabilities and stockholders’ equity
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and percentage data)
Three Months Ended
March 28, 2021
Net revenue
210,558
251,187
317,925
Cost of revenue
151,655
176,488
206,984
Gross profit
58,903
74,699
110,941
Gross margin
28.0
29.7
34.9
Operating expenses:
Research and development
23,821
23,080
23,829
Sales and marketing
35,586
36,230
37,815
General and administrative
13,602
14,575
15,405
Goodwill impairment charges
44,442
—
Other operating expenses (income), net
(3
(37
2,565
Total operating expenses
117,448
73,848
79,614
Income (loss) from operations
(58,545
851
31,327
Operating margin
-27.8
0.3
9.9
Other income (expenses), net
(982
(1,108
(552
Income (loss) before income taxes
(59,527
(257
30,775
Provision for (benefit from) for income taxes
(2,317
734
7,815
Net income (loss)
(57,210
(991
22,960
Net income (loss) per share:
Basic
(1.95
(0.03
0.75
Diluted
0.72
Weighted average shares used to compute net income (loss) per share:
29,350
29,456
30,665
31,814
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
2,807
4,661
Stock-based compensation
4,697
6,960
Gain/loss on investments, net
622
49
Deferred income taxes
(7,626
2,803
Provision for excess and obsolete inventory
1,460
1,201
Changes in assets and liabilities:
41,247
24,130
(13,102
(44,794
Prepaid expenses and other assets
7,889
(1,877
(9,012
(3,197
(3,743
(8,371
(13,155
1,428
1,705
1,494
273
6,290
Net cash provided by operating activities
1,294
13,737
Cash flows from investing activities:
Purchases of short-term investments
(50,202
(7
Proceeds from maturities/sale of short-term investments
417
165
Purchases of property and equipment
(957
(1,588
Purchases of long-term investments
(210
(340
Net cash used in investing activities
(50,952
(1,770
Cash flows from financing activities:
Repurchases of common stock
(9,377
Restricted stock unit withholdings
(1,262
(1,964
Proceeds from exercise of stock options
593
4,146
Proceeds from issuance of common stock under employee stock purchase plan
2,758
2,905
Net cash provided by (used in) financing activities
(7,288
5,087
Net increase (decrease) in cash and cash equivalents
(56,946
17,054
Cash and cash equivalents, at beginning of period
346,460
Cash and cash equivalents, at end of period
363,514
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
STATEMENT OF OPERATIONS DATA:
GAAP gross profit
GAAP gross margin
129
179
386
477
834
Non-GAAP gross profit
59,418
75,305
111,954
Non-GAAP gross margin
28.2
30.0
35.2
GAAP research and development
(1,087
(1,329
(1,146
Non-GAAP research and development
22,734
21,751
22,683
GAAP sales and marketing
(1,266
(1,456
(1,887
(1,780
Non-GAAP sales and marketing
34,130
34,343
34,769
GAAP general and administrative
(1,768
(2,230
(3,200
Non-GAAP general and administrative
11,834
12,345
12,205
GAAP other operating expenses (income), net
Restructuring and other charges
23
37
(2,270
Litigation reserves, net
(20
(295
Non-GAAP other operating expenses, net
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)
STATEMENT OF OPERATIONS DATA (CONTINUED):
GAAP total operating expenses
(4,311
(5,446
(6,126
(44,442
Non-GAAP total operating expenses
68,698
68,439
69,657
GAAP operating income (loss)
GAAP operating margin
(27.8
1,445
5,923
(23
2,270
20
295
Non-GAAP operating income (loss)
(9,280
6,866
42,297
Non-GAAP operating margin
(4.4
2.7
13.3
GAAP other income (expenses), net
519
1,188
Non-GAAP other income (expenses), net
(463
80
(503
(In thousands, except per share data)
GAAP net income (loss)
(709
1,908
(2,416
Non-GAAP net income (loss)
(8,135
8,120
31,563
NET INCOME (LOSS) PER DILUTED SHARE:
GAAP net income (loss) per diluted share
0.00
0.05
0.16
0.20
0.22
1.51
(0.00)
0.07
0.01
0.02
0.04
(0.02
0.06
(0.08
Non-GAAP net income (loss) per diluted share 1
(0.28
0.27
0.99
Shares used in computing GAAP net income (loss) per diluted share
Shares used in computing non-GAAP net income (loss) per diluted share
29,822
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)
October 3, 2021
June 27, 2021
Cash, cash equivalents and short-term investments
263,788
271,516
292,195
335,319
370,656
Cash, cash equivalents and short-term investments per diluted share
8.99
9.10
9.49
10.66
11.65
266,526
290,598
312,922
Days sales outstanding (DSO)
97
93
90
86
305,129
251,764
215,705
Ending inventory turns
1.9
2.2
3.4
3.8
Weeks of channel inventory:
U.S. retail channel
19.6
12.7
14.7
12.9
11.8
U.S. distribution channel
4.1
3.0
3.1
3.6
EMEA distribution channel
6.6
6.8
7.8
4.9
APAC distribution channel
14.4
13.4
9.6
11.5
7.6
Deferred revenue (current and non-current)
21,305
19,600
18,684
18,482
18,116
Headcount
766
771
780
769
775
Non-GAAP diluted shares
30,798
31,464
NET REVENUE BY GEOGRAPHY
Americas
144,649
68
159,419
63
219,150
69
EMEA
36,865
18
50,027
61,090
19
APAC
29,044
14
41,741
17
37,685
12
Total
100
SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
NET REVENUE BY SEGMENT
Connected Home
130,342
174,152
240,918
SMB
80,216
77,035
77,007
Total net revenue
SERVICE PROVIDER NET REVENUE
18,121
29,697
22,238
729
711
799
Total service provider net revenue
18,850
30,408
23,037
View source version on businesswire.com: https://www.businesswire.com/news/home/20220427005424/en/
NETGEAR Investor Relations Erik Bylin investors@netgear.com
Source: NETGEAR, Inc.