NETGEAR® Reports First Quarter 2013 Results

-- First quarter 2013 net revenue of $293.4 million, as compared to $325.6 million in the comparable prior year quarter, decrease of 9.9% year-over-year
-- First quarter 2013 non-GAAP net income of $19.4 million, as compared to $28.1 million in the comparable prior year quarter, decrease of 31.0% year-over-year
-- First quarter 2013 non-GAAP diluted earnings per share of $0.50, as compared to $0.73 in the comparable prior year quarter, decrease of 31.5% year-over-year
-- Company expects second quarter 2013 net revenue to be in the range of $345 million to $360 million, with non-GAAP operating margin in the range of 9.5% to 10.5%

PR Newswire

SAN JOSE, Calif., April 25, 2013 /PRNewswire/ -- NETGEAR, Inc. (NTGR), a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the first quarter ended March 31, 2013.

Net revenue for the first quarter ended March 31, 2013 was $293.4 million, as compared to $325.6 million for the first quarter ended April 1, 2012, and $310.4 million in the fourth quarter ended December 31, 2012.  Net income, computed in accordance with GAAP, for the first quarter of 2013 was $15.3 million, or $0.39 per diluted share.  This compared to GAAP net income of $25.1 million, or $0.65 per diluted share, for the first quarter of 2012, and GAAP net income of $16.1 million, or $0.41 per diluted share, in the fourth quarter of 2012. 

Gross margin on a non-GAAP basis in the first quarter of 2013 was 30.5%, as compared to 31.0% in the year ago comparable quarter, and 30.0% in the fourth quarter of 2012.  Non-GAAP operating margin was 10.0% in the first quarter of 2013, as compared to 12.5% in the first quarter of 2012, and 11.4% in the fourth quarter of 2012. Non-GAAP net income was $0.50 per diluted share in the first quarter of 2013, as compared to non-GAAP net income of $0.73 per diluted share in the first quarter of 2012, and non-GAAP net income of $0.55 per diluted share in the fourth quarter of 2012.

Our non-GAAP tax rate was 34.6% in the first quarter 2013, as compared to 30.1% in the year ago comparable quarter, and 39.4% in the fourth quarter of 2012. The higher tax rate in the first quarter 2013, as compared with the comparable prior year quarter, reflects a shift in geographic mix of revenues, and corresponding profits, towards the Americas.

The differences between GAAP and non-GAAP financial measures include adjustments, net of any tax effect, for amortization of purchased intangibles, stock-based compensation, restructuring and other charges, acquisition related compensation and expense, and litigation reserves. The accompanying schedules provide a reconciliation of financial measures computed on a GAAP basis to financial measures computed on a non-GAAP basis.

Patrick Lo, Chairman and Chief Executive Officer of NETGEAR commented, "The lower than expected operating margin in the first quarter was driven by product mix, primarily due to difficulties in the transition to our new ReadyNAS line of products. The transition occurred late in the quarter and difficulty securing components and some last minute bug fixes led to unanticipated delays. This marked the first time we completely replaced an entire line of products, which involved obsoleting ten models and replacing them with seven brand new models. The execution was much harder than anticipated and we learned a valuable lesson in engineering and manufacturing planning. The good news is that our supply is now in full swing and customer feedback on the new product line has been very positive."

"We continue to see large market opportunities created by the ever expanding access to high speed Internet connectivity among consumers and businesses.  We are very focused today on building our product portfolios for intermediate and long term growth in all three of our business units. In retail, we continue to gain traction with the 11ac upgrade cycle and we are gaining share in the Smart Home space, specifically with our Internet video streaming solutions. In our Commercial Business Unit, the launches of the new ReadyNAS and 10GBaseT switches in the first quarter were received enthusiastically by the market, positioning us for growth in the months and years ahead. And in our Service Provider Business Unit, we introduced our first LTE gateway into the North American fixed mobile data market and have attracted interest from multiple service providers."

Christine Gorjanc, Chief Financial Officer of NETGEAR, said, "As discussed on our February earnings call, we anticipated a quarter-over-quarter decline of net revenue in the first quarter caused by weaker sell-in to our channel and service provider customers. We were further negatively impacted by our inability to ship the backlog on our new line of ReadyNAS products. Our non-GAAP operating margin came in at 10.0%, which is lower than our original guidance of 11% to 12%. Even though the second quarter is seasonally weak for retail, we expect sequential growth for both the commercial and service provider business units."

Mr. Lo added, "Our outlook for the growth drivers of our core business remains unchanged, as does our confidence in the superiority of our products.  We expect to continue to open up new channels, penetrate the developing markets and enter new product categories. Looking forward, with a full quarter of AirCard product shipments weighing in, and the supply of our new ReadyNAS products back to normal, we expect second quarter 2013 net revenue to be in the range of $345 to $360 million and non-GAAP operating margin to be between 9.5% and 10.5%. Furthermore, we expect our non-GAAP tax rate to be approximately 38% in the second quarter 2013."

Investor Conference Call / Webcast Details
NETGEAR will review the first quarter 2013 results and discuss management's expectations for the second quarter of 2013 today, Thursday, April 25, 2013 at 5 p.m. Eastern (2 p.m. Pacific). The dial-in number for the live audio call is (201) 689-8471. A live webcast of the conference call will be available on NETGEAR's website at http://investor.netgear.com.  A replay of the call will be available 2 hours following the call through midnight Eastern (9 p.m. Pacific) on Thursday, May 2, 2013 by telephone at (858) 384-5517 and via the web at http://investor.netgear.com.  The account number to access the phone replay is 412249.

About NETGEAR, Inc.
NETGEAR (NTGR) is a global networking company that delivers innovative products to consumers, businesses and service providers. For consumers, the company makes high performance, dependable and easy to use home networking, storage and digital media products to connect people with the Internet and their content and devices. For businesses, NETGEAR provides networking, storage and security solutions without the cost and complexity of Big IT. The company also supplies top service providers with retail proven, whole home solutions for their customers. NETGEAR products are built on a variety of proven technologies such as wireless, Ethernet and powerline, with a focus on reliability and ease-of-use. NETGEAR products are sold in approximately 36,000 retail locations around the globe, and through approximately 43,000 value-added resellers. The company's headquarters are in San Jose, Calif., with additional offices in over 25 countries. NETGEAR is an ENERGY STAR partner. More information is available at http://investor.netgear.com or by calling (408) 907-8000. Connect with NETGEAR at http://twitter.com/NETGEAR and http://www.facebook.com/NETGEAR.

© 2013 NETGEAR, Inc. NETGEAR, ReadyNAS, AirCard and the NETGEAR logo are trademarks or registered trademarks of NETGEAR, Inc. and its affiliates in the United States and/or other countries. Other brand and product names are trademarks or registered trademarks of their respective holders.  The information contained herein is subject to change without notice. NETGEAR shall not be liable for technical or editorial errors or omissions contained herein.  All rights reserved.

Contact:
NETGEAR Investor Relations
Christopher Genualdi
netgearIR@netgear.com
(408) 890-3520

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 for NETGEAR, Inc.:
This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The words "anticipate", "expect", "believe", "will", "may", "should", "estimate", "project", "outlook", "forecast" or other similar words are used to identify such forward-looking statements.  However, the absence of these words does not mean that the statements are not forward-looking.  The forward-looking statements represent NETGEAR, Inc.'s expectations or beliefs concerning future events based on information available at the time such statements were made and include statements, among others, regarding expected net revenue and non-GAAP operating margin and non-GAAP tax rate, expectations for intermediate and long term growth in all three of our business units, expectations regarding new product introductions which position the Company for growth, sequential growth in the second quarter 2013 for both the commercial and service provider business units, opening new channels, penetrating the developing markets and entering new product categories. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including, without limitation, the following: future demand for the Company's products may be lower than anticipated; consumers may choose not to adopt the Company's new product offerings or adopt competing products; product performance may be adversely affected by real world operating conditions; the Company may be unsuccessful or experience delays in manufacturing and distributing its new and existing products; telecommunications service providers may choose to slow their deployment of the Company's products or utilize competing products; the Company may be unable to collect receivables as they become due; the Company may fail to manage costs, including the cost of developing new products and manufacturing and distribution of its existing offerings; the Company may fail to successfully continue to effect operating expense savings; channel inventory information reported is estimated based on the average number of weeks of inventory on hand on the last Saturday of the quarter, as reported by certain of NETGEAR's customers; changes in the level of NETGEAR's cash resources and the Company's planned usage of such resources; changes in the Company's stock price and developments in the business that could increase the Company's cash needs, fluctuations in foreign exchange rates, and the actions and financial health of the Company's customers. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Further information on potential risk factors that could affect NETGEAR and its business are detailed in the Company's periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled "Part I - Item 1A. Risk Factors," pages 10 through 29, in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2012, filed with the Securities and Exchange Commission on February 26, 2013. NETGEAR undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Use of Non-GAAP Financial Information:
To supplement our consolidated financial statements presented on a GAAP basis, NETGEAR uses non-GAAP financial measures, which are adjusted to exclude certain expenses and tax benefits, where applicable.  We believe non-GAAP financial measures are appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of NETGEAR's underlying operational results and trends and our marketplace performance. For example, the non-GAAP results are an indication of our baseline performance before charges that are considered by management to be outside of our core operating results. In addition, these adjusted non-GAAP results are among the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial measures prepared in accordance with generally accepted accounting principles in the United States.              

-Financial Tables Attached-




NETGEAR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)



March 31,
2013


December 31,
2012





ASSETS




Current assets:




Cash and cash equivalents

$

279,098



$

149,032


Short-term investments

143,314



227,845


Accounts receivable, net

237,896



256,014


Inventories

158,555



174,903


Deferred income taxes

24,052



22,691


Prepaid expenses and other current assets

34,773



33,724


Total current assets

877,688



864,209


Property and equipment, net

18,387



19,025


Intangibles, net

26,079



27,621


Goodwill

100,880



100,880


Other non-current assets

22,282



22,834


Total assets

$

1,045,316



$

1,034,569






                LIABILITIES AND STOCKHOLDERS' EQUITY       




Current liabilities:




Accounts payable

$

82,410



$

87,310


Accrued employee compensation

14,103



18,338


Other accrued liabilities

119,587



126,255


Deferred revenue

26,998



27,645


Income taxes payable

4,667



1,382


Total current liabilities

247,765



260,930


Non-current income taxes payable

13,187



13,735


Other non-current liabilities

6,987



5,293


Total liabilities

267,939



279,958


Stockholders' equity:




Common stock

39



38


Additional paid-in capital

402,050



394,427


Cumulative other comprehensive income

139



4


Retained earnings

375,149



360,142


Total stockholders' equity

777,377



754,611


Total liabilities and stockholders' equity

$

1,045,316



$

1,034,569


 



NETGEAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



Three Months Ended


March 31,
2013


December 31,
2012


April 1,
2012







Net revenue

$

293,399



$

310,436



$

325,620


Cost of revenue

205,662



219,058



225,771


Gross profit

87,737



91,378



99,849


Operating expenses:






Research and development

15,338



14,789



14,121


Sales and marketing

36,389



35,519



38,970


General and administrative

12,327



11,507



10,413


Restructuring and other charges

(30)



1,190




Litigation reserves, net

48



(30)



151


Total operating expenses

64,072



62,975



63,655


Income from operations

23,665



28,403



36,194


Interest income

149



154



119


Other income (expense), net

74



(153)



(601)


Income before income taxes

23,888



28,404



35,712


Provision for income taxes

8,545



12,325



10,565


Net income

$

15,343



$

16,079



$

25,147








Net income per share:






Basic

$

0.40



$

0.42



$

0.67


Diluted

$

0.39



$

0.41



$

0.65








Weighted average shares outstanding used to

compute net income per share:






Basic

38,433



38,293



37,796


Diluted

39,050



38,924



38,576


 



NETGEAR, INC.

NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


Excluding amortization of purchased intangibles, stock-based compensation, restructuring and other charges, acquisition related compensation and expense, and litigation reserves, net of tax.


(In thousands, except per share data)

(Unaudited)



Three Months Ended


March 31,
2013


December 31,
2012


April 1,
2012







Net revenue

$

293,399



$

310,436



$

325,620


Cost of revenue

204,002



217,286



224,554


Gross profit

89,397



93,150



101,066








Operating expenses:






Research and development

14,666



14,068



13,510


Sales and marketing

35,159



34,391



37,776


General and administrative

10,118



9,283



9,096


Total operating expenses

59,943



57,742



60,382


Income from operations

29,454



35,408



40,684


Interest income

149



154



119


Other income (expense), net

74



(153)



(601)


Income before income taxes

29,677



35,409



40,202


Provision for income taxes

10,263



13,951



12,094


Net income

$

19,414



$

21,458



$

28,108








Net income per share:






Basic

$

0.51



$

0.56



$

0.74


Diluted

$

0.50



$

0.55



$

0.73








Weighted average shares outstanding used to

compute net income per share:






Basic

38,433



38,293



37,796


Diluted

39,050



38,924



38,576


 


NETGEAR, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

(In thousands, except per share data)

(Unaudited)


STATEMENT OF OPERATIONS DATA:



Three Months Ended


March 31,
2013


December 31,
2012


April 1,
2012







GAAP gross profit

$

87,737



$

91,378



$

99,849


Amortization of intangible assets

1,471



1,446



947


Stock-based compensation expense

189



326



270


Non-GAAP gross profit

$

89,397



$

93,150



$

101,066


Non-GAAP gross margin

30.5

%


30.0

%


31.0

%







GAAP research and development

$

15,338



$

14,789



$

14,121


Stock-based compensation expense

(672)



(721)



(611)


Non-GAAP research and development

$

14,666



$

14,068



$

13,510








GAAP sales and marketing

$

36,389



$

35,519



$

38,970


Stock-based compensation expense

(1,230)



(1,128)



(1,194)


Non-GAAP sales and marketing

$

35,159



$

34,391



$

37,776








GAAP general and administrative

$

12,327



$

11,507



$

10,413


Stock-based compensation expense

(1,499)



(1,391)



(1,317)


Acquisition related expense

(710)



(833)




Non-GAAP general and administrative

$

10,118



$

9,283



$

9,096








GAAP total operating expenses

$

64,072



$

62,975



$

63,655


Stock-based compensation expense

(3,401)



(3,240)



(3,122)


Restructuring and other charges

30



(1,190)




Acquisition related expense

(710)



(833)




Litigation reserves, net

(48)



30



(151)


Non-GAAP total operating expenses

$

59,943



$

57,742



$

60,382


 


NETGEAR, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)

(In thousands, except per share data)

(Unaudited)


STATEMENT OF OPERATIONS DATA (CONTINUED):



Three Months Ended


March 31,
2013


December 31,
2012


April 1,
2012







GAAP operating income

$

23,665



$

28,403



$

36,194


Amortization of intangible assets

1,471



1,446



947


Stock-based compensation expense

3,590



3,566



3,392


Restructuring  and other charges

(30)



1,190




Acquisition related expense

710



833




Litigation reserves, net

48



(30)



151


Non-GAAP operating income

$

29,454



$

35,408



$

40,684


Non-GAAP operating margin

10.0

%


11.4

%


12.5

%







GAAP net income

$

15,343



$

16,079



$

25,147


Amortization of intangible assets

1,471



1,446



947


Stock-based compensation expense

3,590



3,566



3,392


Restructuring  and other charges

(30)



1,190




Acquisition related expense

710



833




Litigation reserves, net

48



(30)



151


Tax effect

(1,718)



(1,626)



(1,529)


Non-GAAP net income

$

19,414



$

21,458



$

28,108








NET INCOME PER DILUTED SHARE:





GAAP net income per diluted share

$

0.39



$

0.41



$

0.65


Amortization of intangible assets

0.04



0.04



0.02


Stock-based compensation expense

0.09



0.09



0.09


Restructuring  and other charges

0.00



0.03




Acquisition related expense

0.02



0.02




Litigation reserves, net

0.00



0.00



0.00


Tax effect

(0.04)



(0.04)



(0.03)


Non-GAAP net income per diluted share

$

0.50



$

0.55



$

0.73


 


SUPPLEMENTAL FINANCIAL INFORMATION

(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory and headcount)

(Unaudited)



Three Months Ended


March 31,
2013


December 31,
2012


September 30,
2012


July 1,
2012


April 1,
2012











Cash, cash equivalents and short-term investments

$

422,412



$

376,877



$

362,420



$

360,428



$

369,420


Cash, cash equivalents and short-term investments per

diluted share

$

10.82



$

9.68



$

9.34



$

9.34



$

9.58












Accounts receivable, net

$

237,896



$

256,014



$

248,862



$

271,769



$

249,208


Days sales outstanding (DSO)

73



76



72



77



70












Inventories

$

158,555



$

174,903



$

178,916



$

152,820



$

134,314


Ending inventory turns

5.2



5.0



4.9



5.9



6.7












Weeks of channel inventory:










U.S. retail channel

9.9



8.8



9.8



12.3



9.8


U.S. distribution channel

8.9



10.2



8.4



8.6



8.6


EMEA distribution channel

4.1



4.4



4.4



4.1



5.0


APAC distribution channel

7.2



7.2



4.7



5.7



5.6












Deferred revenue

$

28,961



$

27,645



$

28,205



$

25,478



$

25,156












Headcount

866



850



854



818



810


Non-GAAP diluted shares

39,050



38,924



38,802



38,595



38,576


 


NET REVENUE BY GEOGRAPHY



Three Months Ended



March 31,
2013




December 31,
2012




April 1,
2012



Americas            

$

156,676



53

%


$

169,979



54

%


$

168,355



52

%

EMEA

107,125



37

%


110,460



36

%


125,081



38

%

APAC

29,598



10

%


29,997



10

%


32,184



10

%

Total

$

293,399



100

%


$

310,436



100

%


$

325,620



100

%

 


NET REVENUE BY SEGMENT



Three Months Ended



March 31,
2013




December 31,
2012




April 1,
2012



Retail

$

126,322



43

%


$

138,539



44

%


$

128,977



40

%

Commercial         

70,851



24

%


73,447



24

%


74,632



23

%

Service Provider  

96,226



33

%


98,450



32

%


122,011



37

%

Total

$

293,399



100

%


$

310,436



100

%


$

325,620



100

%

 

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