NETGEAR® Reports Second Quarter Results -- Second quarter 2013 net revenue of $357.7 million, as compared to $320.7 million in the comparable prior year quarter, increase of 11.6% year-over-year

-- Second quarter results reflect the full quarter effect of the acquired AirCard business

-- Second quarter 2013 non-GAAP net income of $24.4 million, as compared to $24.6 million in the comparable prior year quarter, decrease of 0.9% year-over-year

-- Second quarter 2013 non-GAAP diluted earnings per share of $0.62, as compared to $0.64 in the comparable prior year quarter, decrease of 3.1% year-over-year

-- Company expects third 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%

SAN JOSE, Calif., July 25, 2013 /PRNewswire/ -- NETGEAR, Inc. (NASDAQGS: NTGR), a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the second quarter ended June 30, 2013.

Net revenue for the second quarter ended June 30, 2013 was $357.7 million, as compared to $320.7 million for the second quarter ended July 1, 2012, and $293.4 million in the first quarter ended March 31, 2013. The second quarter 2013 results reflect the full quarter effect of the AirCard business acquired from Sierra Wireless. Net income, computed in accordance with GAAP, for the second quarter of 2013 was $14.0 million, or $0.36 per diluted share.  This compared to GAAP net income of $21.5 million, or $0.56 per diluted share, for the second quarter of 2012, and GAAP net income of $15.3 million, or $0.39 per diluted share, in the first quarter of 2013. 

Gross margin on a non-GAAP basis in the second quarter of 2013 was 29.8%, as compared to 29.9% in the year ago comparable quarter, and 30.5% in the first quarter of 2013.  Non-GAAP operating margin was 10.3% in the second quarter of 2013, as compared to 11.0% in the second quarter of 2012, and 10.0% in the first quarter of 2013. Non-GAAP net income was $0.62 per diluted share in the second quarter of 2013, as compared to non-GAAP net income of $0.64 per diluted share in the second quarter of 2012, and non-GAAP net income of $0.50 per diluted share in the first quarter of 2013.

The Company's non-GAAP tax rate was 32.9% in the second quarter 2013, as compared to 31.4% in the second quarter of 2012, and 34.6% in the first quarter of 2013.

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 expense, impact to cost of sales from acquisition accounting adjustments to inventory, 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, "We are pleased with our results for the second quarter of 2013. Our Retail Business grew on a year-over-year basis, and we have confidence in the pace of the 802.11ac upgrade cycle, as well as the increasing realization of the Smart Home for developed markets. The integration of the AirCard business into our Service Provider Business Unit has been progressing very well, and we are excited about our combined R&D capabilities in the fast growing LTE gateway market segment. Our Commercial Business Unit generated impressive sequential and year-over-year growth driven by the success of our new storage products and 10 Gigabit switches."

"Our Retail Business Unit (RBU) revenue for the quarter ended June 30, 2013 was down 7% sequentially, which represents typical seasonality for the second quarter. On a year-over-year basis, our Retail Business Unit revenue was up 3%. Our strong year on year growth for RBU in North America and Asia was offset by weakness in the European region. Our Service Provider Business Unit revenue was up 58% sequentially, and up 20% over the prior year quarter. This substantial increase reflects the incremental revenue of the recent AirCard acquisition. Our Commercial Business Unit revenue was up 25% sequentially, and up 10% over the prior year quarter.  Our new line of storage products was well received by the market, and we believe that the unique product portfolio we have built for storage, 10 Gigabit switches, Power over Ethernet switches and wireless LAN will continue to drive growth for this business unit in future quarters."

Christine Gorjanc, Chief Financial Officer of NETGEAR, said, "We ended the second quarter of 2013 with $288.1 million in cash, cash equivalents and short-term investments, compared to $360.4 million at the end of the second quarter of 2012, and $422.4 million at the end of the first quarter of 2013. The reduction in the cash level reflects the payment of $140.0 million to Sierra Wireless, Inc. for the AirCard business. Our balance sheet remains strong and provides plenty of flexibility for us to invest in the fast growing markets of the Smart Home, access networks to cloud computing, and LTE gateways and data devices."

Mr. Lo added, "The worldwide spread of broadband internet access and the proliferation of connected devices continue to create opportunities for us to put multiple NETGEAR products into every home and office. Looking forward, for the third quarter of 2013, we expect 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 37% in the third quarter of 2013."

Investor Conference Call / Webcast Details 
NETGEAR will review the second quarter results and discuss management's expectations for the second quarter of 2013 today, Thursday, July 25, 2013 at 5 p.m. EDT (2 p.m. PDT). 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, August 1, 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 417736.

About NETGEAR, Inc. 
NETGEAR (NASDAQGS: 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 45,000 retail locations around the globe, and through approximately 40,000 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 regarding: expected net revenue, non-GAAP operating margin and non-GAAP tax rate; expectations for intermediate and long term growth in our business units; expectations regarding new product introductions that position the Company for growth; opening new channels; penetrating 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 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; 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 42 through 63, in the Company's quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2013, filed with the Securities and Exchange Commission on May 7, 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)







June 30,
2013


December 31,
2012





ASSETS




Current assets:




Cash and cash equivalents

$

146,934



$

149,032


Short-term investments

141,169



227,845


Accounts receivable, net

288,483



256,014


Inventories

185,383



174,903


Deferred income taxes

25,228



22,691


Prepaid expenses and other current assets         

41,708



33,724


            Total current assets

828,905



864,209


Property and equipment, net

26,397



19,025


Intangibles, net

95,149



27,621


Goodwill

155,405



100,880


Other non-current assets

22,884



22,834


            Total assets

$

1,128,740



$

1,034,569






         LIABILITIES AND STOCKHOLDERS' EQUITY





Current liabilities:




Accounts payable

$

129,535



$

87,310


Accrued employee compensation

16,275



18,338


Other accrued liabilities

134,884



126,255


Deferred revenue

31,838



27,645


Income taxes payable



1,382


            Total current liabilities

312,532



260,930


Non-current income taxes payable

12,972



13,735


Other non-current liabilities

6,657



5,293


            Total liabilities

332,161



279,958


Stockholders' equity:




Common stock

39



38


Additional paid-in capital

407,505



394,427


Cumulative other comprehensive income

48



4


Retained earnings

388,987



360,142


            Total stockholders' equity

796,579



754,611


            Total liabilities and stockholders' equity

$

1,128,740



$

1,034,569


 


NETGEAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)







Three Months Ended


Six Months Ended


June 30,
2013


March 31,
2013


July 1,
2012


June 30,
2013


July 1,
2012











Net revenue

$

357,719



$

293,399



$

320,655



$

651,118



$

646,275


Cost of revenue

254,289



205,662



226,017



459,951



451,788


Gross profit

103,430



87,737



94,638



191,167



194,487


Operating expenses:










Research and development

23,981



15,338



14,757



39,319



28,878


Sales and marketing

40,406



36,389



37,677



76,795



76,647


General and administrative

12,319



12,327



11,219



24,646



21,632


Restructuring and other

charges

1,587



(30)





1,557




Litigation reserves, net

3,555



48





3,603



151


             Total operating expenses  

81,848



64,072



63,653



145,920



127,308


Income from operations

21,582



23,665



30,985



45,247



67,179


Interest income

95



149



116



244



235


Other income (expense), net

(548)



74



354



(474)



(247)


Income before income taxes

21,129



23,888



31,455



45,017



67,167


Provision for income taxes

7,144



8,545



9,933



15,689



20,498


Net income

$

13,985



$

15,343



$

21,522



$

29,328



$

46,669












Net income per share:










Basic

$

0.36



$

0.40



$

0.57



$

0.76



$

1.23


Diluted

$

0.36



$

0.39



$

0.56



$

0.75



$

1.21












Weighted average shares

outstanding used to compute net

income per share:










Basic

38,539



38,433



37,978



38,493



37,886


Diluted

39,074



39,050



38,595



39,077



38,612












 


NETGEAR, INC.

NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Excluding amortization of purchased intangibles, stock-based compensation, restructuring and other charges, acquisition related expense, impact to
cost of sales from acquisition accounting adjustments to inventory, and litigation reserves, net of tax.

(In thousands, except per share data)

(Unaudited)







Three Months Ended


Six Months Ended


June 30,
2013


March 31,
2013


July 1,
2012


June 30,
2013


July 1,
2012











Net revenue

$

357,719



$

293,399



$

320,655



$

651,118



$

646,275


Cost of revenue

251,061



204,002



224,723



455,063



449,277


Gross profit

106,658



89,397



95,932



196,055



196,998












Operating expenses:










Research and development

22,846



14,666



14,080



37,512



27,590


Sales and marketing

36,478



35,159



36,486



71,637



74,262


General and administrative

10,565



10,118



9,970



20,683



19,066


              Total operating expenses

69,889



59,943



60,536



129,832



120,918


Income from operations

36,769



29,454



35,396



66,223



76,080


Interest income

95



149



116



244



235


Other income (expense), net

(548)



74



354



(474)



(247)


Income before income taxes

36,316



29,677



35,866



65,993



76,068


Provision for income taxes

11,944



10,263



11,262



22,207



23,356


Net income

$

24,372



$

19,414



$

24,604



$

43,786



$

52,712












Net income per share:










Basic

$

0.63



$

0.51



$

0.65



$

1.14



$

1.39


Diluted

$

0.62



$

0.50



$

0.64



$

1.12



$

1.37












Weighted average shares

outstanding used to compute net

income per share:










Basic

38,539



38,433



37,978



38,493



37,886


Diluted

39,074



39,050



38,595



39,077



38,612


 

NETGEAR, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

(In thousands, except per share data)

(Unaudited)


STATEMENT OF OPERATIONS DATA:






Three Months Ended


Six Months Ended


June 30,
2013


March 31,
2013


July 1,
2012


June 30,
2013


July 1,
2012











GAAP gross profit

$

103,430



$

87,737



$

94,638



$

191,167



$

194,487


Amortization of intangible assets

2,254



1,471



1,016



3,725



1,963


Stock-based compensation expense

406



189



278



595



548


Impact to cost of sales from

acquisition accounting adjustments to

inventory

568







568




Non-GAAP gross profit

$

106,658



$

89,397



$

95,932



$

196,055



$

196,998


Non-GAAP gross margin

29.8

%


30.5

%


29.9

%


30.1

%


30.5

%











GAAP research and development

$

23,981



$

15,338



$

14,757



$

39,319



$

28,878


Stock-based compensation expense

(1,135)



(672)



(677)



(1,807)



(1,288)


Non-GAAP research and development

$

22,846



$

14,666



$

14,080



$

37,512



$

27,590












GAAP sales and marketing

$

40,406



$

36,389



$

37,677



$

76,795



$

76,647


Amortization of intangible assets

(2,618)







(2,618)




Stock-based compensation expense

(1,310)



(1,230)



(1,191)



(2,540)



(2,385)


Non-GAAP sales and marketing

$

36,478



$

35,159



$

36,486



$

71,637



$

74,262












GAAP general and administrative

$

12,319



$

12,327



$

11,219



$

24,646



$

21,632


Stock-based compensation expense

(1,540)



(1,499)



(1,249)



(3,039)



(2,566)


Acquisition related expense

(214)



(710)





(924)




Non-GAAP general and administrative

$

10,565



$

10,118



$

9,970



$

20,683



$

19,066












GAAP total operating expenses

$

81,848



$

64,072



$

63,653



$

145,920



$

127,308


Amortization of intangible assets

(2,618)







(2,618)




Stock-based compensation expense

(3,985)



(3,401)



(3,117)



(7,386)



(6,239)


Restructuring and other charges

(1,587)



30





(1,557)




Acquisition related expense

(214)



(710)





(924)




Litigation reserves, net

(3,555)



(48)





(3,603)



(151)


Non-GAAP total operating expenses

$

69,889



$

59,943



$

60,536



$

129,832



$

120,918


 

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


Six Months Ended


June 30,
2013


March 31,
2013


July 1,
2012


June 30,
2013


July 1,
2012











GAAP operating income

$

21,582



$

23,665



$

30,985



$

45,247



$

67,179


Amortization of intangible assets

4,872



1,471



1,016



6,343



1,963


Stock-based compensation expense

4,391



3,590



3,395



7,981



6,787


Restructuring and other charges

1,587



(30)





1,557




Acquisition related expense

214



710





924




Impact to cost of sales from

acquisition accounting adjustments to

inventory

568







568




Litigation reserves, net

3,555



48





3,603



151


Non-GAAP operating income

$

36,769



$

29,454



$

35,396



$

66,223



$

76,080


Non-GAAP operating margin

10.3

%


10.0

%


11.0

%


10.2

%


11.8

%











GAAP net income

$

13,985



$

15,343



$

21,522



$

29,328



$

46,669


Amortization of intangible assets

4,872



1,471



1,016



6,343



1,963


Stock-based compensation expense

4,391



3,590



3,395



7,981



6,787


Restructuring and other charges

1,587



(30)





1,557




Acquisition related expense

214



710





924




Impact to cost of sales from

acquisition accounting adjustments to

inventory

568







568




Litigation reserves, net

3,555



48





3,603



151


Tax effect

(4,800)



(1,718)



(1,329)



(6,518)



(2,858)


Non-GAAP net income

$

24,372



$

19,414



$

24,604



$

43,786



$

52,712


 

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


Six Months Ended


June 30,
2013


March 31,
2013


July 1,
2012


June 30,
2013


July 1,
2012











NET INCOME PER DILUTED SHARE:









GAAP net income per diluted share

$

0.36



$

0.39



$

0.56



$

0.75



$

1.21


Amortization of intangible assets

0.12



0.04



0.03



0.16



0.05


Stock-based compensation expense

0.11



0.09



0.09



0.20



0.18


Restructuring  and other charges

0.04



0.00





0.04




Acquisition related expense

0.01



0.02





0.02




Impact to cost of sales from

acquisition accounting adjustments to

inventory

0.01







0.01




Litigation reserves, net

0.09



0.00





0.09



0.00


Tax effect

(0.12)



(0.04)



(0.04)



(0.15)



(0.07)


Non-GAAP net income per diluted share

$

0.62



$

0.50



$

0.64



$

1.12



$

1.37


 

SUPPLEMENTAL FINANCIAL INFORMATION

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

(Unaudited)



Three Months Ended


June 30,
2013


March 31,
2013


December 31,
2012


September 30,
2012


July 1,
2012











Cash, cash equivalents and short-term investments

$

288,103



$

422,412



$

376,877



$

362,420



$

360,428


Cash, cash equivalents and short-term investments

per diluted share

$

7.37



$

10.82



$

9.68



$

9.34



$

9.34












Accounts receivable, net

$

288,483



$

237,896



$

256,014



$

248,862



$

271,769


Days sales outstanding (DSO)

73



73



76



72



77












Inventories

$

185,383



$

158,555



$

174,903



$

178,916



$

152,820


Ending inventory turns

5.5



5.2



5.0



4.9



5.9












Weeks of channel inventory:










U.S. retail channel

10.4



9.9



8.8



9.8



12.3


U.S. distribution channel

9.0



8.9



10.2



8.4



8.6


EMEA distribution channel

5.1



4.1



4.4



4.4



4.1


APAC distribution channel

7.3



7.2



7.2



4.7



5.7












Deferred revenue

$

33,717



$

28,961



$

27,645



$

28,205



$

25,478












Headcount

1,095



866



850



854



818


Non-GAAP diluted shares

39,074



39,050



38,924



38,802



38,595


 

NET REVENUE BY GEOGRAPHY



Three Months Ended



Six Months Ended



June 30,
2013




March 31,
2013




July 1,
2012




June 30,
2013




July 1,
2012



Americas

$

200,848



56

%


$

156,676



53

%


$

163,438



51

%


$

357,524



55

%


$

331,793



51

%

EMEA

108,367



30

%


107,125



37

%


117,815



37

%


215,492



33

%


242,896



38

%

APAC

48,504



14

%


29,598



10

%


39,402



12

%


78,102



12

%


71,586



11

%

Total

$

357,719



100

%


$

293,399



100

%


$

320,655



100

%


$

651,118



100

%


$

646,275



100

%

 

NET REVENUE BY SEGMENT



Three Months Ended



Six Months Ended



June 30,
2013




March 31,
2013




July 1,
2012




June 30,
2013




July 1,
2012



Retail

$

117,395



33

%


$

126,322



43

%


$

113,824



36

%


$

243,717



38

%


$

242,801



38

%

Commercial

88,446



25

%


70,851



24

%


80,626



25

%


159,297



24

%


155,258



24

%

Service Provider

151,878



42

%


96,226



33

%


126,205



39

%


248,104



38

%


248,216



38

%

Total

$

357,719



100

%


$

293,399



100

%


$

320,655



100

%


$

651,118



100

%


$

646,275



100

%

 

SOURCE NETGEAR, Inc.



RELATED LINKS
http://www.netgear.com

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