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CST: 26/05/2019 08:31:39   

NETGEAR® Reports First Quarter 2019 Results

31 Days ago

SAN JOSE, Calif., April 24, 2019 (GLOBE NEWSWIRE) -- NETGEAR, Inc. (NASDAQ: NTGR), a global networking company that delivers innovative networking and Internet connected products to consumers and businesses, today reported financial results for the first quarter ended March 31, 2019.

  • First quarter 2019 net revenue of $249.1 million, an increase of 1.6% from the comparable prior year quarter.
  • First quarter 2019 GAAP operating income of $14.0 million, or 5.6% of net revenue, as compared to $1.5 million, or 0.6% of net revenue, in the comparable prior year quarter.
    ◦ First quarter 2019 non-GAAP operating income of $22.7 million, or 9.1% of net revenue, as compared to $10.4 million, or 4.3% of net revenue in the comparable prior year quarter.
  • First quarter 2019 GAAP net income per diluted share from continuing operations of $0.39, as compared to $0.03 in the comparable prior year quarter.
    ◦  First quarter 2019 non-GAAP net income per diluted share from continuing operations of $0.60, as compared to $0.26 in the comparable prior year quarter.

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 had a successful first quarter of 2019, driven by the Orbi line of mesh WiFi systems, the Nighthawk Pro Gaming line, cable modems and gateways, and our SMB switching portfolio. Our financial results for the quarter came in at the high end of our guidance range for revenue, and slightly above the range in non-GAAP operating margin."

Mr. Lo continued, “We are pleased to report that we reached 10.4 million registered users in Q1, which represents the foundation for building our paid subscriber base. Furthermore, our number of registered app users reached 2 million in the first quarter."

"On the product front, we now have three Nighthawk WiFi 6 routers on the market, and a fourth rolling out this May. We’ll be driving early adoption of these products just as new and much-anticipated WiFi 6 enabled smartphones and laptops are hitting the market. In order to quickly establish our market leadership, we intend to increase our marketing effort in the current quarter to push our entire WiFi 6 portfolio."

Business Outlook

Bryan Murray, Chief Financial Officer of NETGEAR, added, "Due to reduced service provider shipments, our second quarter net revenue is expected to be in the range of $215 million to $230 million. Given this decline in our topline and the increased marketing spend to support our WiFi 6 initiatives, second quarter GAAP operating margin is expected to be in the range of 0.0% to 1.0%, and non-GAAP operating margin is expected to be in the range of 4.0% to 5.0%. Our GAAP tax rate is expected to be approximately 28.5%, and our non-GAAP tax rate is expected to be 23.5% for the second quarter of 2019. We expect our operating margin will significantly improve in the second half of the year when service provider revenue and marketing spend should both return to normal levels.”

A reconciliation between the Business Outlook on a GAAP and non-GAAP basis is provided in the following table:

    Three months ending
    June 30, 2019
    Operating Margin
Rate
  Tax Rate
GAAP   0.0% - 1.0%   28.5%
Estimated adjustments for1:        
Amortization of intangibles   0.8%   __
Stock-based compensation expense   3.2%   __
Tax effects of non-GAAP adjustments   __   (5.0)%
Non-GAAP   4.0% - 5.0%   23.5%

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; 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 2019 today, Wednesday, April 24, 2019 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 3878394. 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.
NETGEAR (NASDAQ: NTGR) is a global networking company that delivers innovative products to consumers, businesses and service providers. The Company's products are built on a variety of proven technologies such as wireless (WiFi and LTE), Ethernet and powerline, with a focus on reliability and ease-of-use. The product line consists of wired and wireless devices that enable networking, broadband access and network connectivity. These products are available in multiple configurations to address the needs of the end-users in each geographic region in which the Company's products are sold. NETGEAR products are sold in approximately 23,000 retail locations around the globe, and through approximately 22,000 value-added resellers, as well as multiple major cable, mobile and wireline service providers around the world. The company's headquarters are in San Jose, Calif., with additional offices in approximately 20 countries. 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.

© 2019 NETGEAR, Inc. NETGEAR, the NETGEAR logo, Orbi and Nighthawk 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, expected net revenue, GAAP and non-GAAP operating margins, and GAAP and non-GAAP tax rates; expectations regarding the timing, distribution, sales momentum and market acceptance of recent and anticipated new product introductions that position the Company for growth; expectations regarding NETGEAR's paid subscriber base, registered users and registered app users and their effect on NETGEAR's paid subscriber base; and expectations regarding seasonal changes in the Company’s business performance. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including 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 grow its number of registered users and/or registered app users; the Company may be unable to grow its paid subscriber base; 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; 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. 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, 2018, filed with the Securities and Exchange Commission on February 22, 2019. 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 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 non-GAAP financial measures represent results from continuing operations. These supplemental measures exclude adjustments for amortization of intangibles, stock-based compensation expense, separation expense, restructuring and other charges, litigation reserves, net, gains on investments, impairment charges to investments, and the related tax effects. 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 ability to make more meaningful period-to-period comparisons of our on-going operating results;
  • the ability to better identify trends in our underlying business and perform related trend analyses;
  • a better understanding of how management plans and measures our underlying business; and
  • an easier way to compare our operating results against analyst financial models and operating results of competitors that supplement their GAAP results with non-GAAP financial measures.

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 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, restructuring and other charges, litigation reserves, net, gains on investments, and impairment charges to investments. 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.

Tax effects consist of the various above 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

-Financial Tables Attached-


NETGEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)


  As of
  March 31,
 2019
  December 31,
 2018
ASSETS      
Current assets:      
Cash and cash equivalents $ 185,680     $ 201,047  
Short-term investments 26,972     73,317  
Accounts receivable, net 262,531     303,667  
Inventories 236,123     243,871  
Prepaid expenses and other current assets 34,791     35,997  
Total current assets 746,097     857,899  
Property and equipment, net 20,645     20,177  
Operating lease right-of-use assets 36,613      
Intangibles, net 15,058     17,146  
Goodwill 80,721     80,721  
Other non-current assets 71,241     67,433  
Total assets $ 970,375     $ 1,043,376  
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:      
Accounts payable $ 69,279     $ 139,748  
Accrued employee compensation 18,452     31,666  
Other accrued liabilities 177,635     199,472  
Deferred Revenue 11,750     11,086  
Income taxes payable 2,895     2,020  
Total current liabilities 280,011     383,992  
Non-current income taxes payable 18,142     19,600  
Non-current operating lease liabilities 31,514      
Other non-current liabilities 7,800     12,232  
Total liabilities 337,467     415,824  
Stockholders' equity:      
Common stock 32     32  
Additional paid-in capital 804,413     793,585  
Accumulated other comprehensive income (loss) 14     (15 )
Accumulated deficit (171,551 )   (166,050 )
Total stockholders' equity 632,908     627,552  
Total liabilities and stockholders' equity $ 970,375     $ 1,043,376  


NETGEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and percentage data)
(Unaudited)


  Three Months Ended
  March 31,
 2019
  December 31,
 2018
  April 1,
 2018
           
Net revenue $ 249,082     $ 288,928     $ 245,201  
Cost of revenue 167,074     198,274     168,882  
Gross profit 82,008     90,654     76,319  
Gross margin 32.9 %   31.4 %   31.1 %
Operating expenses:          
Research and development 18,832     19,143     21,191  
Sales and marketing 35,855     38,251     37,874  
General and administrative 13,117     14,454     15,761  
Separation expense 264     550      
Restructuring and other charges (68 )   830     (9 )
Litigation reserves, net     10      
Total operating expenses 68,000     73,238     74,817  
Income from operations 14,008     17,416     1,502  
Operating margin 5.6 %   6.0 %   0.6 %
Interest income 701     1,174     748  
Other income (expense), net 341     85     (1,318 )
Income before income taxes 15,050     18,675     932  
Provision (benefit) for income taxes 2,207     19,210     (86 )
Net income (loss) from continuing operations 12,843     (535 )   1,018  
Net income (loss) from discontinued operations, net of tax (1)     (27,304 )   4,572  
Net income (loss) 12,843     (27,839 )   5,590  
Net loss attributable to non-controlling interest in discontinued operations     (8,368 )    
Net income (loss) attributable to NETGEAR, Inc. $ 12,843     $ (19,471 )   $ 5,590  
           
Net income (loss) per share - basic:          
Income (loss) from continuing operations $ 0.41     $ (0.02 )   $ 0.03  
Income (loss) from discontinued operations attributable to NETGEAR, Inc.     (0.60 )   0.15  
Net income (loss) attributable to NETGEAR, Inc. $ 0.41     $ (0.62 )   $ 0.18  
           
Net income (loss) per share - Diluted:          
Income (loss) from continuing operations $ 0.39     $ (0.02 )   $ 0.03  
Income (loss) from discontinued operations attributable to NETGEAR, Inc.     (0.60 )   0.14  
Net income (loss) attributable to NETGEAR, Inc. $ 0.39     $ (0.62 )   $ 0.17  
           
Weighted average shares used to compute net income (loss) per share:          
Basic 31,483     31,604     31,427  
Diluted 32,874     31,604     32,660  

(1)  Historical results of Arlo Technologies, Inc. are reflected as discontinued operations for the periods presented.


NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
(Unaudited)


STATEMENT OF OPERATIONS DATA:        
           
  Three Months Ended
  March 31,
 2019
  December 31,
 2018
  April 1,
 2018
           
GAAP gross profit $ 82,008     $ 90,654     $ 76,319  
GAAP gross margin 32.9 %   31.4 %   31.1 %
Amortization of intangibles 179     181     323  
Stock-based compensation expense 668     681     563  
Non-GAAP gross profit $ 82,855     $ 91,516     $ 77,205  
Non-GAAP gross margin 33.3 %   31.7 %   31.5 %
           
GAAP research and development $ 18,832     $ 19,143     $ 21,191  
Stock-based compensation expense (1,192 )   (1,112 )   (1,012 )
Non-GAAP research and development $ 17,640     $ 18,031     $ 20,179  
           
GAAP sales and marketing $ 35,855     $ 38,251     $ 37,874  
Amortization of intangibles (1,831 )   (1,831 )   (1,756 )
Stock-based compensation expense (2,041 )   (1,904 )   (2,205 )
Non-GAAP sales and marketing $ 31,983     $ 34,516     $ 33,913  
           
GAAP general and administrative $ 13,117     $ 14,454     $ 15,761  
Stock-based compensation expense (2,557 )   (2,536 )   (3,084 )
Non-GAAP general and administrative $ 10,560     $ 11,918     $ 12,677  
           
GAAP total operating expenses $ 68,000     $ 73,238     $ 74,817  
Amortization of intangibles (1,831 )   (1,831 )   (1,756 )
Stock-based compensation expense (5,790 )   (5,552 )   (6,301 )
Separation expense (264 )   (550 )    
Restructuring and other charges 68     (830 )   9  
Litigation reserves, net     (10 )    
Non-GAAP total operating expenses $ 60,183     $ 64,465     $ 66,769  


NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (CONTINUED)
(In thousands, except percentage data)
(Unaudited)


STATEMENT OF OPERATIONS DATA (CONTINUED):    
   
  Three Months Ended
  March 31,
 2019
  December 31,
 2018
  April 1,
 2018
           
GAAP operating income $ 14,008     $ 17,416     $ 1,502  
GAAP operating margin 5.6 %   6.0 %   0.6 %
Amortization of intangibles 2,010     2,012     2,079  
Stock-based compensation expense 6,458     6,233     6,864  
Separation expense 264     550      
Restructuring and other charges (68 )   830     (9 )
Litigation reserves, net     10      
Non-GAAP operating income $ 22,672     $ 27,051     $ 10,436  
Non-GAAP operating margin 9.1 %   9.4 %   4.3 %
           
GAAP other income (expense), net $ 341     $ 85     $ (1,318 )
Gains on investments     (190 )    
Impairment charges to investment         1,400  
Non-GAAP other income (expense), net $ 341     $ (105 )   $ 82  
           
GAAP net income (loss) from continuing operations $ 12,843     $ (535   $ 1,018  
Amortization of intangibles 2,010     2,012     2,079  
Stock-based compensation expense 6,458     6,233     6,864  
Separation expense 264     550      
Restructuring and other charges (68 )   830     (9 )
Litigation reserves, net     10      
Gains on investments     (190 )    
Impairment charges to investment         1,400  
Tax effects of above non-GAAP adjustments (1,706 )   13,424
    (2,886 )
Non-GAAP net income from continuing operations $ 19,801     $ 22,334     $ 8,466  


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,
 2019
  December 31,
 2018
  April 1,
 2018
NET INCOME PER DILUTED SHARE:          
GAAP net income (loss) per diluted share from continuing operations $ 0.39     $ (0.02   $ 0.03  
Amortization of intangibles 0.06     0.06     0.06  
Stock-based compensation expense 0.20     0.19     0.21  
Separation expense 0.01     0.02      
Restructuring and other charges 0.00     0.03     0.00  
Litigation reserves, net     0.00      
Gain on investments     (0.01 )    
Impairment charges to investment         0.04  
Tax effects of above non-GAAP adjustments (0.06 )   0.41     (0.08 )
Non-GAAP net income per diluted share from continuing operations $ 0.60     $ 0.68     $ 0.26  


NETGEAR, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory, headcount and percentage data)
(Unaudited)


  Three Months Ended
  March 31,
 2019
  December 31,
 2018
  September 30,
 2018
  July 1,
 2018
  April 1,
 2018
                   
Cash, cash equivalents and short-term investments $ 212,652     $ 274,364     $ 341,968     $ 355,489     $ 386,032  
Cash, cash equivalents and short-term investments per diluted share $ 6.47     $ 8.36     $ 10.37     $ 10.86     $ 11.82  
                   
Accounts receivable, net $ 262,531     $ 303,667     $ 241,862     $ 232,770     $ 214,843  
Days sales outstanding (DSO)   95       97       82       83       80  
                   
Inventories $ 236,123     $ 243,871     $ 198,037     $ 168,263     $ 162,497  
Ending inventory turns   2.8       3.3       3.5       4.2       4.2  
                   
Weeks of channel inventory:                  
U.S. retail channel   10.4       7.7       9.8       10.6       8.9  
U.S. distribution channel   5.7       5.2       4.1       4.3       4.2  
EMEA distribution channel   4.0       4.1       4.3       4.1       4.4  
APAC distribution channel   6.4       7.4       6.6       7.9       6.0  
                   
Deferred revenue (current and non-current) $ 13,598     $ 11,865     $ 9,726     $ 5,577     $ 6,075  
                   
Headcount 828     837     833     901     903  
Non-GAAP diluted shares 32,874     32,803     32,974     32,742     32,660  

NET REVENUE BY GEOGRAPHY

  Three Months Ended
  March 31,
 2019
  December 31,
 2018
  April 1,
 2018
Americas $ 148,029   59 %   $ 190,335   66 %   $ 160,012   66 %
EMEA 56,963   23 %   58,798   20 %   47,434   19 %
APAC 44,090   18 %   39,795   14 %   37,755   15 %
Total $ 249,082   100 %   $ 288,928   100 %   $ 245,201   100 %


NETGEAR, INC.
SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
(In thousands)
(Unaudited)

NET REVENUE BY SEGMENT

  Three Months Ended
  March 31,
 2019
  December 31,
 2018
  April 1,
 2018
Net revenue:          
Connected Home $ 169,365     $ 215,638     $ 174,315  
SMB 79,717     73,290     70,886  
Total net revenue $ 249,082     $ 288,928     $ 245,201  

SERVICE PROVIDER NET REVENUE

  Three Months Ended
  March 31,
 2019
  December 31,
 2018
  April 1,
 2018
Connected Home $ 36,818     $ 37,772     $ 41,797  
SMB 1,476     670     1,063  
Total service provider net revenue $ 38,294     $ 38,442     $ 42,860  

 

Contact:
NETGEAR Investor Relations
Christopher Genualdi
netgearIR@netgear.com

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