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% PR Newswire SAN JOSE, Calif., April 25, 2013 SAN JOSE, Calif., April 25, 2013 /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 first quarter ended March31, 2013. Net revenue for the first quarter ended March31, 2013 was $293.4 million, as compared to $325.6 million for the first quarter ended April1, 2012, and $310.4 million in the fourth quarter ended December31, 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 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.comor by calling (408) 907-8000. Connect with NETGEAR at http://twitter.com/NETGEARand 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 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- NETGEAR, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) March31, December31, 2013 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 NETGEAR, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended March31, December31, April1, 2013 2012 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 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 March31, December31, April1, 2013 2012 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 14,666 14,068 13,510 development Sales and marketing 35,159 34,391 37,776 General and 10,118 9,283 9,096 administrative Total operating 59,943 57,742 60,382 expenses Income from 29,454 35,408 40,684 operations Interest income 149 154 119 Other income 74 (153) (601) (expense), net Income before income 29,677 35,409 40,202 taxes Provision for income 10,263 13,951 12,094 taxes 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 NETGEAR, INC. RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES (In thousands, except per share data) (Unaudited) STATEMENT OF OPERATIONS DATA: Three Months Ended March31, December31, April1, 2013 2012 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 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 March31, December31, April1, 2013 2012 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 SUPPLEMENTAL FINANCIAL INFORMATION (In thousands, except per share data, DSO, inventory turns, weeks of channel inventory and headcount) (Unaudited) Three Months Ended March31, December31, September30, July1, April1, 2013 2012 2012 2012 2012 Cash, cash equivalents $ 422,412 $ 376,877 $ 362,420 $ 360,428 $ 369,420 and short-term investments Cash, cash equivalents and short-term investments $ 10.82 $ 9.68 $ 9.34 $ 9.34 $ 9.58 per diluted share Accounts receivable, $ 237,896 $ 256,014 $ 248,862 $ 271,769 $ 249,208 net Days sales outstanding 73 76 72 77 70 (DSO) Inventories $ 158,555 $ 174,903 $ 178,916 $ 152,820 $ 134,314 Ending inventory 5.2 5.0 4.9 5.9 6.7 turns Weeks of channel inventory: U.S. retail 9.9 8.8 9.8 12.3 9.8 channel U.S. distribution 8.9 10.2 8.4 8.6 8.6 channel EMEA distribution 4.1 4.4 4.4 4.1 5.0 channel APAC distribution 7.2 7.2 4.7 5.7 5.6 channel Deferred $ 28,961 $ 27,645 $ 28,205 $ 25,478 $ 25,156 revenue Headcount 866 850 854 818 810 Non-GAAP 39,050 38,924 38,802 38,595 38,576 diluted shares NET REVENUE BY GEOGRAPHY Three Months Ended March31, December31, April1, 2013 2012 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 March31, December31, April1, 2013 2012 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 % SOURCE NETGEAR, Inc. Website: http://www.netgear.com
NETGEAR® Reports First Quarter 2013 Results
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