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NETGEAR® Reports Record Fourth Quarter and Full Year 2010 Results
Feb 08, 2011 (03:02 PM EST)


SAN JOSE, Calif., Feb. 8, 2011 /PRNewswire/ --

  • Fourth quarter 2010 net revenue of $258.5 million, as compared to $218.8 million in the comparable prior year quarter, 18% year-over-year growth
  • Fourth quarter 2010 non-GAAP net income of $16.1 million, as compared to $11.8 million in the comparable prior year quarter, 36% year-over-year growth
  • Fourth quarter 2010 non-GAAP diluted earnings per share of $0.44, as compared to $0.34 in the comparable prior year quarter
  • 2010 net revenue was $902.1 million, as compared to $686.6 million in 2009, 31% year-over-year increase
  • 2010 non-GAAP net income of $62.9 million, as compared to $23.7 million in 2009
  • 2010 non-GAAP diluted earnings per share of $1.74, as compared to $0.68 in 2009
  • Company expects first quarter 2011 net revenue to be in the range of $250 million to $260 million, with non-GAAP operating margin in the range of 11% to 12%

NETGEAR, Inc. (Nasdaq: NTGR), a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the fourth quarter and fiscal year ended December 31, 2010.

Net revenue for the fourth quarter ended December 31, 2010 was $258.5 million, as compared to $218.8 million for the fourth quarter ended December 31, 2009, and as compared to $236.0 million in the third quarter ended October 3, 2010.  Net income, computed in accordance with GAAP, for the fourth quarter of 2010 was $13.6 million, or $0.37 per diluted share.  This compared to GAAP net income of $7.9 million, or $0.22 per diluted share, for the fourth quarter of 2009, and to GAAP net income of $13.1 million, or $0.36 per diluted share, in the third quarter of 2010.  

Gross margin on a non-GAAP basis in the fourth quarter of 2010 was 32.0%, as compared to 31.1% in the year ago comparable quarter, and 32.7% in the third quarter of 2010.  Non-GAAP operating margin was 11.4% in the fourth quarter of 2010, as compared to 11.2% in the fourth quarter of 2009, and 11.0% in the third quarter of 2010. Non-GAAP net income was $0.44 per diluted share in the fourth quarter of 2010, as compared to non-GAAP net income of $0.34 per diluted share in the fourth quarter of 2009, and non-GAAP net income of $0.45 per diluted share in the third 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, technology license arrangements, 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.

Net revenue for the full year 2010 was $902.1 million, a 31% increase as compared to $686.6 million for 2009.  Net income, computed in accordance with GAAP, for 2010 was $50.9 million, or $1.41 per diluted share.  This net income was a 447% increase compared to net income of $9.3 million for 2009.  Earnings per share, computed in accordance with GAAP, was $0.27 per diluted share for the full year 2009.

Non-GAAP net income for the full year 2010 was $62.9 million, a 165% increase compared to non-GAAP net income of $23.7 million for 2009.  Non-GAAP net income was $1.74 per diluted share for 2010, as compared to $0.68 per diluted share for 2009, a 156% increase.

Patrick Lo, Chairman and Chief Executive Officer of NETGEAR, commented, "We are extremely pleased with our full year 2010 business performance.  The fourth quarter 2010 represented another new record in our quarterly revenue, and our full year 2010 also marked a year of record revenue and strong year-over-year growth. Our net revenue from service providers was approximately 25% of total net revenue in the fourth quarter 2010, as compared to 19% in the third quarter of 2010, and 28% in the fourth quarter of 2009.

"The strong revenue performance in the fourth quarter was driven by higher than expected revenue contribution from new products. We introduced a record 26 new products during the fourth quarter 2010. In total, we introduced an unprecedented 81 new products in 2010.  Notable new products include the industry's first 500Mbps Powerline adapter, the Neo TV™ 550 Digital/Internet Media Player, the ReadyNAS® Ultra 2 Media Server Network Storage, the 4G LTE WiFi router, and a 10Gbps Ethernet Switch for medium size businesses.  At the Las Vegas International Consumer Electronics Show in January, three of our new products were the recipients of 2011 Innovations Design and Engineering awards."

Christine Gorjanc, Chief Financial Officer of NETGEAR, said, "We ended the fourth quarter of 2010 with $270.7 million in cash, cash equivalents and short-term investments, compared to $247.1 million at the end of the fourth quarter of 2009, and $243.5 million at the end of the third quarter of 2010.  Our net inventory ended at $127.4 million, compared to $90.6 million at the end of the fourth quarter of 2009, and $110.4 million at the end of the third 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

Year ended


December 31, 2010

October 3, 2010

December 31, 2009

December 31, 2010

December 31, 2009

North America

$134,358

52%

$121,956

52%

$104,327

48%

$465,063

51%

$314,392

46%

Europe, Middle-East and Africa

101,620

39%

89,120

38%

91,177

42%

340,473

38%

292,182

42%

Asia Pacific

22,553

9%

24,941

10%

23,328

10%

96,516

11%

80,021

12%


$258,531

100%

$236,017

100%

$218,832

100%

$902,052

100%

$686,595

100%




Looking forward, Mr. Lo added, "We continue to benefit from our unwavering commitment to research and development, resulting in unprecedented new product introductions in the last 3 quarters with more to come. We continue to believe that our strong new product pipeline will be the driving engine of our growth in 2011. In the first quarter of 2011, we intend to roll out at least another 20 new products. Specifically, for the first quarter 2011, we expect net revenue in the range of approximately $250 million to $260 million, with non-GAAP operating margin to be in the range of 11% to 12%."

Investor Conference Call / Webcast Details

NETGEAR will review the fourth quarter and full year 2010 results and discuss management's expectations for the first quarter of 2011 today, Tuesday, February 8, 2011 at 5 p.m. EST (2 p.m. PST). 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 www.netgear.com.  A replay of the call will be available 2 hours following the call through midnight EST (9 p.m. PST) on Tuesday, February 15, 2011 by telephone at (858) 384-5517 and via the web at www.netgear.com. The account number to access the phone replay is 3055 and the conference ID number is 365234.

About NETGEAR, Inc.

NETGEAR (Nasdaq: 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 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 over 28,000 retail locations around the globe, and through more than 37,000 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 at http://www.netgear.com/ or by calling (408) 907-8000. Connect with NETGEAR at http://twitter.com/NETGEAR and http://www.facebook.com/NETGEAR.

© 2011 NETGEAR, Inc. NETGEAR, the NETGEAR logo, ReadyNAS and NeoTV are trademarks or registered trademarks of NETGEAR, Inc. 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:

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, 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; 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 37 through 53, in the Company's Quarterly Report on Form 10-Q for the quarter ended October 3, 2010, filed with the Securities and Exchange Commission on November 10, 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.

NETGEAR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)










December 31,


December 31,


2010


2009





ASSETS




Current assets:




Cash and cash equivalents

$        126,173


$         172,202

Short-term investments

144,564


74,898

Accounts receivable, net

226,731


162,853

Inventories

127,394


90,590

Deferred income taxes

19,332


13,347

Prepaid expenses and other current assets

23,850


20,835

Total current assets

668,044


534,725

Property and equipment, net

17,503


16,891

Intangibles, net

6,241


8,298

Goodwill

74,198


64,908

Other non-current assets

14,335


8,299

Total assets

$        780,321


$         633,121





LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$          89,155


$           69,081

Accrued employee compensation

24,130


11,040

Other accrued liabilities

110,413


87,894

Deferred revenue

27,538


22,106

Income taxes payable

3,487


5,488

Total current liabilities

254,723


195,609

Non-current income taxes payable

19,719


17,479

Other non-current liabilities

5,443


5,880

Total liabilities

279,885


218,968

Stockholders' equity:




Common stock

36


35

Additional paid-in capital

316,108


280,256

Cumulative other comprehensive income

281


24

Retained earnings

184,011


133,838

Total stockholders' equity

500,436


414,153

Total liabilities and stockholders' equity

$        780,321


$         633,121



NETGEAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)












Three months ended


Year ended


December 31,


October 3,


December 31,


December 31,


December 31,


2010


2010


2009


2010


2009











Net revenue

$        258,531


$  236,017


$        218,832


$        902,052


$        686,595

Cost of revenue

177,377


160,310


152,368


602,805


480,195

Gross profit

81,154


75,707


66,464


299,247


206,400











Operating expenses:










Research and development

10,158


10,564


7,854


39,972


30,056

Sales and marketing

36,354


34,069


30,086


131,570


106,162

General and administrative

9,523


9,358


8,133


36,220


32,727

Restructuring

(12)


(8)


11


(88)


809

Technology license arrangements

-


-


2,500


-


2,500

Litigation reserves, net

-


-


20


211


2,080











          Total operating expenses

56,023


53,983


48,604


207,885


174,334

Income from operations

25,131


21,724


17,860


91,362


32,066

Interest income

124


132


81


426


629

Other income (expense), net

(176)


(326)


(466)


(564)


(128)

Income before income taxes

25,079


21,530


17,475


91,224


32,567

Provision for income taxes

11,457


8,435


9,622


40,315


23,234

Net income

$          13,622


$    13,095


$            7,853


$          50,909


$            9,333











Net income per share:










Basic

$              0.38


$        0.37


$              0.23


$              1.44


$              0.27

Diluted

$              0.37


$        0.36


$              0.22


$              1.41


$              0.27











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










Basic

35,906


35,441


34,657


35,385


34,485

Diluted

36,843


36,009


35,271


36,124


34,848











Stock-based compensation expense was allocated as follows:










Cost of revenue

$               205


$         202


$               240


$               913


$               959

Research and development

562


556


468


$            2,271


1,973

Sales and marketing

1,171


1,134


1,050


$            4,710


4,147

General and administrative

1,052


1,055


973


$            4,307


3,945



NETGEAR, INC.

NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(In thousands, except per share data)

(Unaudited)














Three months ended


Year ended



December 31,


October 3,


December 31,


December 31,


December 31,



2010


2010


2009


2010


2009












Net revenue


$        258,531


$  236,017


$        218,832


$        902,052


$        686,595

Cost of revenue


175,849


158,764


150,875


596,599


474,223

Gross profit


82,682


77,253


67,957


305,453


212,372












Operating expenses:











Research and development


9,576


9,988


7,273


37,015


27,970

Sales and marketing


35,183


32,935


29,036


126,860


102,015

General and administrative


8,471


8,303


7,160


31,913


28,782












          Total operating expenses


53,230


51,226


43,469


195,788


158,767

Income from operations


29,452


26,027


24,488


109,665


53,605

Interest income


124


132


81


426


629

Other income (expense), net


(176)


(326)


(466)


(564)


(128)

Income before income taxes


29,400


25,833


24,103


109,527


54,106

Provision for income taxes


13,347


9,747


12,281


46,601


30,423

Net income


$          16,053


$    16,086


$          11,822


$          62,926


$          23,683












Net income per share:











Basic


$              0.45


$        0.45


$              0.34


$              1.78


$              0.69

Diluted


$              0.44


$        0.45


$              0.34


$              1.74


$              0.68












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











Basic


35,906


35,441


34,657


35,385


34,485

Diluted


36,843


36,009


35,271


36,124


34,848



NETGEAR, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

(In thousands, except per share data)

(Unaudited)


STATEMENT OF OPERATIONS DATA:



Three months ended


Year ended



December 31,


October 3,


December 31,


December 31,


December 31,



2010


2010


2009


2010


2009












GAAP gross profit


$          81,154


$    75,707


$          66,464


$        299,247


$        206,400

Amortization of intangible assets


1,323


1,344


1,253


5,293


5,013

Stock-based compensation expense


205


202


240


913


959

Non-GAAP gross profit


$          82,682


$    77,253


$          67,957


$        305,453


$        212,372

Non-GAAP gross margin


32.0%


32.7%


31.1%


33.9%


30.9%












GAAP research and development


$          10,158


$    10,564


$            7,854


$          39,972


$          30,056

Stock-based compensation expense


(562)


(556)


(468)


(2,271)


(1,973)

Acquisition related compensation


(20)


(20)


(113)


(686)


(113)

Non-GAAP research and development


$            9,576


$      9,988


$            7,273


$          37,015


$          27,970












GAAP sales and marketing


$          36,354


$    34,069


$          30,086


$        131,570


$        106,162

Stock-based compensation expense


(1,171)


(1,134)


(1,050)


(4,710)


(4,147)

Non-GAAP sales and marketing


$          35,183


$    32,935


$          29,036


$        126,860


$        102,015












GAAP general and administrative


$            9,523


$      9,358


$            8,133


$          36,220


$          32,727

Stock-based compensation expense


(1,052)


(1,055)


(973)


(4,307)


(3,945)

Non-GAAP general and administrative


$            8,471


$      8,303


$            7,160


$          31,913


$          28,782












GAAP total operating expenses


$          56,023


$    53,983


$          48,604


$        207,885


$        174,334

Stock-based compensation expense


(2,785)


(2,745)


(2,491)


(11,288)


(10,065)

Restructuring


12


8


(11)


88


(809)

Technology license arrangements


-


-


(2,500)


-


(2,500)

Acquisition related compensation


(20)


(20)


(113)


(686)


(113)

Litigation reserves


-


-


(20)


(211)


(2,080)

Non-GAAP total operating expenses


$          53,230


$    51,226


$          43,469


$        195,788


$        158,767



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


Year ended



December 31,


October 3,


December 31,


December 31,


December 31,



2010


2010


2009


2010


2009












GAAP operating income


$          25,131


$    21,724


$          17,860


$          91,362


$          32,066

Amortization of intangible assets


1,323


1,344


1,253


5,293


5,013

Stock-based compensation expense


2,990


2,947


2,731


12,201


11,024

Restructuring


(12)


(8)


11


(88)


809

Technology license arrangements


-


-


2,500


-


2,500

Acquisition related compensation


20


20


113


686


113

Litigation reserves


-


-


20


211


2,080

Non-GAAP operating income


$          29,452


$    26,027


$          24,488


$        109,665


$          53,605

Non-GAAP operating margin


11.4%


11.0%


11.2%


12.2%


7.8%












GAAP net income


$          13,622


$    13,095


$            7,853


$          50,909


$            9,333

Amortization of intangible assets


1,323


1,344


1,253


5,293


5,013

Stock-based compensation expense


2,990


2,947


2,731


12,201


11,024

Restructuring


(12)


(8)


11


(88)


809

Technology license arrangements


-


-


2,500


-


2,500

Acquisition related compensation


20


20


113


686


113

Litigation reserves


-


-


20


211


2,080

Tax effect


(1,890)


(1,312)


(2,659)


(6,286)


(7,189)

Non-GAAP net income


$          16,053


$    16,086


$          11,822


$          62,926


$          23,683























NET INCOME PER DILUTED SHARE:













Three months ended


Year ended



December 31,


October 3,


December 31,


December 31,


December 31,



2010


2010


2009


2010


2009












GAAP net income per diluted share


$              0.37


$        0.36


$              0.22


$              1.41


$              0.27

Amortization of intangible assets


0.04


0.04


0.04


0.15


0.14

Stock-based compensation expense


0.08


0.08


0.08


0.34


0.32

Restructuring


(0.00)


(0.00)


0.00


(0.00)


0.02

Technology license arrangements


-


-


0.07


-


0.07

Acquisition related compensation


0.00


0.00


0.00


0.02


0.00

Litigation reserves


-


-


0.00


0.01


0.06

Tax effect


(0.05)


(0.03)


(0.07)


(0.19)


(0.20)

Non-GAAP net income per diluted share


$              0.44


$        0.45


$              0.34


$              1.74


$              0.68



NETGEAR, INC.

SUPPLEMENTAL FINANCIAL INFORMATION

(In thousands, except per share data)

(Unaudited)

























Three months ended



December 31,


October 3,


June 27,


March 28,


December 31,



2010


2010


2010


2010


2009












Cash, cash equivalents and short-term investments


$        270,737


$  243,509


$ 231,030


$ 240,947


$        247,100

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


$              7.35


$        6.76


$       6.43


$       6.75


$              7.01












Accounts receivable, net


$        226,731


$  175,599


$ 138,730


$ 150,140


$        162,853

Days sales outstanding (DSO)


78


73


64


62


71












Inventories


$        127,394


$  110,394


$ 125,687


$ 109,934


$          90,590

Ending inventory turns


5.6


5.8


4.0


5.0


6.7












Weeks of channel inventory:











U.S. retail channel


9.0


10.0


9.9


9.8


6.9

U.S. distribution channel


4.7


6.7


6.1


5.7


4.4

EMEA distribution channel


3.6


4.5


6.0


5.7


3.4

APAC distribution channel


5.5


5.9


4.9


4.5


3.8












Deferred revenue


$          27,538


$    20,957


$   17,405


$   15,917


$          22,106












Headcount


654


646


625


607


586

Non-GAAP Diluted shares


36,843


36,009


35,943


35,716


35,271



SOURCE NETGEAR, Inc.