TechWeb

NETGEARĀ® Reports Second Quarter 2012 Results

Jul 26, 2012 (04:07 PM EDT)
URL: http://www.techweb.com/show-press-release/X915335/netgear-reports-second-quarter-2012-results.html

-- Second quarter 2012 net revenue of $320.7 million, as compared to $291.2 million in the comparable prior year quarter, 10.1% year-over-year growth

-- Second quarter 2012 non-GAAP net income of $24.6 million, as compared to $24.7 million in the comparable prior year quarter, decrease of 0.4% year-over-year

-- Second quarter 2012 non-GAAP diluted earnings per share of $0.64, as compared to $0.65 in the comparable prior year quarter, decrease of 1.5% year-over-year

-- Company expects third quarter 2012 net revenue to be in the range of $310 million to $325 million, with non-GAAP operating margin in the range of 11% to 12%

SAN JOSE, California, July 26, 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 second quarter ended July 1, 2012.

Net revenue for the second quarter ended July 1, 2012 was $320.7 million, as compared to $291.2 million for the second quarter ended July 3, 2011, and $325.6 million in the first quarter ended April 1, 2012.  Net income, computed in accordance with GAAP, for the second quarter of 2012 was $21.5 million, or $0.56 per diluted share.  This compared to GAAP net income of $20.6 million, or $0.54 per diluted share, for the second quarter of 2011, and GAAP net income of $25.1 million, or $0.65 per diluted share, in the first quarter of 2012. 

Gross margin on a non-GAAP basis in the second quarter of 2012 was 29.9%, as compared to 31.7% in the year ago comparable quarter, and 31.0% in the first quarter of 2012.  Non-GAAP operating margin was 11.0% in the second quarter of 2012, as compared to 11.9% in the second quarter of 2011, and 12.5% in the first quarter of 2012. Non-GAAP net income was $0.64 per diluted share in the second quarter of 2012, as compared to non-GAAP net income of $0.65 per diluted share in the second quarter of 2011, and non-GAAP net income of $0.73 per diluted share in the first quarter of 2012. 

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, 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, "Despite the challenging macro environment in Europe, we are pleased that we finished the second quarter with double digit year-over-year worldwide revenue growth.  We increased our R&D spend and we are excited about the 26 products introduced in Q2 as well as the new products planned for the rest of the year.  We continued to see strong revenue growth and market share gain in Asia Pacific, the fastest growing region in the world."

"Our Service Provider Business Unit net revenue for the quarter ended July 1, 2012 was up 3% sequentially, and up an impressive 19% over the prior year quarter. The second quarter was another record for quarterly net revenue for our Service Provider Business Unit. Our Commercial Business Unit net revenue was up 8% sequentially, and up 5% over the prior year quarter. Our Retail Business Unit net revenue for the quarter was down 12% sequentially, which is typical of second quarter seasonality. On a year-over-year basis, our Retail Business Unit net revenue was up 5%."

Christine Gorjanc, Chief Financial Officer of NETGEAR, said, "We are excited to announce that we have recently closed two acquisitions. First, in June 2012 we acquired select assets of a small engineering operation in India to enhance our small campus wireless LAN product offerings in our Commercial Business Unit. Additionally on July 2nd, we closed the acquisition of privately held AVAAK, Inc., creators of the VueZone™ home video monitoring system and the only completely wire-free IP cameras on the market. This acquisition gives us entry into the smart home market and is expected to be accretive in the second half of 2013. VueZone products and subscription services are currently sold online in the United States and we plan to roll them out both online and in stores worldwide over the next 6 to 12 months. In aggregate we invested approximately $31 million in cash for these two acquisitions which we expect to help us achieve our longer term growth objectives." 

Looking forward, Mr. Lo added, "We expect our Service Provider Business Unit revenue to decline in the coming quarter due to reduced marketing activities among our customers. However, in the third quarter we expect that our Retail and Commercial Business Units will benefit from the increased market demand generated by the back to school season. We also expect to introduce about 25 new products in Q3.  Specifically, for the third quarter of 2012, we expect net revenue in the range of approximately $310 million to $325 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 2012 results and discuss management's expectations for the third quarter of 2012 today, Thursday, July 26, 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, August 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 397662.

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 42,000 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, the NETGEAR logo and VueZone 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:
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 on the performance of the two recent acquisitions, including expectations regarding VueZone worldwide roll out and achievement of long term objectives, expectations regarding a potential slow down in service provider business unit performance in the third quarter, and expectations regarding retail and commercial business unit performance relating to back to school demand, and the number of new products to be introduced in the third 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 40 through 58, in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2012, filed with the Securities and Exchange Commission on May 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)










July 1,
2012


December 31,
2011





ASSETS




Current assets:




Cash and cash equivalents

$

157,155



$

208,898


Short-term investments

203,273



144,797


Accounts receivable, net

271,769



261,307


Inventories

152,820



163,724


Deferred income taxes

22,482



23,088


Prepaid expenses and other current assets

36,226



32,415


Total current assets

843,725



834,229


Property and equipment, net

17,282



15,884


Intangibles, net

23,088



20,956


Goodwill

88,985



85,944


Other non-current assets

15,058



14,357


Total assets

$

988,138



$

971,370






LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

101,176



$

117,285


Accrued employee compensation

19,157



26,896


Other accrued liabilities

120,519



120,480


Deferred revenue

25,478



40,093


Income taxes payable



4,207


Total current liabilities

266,330



308,961


Non-current income taxes payable

16,818



18,657


Other non-current liabilities

5,443



4,995


Total liabilities

288,591



332,613


Stockholders' equity:




Common stock

38



38


Additional paid-in capital

379,086



364,243


Cumulative other comprehensive income

116



23


Retained earnings

320,307



274,453


Total stockholders' equity

699,547



638,757


Total liabilities and stockholders' equity

$

988,138



$

971,370



 

NETGEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)










Three Months Ended


Six Months Ended


July 1,
2012


April 1,
2012


July 3, 2011


July 1, 2012


July 3, 2011











Net revenue

$

320,655



$

325,620



$

291,240



$

646,275



$

570,063


Cost of revenue

226,017



225,771



200,863



451,788



391,900


Gross profit

94,638



99,849



90,377



194,487



178,163


Operating expenses:










Research and development

14,757



14,121



11,350



28,878



22,364


Sales and marketing

37,677



38,970



39,036



76,647



75,684


General and administrative

11,219



10,413



10,548



21,632



20,193


Restructuring and other charges





2,094





2,094


Litigation reserves, net



151



(225)



151



(278)


Total operating expenses

63,653



63,655



62,803



127,308



120,057


Income from operations

30,985



36,194



27,574



67,179



58,106


Interest income

116



119



106



235



235


Other income (expense), net

354



(601)



(341)



(247)



(671)


Income before income taxes

31,455



35,712



27,339



67,167



57,670


Provision for income taxes

9,933



10,565



6,742



20,498



15,884


Net income

$

21,522



$

25,147



$

20,597



$

46,669



$

41,786












Net income per share:










Basic

$

0.57



$

0.67



$

0.56



$

1.23



$

1.14


Diluted

$

0.56



$

0.65



$

0.54



$

1.21



$

1.11












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










Basic

37,978



37,796



37,017



37,886



36,712


Diluted

38,595



38,576



37,968



38,612



37,680












Stock-based compensation expense
was allocated as follows:










Cost of revenue

$

278



$

270



$

243



$

548



$

478


Research and development

677



611



606



$

1,288



1,267


Sales and marketing

1,191



1,194



1,384



$

2,385



2,685


General and administrative

1,249



1,317



1,275



$

2,566



2,450



 

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, and litigation reserves, net of tax.

(In thousands, except per share data)

(Unaudited)


Three Months Ended


Six Months Ended


July 1,
2012


April 1,
2012


July 3,
2011


July 1,
2012


July 3,
2011











Net revenue

$

320,655



$

325,620



$

291,240



$

646,275



$

570,063


Cost of revenue

224,723



224,554



198,822



449,277



388,267


Gross profit

95,932



101,066



92,418



196,998



181,796












Operating expenses:










Research and development

14,080



13,510



10,724



27,590



21,057


Sales and marketing

36,486



37,776



37,652



74,262



72,999


General and administrative

9,970



9,096



9,273



19,066



17,743


Total operating expenses

60,536



60,382



57,649



120,918



111,799


Income from operations

35,396



40,684



34,769



76,080



69,997


Interest income

116



119



106



235



235


Other income (expense), net

354



(601)



(341)



(247)



(671)


Income before income taxes

35,866



40,202



34,534



76,068



69,561


Provision for income taxes

11,262



12,094



9,873



23,356



20,739


Net income

$

24,604



$

28,108



$

24,661



$

52,712



$

48,822












Net income per share:










Basic

$

0.65



$

0.74



$

0.67



$

1.39



$

1.33


Diluted

$

0.64



$

0.73



$

0.65



$

1.37



$

1.30












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










Basic

37,978



37,796



37,017



37,886



36,712


Diluted

38,595



38,576



37,968



38,612



37,680



 

 

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


July 1,
2012


April 1,
2012


July 3,
2011


July 1,
2012


July 3,
2011











GAAP gross profit

$

94,638



$

99,849



$

90,377



$

194,487



$

178,163


Amortization of intangible assets

1,016



947



1,189



1,963



2,546


Stock-based compensation expense

278



270



243



548



478


Impact to cost of sales from acquisition
accounting adjustments to inventory





609





609


Non-GAAP gross profit

$

95,932



$

101,066



$

92,418



$

196,998



$

181,796


Non-GAAP gross margin

29.9

%


31.0

%


31.7

%


30.5

%


31.9

%











GAAP research and development

$

14,757



$

14,121



$

11,350



$

28,878



$

22,364


Stock-based compensation expense

(677)



(611)



(606)



(1,288)



(1,267)


Acquisition related compensation





(20)





(40


Non-GAAP research and development

$

14,080



$

13,510



$

10,724



$

27,590



$

21,057












GAAP sales and marketing

$

37,677



$

38,970



$

39,036



$

76,647



$

75,684


Stock-based compensation expense

(1,191)



(1,194)



(1,384)



(2,385)



(2,685)


Non-GAAP sales and marketing

$

36,486



$

37,776



$

37,652



$

74,262



$

72,999












GAAP general and administrative

$

11,219



$

10,413



$

10,548



$

21,632



$

20,193


Stock-based compensation expense

(1,249)



(1,317)



(1,275)



(2,566)



(2,450)


Non-GAAP general and administrative

$

9,970



$

9,096



$

9,273



$

19,066



$

17,743












GAAP total operating expenses

$

63,653



$

63,655



$

62,803



$

127,308



$

120,057


Stock-based compensation expense

(3,117)



(3,122)



(3,265)



(6,239)



(6,402)


Restructuring and other charges





(2,094)





(2,094)


Acquisition related compensation





(20)





(40)


Litigation reserves, net



(151)



225



(151)



278


Non-GAAP total operating expenses

$

60,536



$

60,382



$

57,649



$

120,918



$

111,799


 

 

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


July 1,
2012


April 1,
2012


July 3,
2011


July 1,
2012


July 3,
2011











GAAP operating income

$

30,985



$

36,194



$

27,574



$

67,179



$

58,106


Amortization of intangible assets

1,016



947



1,189



1,963



2,546


Stock-based compensation expense

3,395



3,392



3,508



6,787



6,880


Restructuring  and other charges





2,094





2,094


Acquisition related compensation





20





40


Impact to cost of sales from acquisition 
      accounting adjustments to inventory





609





609


Litigation reserves, net



151



(225)



151



(278)


Non-GAAP operating income

$

35,396



$

40,684



$

34,769



$

76,080



$

69,997


Non-GAAP operating margin

11.0

%


12.5

%


11.9

%


11.8

%


12.3

%











GAAP net income

$

21,522



$

25,147



$

20,597



$

46,669



$

41,786


Amortization of intangible assets

1,016



947



1,189



1,963



2,546


Stock-based compensation expense

3,395



3,392



3,508



6,787



6,880


Restructuring  and other charges





2,094





2,094


Acquisition related compensation





20





40


Impact to cost of sales from acquisition 
      accounting adjustments to inventory





609





609


Litigation reserves, net



151



(225)



151



(278)


Tax effect

(1,329)



(1,529)



(3,131)



(2,858)



(4,855)


Non-GAAP net income

$

24,604



$

28,108



$

24,661



$

52,712



$

48,822






















NET INCOME PER DILUTED SHARE:









GAAP net income per diluted share

$

0.56



$

0.65



$

0.54



$

1.21



$

1.11


Amortization of intangible assets

0.03



0.02



0.03



0.05



0.07


Stock-based compensation expense

0.09



0.09



0.09



0.18



0.18


Restructuring  and other charges





0.06





0.06


Acquisition related compensation





0.00





0.00


Impact to cost of sales from acquisition
      accounting adjustments to inventory





0.02





0.02


Litigation reserves, net



0.00



(0.01)



0.00



(0.01)


Tax effect

(0.04)



(0.03)



(0.08)



(0.07)



(0.13)


Non-GAAP net income per diluted share

$

0.64



$

0.73



$

0.65



$

1.37



$

1.30


 


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


Three Months Ended


July 1,
2012


April 1,
2012


December 31,
2011


October 2,
2011


July 3,
2011











Cash, cash equivalents and short-term investments

$

360,428



$

369,420



$

353,695



$

321,059



$

277,896


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

$

9.34



$

9.58



$

9.24



$

8.43



$

7.32












Accounts receivable, net

$

271,769



$

249,208



$

261,307



$

218,653



$

209,960


Days sales outstanding (DSO)

77



70



76



66



66












Inventories

$