TechWeb

NETGEARĀ® Reports Record First Quarter 2012 Results

Apr 25, 2012 (04:04 PM EDT)
URL: http://www.techweb.com/show-press-release/X900623/netgear-reports-record-first-quarter-2012-results.html

SAN JOSE, Calif., April 25, 2012 /PRNewswire/ --

  • First quarter 2012 net revenue of $325.6 million, as compared to $278.8 million in the comparable prior year quarter, 16.8% year-over-year growth
  • First quarter 2012 non-GAAP net income of $28.1 million, as compared to $24.2 million in the comparable prior year quarter, 16.1% year-over-year growth
  • First quarter 2012 non-GAAP diluted earnings per share of $0.73, as compared to $0.65 in the comparable prior year quarter, 12.3% year-over-year growth
  • Company expects second quarter 2012 net revenue to be in the range of $315 million to $330 million, with non-GAAP operating margin in the range of 11% to 12%

NETGEAR, Inc. (NASDAQGM: NTGR),  a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the first quarter ended April 1, 2012.

Net revenue for the first quarter ended April 1, 2012 was $325.6 million, as compared to $278.8 million for the first quarter ended April 3, 2011, and $309.2 million in the fourth quarter ended December 31, 2011.  Net income, computed in accordance with GAAP, for the first quarter of 2012 was $25.1 million, or $0.65 per diluted share.  This compared to GAAP net income of $21.2 million, or $0.57 per diluted share, for the first quarter of 2011, and to GAAP net income of $22.8 million, or $0.60 per diluted share, in the fourth quarter of 2011. 

Gross margin on a non-GAAP basis in the first quarter of 2012 was 31.0%, as compared to 32.1% in the year ago comparable quarter, and 31.1% in the fourth quarter of 2011.  Non-GAAP operating margin was 12.5% in the first quarter of 2012, as compared to 12.6% in the first quarter of 2011, and 12.4% in the fourth quarter of 2011. Non-GAAP net income was $0.73 per diluted share in the first quarter of 2012, as compared to non-GAAP net income of $0.65 per diluted share in the first quarter of 2011, and non-GAAP net income of $0.69 per diluted share in the fourth quarter of 2011. 

The differences between GAAP and non-GAAP financial measures include adjustments, net of any tax effect, for amortization of purchased intangibles, stock-based compensation, 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, "The first quarter of 2012 represents another record breaking period for our net revenue and non-GAAP operating income. We continued to gain share in all markets due to the strength of our products and our ability to supply upside demand from our service provider customers. Year-on-year growth in the Americas provides another example of our exceptional operational execution and our ability to meet a surge in demand from our service provider customers, both on Docsis 3.0 and DSL gateways.  The tremendous year-on-year growth we experienced in the APAC region was driven by market share gains across all three major markets: China, Australia, and Japan."

"Our Retail Business Unit revenue for the quarter ended April 1, 2012 was slightly down 1% sequentially, which is typical for the first quarter following the holiday season. On a year-over-year basis, our Retail Business Unit revenue was up 10%. Our Service Provider Business Unit revenue was up 27% sequentially, and up 49% over the prior year quarter. This was another record net revenue quarter for our Service Provider Business Unit. Our Commercial Business Unit revenue was down 11% sequentially, and down 6% over the prior year quarter, reflective of the continued fallout from the Thailand floods in 2011 and the resulting impact to the storage market."

Christine Gorjanc, Chief Financial Officer of NETGEAR, said, "We continue to drive operational excellence and we believe our ability to execute and meet customer demands on short notice gives us an advantage in the market place." 

Looking forward, Mr. Lo added, "We expect to continue to benefit from the momentum on service provider demand in the second quarter 2012 while consumer retail demand is expected to be slightly down compared to the first quarter as a result of typical seasonality.  Specifically, for the second quarter of 2012, we expect net revenue in the range of approximately $315 million to $330 million, with non-GAAP operating margin to be in the range of 11% to 12%."

Investor Conference Call / Webcast Details

NETGEAR will review the first quarter 2012 results and discuss management's expectations for the second quarter of 2012 today, Wednesday, April 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 Wednesday, May 2, 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 392444.

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 29,000 retail locations around the globe, and through approximately 41,000 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://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. 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:
Christopher Genualdi
The Ruth Group
(646) 536-7032
cgenualdi@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 and operating margin, expectations regarding service provider demand, and expectations regarding consumer retail demand. 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 I - Item 1A. Risk Factors," pages 11 through 33, in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission on February 29, 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.              

-Financial Tables Attached-

NETGEAR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)






April 1,
2012


December 31,
2011





ASSETS




Current assets:




Cash and cash equivalents

$

149,258



$

208,898


Short-term investments

220,162



144,797


Accounts receivable, net

249,208



261,307


Inventories

134,314



163,724


Deferred income taxes

22,912



23,088


Prepaid expenses and other current assets

29,174



32,415


Total current assets

805,028



834,229


Property and equipment, net

14,716



15,884


Intangibles, net

19,977



20,956


Goodwill

85,944



85,944


Other non-current assets

14,897



14,357


Total assets

$

940,562



$

971,370






LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

79,534



$

117,285


Accrued employee compensation

17,775



26,896


Other accrued liabilities

115,995



120,480


Deferred revenue

25,156



40,093


Income taxes payable

5,172



4,207


Total current liabilities

243,632



308,961


Non-current income taxes payable

19,174



18,657


Other non-current liabilities

4,835



4,995


Total liabilities

267,641



332,613


Stockholders' equity:




Common stock

38



38


Additional paid-in capital

373,934



364,243


Cumulative other comprehensive income

(55)



23


Retained earnings

299,004



274,453


Total stockholders' equity

672,921



638,757


Total liabilities and stockholders' equity

$

940,562



$

971,370



 

NETGEAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



Three months ended


April 1,
2012


December 31,
2011


April 3,
2011







Net revenue

$

325,620



$

309,155



$

278,823


Cost of revenue

225,771



214,182



191,037


Gross profit

99,849



94,973



87,786


Operating expenses:






Research and development

14,121



13,597



11,014


Sales and marketing

38,970



39,278



36,648


General and administrative

10,413



8,379



9,645


Litigation reserves, net

151



33



(53)


Total operating expenses

63,655



61,287



57,254


Income from operations

36,194



33,686



30,532


Interest income

119



127



129


Other income (expense), net

(601)



(198)



(330)


Income before income taxes

35,712



33,615



30,331


Provision for income taxes

10,565



10,780



9,142


Net income

$

25,147



$

22,835



$

21,189








Net income per share:






Basic

$

0.67



$

0.61



$

0.58


Diluted

$

0.65



$

0.60



$

0.57








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






Basic

37,796



37,590



36,414


Diluted

38,576



38,260



37,340








Stock-based compensation expense was allocated as follows:






Cost of revenue

$

270



$

262



$

235


Research and development

611



603



661


Sales and marketing

1,194



1,187



1,301


General and administrative

1,317



1,376



1,175


 

 

NETGEAR, INC.

NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(In thousands, except per share data)

(Unaudited)




Three months ended


April 1,
2012


December 31,
2011


April 3,
2011







Net revenue

$

325,620



$

309,155



$

278,823


Cost of revenue

224,554



212,872



189,445


Gross profit

101,066



96,283



89,378








Operating expenses:






Research and development

13,510



12,994



10,333


Sales and marketing

37,776



38,091



35,347


General and administrative

9,096



7,003



8,470


Total operating expenses

60,382



58,088



54,150


Income from operations

40,684



38,195



35,228


Interest income

119



127



129


Other income (expense), net

(601)



(198)



(330)


Income before income taxes

40,202



38,124



35,027


Provision for income taxes

12,094



11,635



10,866


Net income

$

28,108



$

26,489



$

24,161








Net income per share:






Basic

$

0.74



$

0.70



$

0.66


Diluted

$

0.73



$

0.69



$

0.65








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






Basic

37,796



37,590



36,414


Diluted

38,576



38,260



37,340



 

NETGEAR, INC.

RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES

(In thousands, except per share data)

(Unaudited)


STATEMENT OF OPERATIONS DATA:








Three months ended



April 1,
2012


December 31,
2011


April 3,
2011









GAAP gross profit

$

99,849



$

94,973



$

87,786



Amortization of intangible assets

947



1,048



1,357



Stock-based compensation expense

270



262



235



Non-GAAP gross profit

$

101,066



$

96,283



$

89,378



Non-GAAP gross margin

31.0

%


31.1

%


32.1

%









GAAP research and development

$

14,121



$

13,597



$

11,014



Stock-based compensation expense

(611)



(603)



(661)



Acquisition related compensation





(20)



Non-GAAP research and development

$

13,510



$

12,994



$

10,333










GAAP sales and marketing

$

38,970



$

39,278



$

36,648



Stock-based compensation expense

(1,194)



(1,187)



(1,301)



Non-GAAP sales and marketing

$

37,776



$

38,091



$

35,347










GAAP general and administrative

$

10,413



$

8,379



$

9,645



Stock-based compensation expense

(1,317)



(1,376)



(1,175)



Non-GAAP general and administrative

$

9,096



$

7,003



$

8,470










GAAP total operating expenses

$

63,655



$

61,287



$

57,254



Stock-based compensation expense

(3,122)



(3,166)



(3,137)



Acquisition related compensation





(20)



Litigation reserves, net

(151)



(33)



53



Non-GAAP total operating expenses

$

60,382



$

58,088



$

54,150



 

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



April 1,
2012


December 31,
2011


April 3,
2011









GAAP operating income

$

36,194



$

33,686



$

30,532



Amortization of intangible assets

947



1,048



1,357



Stock-based compensation expense

3,392



3,428



3,372



Acquisition related compensation





20



Litigation reserves, net

151



33



(53)



Non-GAAP operating income

$

40,684



$

38,195



$

35,228



Non-GAAP operating margin

12.5

%


12.4

%


12.6

%









GAAP net income

$

25,147



$

22,835



$

21,189



Amortization of intangible assets

947



1,048



1,357



Stock-based compensation expense

3,392



3,428



3,372



Acquisition related compensation





20



Litigation reserves, net

151



33



(53)



Tax effect

(1,529)



(855)



(1,724)



Non-GAAP net income

$

28,108



$

26,489



$

24,161

















NET INCOME PER DILUTED SHARE:






GAAP net income per diluted share

$

0.65



$

0.60



$

0.57



Amortization of intangible assets

0.02



0.03



0.04



Stock-based compensation expense

0.09



0.09



0.09



Acquisition related compensation





0.00



Litigation reserves, net



0.00



(0.00)



Tax effect

(0.03)



(0.03)



(0.05)



Non-GAAP net income per diluted share

$

0.73



$

0.69



$

0.65



 

SUPPLEMENTAL FINANCIAL INFORMATION

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

(Unaudited)



Three months ended


April 1,
2012


December 31,
2011


October 2,
2011


July 3,
2011


April 3,
2011











Cash, cash equivalents and short-term investments

$

369,420



$

353,695



$

321,059



$

277,896



$

279,173


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

$

9.58



$

9.24



$

8.43



$

7.32



$

7.48












Accounts receivable, net

$

249,208



$

261,307



$

218,653



$

209,960



$

197,622


Days sales outstanding (DSO)

70



76



66



66



66












Inventories

$

134,314



$

163,724



$

135,963



$

137,789



$

140,113


Ending inventory turns

6.7



5.2



6.0



5.8



5.5












Weeks of channel inventory:










U.S. retail channel

9.8



7.3



10.0



10.6



9.3


U.S. distribution channel

8.6



9.0



6.6



6.6



5.4


EMEA distribution channel

5.0



5.4



4.3



5.5



4.2


APAC distribution channel

5.6



6.7



3.9



5.1



4.0












Deferred revenue

$

25,156



$

40,093



$

23,934



$

22,843



$

18,381












Headcount

810



791



756



731



686


Non-GAAP diluted shares

38,576



38,260



38,080



37,968



37,340


 

NET REVENUE BY GEOGRAPHY AND SEGMENT



Three months ended



April 1,
2012




December 31,
2011




April 3,
2011




Americas

$

168,355



52

%


$

156,574



51

%


$

131,947



47

%


EMEA

125,081



38

%


125,027



40

%


122,620



44

%


APAC

32,184



10

%


27,554



9

%


24,256



9

%


Total

$

325,620



100

%


$

309,155



100

%


$

278,823



100

%


 

NET REVENUE BY SEGMENT



Three months ended



April 1,
2012




December 31,
2011




April 3,
2011




Retail

$

128,977



40

%


$

129,719



42

%


$

117,125



42

%


Commercial

74,632



23

%


83,646



27

%


79,622



29

%


Service Provider

122,011



37

%


95,790



31

%


82,076



29

%


Total

$

325,620



100

%


$

309,155



100

%


$

278,823



100

%


SOURCE NETGEAR, Inc.