Press Releases

Unedited news and product information from vendors.

NETGEAR® Reports Second Quarter 2010 Results
Jul 21, 2010 (04:07 PM EDT)


Second Quarter 2010 Financial Highlights:

- Net revenue of $195.9 million, compared to $144.7 million in the comparable prior year quarter, 35% year-over-year growth

- Non-GAAP net income of $13.7 million, compared to net loss of $522,000 in the comparable prior year quarter

- Non-GAAP diluted earnings per share of $0.38, compared to diluted loss per share of $0.02 in the comparable prior year quarter

- Company expects third quarter 2010 net revenue to be in the range of $215 million to $225 million, with non-GAAP operating margin in the range of 11% to 12%

SAN JOSE, Calif., July 21 /PRNewswire-FirstCall/ -- NETGEAR, Inc. (Nasdaq: NTGR), a worldwide provider of technologically innovative, branded networking products, today reported financial results for the second quarter ended June 27, 2010.

Net revenue for the second quarter ended June 27, 2010 was $195.9 million, as compared to $144.7 million for the second quarter ended June 28, 2009, and as compared to $211.6 million in the first quarter ended March 28, 2010.  Net income, computed in accordance with GAAP, for the second quarter of 2010 was $10.5 million, or $0.29 per diluted share.  This compared to GAAP net loss of $3.3 million, or $0.10 per diluted share, for the second quarter of 2009, and to GAAP net income of $13.7 million, or $0.38 per diluted share, in the first quarter of 2010.  

Gross margin on a non-GAAP basis in the second quarter of 2010 was 36.3%, as compared to 29.6% in the second quarter of 2009, and 35.2% in the first quarter of 2010.  Non-GAAP operating margin was 13.1% in the second quarter of 2010, as compared to 3.7% in the second quarter of 2009, and 13.5% in the first quarter of 2010. Non-GAAP net income was $0.38 per diluted share in the second quarter of 2010, as compared to non-GAAP net loss of $0.02 per diluted share in the second quarter of 2009, and non-GAAP net income of $0.48 per diluted share in the first quarter of 2010.  

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, acquisition related compensation, 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, "For the second quarter of 2010, we are pleased with our year on year growth in all three geographic regions, especially with our 48% growth in North America.  While the U.S. retail market grew strongly year over year, we also achieved the number one market share position in the networking category for the first time.  We are also pleased to see a continuous recovery of demand among small business customers worldwide.  Our net revenue from service providers was approximately 16% of total net revenue in the second quarter 2010, as compared to 30% in the second quarter of 2009, and 19% in the first quarter of 2010. We expect the percentage of service provider revenue to increase when our service provider customers worldwide begin rolling out Docsis 3.0 equipment in the second half of 2010.

We believe our strength in the market is primarily due to our superior new product introductions as compared to our competitors worldwide.  In the second quarter of 2010, we introduced 18 new products. Notable new products include our ReadyNAS® 4 Bay and 12 Bay Rackmount, our Wi-Fi™ adapters for TVs, our 11n Wi-Fi repeaters for TVs to IP set top boxes, and our 28 and 52 port Stackable Layer 3 Managed Switches. Due to our on-going commitment to research and development, we expect our pace of new product introductions to accelerate in the third quarter of 2010, with 20 or more new products expected to be launched. For example, our newest high-end consumer network storage ReadyNAS Ultra is leading the way as the first network attached storage device that is networkable to TiVo® boxes.  The ReadyNAS Ultra will enable customers to have up to 12 TB, or approximately 2,000 hours of centralized recorded high definition TV shows serving any and all TiVo boxes in a home."

Christine Gorjanc, Chief Financial Officer of NETGEAR, said, "We ended the second quarter of 2010 with $231.0 million in cash, cash equivalents and short-term investments, compared to $224.5 million at the end of the second quarter of 2009, and $240.9 million at the end of the first quarter of 2010.  Our net inventory ended at $125.7 million, compared to $75.0 million at the end of the second quarter of 2009, and $109.9 million at the end of the first quarter of 2010."

Net revenue by geography comprises gross revenue less such items as marketing incentives paid to customers, sales returns and price protection. The following table shows net revenue by geography for the periods indicated:

Net revenue by geography:


Three months ended


June 27, 2010

March 28, 2010

June 28, 2009

North America

$102,471

52%

$106,278

50%

$69,438

48%

Europe, Middle-East and Africa

    68,598

35%

   81,135

38%

 54,249

37%

Asia Pacific

    24,880

13%

   24,142

12%

 20,987

15%


$195,949

100%

   $211,555

100%

$144,674    

100%



Looking forward, Mr. Lo added, "We continue to see market demand growth in all three geographic regions, and in all product categories.  Our success has been driven by innovative product introductions and we expect to outpace our competitors in the number of new product introductions for the foreseeable future. Despite the recent financial market challenges in Europe, we continue to see growth in end market demand for NETGEAR products in this region from both consumers and businesses, in both local currency and U.S. Dollar terms.  For the third quarter 2010, we expect net revenue in the range of approximately $215 million to $225 million, with non-GAAP operating margin to be in the range of 11% to 12%."

Investor Conference Call / Webcast Details

NETGEAR will review the second quarter 2010 results and discuss management's expectations for the third quarter of 2010 today, Wednesday, July 21, 2010 at 5 p.m. EDT (2 p.m. PDT). The dial-in number for the live audio call is (201) 689-8560. A live webcast of the conference call will be available on NETGEAR's website at www.netgear.com.  A replay of the call will be available 2 hours following the call through midnight EDT (9 p.m. PDT) on Wednesday, July 28, 2010 by telephone at (858) 384-5517 and via the web at www.netgear.com. The conference ID number to access the phone replay is 353684.

About NETGEAR, Inc.

NETGEAR (Nasdaq: NTGR) designs innovative, branded technology solutions that address the specific networking, storage, and security needs of small- to medium-sized businesses and home users. The company offers an end-to-end networking product portfolio to enable users to share Internet access, peripherals, files, multimedia content, and applications among multiple computers and other Internet-enabled devices. 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 about 27,000 retail locations around the globe, and via approximately 36,000 value-added resellers. The company's headquarters are in San Jose, Calif., with additional offices in 25 countries. NETGEAR is an ENERGY STAR® partner. More information is available by visiting www.netgear.com or calling (408) 907-8000. Follow NETGEAR at http://twitter.com/NETGEAR and http://www.facebook.com/netgear.

© 2010 NETGEAR, Inc. NETGEAR, the NETGEAR logo and ReadyNAS are trademarks or registered trademarks of NETGEAR, Inc. in the United States and/or other countries. TiVo is a registered trademark of TiVo Inc.  Wi-Fi is a trademark of the Wi-Fi Alliance. 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:


Joseph Villalta

The Ruth Group

(646) 536-7003

jvillalta@theruthgroup.com



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, earnings, gross and operating margin and operating income on both a GAAP and non-GAAP basis, expectations of outpacing competitors in new product introductions, larger revenue share from service provider customers during the second half of 2010, Docsis 3.0 products deployment by our service provider customers, product capabilities, our ability and intent to launch new product offerings and continue product development efforts, current and future demand for the Company's existing and anticipated new products, and our ability to increase market share for the Company's products globally. 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; 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 32 through 47, in the Company's Quarterly Report on Form 10-Q for the quarter ended March 28, 2010, filed with the Securities and Exchange Commission on May 6, 2010. 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 27,


December 31,




2010


2009







ASSETS






Current assets:






Cash and cash equivalents



$                     110,940


$                 172,202

Short-term investments



120,090


74,898

Accounts receivable, net



138,730


162,853

Inventories



125,687


90,590

Deferred income taxes



14,248


13,347

Prepaid expenses and other current assets



25,996


20,835

Total current assets



535,691


534,725

Property and equipment, net



16,482


16,891

Intangibles, net



7,672


8,298

Goodwill



74,032


64,908

Other non-current assets



8,990


8,299

Total assets



$                     642,867


$                 633,121







LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities:






Accounts payable



$                       42,337


$                   69,081

Accrued employee compensation



14,816


11,040

Other accrued liabilities



90,669


87,894

Deferred revenue



17,405


22,106

Income taxes payable



-


5,488

Total current liabilities



165,227


195,609

Non-current income taxes payable



19,837


17,479

Other non-current liabilities



5,697


5,880

Total liabilities



190,761


218,968

Stockholders' equity:






Common stock



35


35

Additional paid-in capital



294,450


280,256

Cumulative other comprehensive income



246


24

Retained earnings



157,375


133,838

Total stockholders' equity



452,106


414,153

Total liabilities and stockholders' equity



$                     642,867


$                 633,121









NETGEAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)












Three months ended


Six months ended


June 27,


March 28,


June 28,


June 27,


June 28,


2010


2010


2009


2010


2009











Net revenue

$ 195,949


$ 211,555


$ 144,674


$ 407,504


$ 296,692

Cost of revenue

126,387


138,731


103,414


265,118


212,501

Gross profit

69,562


72,824


41,260


142,386


84,191











Operating expenses:










Research and development

9,945


9,305


7,496


19,250


14,849

Sales and marketing

30,358


30,789


24,464


61,147


50,366

General and administrative

8,397


8,942


7,855


17,339


16,092

Restructuring

(81)


13


18


(68)


694

Litigation reserves, net

143


68


8


211


2,540











     Total operating expenses

48,762


49,117


39,841


97,879


84,541

Income (loss) from operations

20,800


23,707


1,419


44,507


(350)

Interest income

100


70


178


170


482

Other income (expense), net

132


(194)


(443)


(62)


604

Income before income taxes

21,032


23,583


1,154


44,615


736

Provision for income taxes

10,567


9,856


4,434


20,423


7,786

Net income (loss)

$   10,465


$   13,727


$   (3,280)


$   24,192


$   (7,050)











Net income (loss) per share:










Basic

$       0.30


$       0.39


$     (0.10)


$       0.69


$     (0.21)

Diluted

$       0.29


$       0.38


$     (0.10)


$       0.67


$     (0.21)











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










Basic

35,237


34,947


34,399


35,095


34,375

Diluted

35,943


35,716


34,399


35,843


34,375











Stock-based compensation expense was allocated as follows:










Cost of revenue

$        227


$        279


$        238


$        506


$        480

Research and development

572


581


512


1,153


1,032

Sales and marketing

1,193


1,212


1,027


2,405


2,082

General and administrative

1,131


1,069


919


2,200


2,018



NETGEAR, INC.

NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(In thousands, except per share data)

(Unaudited)














Three months ended


Six months ended



June 27,


March 28,


June 28,


June 27,


June 28,



2010


2010


2009


2010


2009












Net revenue


$ 195,949


$ 211,555


$ 144,674


$ 407,504


$ 296,692

Cost of revenue


124,835


137,151


101,922


261,986


209,514

Gross profit


71,114


74,404


42,752


145,518


87,178












Operating expenses:











Research and development


9,066


8,385


6,984


17,451


13,817

Sales and marketing


29,165


29,577


23,437


58,742


48,284

General and administrative


7,266


7,873


6,936


15,139


14,074












     Total operating expenses


45,497


45,835


37,357


91,332


76,175

Income from operations


25,617


28,569


5,395


54,186


11,003

Interest income


100


70


178


170


482

Other income (expense), net


132


(194)


(443)


(62)


604

Income before income taxes


25,849


28,445


5,130


54,294


12,089

Provision for income taxes


12,121


11,386


5,652


23,507


11,196

Net income (loss)


$   13,728


$   17,059


$      (522)


$   30,787


$        893












Net income (loss) per share:











Basic


$       0.39


$       0.49


$     (0.02)


$       0.88


$       0.03

Diluted


$       0.38


$       0.48


$     (0.02)


$       0.86


$       0.03












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











Basic


35,237


34,947


34,399


35,095


34,375

Diluted


35,943


35,716


34,399


35,843


34,691



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 27,


March 28,


June 28,


June 27,


June 28,



2010


2010


2009


2010


2009












GAAP gross profit


$ 69,562


$   72,824


$ 41,260


$ 142,386


$ 84,191

Amortization of intangible assets


1,325


1,301


1,254


2,626


2,507

Stock-based compensation expense


227


279


238


506


480

Non-GAAP gross profit


$ 71,114


$   74,404


$ 42,752


$ 145,518


$ 87,178

Non-GAAP gross margin


36.3%


35.2%


29.6%


35.7%


29.4%












GAAP research and development


$   9,945


$     9,305


$   7,496


$   19,250


$ 14,849

Stock-based compensation expense


(572)


(581)


(512)


(1,153)


(1,032)

Acquisition related compensation


(307)


(339)


-


(646)


-

Non-GAAP research and development


$   9,066


$     8,385


$   6,984


$   17,451


$ 13,817












GAAP sales and marketing


$ 30,358


$   30,789


$ 24,464


$   61,147


$ 50,366

Stock-based compensation expense


(1,193)


(1,212)


(1,027)


(2,405)


(2,082)

Non-GAAP sales and marketing


$ 29,165


$   29,577


$ 23,437


$   58,742


$ 48,284












GAAP general and administrative


$   8,397


$     8,942


$   7,855


$   17,339


$ 16,092

Stock-based compensation expense


(1,131)


(1,069)


(919)


(2,200)


(2,018)

Non-GAAP general and administrative


$   7,266


$     7,873


$   6,936


$   15,139


$ 14,074












GAAP total operating expenses


$ 48,762


$   49,117


$ 39,841


$   97,879


$ 84,541

Stock-based compensation expense


(2,896)


(2,862)


(2,458)


(5,758)


(5,132)

Restructuring


81


(13)


(18)


68


(694)

Acquisition related compensation


(307)


(339)


-


(646)


-

Litigation reserves


(143)


(68)


(8)


(211)


(2,540)

Non-GAAP total operating expenses


$ 45,497


$   45,835


$ 37,357


$   91,332


$ 76,175



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 27,


March 28,


June 28,


June 27,


June 28,



2010


2010


2009


2010


2009












GAAP operating income (loss)


$ 20,800


$   23,707


$  1,419


$ 44,507


$    (350)

Amortization of intangible assets


1,325


1,301


1,254


2,626


2,507

Stock-based compensation expense


3,123


3,141


2,696


6,264


5,612

Restructuring


(81)


13


18


(68)


694

Acquisition related compensation


307


339


-


646


-

Litigation reserves


143


68


8


211


2,540

Non-GAAP operating income


$ 25,617


$   28,569


$  5,395


$ 54,186


$ 11,003

Non-GAAP operating margin


13.1%


13.5%


3.7%


13.3%


3.7%












GAAP net income (loss)


$ 10,465


$   13,727


$ (3,280)


$ 24,192


$ (7,050)

Amortization of intangible assets


1,325


1,301


1,254


2,626


2,507

Stock-based compensation expense


3,123


3,141


2,696


6,264


5,612

Restructuring


(81)


13


18


(68)


694

Acquisition related compensation


307


339


-


646


-

Litigation reserves


143


68


8


211


2,540

Tax effect


(1,554)


(1,530)


(1,218)


(3,084)


(3,410)

Non-GAAP net income (loss)


$ 13,728


$   17,059


$    (522)


$ 30,787


$      893














NET INCOME (LOSS) PER DILUTED SHARE:













Three months ended


Six months ended



June 27,


March 28,


June 28,


June 27,


June 28,



2010


2010


2009


2010


2009












GAAP net income (loss) per diluted share


$     0.29


$       0.38


$   (0.10)


$     0.67


$   (0.21)

Amortization of intangible assets


0.04


0.04


0.04


0.07


0.07

Stock-based compensation expense


0.09


0.09


0.08


0.17


0.16

Restructuring


(0.00)


0.00


0.00


(0.00)


0.02

Acquisition related compensation


0.01


0.01


-


0.02


-

Litigation reserves


0.00


0.00


0.00


0.01


0.07

Tax effect


(0.05)


(0.04)


(0.04)


(0.08)


(0.08)

Non-GAAP net income (loss) per diluted share


$     0.38


$       0.48


$   (0.02)


$     0.86


$     0.03



NETGEAR, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(In thousands, except per share data)

(Unaudited)

























Three months ended



June 27,


March 28,


December 31,


September 27,


June 28,



2010


2010


2009


2009


2009












Cash, cash equivalents and short-term investments


$ 231,030


$ 240,947


$        247,100


$          234,540


$ 224,496

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


$       6.43


$       6.75


$              7.01


$                6.71


$       6.53












Accounts receivable, net


$ 138,730


$ 150,140


$        162,853


$          123,529


$ 110,231

Days sales outstanding (DSO)


64


62


71


66


69












Inventories


$ 125,687


$ 109,934


$          90,590


$            73,858


$   75,039

Ending inventory turns


4.0


5.0


6.7


6.2


5.5












Weeks of channel inventory:











U.S. retail channel


9.9


9.8


6.9


10.0


12.6

U.S. distribution channel


6.1


5.7


4.4


5.2


3.8

EMEA distribution channel


6.0


5.7


3.4


4.3


5.0

APAC distribution channel


4.9


4.5


3.8


5.0


4.8












Deferred revenue


$   17,405


$   15,917


$          22,106


$            11,355


$   15,267












Headcount


625


607


586


574


567

Non-GAAP Diluted shares


35,943


35,716


35,271


34,948


34,399



SOURCE NETGEAR, Inc.