NETGEAR(R) Reports Third Quarter 2015 Results
/EINPresswire.com/ -- SAN JOSE, CA -- (Marketwired) -- 10/22/15 -- NETGEAR, Inc. (NASDAQ: NTGR)
- Third quarter 2015 net revenue of $341.9 million, as compared to $353.3 million in the comparable prior year quarter, decrease of 3.2%.
- Third quarter 2015 GAAP net income of $15.1 million, as compared to $20.0 million in the comparable prior year quarter.
- Third quarter 2015 non-GAAP net income of $21.7 million, as compared to $26.2 million in the comparable prior year quarter.
- Third quarter 2015 GAAP net income per diluted share of $0.47, as compared to $0.55 in the comparable prior year quarter.
- Third quarter 2015 non-GAAP net income per diluted share of $0.67, as compared to $0.72 in the comparable prior year quarter.
- Company expects fourth quarter 2015 net revenue to be in the range of $335 million to $350 million, with non-GAAP operating margin in the range of 9.5% to 10.5%. Additionally the Company expects non-GAAP tax expense to be in the range of $13 million to $15 million, an implied effective tax rate of approximately 41%.
NETGEAR, Inc. (NASDAQ: NTGR), a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the third quarter ended September 27, 2015.
Net revenue for the third quarter ended September 27, 2015 was $341.9 million, as compared to $353.3 million in the third quarter ended September 28, 2014, and $288.8 million in the second quarter ended June 28, 2015. Net income, computed in accordance with GAAP, for the third quarter of 2015 was $15.1 million, or $0.47 net income per diluted share. This compared to GAAP net income of $20.0 million, or $0.55 net income per diluted share, in the third quarter of 2014, and GAAP net income of $3.7 million, or $0.11 net income per diluted share, in the second quarter of 2015. Non-GAAP net income was $0.67 per diluted share in the third quarter of 2015, as compared to non-GAAP net income of $0.72 per diluted share in the third quarter of 2014 and $0.29 per diluted share in the second quarter of 2015. The third quarter of 2014 included a $0.04 per diluted share benefit as a result of a year-to-date catch up that reduced the tax expense for that quarter.
Operating margin, computed in accordance with GAAP, for the third quarter of 2015 was 7.6%, as compared to 7.5% in the year ago comparable quarter, and 3.9% in the second quarter of 2015. Non-GAAP operating margin was 10.3% in the third quarter of 2015, as compared to 10.6% in the third quarter of 2014 and 7.1% in the second quarter of 2015.
The differences between GAAP and non-GAAP financial measures include adjustments, net of any tax effect, for amortization of intangibles, stock-based compensation expense, restructuring and other charges, acquisition-related expense, losses on inventory commitments due to restructuring, litigation reserves, net and gain on litigation settlements. 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, "Our financial results for the third quarter of 2015 exceeded expectations, driven by strength in North America and a robust back-to-school season. Our revenue in Q3 was further augmented by higher than normal demand from our service provider customers. The Retail Business Unit had an all-time record quarter in sales, powered by our fast-growing Arlo and Nighthawk product lines. The success of both product lines continued to drive up average selling prices for NETGEAR retail products, and led to a healthy 24.9% year-over-year increase in revenue for the Retail Business Unit for Q3. We were also pleased with the sequential growth shown by the Commercial Business Unit, which was led by our switching products. With many new products in the pipeline, we see the momentum of our switching products rolling into the coming quarters. Meanwhile, we continued to closely manage the Service Provider Business Unit with a focus on profitability."
Mr. Lo continued, "We remain committed to being a leader in the connected home space by leveraging our home WiFi expertise and providing cutting edge, unique products for consumers. We continue to see a greenfield opportunity in the Internet of Things for NETGEAR following on the heels of our highly successful Arlo wire-free cameras. We are committed to investing significant R&D dollars in order to bring more exciting products to the rapidly growing Smart Home market."
Christine Gorjanc, Chief Financial Officer of NETGEAR, added, "During the third quarter of 2015, we continued to leverage the strength of our balance sheet and cash position by repurchasing approximately 642,000 shares of NETGEAR common stock for $20.6 million, at an average price of $32.04 per share. Since the start of our recent repurchase activity in Q4 2013, we have repurchased approximately 8.2 million shares, or approximately 21% of the fully diluted share count at the beginning of that period. We continue to believe that stock repurchases are an effective way of returning capital to shareholders, and plan to be opportunistic buyers of our stock in the coming quarters."
Mr. Lo continued, "Looking forward, we expect fourth quarter net revenue to be in the range of $335 million to $350 million. We are especially looking forward to our Retail Business Unit's performance this holiday season. We also expect that our shipments to service providers should be back to the normalized $100 million level that we previously guided. Non-GAAP operating margin is expected to be in the range of 9.5% to 10.5%. Our non-GAAP tax expense is expected to be approximately $13 million to $15 million, which implies an effective tax rate of 41% for the fourth quarter of 2015."
Investor Conference Call / Webcast Details
NETGEAR will review the third quarter results and discuss management's expectations for the fourth quarter of 2015 today, Thursday, October 22, 2015 at 5 p.m. ET (2 p.m. PT). 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 ET (9 p.m. PT) on Thursday, October 29, 2015 by telephone at (858) 384-5517 and via the web at http://investor.netgear.com. The account number to access the phone replay is 13622145.
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 38,000 retail locations around the globe, and through approximately 30,000 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 25 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.
© 2015 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: expected net revenue and non-GAAP operating margin; 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 seasonal changes in the Company's business unit performance; and expectations regarding repurchases of the Company's common stock. 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 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 II - Item 1A. Risk Factors," pages 40 through 60, in the Company's quarterly report on Form 10-Q for the fiscal quarter ended June 28, 2015, filed with the Securities and Exchange Commission on July 31, 2015. 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 adjustments, 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.
NETGEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 27, December 31,
2015 2014
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 202,429 $ 141,234
Short-term investments 61,419 115,895
Accounts receivable, net 274,173 275,689
Inventories 170,013 222,883
Deferred income taxes 29,430 29,039
Prepaid expenses and other current assets 31,019 38,225
------------- --------------
Total current assets 768,483 822,965
Property and equipment, net 23,951 29,694
Intangibles, net 53,191 66,230
Goodwill 81,721 81,721
Other non-current assets 47,405 48,077
------------- --------------
Total assets $ 974,751 $ 1,048,687
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 98,171 $ 106,357
Accrued employee compensation 21,414 21,588
Other accrued liabilities 132,911 143,742
Deferred revenue 30,722 30,023
Income taxes payable 5,258 2,406
------------- --------------
Total current liabilities 288,476 304,116
Non-current income taxes payable 14,402 15,252
Other non-current liabilities 10,412 7,754
------------- --------------
Total liabilities 313,290 327,122
Stockholders' equity:
Common stock 32 35
Additional paid-in capital 474,875 454,144
Accumulated other comprehensive income
(loss) (43) 38
Retained earnings 186,597 267,348
------------- --------------
Total stockholders' equity 661,461 721,565
------------- --------------
Total liabilities and stockholders' equity $ 974,751 $ 1,048,687
============= ==============
NETGEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and percentage data)
(Unaudited)
Three Months Ended Nine Months Ended
------------------------------- ---------------------
September June 28, September September September
27, 2015 2015 28, 2014 27, 2015 28, 2014
--------- --------- --------- --------- ----------
Net revenue $ 341,893 $ 288,782 $ 353,338 $ 939,832 $1,040,333
Cost of revenue 245,566 211,126 251,005 677,569 742,889
--------- --------- --------- --------- ----------
Gross profit 96,327 77,656 102,333 262,263 297,444
--------- --------- --------- --------- ----------
Gross margin 28.2% 26.9% 29.0% 27.9% 28.6%
Operating expenses:
Research and
development 21,572 21,102 23,337 63,126 67,994
Sales and
marketing 35,923 34,013 39,283 107,538 117,373
General and
administrative 11,803 10,366 11,726 33,192 34,995
Restructuring and
other charges 1,016 974 1,360 6,384 2,190
Litigation
reserves, net -- -- 69 (2,690) 254
--------- --------- --------- --------- ----------
Total operating
expenses 70,314 66,455 75,775 207,550 222,806
--------- --------- --------- --------- ----------
Income from
operations 26,013 11,201 26,558 54,713 74,638
--------- --------- --------- --------- ----------
Operating margin 7.6% 3.9% 7.5% 5.8% 7.2%
Interest income 65 67 68 184 174
Other income
(expense), net (199) (343) 2,246 (67) 1,911
--------- --------- --------- --------- ----------
Income before income
taxes 25,879 10,925 28,872 54,830 76,723
Provision for income
taxes 10,780 7,258 8,847 28,053 27,582
--------- --------- --------- --------- ----------
Net income $ 15,099 $ 3,667 $ 20,025 $ 26,777 $ 49,141
========= ========= ========= ========= ==========
Net income per share:
Basic $ 0.47 $ 0.11 $ 0.56 $ 0.80 $ 1.36
========= ========= ========= ========= ==========
Diluted $ 0.47 $ 0.11 $ 0.55 $ 0.79 $ 1.34
========= ========= ========= ========= ==========
Weighted average
shares used to
compute net income
per share:
Basic 31,979 33,792 35,643 33,473 36,133
========= ========= ========= ========= ==========
Diluted 32,335 34,308 36,250 34,002 36,806
========= ========= ========= ========= ==========
NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
(Unaudited)
STATEMENT OF OPERATIONS DATA:
Three Months Ended Nine Months Ended
------------------------------- --------------------
September June 28, September September September
27, 2015 2015 28, 2014 27, 2015 28, 2014
--------- --------- --------- --------- ---------
GAAP gross profit $ 96,327 $ 77,656 $ 102,333 $ 262,263 $ 297,444
Amortization of
intangibles 2,394 2,506 2,625 7,490 7,863
Stock-based
compensation
expense 358 336 573 1,190 1,533
Losses on inventory
commitments due to
restructuring -- -- -- 407 --
--------- --------- --------- --------- ---------
Non-GAAP gross profit $ 99,079 $ 80,498 $ 105,531 $ 271,350 $ 306,840
========= ========= ========= ========= =========
Non-GAAP gross margin 29.0% 27.9% 29.9% 28.9% 29.5%
GAAP research and
development $ 21,572 $ 21,102 $ 23,337 $ 63,126 $ 67,994
Stock-based
compensation
expense (877) (773) (1,255) (2,495) (3,878)
--------- --------- --------- --------- ---------
Non-GAAP research and
development $ 20,695 $ 20,329 $ 22,082 $ 60,631 $ 64,116
========= ========= ========= ========= =========
GAAP sales and
marketing $ 35,923 $ 34,013 $ 39,283 $ 107,538 $ 117,373
Amortization of
intangibles (1,771) (1,737) (1,771) (5,314) (5,314)
Stock-based
compensation
expense (1,173) (1,272) (1,409) (3,836) (4,759)
--------- --------- --------- --------- ---------
Non-GAAP sales and
marketing $ 32,979 $ 31,004 $ 36,103 $ 98,386 $ 107,300
========= ========= ========= ========= =========
GAAP general and
administrative $ 11,803 $ 10,366 $ 11,726 $ 33,192 $ 34,995
Stock-based
compensation
expense (1,703) (1,677) (1,925) (4,994) (5,056)
Acquisition related
expense -- -- -- -- (8)
--------- --------- --------- --------- ---------
Non-GAAP general and
administrative $ 10,100 $ 8,689 $ 9,801 $ 28,198 $ 29,931
========= ========= ========= ========= =========
GAAP total operating
expenses $ 70,314 $ 66,455 $ 75,775 $ 207,550 $ 222,806
Amortization of
intangibles (1,771) (1,737) (1,771) (5,314) (5,314)
Stock-based
compensation
expense (3,753) (3,722) (4,589) (11,327) (13,693)
Restructuring and
other charges (1,016) (974) (1,360) (6,384) (2,190)
Acquisition related
expense -- -- -- -- (8)
Litigation reserves,
net -- -- (69) 2,690 (254)
--------- --------- --------- --------- ---------
Non-GAAP total
operating expenses $ 63,774 $ 60,022 $ 67,986 $ 187,215 $ 201,347
========= ========= ========= ========= =========
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 Nine Months Ended
------------------------------- --------------------
September September September
September June 28, 28, 27, 28,
27, 2015 2015 2014 2015 2014
--------- --------- --------- --------- ---------
GAAP operating income $ 26,013 $ 11,201 $ 26,558 $ 54,713 $ 74,638
Amortization of
intangibles 4,165 4,243 4,396 12,804 13,177
Stock-based
compensation
expense 4,111 4,058 5,162 12,517 15,226
Restructuring and
other charges 1,016 974 1,360 6,384 2,190
Acquisition-related
expense -- -- -- -- 8
Losses on inventory
commitments due to
restructuring -- -- -- 407 --
Litigation reserves,
net -- -- 69 (2,690) 254
--------- --------- --------- --------- ---------
Non-GAAP operating
income $ 35,305 $ 20,476 $ 37,545 $ 84,135 $ 105,493
========= ========= ========= ========= =========
Non-GAAP operating
margin 10.3% 7.1% 10.6% 9.0% 10.1%
GAAP other income
(expense), net $ (199) $ (343) $ 2,246 $ (67) $ 1,911
Gain on litigation
settlements -- -- (2,800) -- (2,800)
--------- --------- --------- --------- ---------
Non-GAAP other income
(expense), net $ (199) $ (343) $ (554) $ (67) $ (889)
========= ========= ========= ========= =========
GAAP net income $ 15,099 $ 3,667 $ 20,025 $ 26,777 $ 49,141
Amortization of
intangibles 4,165 4,243 4,396 12,804 13,177
Stock-based
compensation
expense 4,111 4,058 5,162 12,517 15,226
Restructuring and
other charges 1,016 974 1,360 6,384 2,190
Acquisition-related
expense -- -- -- -- 8
Losses on inventory
commitments due to
restructuring -- -- -- 407 --
Litigation reserves,
net -- -- 69 (2,690) 254
Gain on litigation
settlements -- -- (2,800) -- (2,800)
Tax effect and tax
related adjustments (2,652) (3,028) (2,030) (8,251) (7,579)
--------- --------- --------- --------- ---------
Non-GAAP net income $ 21,739 $ 9,914 $ 26,182 $ 47,948 $ 69,617
========= ========= ========= ========= =========
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 Nine Months Ended
------------------------------- --------------------
September
September June 28, September September 28,
27, 2015 2015 28, 2014 27, 2015 2014
--------- --------- --------- --------- ---------
NET INCOME PER DILUTED SHARE:
GAAP net income per
diluted share $ 0.47 $ 0.11 $ 0.55 $ 0.79 $ 1.34
Amortization of
intangibles 0.13 0.12 0.12 0.38 0.36
Stock-based
compensation
expense 0.13 0.12 0.14 0.37 0.41
Restructuring and
other charges 0.03 0.03 0.04 0.19 0.06
Acquisition-related
expense -- -- -- -- 0.00
Losses on inventory
commitments due to
restructuring -- -- -- 0.01 --
Litigation reserves,
net -- -- 0.00 (0.08) 0.01
Gain on litigation
settlements -- -- (0.08) -- (0.08)
Tax effect and tax
related adjustments (0.09) (0.09) (0.05) (0.25) (0.21)
--------- --------- --------- --------- ---------
Non-GAAP net income
per diluted share $ 0.67 $ 0.29 $ 0.72 $ 1.41 $ 1.89
========= ========= ========= ========= =========
SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands, except per share data, DSO, inventory turns, weeks of channel
inventory, headcount and percentage data)
(Unaudited)
Three Months Ended
------------------------------------------------------
December September
September June 28, March 29, 31, 28,
27, 2015 2015 2015 2014 2014
---------- ---------- ---------- ---------- ----------
Cash, cash
equivalents and
short-term
investments $ 263,848 $ 212,915 $ 247,405 $ 257,129 $ 242,648
Cash, cash
equivalents and
short-term
investments per
diluted share $ 8.16 $ 6.21 $ 7.01 $ 7.40 $ 6.69
Accounts receivable,
net $ 274,173 $ 246,493 $ 254,745 $ 275,689 $ 278,568
Days sales
outstanding (DSO) 73 78 73 73 72
Inventories $ 170,013 $ 188,668 $ 200,948 $ 222,883 $ 206,494
Ending inventory
turns 5.8 4.5 4.4 4.5 4.9
Weeks of channel
inventory:
U.S. retail channel 9.2 7.0 7.7 7.8 7.7
U.S. distribution
channel 7.9 10.1 11.5 12.0 10.6
EMEA distribution
channel 5.3 4.8 4.4 5.4 4.4
APAC distribution
channel 7.3 7.1 7.4 7.2 6.8
Deferred revenue
(current and non-
current) $ 34,154 $ 31,116 $ 25,802 $ 31,621 $ 35,654
Headcount 959 967 979 1,038 1,047
Non-GAAP diluted
shares 32,335 34,308 35,285 35,348 36,250
NET REVENUE BY GEOGRAPHY
Three Months Ended
----------------------------------------------------
September 27, June 28, September 28,
2015 2015 2014
---------------- ---------------- ----------------
Americas $ 219,736 64% $ 172,459 59% $ 193,904 55%
EMEA 77,725 23% 67,993 24% 108,421 31%
APAC 44,432 13% 48,330 17% 51,013 14%
---------- ----- ---------- ----- ---------- -----
Total $ 341,893 100% $ 288,782 100% $ 353,338 100%
========== ===== ========== ===== ========== =====
NET REVENUE BY GEOGRAPHY
Nine Months Ended
----------------------------------
September 27, September 28,
2015 2014
---------------- ----------------
Americas $ 565,981 60% $ 576,217 56%
EMEA 234,827 25% 315,650 30%
APAC 139,024 15% 148,466 14%
---------- ----- ---------- -----
Total $ 939,832 100% $1,040,333 100%
========== ===== ========== =====
NET REVENUE BY SEGMENT
Three Months Ended
----------------------------------------------------
September 27, June 28, September 28,
2015 2015 2014
---------------- ---------------- ----------------
Retail $ 164,081 48% $ 131,809 45% $ 131,341 38%
Commercial 65,187 19% 63,017 22% 71,974 20%
Service Provider 112,625 33% 93,956 33% 150,023 42%
---------- ----- ---------- ----- ---------- -----
Total $ 341,893 100% $ 288,782 100% $ 353,338 100%
========== ===== ========== ===== ========== =====
NET REVENUE BY SEGMENT
Nine Months Ended
----------------------------------
September 27, September 28,
2015 2014
---------------- ----------------
Retail $ 416,847 45% $ 360,236 34%
Commercial 200,935 21% 226,284 22%
Service Provider 322,050 34% 453,813 44%
---------- ----- ---------- -----
Total $ 939,832 100% $1,040,333 100%
========== ===== ========== =====
Contact:
NETGEAR Investor Relations
Christopher Genualdi
Email Contact
(408) 890-3520
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