NETGEAR® Reports Third Quarter 2012 Results - Third quarter 2012 net revenue of $315.2 million, as compared to $301.8 million in the comparable prior year quarter, 4.4% year-over-year growth

- Third quarter 2012 non-GAAP net income of $25.3 million, as compared to $29.9 million in the comparable prior year quarter, decrease of 15.4% year-over-year

- Third quarter 2012 non-GAAP diluted earnings per share of $0.65, as compared to $0.79 in the comparable prior year quarter, decrease of 17.7% year-over-year

- Company expects fourth quarter 2012 net revenue to be in the range of $300 million to $315 million, with non-GAAP operating margin in the range of 11% to 12%

SAN JOSE, Calif., Oct. 25, 2012 /PRNewswire/ -- NETGEAR, Inc. (NASDAQGM: 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 30, 2012.

Net revenue for the third quarter ended September 30, 2012 was $315.2 million, as compared to $301.8 million for the third quarter ended October 2, 2011, and $320.7 million in the second quarter ended July 1, 2012.  Net income, computed in accordance with GAAP, for the third quarter of 2012 was $23.8 million, or $0.61 per diluted share.  This compared to GAAP net income of $26.7 million, or $0.70 per diluted share, for the third quarter of 2011, and GAAP net income of $21.5 million, or $0.56 per diluted share, in the second quarter of 2012. 

Gross margin on a non-GAAP basis in the third quarter of 2012 was 31.6%, as compared to 32.4% in the year ago comparable quarter, and 29.9% in the second quarter of 2012.  Non-GAAP operating margin was 11.5% in the third quarter of 2012, as compared to 12.5% in the third quarter of 2011, and 11.0% in the second quarter of 2012. Non-GAAP net income was $0.65 per diluted share in the third quarter of 2012, as compared to non-GAAP net income of $0.79 per diluted share in the third quarter of 2011, and non-GAAP net income of $0.64 per diluted share in the second quarter of 2012. Our tax rate in the third quarter 2012 reflects a one-time benefit which accounts for an incremental $0.05 per diluted share of earnings. This compares to a one-time tax rate benefit in the third quarter 2011, which accounted for an incremental $0.09 per diluted share of earnings.

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, impact to cost of sales from acquisition accounting adjustments to inventory, litigation reserves, and gain on sale of cost method investment. 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, "NETGEAR's financial results for the third quarter of 2012 are a reflection of the current difficult economic climate. The uncertainty in the European and Australian markets has affected consumer, small business, and service provider sales for the quarter."

"Our Retail Business Unit revenue for the quarter ended September 30, 2012 was up 9% quarter-on-quarter, driven by back-to-school seasonal demand and market share gains in North America. On a year-over-year basis, Retail was down 3% as a result of the challenging European market. Commercial was down 2% on a sequential basis and down 13% year-over-year. This reflects the tightened spending of European and Australian businesses facing widespread economic uncertainty. Our Service Provider Business Unit revenues were up 34% on a year-over-year basis, and down 11% quarter-over-quarter as service providers reduced their purchases in Q3."

Christine Gorjanc, Chief Financial Officer of NETGEAR, said, "Despite the current challenges we are facing in Europe and Australia, we are continuing our increased investment in research and development. This increased investment positions us for the long term success we believe we can achieve in all geographies, especially when the economic environment improves. We expect that the continuous flow of innovative new products from our R&D team will enable us to gain market share worldwide now and in the future. However, facing the current weakened market demand in Europe, we are shifting our sales and marketing resources to the emerging markets where we believe there is growth to achieve and market share to be gained. We will continue to spend wisely and streamline our operations to achieve more efficiency. As always, we are very focused on managing expenses, inventory levels, and cash."

Mr. Lo added, "Looking forward, we expect to continue to face a challenging economic climate in Europe. We are also seeing a further reduction in capital expenditures budget for broadband gateways in Q4 among our service provider customers in Europe and Australia.  Despite the difficult market situation, we continue to innovate and expect to release approximately 25 new products in Q4, setting us up for growth in 2013. Specifically, for the fourth quarter of 2012, we expect net revenue to be in the range of approximately $300 million to $315 million, with non-GAAP operating margin to be in the range of 11% to 12%."

Investor Conference Call / Webcast Details
NETGEAR will review the third quarter 2012 results and discuss management's expectations for the third quarter of 2012 today, Thursday, October 25, 2012 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 EDT (9 p.m. PDT) on Thursday, November 1, 2012 by telephone at (858) 384-5517 and via the web at http://investor.netgear.com.  The account number to access the phone replay is 401042.

About NETGEAR, Inc.
NETGEAR (NASDAQGM: 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 32,000 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.

© 2012 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. 

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 NETGEAR's expected revenue and operating margin, investment in research and development, expectations of the economic environment especially in Europe and Australia, expectations on growth and market share gains, expectations on emerging markets, our intent to continue to spend wisely and streamline operations, reductions in capital expenditures budget for broadband gateways in Q4 for service provider customers in Europe and Australia, and the number of new products to be introduced in the fourth quarter. 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 II - Item 1A. Risk Factors," pages 45 through 63, in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2012, filed with the Securities and Exchange Commission on August 8, 2012. 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.     


 

NETGEAR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)






September 30,
2012


December 31,
2011





ASSETS




Current assets:




Cash and cash equivalents

$

134,601



$

208,898


Short-term investments

227,819



144,797


Accounts receivable, net

248,862



261,307


Inventories

178,916



163,724


Deferred income taxes

22,705



23,088


Prepaid expenses and other current assets

38,173



32,415


Total current assets

851,076



834,229


Property and equipment, net

18,927



15,884


Intangibles, net

27,701



20,956


Goodwill

100,880



85,944


Other non-current assets

20,053



14,357


Total assets

$

1,018,637



$

971,370






LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

91,070



$

117,285


Accrued employee compensation

21,116



26,896


Other accrued liabilities

120,829



120,480


Deferred revenue

28,205



40,093


Income taxes payable

1,829



4,207


Total current liabilities

263,049



308,961


Non-current income taxes payable

17,525



18,657


Other non-current liabilities

5,286



4,995


Total liabilities

285,860



332,613


Stockholders' equity:




Common stock

38



38


Additional paid-in capital

388,812



364,243


Cumulative other comprehensive (loss) income

(171)



23


Retained earnings

344,098



274,453


Total stockholders' equity

732,777



638,757


Total liabilities and stockholders' equity

$

1,018,637



$

971,370















 

 

 

NETGEAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)






Three Months Ended


Nine Months Ended


September 30,
2012


July 1,
2012


October 2,

 2011


September 30, 2012


October 2,

 2011











Net revenue

$

315,210



$

320,655



$

301,800



$

961,485



$

871,863


Cost of revenue

217,522



226,017



205,490



669,310



597,390


Gross profit

97,688



94,638



96,310



292,175



274,473


Operating expenses:










Research and development

17,399



14,757



12,738



46,277



35,102


Sales and marketing

37,600



37,677



39,600



114,247



115,284


General and administrative

11,888



11,219



10,851



33,520



31,044


Restructuring and other charges









2,094


Litigation reserves, net

269





44



420



(234)


Total operating expenses

67,156



63,653



63,233



194,464



183,290


Income from operations

30,532



30,985



33,077



97,711



91,183


Interest income

109



116



115



344



350


Other income (expense), net

3,070



354



(267)



2,823



(938)


Income before income taxes

33,711



31,455



32,925



100,878



90,595


Provision for income taxes

9,920



9,933



6,178



30,418



22,062


Net income

$

23,791



$

21,522



$

26,747



$

70,460



$

68,533












Net income per share:










Basic

$

0.62



$

0.57



$

0.71



$

1.86



$

1.85


Diluted

$

0.61



$

0.56



$

0.70



$

1.82



$

1.81












Weighted average shares outstanding used to compute net income per share:










Basic

38,162



37,978



37,483



37,978



36,967


Diluted

38,802



38,595



38,080



38,682



37,812












Stock-based compensation expense was allocated as follows:










Cost of revenue

$

473



$

278



$

259



$

1,021



$

737


Research and development

778



677



606




2,066



1,873


Sales and marketing

1,238



1,191



1,264




3,623



3,949


General and administrative

1,530



1,249



1,325




4,096



3,775



 

 

 

NETGEAR, INC.

NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(In thousands, except per share data)

(Unaudited)






Three Months Ended


Nine Months Ended


September 30,
2012


July 1,
2012


October 2,
2011


September 30,
2012


October 2,
2011











Net revenue

$

315,210



$

320,655



$

301,800



$

961,485



$

871,863


Cost of revenue

215,695



224,723



204,167



664,972



592,434


Gross profit

99,515



95,932



97,633



296,513



279,429












Operating expenses:










Research and development

16,621



14,080



12,132



44,211



33,189


Sales and marketing

36,362



36,486



38,336



110,624



111,335


General and administrative

10,358



9,970



9,526



29,424



27,269


Total operating expenses

63,341



60,536



59,994



184,259



171,793


Income from operations

36,174



35,396



37,639



112,254



107,636


Interest income

109



116



115



344



350


Other income (expense), net

(56)



354



(267)



(303)



(938)


Income before income taxes

36,227



35,866



37,487



112,295



107,048


Provision for income taxes

10,959



11,262



7,561



34,315



28,300


Net income

$

25,268



$

24,604



$

29,926



$

77,980



$

78,748












Net income per share:










Basic

$

0.66



$

0.65



$

0.80



$

2.05



$

2.13


Diluted

$

0.65



$

0.64



$

0.79



$

2.02



$

2.08












Weighted average shares outstanding used to compute net income per share:










Basic

38,162



37,978



37,483



37,978



36,967


Diluted

38,802



38,595



38,080



38,682



37,812



 

 

 

 

NETGEAR, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

(In thousands, except per share data)

(Unaudited)





STATEMENT OF OPERATIONS DATA:






Three Months Ended


Nine Months Ended


September 30,
2012


July 1,
2012


October 2,
2011


September 30,
2012


October 2,
2011











GAAP gross profit

$

97,688



$

94,638



$

96,310



$

292,175



$

274,473


Amortization of intangible assets

1,354



1,016



1,064



3,317



3,610


Stock-based compensation expense

473



278



259



1,021



737


Impact to cost of sales from acquisition accounting adjustments to inventory









609


Non-GAAP gross profit

$

99,515



$

95,932



$

97,633



$

296,513



$

279,429


Non-GAAP gross margin

31.6

%


29.9

%


32.4

%


30.8

%


32.0

%











GAAP research and development

$

17,399



$

14,757



$

12,738



$

46,277



$

35,102


Stock-based compensation expense

(778)



(677)



(606)



(2,066)



(1,873)


Acquisition related compensation









(40)


Non-GAAP research and development

$

16,621



$

14,080



$

12,132



$

44,211



$

33,189












GAAP sales and marketing

$

37,600



$

37,677



$

39,600



$

114,247



$

115,284


Stock-based compensation expense

(1,238)



(1,191)



(1,264)



(3,623)



(3,949)


Non-GAAP sales and marketing

$

36,362



$

36,486



$

38,336



$

110,624



$

111,335












GAAP general and administrative

$

11,888



$

11,219



$

10,851



$

33,520



$

31,044


Stock-based compensation expense

(1,530)



(1,249)



(1,325)



(4,096)



(3,775)


Non-GAAP general and administrative

$

10,358



$

9,970



$

9,526



$

29,424



$

27,269












GAAP total operating expenses

$

67,156



$

63,653



$

63,233



$

194,464



$

183,290


Stock-based compensation expense

(3,546)



(3,117)



(3,195)



(9,785)



(9,597)


Restructuring and other charges









(2,094)


Acquisition related compensation









(40)


Litigation reserves, net

(269)





(44)



(420)



234


Non-GAAP total operating expenses

$

63,341



$

60,536



$

59,994



$

184,259



$

171,793


 

 

 

 

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 30,
2012


July 1,
2012


October 2,
2011


September 30,
2012


October 2,
2011











GAAP operating income

$

30,532



$

30,985



$

33,077



$

97,711



$

91,183


Amortization of intangible assets

1,354



1,016



1,064



3,317



3,610


Stock-based compensation expense

4,019



3,395



3,454



10,806



10,334


Restructuring  and other charges









2,094


Acquisition related compensation









40


Impact to cost of sales from acquisition accounting adjustments to inventory









609


Litigation reserves, net

269





44



420



(234)


Non-GAAP operating income

$

36,174



$

35,396



$

37,639



$

112,254



$

107,636


Non-GAAP operating margin

11.5

%


11.0

%


12.5

%


11.7

%


12.3

%











GAAP other income (expense),net

$

3,070



$

354



$

(267)



$

2,823



$

(938)


Gain on sale of cost method investment

(3,126)







(3,126)




Non-GAAP other income (expense), net

$

(56)



$

354



$

(267)



$

(303)



$

(938)












GAAP net income

$

23,791



$

21,522



$

26,747



$

70,460



$

68,533


Amortization of intangible assets

1,354



1,016



1,064



3,317



3,610


Stock-based compensation expense

4,019



3,395



3,454



10,806



10,334


Restructuring  and other charges









2,094


Acquisition related compensation









40


Impact to cost of sales from acquisition accounting adjustments to inventory









609


Litigation reserves, net

269





44



420



(234)


Gain on sale of cost method investment

(3,126)







(3,126)




Tax effect

(1,039)



(1,329)



(1,383)



(3,897)



(6,238)


Non-GAAP net income

$

25,268



$

24,604



$

29,926



$

77,980



$

78,748


 

 

 

 

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 30,
2012


July 1,
2012


October 2,
2011


September 30,
2012


October 2,
2011











NET INCOME PER DILUTED SHARE:









GAAP net income per diluted share

$

0.61



$

0.56



$

0.70



$

1.82



$

1.81


Amortization of intangible assets

0.03



0.03



0.03



0.09



0.10


Stock-based compensation expense

0.10



0.09



0.09



0.28



0.27


Restructuring  and other charges









0.06


Acquisition related compensation









0.00


Impact to cost of sales from acquisition accounting adjustments to inventory









0.02


Litigation reserves, net

0.01





0.00



0.01



(0.01)


Gain on sale of cost method investment

(0.08)







(0.08)




Tax effect

(0.02)



(0.04)



(0.03)



(0.10)



(0.17)


Non-GAAP net income per diluted share

$

0.65



$

0.64



$

0.79



$

2.02



$

2.08



 

 

SUPPLEMENTAL FINANCIAL INFORMATION

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

(Unaudited)




Three Months Ended


September 30,
2012


July 1,
2012


April 1,
2012


December 31,
2011


October 2,
2011











Cash, cash equivalents and short-term investments

$

362,420



$

360,428



$

369,420



$

353,695



$

321,059


Cash, cash equivalents and short-term investments per diluted share

$

9.34



$

9.34



$

9.58



$

9.24



$

8.43












Accounts receivable, net

$

248,862



$

271,769



$

249,208



$

261,307



$

218,653


Days sales outstanding (DSO)

72



77



70



76



66












Inventories

$

178,916



$

152,820



$

134,314



$

163,724



$

135,963


Ending inventory turns

4.9



5.9



6.7



5.2



6.0












Weeks of channel inventory:










U.S. retail channel

9.8



12.3



9.8



7.3



10.0


U.S. distribution channel

8.4



8.6



8.6



9.0



6.6


EMEA distribution channel

4.4



4.1



5.0



5.4



4.3


APAC distribution channel

4.7



5.7



5.6



6.7



3.9












Deferred revenue

$

28,205



$

25,478



$

25,156



$

40,093



$

23,934












Headcount

854



818



810



791



756


Non-GAAP diluted shares

38,802



38,595



38,576



38,260



38,080


 

 

NET REVENUE BY GEOGRAPHY












Three Months Ended



Nine Months Ended



September 30,
2012




July 1,
2012




October 2,
2011




September 30,
2012




October 2,
2011



Americas

$

177,647



56

%


$

163,438



51

%


$

149,009



49

%


$

509,440



53

%


$

430,482



50

%

EMEA

104,368



33

%


117,815



37

%


119,735



40

%


347,264



36

%


352,686



40

%

APAC

33,195



11

%


39,402



12

%


33,056



11

%


104,781



11

%


88,695



10

%

Total

$

315,210



100

%


$

320,655



100

%


$

301,800



100

%


$

961,485



100

%


$

871,863



100

%

 

NET REVENUE BY SEGMENT












Three Months Ended



Nine Months Ended



September 30,
2012




July 1,
2012




October 2,
2011




September 30,
2012




October 2,
2011



Retail

$

123,457



39

%


$

113,824



36

%


$

127,082



42

%


$

366,258



38

%


$

352,076



41

%

Commercial

79,240



25

%


80,626



25

%


91,059



30

%


234,498



24

%


247,793



28

%

Service Provider

112,513



36

%


126,205



39

%


83,659



28

%


360,729



38

%


271,994



31

%

Total

$

315,210



100

%


$

320,655



100

%


$

301,800



100

%


$

961,485



100

%


$

871,863



100

%

 

 

SOURCE NETGEAR, Inc.



RELATED LINKS
http://www.netgear.com

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