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8-K - FORM 8-K - NETGEAR, INC.ntgr201304258k.htm


NEWS RELEASE

NETGEAR® REPORTS FIRST QUARTER 2013 RESULTS

First quarter 2013 net revenue of $293.4 million, as compared to $325.6 million in the comparable prior year quarter, decrease of 9.9% year-over-year
First quarter 2013 non-GAAP net income of $19.4 million, as compared to $28.1 million in the comparable prior year quarter, decrease of 31.0% year-over-year
First quarter 2013 non-GAAP diluted earnings per share of $0.50, as compared to $0.73 in the comparable prior year quarter, decrease of 31.5% year-over-year
Company expects second quarter 2013 net revenue to be in the range of $345 million to $360 million, with non-GAAP operating margin in the range of 9.5% to 10.5%
  
SAN JOSE, California - April 25, 2013 - 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 March 31, 2013.

Net revenue for the first quarter ended March 31, 2013 was $293.4 million, as compared to $325.6 million for the first quarter ended April 1, 2012, and $310.4 million in the fourth quarter ended December 31, 2012. Net income, computed in accordance with GAAP, for the first quarter of 2013 was $15.3 million, or $0.39 per diluted share. This compared to GAAP net income of $25.1 million, or $0.65 per diluted share, for the first quarter of 2012, and GAAP net income of $16.1 million, or $0.41 per diluted share, in the fourth quarter of 2012.

Gross margin on a non-GAAP basis in the first quarter of 2013 was 30.5%, as compared to 31.0% in the year ago comparable quarter, and 30.0% in the fourth quarter of 2012. Non-GAAP operating margin was 10.0% in the first quarter of 2013, as compared to 12.5% in the first quarter of 2012, and 11.4% in the fourth quarter of 2012. Non-GAAP net income was $0.50 per diluted share in the first quarter of 2013, as compared to non-GAAP net income of $0.73 per diluted share in the first quarter of 2012, and non-GAAP net income of $0.55 per diluted share in the fourth quarter of 2012.

Our non-GAAP tax rate was 34.6% in the first quarter 2013, as compared to 30.1% in the year ago comparable quarter, and 39.4% in the fourth quarter of 2012. The higher tax rate in the first quarter 2013, as compared with the comparable prior year quarter, reflects a shift in geographic mix of revenues, and corresponding profits, towards the Americas.

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 and expense, 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 lower than expected operating margin in the first quarter was driven by product mix, primarily due to difficulties in the transition to our new ReadyNAS line of products. The transition occurred late in the quarter and difficulty securing components and some last minute bug fixes led to unanticipated delays. This marked the first time we completely replaced an entire line of products, which involved obsoleting ten models and replacing them with seven brand new models. The execution was much harder than anticipated and we learned a valuable lesson in engineering and manufacturing planning. The good news is that our supply is now in full swing and customer feedback on the new product line has been very positive.”

“We continue to see large market opportunities created by the ever expanding access to high speed Internet connectivity among consumers and businesses. We are very focused today on building our product portfolios for intermediate and

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long term growth in all three of our business units. In retail, we continue to gain traction with the 11ac upgrade cycle and we are gaining share in the Smart Home space, specifically with our Internet video streaming solutions. In our Commercial Business Unit, the launches of the new ReadyNAS and 10GBaseT switches in the first quarter were received enthusiastically by the market, positioning us for growth in the months and years ahead. And in our Service Provider Business Unit, we introduced our first LTE gateway into the North American fixed mobile data market and have attracted interest from multiple service providers.”

Christine Gorjanc, Chief Financial Officer of NETGEAR, said, “As discussed on our February earnings call, we anticipated a quarter-over-quarter decline of net revenue in the first quarter caused by weaker sell-in to our channel and service provider customers. We were further negatively impacted by our inability to ship the backlog on our new line of ReadyNAS products. Our non-GAAP operating margin came in at 10.0%, which is lower than our original guidance of 11% to 12%. Even though the second quarter is seasonally weak for retail, we expect sequential growth for both the commercial and service provider business units.”

Mr. Lo added, "Our outlook for the growth drivers of our core business remains unchanged, as does our confidence in the superiority of our products. We expect to continue to open up new channels, penetrate the developing markets and enter new product categories. Looking forward, with a full quarter of AirCard product shipments weighing in, and the supply of our new ReadyNAS products back to normal, we expect second quarter 2013 net revenue to be in the range of $345 to $360 million and non-GAAP operating margin to be between 9.5% and 10.5%. Furthermore, we expect our non-GAAP tax rate to be approximately 38% in the second quarter 2013."

Investor Conference Call / Webcast Details
NETGEAR will review the first quarter 2013 results and discuss management's expectations for the second quarter of 2013 today, Thursday, April 25, 2013 at 5 p.m. Eastern (2 p.m. Pacific). 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 Eastern (9 p.m. Pacific) on Thursday, May 2, 2013 by telephone at (858) 384-5517 and via the web at http://investor.netgear.com. The account number to access the phone replay is 412249.

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 36,000 retail locations around the globe, and through approximately 43,000 value-added resellers. The company's headquarters are in San Jose, Calif., with additional offices in over 25 countries. NETGEAR is an ENERGY STAR partner. More information is available at http://investor.netgear.com or by calling (408) 907-8000. Connect with NETGEAR at http://twitter.com/NETGEAR and http://www.facebook.com/NETGEAR.

© 2013 NETGEAR, Inc. NETGEAR, ReadyNAS, AirCard and the NETGEAR logo are trademarks or registered trademarks of NETGEAR, Inc. and its affiliates in the United States and/or other countries. Other brand and product names are trademarks or registered trademarks of their respective holders. The information contained herein is subject to change without notice. NETGEAR shall not be liable for technical or editorial errors or omissions contained herein. All rights reserved.

Contact:
NETGEAR Investor Relations
Christopher Genualdi
netgearIR@netgear.com
(408) 890-3520

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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 expected net revenue and non-GAAP operating margin and non-GAAP tax rate, expectations for intermediate and long term growth in all three of our business units, expectations regarding new product introductions which position the Company for growth, sequential growth in the second quarter 2013 for both the commercial and service provider business units, opening new channels, penetrating the developing markets and entering new product categories. 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 10 through 29, in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2012, filed with the Securities and Exchange Commission on February 26, 2013. 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-


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NETGEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

 
March 31,
2013
 
December 31,
2012
 
 
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
279,098

 
$
149,032

Short-term investments
143,314

 
227,845

Accounts receivable, net
237,896

 
256,014

Inventories
158,555

 
174,903

Deferred income taxes
24,052

 
22,691

Prepaid expenses and other current assets
34,773

 
33,724

Total current assets
877,688

 
864,209

Property and equipment, net
18,387

 
19,025

Intangibles, net
26,079

 
27,621

Goodwill
100,880

 
100,880

Other non-current assets
22,282

 
22,834

Total assets
$
1,045,316

 
$
1,034,569

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
82,410

 
$
87,310

Accrued employee compensation
14,103

 
18,338

Other accrued liabilities
119,587

 
126,255

Deferred revenue
26,998

 
27,645

Income taxes payable
4,667

 
1,382

Total current liabilities
247,765

 
260,930

Non-current income taxes payable
13,187

 
13,735

Other non-current liabilities
6,987

 
5,293

Total liabilities
267,939

 
279,958

Stockholders' equity:
 
 
 
Common stock
39

 
38

Additional paid-in capital
402,050

 
394,427

Cumulative other comprehensive income
139

 
4

Retained earnings
375,149

 
360,142

Total stockholders' equity
777,377

 
754,611

Total liabilities and stockholders' equity
$
1,045,316

 
$
1,034,569




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

 
Three Months Ended
 
March 31,
2013
 
December 31,
2012
 
April 1,
2012
 
 
 
 
 
 
Net revenue
$
293,399

 
$
310,436

 
$
325,620

Cost of revenue
205,662

 
219,058

 
225,771

Gross profit
87,737

 
91,378

 
99,849

Operating expenses:
 
 
 
 
 
Research and development
15,338

 
14,789

 
14,121

Sales and marketing
36,389

 
35,519

 
38,970

General and administrative
12,327

 
11,507

 
10,413

Restructuring and other charges
(30
)
 
1,190

 

Litigation reserves, net
48

 
(30
)
 
151

Total operating expenses
64,072

 
62,975

 
63,655

Income from operations
23,665

 
28,403

 
36,194

Interest income
149

 
154

 
119

Other income (expense), net
74

 
(153
)
 
(601
)
Income before income taxes
23,888

 
28,404

 
35,712

Provision for income taxes
8,545

 
12,325

 
10,565

Net income
$
15,343

 
$
16,079

 
$
25,147

 
 
 
 
 
 
Net income per share:
 
 
 
 
 
Basic
$
0.40

 
$
0.42

 
$
0.67

Diluted
$
0.39

 
$
0.41

 
$
0.65

 
 
 
 
 
 
Weighted average shares outstanding used to compute net income per share:
 
 
 
 
 
Basic
38,433

 
38,293

 
37,796

Diluted
39,050

 
38,924

 
38,576



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NETGEAR, INC.
NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Excluding amortization of purchased intangibles, stock-based compensation, restructuring and other charges, acquisition related compensation and expense, and litigation reserves, net of tax.
(In thousands, except per share data)
(Unaudited)

 
Three Months Ended
 
March 31,
2013
 
December 31,
2012
 
April 1,
2012
 
 
 
 
 
 
Net revenue
$
293,399

 
$
310,436

 
$
325,620

Cost of revenue
204,002

 
217,286

 
224,554

Gross profit
89,397

 
93,150

 
101,066

 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Research and development
14,666

 
14,068

 
13,510

Sales and marketing
35,159

 
34,391

 
37,776

General and administrative
10,118

 
9,283

 
9,096

Total operating expenses
59,943

 
57,742

 
60,382

Income from operations
29,454

 
35,408

 
40,684

Interest income
149

 
154

 
119

Other income (expense), net
74

 
(153
)
 
(601
)
Income before income taxes
29,677

 
35,409

 
40,202

Provision for income taxes
10,263

 
13,951

 
12,094

Net income
$
19,414

 
$
21,458

 
$
28,108

 
 
 
 
 
 
Net income per share:
 
 
 
 
 
Basic
$
0.51

 
$
0.56

 
$
0.74

Diluted
$
0.50

 
$
0.55

 
$
0.73

 
 
 
 
 
 
Weighted average shares outstanding used to compute net income per share:
 
 
 
 
 
Basic
38,433

 
38,293

 
37,796

Diluted
39,050

 
38,924

 
38,576




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NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except per share data)
(Unaudited)

STATEMENT OF OPERATIONS DATA:
 
Three Months Ended
 
March 31,
2013
 
December 31,
2012
 
April 1,
2012
 
 
 
 
 
 
GAAP gross profit
$
87,737

 
$
91,378

 
$
99,849

Amortization of intangible assets
1,471

 
1,446

 
947

Stock-based compensation expense
189

 
326

 
270

Non-GAAP gross profit
$
89,397

 
$
93,150

 
$
101,066

Non-GAAP gross margin
30.5
%
 
30.0
%
 
31.0
%
 
 
 
 
 
 
GAAP research and development
$
15,338

 
$
14,789

 
$
14,121

Stock-based compensation expense
(672
)
 
(721
)
 
(611
)
Non-GAAP research and development
$
14,666

 
$
14,068

 
$
13,510

 
 
 
 
 
 
GAAP sales and marketing
$
36,389

 
$
35,519

 
$
38,970

Stock-based compensation expense
(1,230
)
 
(1,128
)
 
(1,194
)
Non-GAAP sales and marketing
$
35,159

 
$
34,391

 
$
37,776

 
 
 
 
 
 
GAAP general and administrative
$
12,327

 
$
11,507

 
$
10,413

Stock-based compensation expense
(1,499
)
 
(1,391
)
 
(1,317
)
Acquisition related expense
(710
)
 
(833
)
 

Non-GAAP general and administrative
$
10,118

 
$
9,283

 
$
9,096

 
 
 
 
 
 
GAAP total operating expenses
$
64,072

 
$
62,975

 
$
63,655

Stock-based compensation expense
(3,401
)
 
(3,240
)
 
(3,122
)
Restructuring and other charges
30

 
(1,190
)
 

Acquisition related expense
(710
)
 
(833
)
 

Litigation reserves, net
(48
)
 
30

 
(151
)
Non-GAAP total operating expenses
$
59,943

 
$
57,742

 
$
60,382


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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
 
March 31,
2013
 
December 31,
2012
 
April 1,
2012
 
 
 
 
 
 
GAAP operating income
$
23,665

 
$
28,403

 
$
36,194

Amortization of intangible assets
1,471

 
1,446

 
947

Stock-based compensation expense
3,590

 
3,566

 
3,392

Restructuring and other charges
(30
)
 
1,190

 

Acquisition related expense
710

 
833

 

Litigation reserves, net
48

 
(30
)
 
151

Non-GAAP operating income
$
29,454

 
$
35,408

 
$
40,684

Non-GAAP operating margin
10.0
%
 
11.4
%
 
12.5
%
 
 
 
 
 
 
GAAP net income
$
15,343

 
$
16,079

 
$
25,147

Amortization of intangible assets
1,471

 
1,446

 
947

Stock-based compensation expense
3,590

 
3,566

 
3,392

Restructuring and other charges
(30
)
 
1,190

 

Acquisition related expense
710

 
833

 

Litigation reserves, net
48

 
(30
)
 
151

Tax effect
(1,718
)
 
(1,626
)
 
(1,529
)
Non-GAAP net income
$
19,414

 
$
21,458

 
$
28,108

 
 
 
 
 
 
NET INCOME PER DILUTED SHARE:
 
 
 
 
GAAP net income per diluted share
$
0.39

 
$
0.41

 
$
0.65

Amortization of intangible assets
0.04

 
0.04

 
0.02

Stock-based compensation expense
0.09

 
0.09

 
0.09

Restructuring and other charges
0.00

 
0.03

 

Acquisition related expense
0.02

 
0.02

 

Litigation reserves, net
0.00

 
0.00

 
0.00

Tax effect
(0.04
)
 
(0.04
)
 
(0.03
)
Non-GAAP net income per diluted share
$
0.50

 
$
0.55

 
$
0.73




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

 
Three Months Ended
 
March 31,
2013
 
December 31,
2012
 
September 30,
2012
 
July 1,
2012
 
April 1,
2012
 
 
 
 
 
 
 
 
 
 
Cash, cash equivalents and short-term investments
$
422,412

 
$
376,877

 
$
362,420

 
$
360,428

 
$
369,420

Cash, cash equivalents and short-term investments per diluted share
$
10.82

 
$
9.68

 
$
9.34

 
$
9.34

 
$
9.58

 
 
 
 
 
 
 
 
 
 
Accounts receivable, net
$
237,896

 
$
256,014

 
$
248,862

 
$
271,769

 
$
249,208

Days sales outstanding (DSO)
73

 
76

 
72

 
77

 
70

 
 
 
 
 
 
 
 
 
 
Inventories
$
158,555

 
$
174,903

 
$
178,916

 
$
152,820

 
$
134,314

Ending inventory turns
5.2

 
5.0

 
4.9

 
5.9

 
6.7

 
 
 
 
 
 
 
 
 
 
Weeks of channel inventory:
 
 
 
 
 
 
 
 
 
U.S. retail channel
9.9

 
8.8

 
9.8

 
12.3

 
9.8

U.S. distribution channel
8.9

 
10.2

 
8.4

 
8.6

 
8.6

EMEA distribution channel
4.1

 
4.4

 
4.4

 
4.1

 
5.0

APAC distribution channel
7.2

 
7.2

 
4.7

 
5.7

 
5.6

 
 
 
 
 
 
 
 
 
 
Deferred revenue
$
28,961

 
$
27,645

 
$
28,205

 
$
25,478

 
$
25,156

 
 
 
 
 
 
 
 
 
 
Headcount
866

 
850

 
854

 
818

 
810

Non-GAAP diluted shares
39,050

 
38,924

 
38,802

 
38,595

 
38,576


NET REVENUE BY GEOGRAPHY
 
Three Months Ended
 
March 31,
2013
 
 
 
December 31,
2012
 
 
 
April 1,
2012
 
 
Americas
$
156,676

 
53
%
 
$
169,979

 
54
%
 
$
168,355

 
52
%
EMEA
107,125

 
37
%
 
110,460

 
36
%
 
125,081

 
38
%
APAC
29,598

 
10
%
 
29,997

 
10
%
 
32,184

 
10
%
Total
$
293,399

 
100
%
 
$
310,436

 
100
%
 
$
325,620

 
100
%

NET REVENUE BY SEGMENT
 
Three Months Ended
 
March 31,
2013
 
 
 
December 31,
2012
 
 
 
April 1,
2012
 
 
Retail
$
126,322

 
43
%
 
$
138,539

 
44
%
 
$
128,977

 
40
%
Commercial
70,851

 
24
%
 
73,447

 
24
%
 
74,632

 
23
%
Service Provider
96,226

 
33
%
 
98,450

 
32
%
 
122,011

 
37
%
Total
$
293,399

 
100
%
 
$
310,436

 
100
%
 
$
325,620

 
100
%



Page 9