SAN JOSE, Calif., April 24, 2019 (GLOBE NEWSWIRE) -- NETGEAR, Inc. (NASDAQ: NTGR), a global networking company that delivers innovative networking and Internet connected products to consumers and businesses, today reported financial results for the first quarter ended March 31, 2019.

  • First quarter 2019 net revenue of $249.1 million, an increase of 1.6% from the comparable prior year quarter.
  • First quarter 2019 GAAP operating income of $14.0 million, or 5.6% of net revenue, as compared to $1.5 million, or 0.6% of net revenue, in the comparable prior year quarter.
    ◦ First quarter 2019 non-GAAP operating income of $22.7 million, or 9.1% of net revenue, as compared to $10.4 million, or 4.3% of net revenue in the comparable prior year quarter.
  • First quarter 2019 GAAP net income per diluted share from continuing operations of $0.39, as compared to $0.03 in the comparable prior year quarter.
    ◦  First quarter 2019 non-GAAP net income per diluted share from continuing operations of $0.60, as compared to $0.26 in the comparable prior year quarter.

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, "We had a successful first quarter of 2019, driven by the Orbi line of mesh WiFi systems, the Nighthawk Pro Gaming line, cable modems and gateways, and our SMB switching portfolio. Our financial results for the quarter came in at the high end of our guidance range for revenue, and slightly above the range in non-GAAP operating margin."

Mr. Lo continued, “We are pleased to report that we reached 10.4 million registered users in Q1, which represents the foundation for building our paid subscriber base. Furthermore, our number of registered app users reached 2 million in the first quarter."

"On the product front, we now have three Nighthawk WiFi 6 routers on the market, and a fourth rolling out this May. We’ll be driving early adoption of these products just as new and much-anticipated WiFi 6 enabled smartphones and laptops are hitting the market. In order to quickly establish our market leadership, we intend to increase our marketing effort in the current quarter to push our entire WiFi 6 portfolio."

Business Outlook

Bryan Murray, Chief Financial Officer of NETGEAR, added, "Due to reduced service provider shipments, our second quarter net revenue is expected to be in the range of $215 million to $230 million. Given this decline in our topline and the increased marketing spend to support our WiFi 6 initiatives, second quarter GAAP operating margin is expected to be in the range of 0.0% to 1.0%, and non-GAAP operating margin is expected to be in the range of 4.0% to 5.0%. Our GAAP tax rate is expected to be approximately 28.5%, and our non-GAAP tax rate is expected to be 23.5% for the second quarter of 2019. We expect our operating margin will significantly improve in the second half of the year when service provider revenue and marketing spend should both return to normal levels.”

A reconciliation between the Business Outlook on a GAAP and non-GAAP basis is provided in the following table:

  Three months ending
  June 30, 2019
  Operating Margin
Rate		 Tax Rate
GAAP 0.0% - 1.0% 28.5%
Estimated adjustments for1:    
Amortization of intangibles 0.8% __
Stock-based compensation expense 3.2% __
Tax effects of non-GAAP adjustments __ (5.0)%
Non-GAAP 4.0% - 5.0% 23.5%

1 Business outlook does not include estimates for any currently unknown income and expense items which, by their nature, could arise late in a quarter, including: litigation reserves, net; acquisition-related charges; impairment charges; and discrete tax benefits or detriments that cannot be forecasted (e.g., windfalls or shortfalls from equity awards or items related to the resolution of uncertain tax positions). New material income and expense items such as these could have a significant effect on our guidance and future GAAP results.

Investor Conference Call / Webcast Details
NETGEAR will review the first quarter results and discuss management's expectations for the second quarter of 2019 today, Wednesday, April 24, 2019 at 5 p.m. ET (2 p.m. PT). The toll free dial-in number for the live audio call is (844) 709-2008. The international dial-in number for the live audio call is (647) 253-8663. The conference ID for the call is 3878394. A live webcast of the conference call will be available on NETGEAR's Investor Relations website at http://investor.netgear.com. A replay of the call will be available via the web at http://investor.netgear.com.

About NETGEAR, Inc.
NETGEAR (NASDAQ: NTGR) is a global networking company that delivers innovative products to consumers, businesses and service providers. The Company's products are built on a variety of proven technologies such as wireless (WiFi and LTE), Ethernet and powerline, with a focus on reliability and ease-of-use. The product line consists of wired and wireless devices that enable networking, broadband access and network connectivity. These products are available in multiple configurations to address the needs of the end-users in each geographic region in which the Company's products are sold. NETGEAR products are sold in approximately 23,000 retail locations around the globe, and through approximately 22,000 value-added resellers, as well as multiple major cable, mobile and wireline service providers around the world. The company's headquarters are in San Jose, Calif., with additional offices in approximately 20 countries. 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.

© 2019 NETGEAR, Inc. NETGEAR, the NETGEAR logo, Orbi and Nighthawk 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.

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 regarding: NETGEAR’s future operating performance and financial condition, expected net revenue, GAAP and non-GAAP operating margins, and GAAP and non-GAAP tax rates; expectations regarding the timing, distribution, sales momentum and market acceptance of recent and anticipated new product introductions that position the Company for growth; expectations regarding NETGEAR's paid subscriber base, registered users and registered app users and their effect on NETGEAR's paid subscriber base; and expectations regarding seasonal changes in the Company’s business performance. These statements are based on management's current expectations and are subject to certain risks and uncertainties, including 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 grow its number of registered users and/or registered app users; the Company may be unable to grow its paid subscriber base; 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; changes in the level of NETGEAR's cash resources and the Company's planned usage of such resources, including potential repurchases of the Company’s common stock; 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” in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2018, filed with the Securities and Exchange Commission on February 22, 2019. Given these circumstances, you should not place undue reliance on these forward-looking statements. 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, except as required by law.

Non-GAAP Financial Information:

To supplement our unaudited selected financial data presented on a basis consistent with Generally Accepted Accounting Principles (“GAAP”), we disclose certain non-GAAP financial measures that exclude certain charges, including non-GAAP gross profit, non-GAAP gross margin, non-GAAP research and development, non-GAAP sales and marketing, non-GAAP general and administrative, non-GAAP total operating expenses, non-GAAP operating income, non-GAAP operating margin, non-GAAP other income (expense), net, non-GAAP net income and non-GAAP net income per diluted share. These non-GAAP financial measures represent results from continuing operations. These supplemental measures exclude adjustments for amortization of intangibles, stock-based compensation expense, separation expense, restructuring and other charges, litigation reserves, net, gains on investments, impairment charges to investments, and the related tax effects. These non-GAAP measures are not in accordance with or an alternative for GAAP, and may be different from non-GAAP measures used by other companies. We believe that these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. We compensate for the limitations of non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance.

In calculating non-GAAP financial measures, we exclude certain items to facilitate a review of the comparability of our operating performance on a period-to-period basis because such items are not, in our view, related to our ongoing operational performance. We use non-GAAP measures to evaluate the operating performance of our business, for comparison with forecasts and strategic plans, and for benchmarking performance externally against competitors. In addition, management’s incentive compensation is determined using certain non-GAAP measures. Since we find these measures to be useful, we believe that investors benefit from seeing results “through the eyes” of management in addition to seeing GAAP results. We believe that these non-GAAP measures, when read in conjunction with our GAAP financials, provide useful information to investors by offering:

  • the ability to make more meaningful period-to-period comparisons of our on-going operating results;
  • the ability to better identify trends in our underlying business and perform related trend analyses;
  • a better understanding of how management plans and measures our underlying business; and
  • an easier way to compare our operating results against analyst financial models and operating results of competitors that supplement their GAAP results with non-GAAP financial measures.

The following are explanations of the adjustments that we incorporate into non-GAAP measures, as well as the reasons for excluding them in the reconciliations of these non-GAAP financial measures:

Amortization of intangibles consists primarily of non-cash charges that can be impacted by, among other things, the timing and magnitude of acquisitions. We consider our operating results without these charges when evaluating our ongoing performance and forecasting our earnings trends, and therefore exclude such charges when presenting non-GAAP financial measures. We believe that the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of our competitors.

Stock-based compensation expense consists of non-cash charges for the estimated fair value of stock options, restricted stock units and shares under the employee stock purchase plan granted to employees. We believe that the exclusion of these charges provides for more accurate comparisons of our operating results to peer companies due to the varying available valuation methodologies, subjective assumptions and the variety of award types. In addition, we believe it is useful to investors to understand the specific impact stock-based compensation expense has on our operating results.

Other items consist of certain items that are the result of either unique or unplanned events, including, when applicable: separation expense, restructuring and other charges, litigation reserves, net, gains on investments, and impairment charges to investments. It is difficult to predict the occurrence or estimate the amount or timing of these items in advance. Although these events are reflected in our GAAP financial statements, these unique transactions may limit the comparability of our on-going operations with prior and future periods. The amounts result from events that often arise from unforeseen circumstances, which often occur outside of the ordinary course of continuing operations. Therefore, the amounts do not accurately reflect the underlying performance of our continuing business operations for the period in which they are incurred.

Tax effects consist of the various above adjustments that we incorporate into non-GAAP measures in order to provide a more meaningful measure on non-GAAP net income. We also believe providing financial information with and without the income tax effects relating to our non-GAAP financial measures provides our management and users of the financial statements with better clarity regarding the on-going performance of our business.

Source: NETGEAR-F

-Financial Tables Attached-


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


 As of
 March 31,
 2019		 December 31,
 2018
ASSETS   
Current assets:   
Cash and cash equivalents$185,680  $201,047 
Short-term investments26,972  73,317 
Accounts receivable, net262,531  303,667 
Inventories236,123  243,871 
Prepaid expenses and other current assets34,791  35,997 
Total current assets746,097  857,899 
Property and equipment, net20,645  20,177 
Operating lease right-of-use assets36,613  — 
Intangibles, net15,058  17,146 
Goodwill80,721  80,721 
Other non-current assets71,241  67,433 
Total assets$970,375  $1,043,376 
    
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current liabilities:   
Accounts payable$69,279  $139,748 
Accrued employee compensation18,452  31,666 
Other accrued liabilities177,635  199,472 
Deferred Revenue11,750  11,086 
Income taxes payable2,895  2,020 
Total current liabilities280,011  383,992 
Non-current income taxes payable18,142  19,600 
Non-current operating lease liabilities31,514  — 
Other non-current liabilities7,800  12,232 
Total liabilities337,467  415,824 
Stockholders' equity:   
Common stock32  32 
Additional paid-in capital804,413  793,585 
Accumulated other comprehensive income (loss)14  (15)
Accumulated deficit(171,551) (166,050)
Total stockholders' equity632,908  627,552 
Total liabilities and stockholders' equity$970,375  $1,043,376 


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


 Three Months Ended
 March 31,
 2019		 December 31,
 2018		 April 1,
 2018
      
Net revenue$249,082  $288,928  $245,201 
Cost of revenue167,074  198,274  168,882 
Gross profit82,008  90,654  76,319 
Gross margin32.9% 31.4% 31.1%
Operating expenses:     
Research and development18,832  19,143  21,191 
Sales and marketing35,855  38,251  37,874 
General and administrative13,117  14,454  15,761 
Separation expense264  550  — 
Restructuring and other charges(68) 830  (9)
Litigation reserves, net—  10  — 
Total operating expenses68,000  73,238  74,817 
Income from operations14,008  17,416  1,502 
Operating margin5.6% 6.0% 0.6%
Interest income701  1,174  748 
Other income (expense), net341  85  (1,318)
Income before income taxes15,050  18,675  932 
Provision (benefit) for income taxes2,207  19,210  (86)
Net income (loss) from continuing operations12,843  (535) 1,018 
Net income (loss) from discontinued operations, net of tax (1)—  (27,304) 4,572 
Net income (loss)12,843  (27,839) 5,590 
Net loss attributable to non-controlling interest in discontinued operations—  (8,368) — 
Net income (loss) attributable to NETGEAR, Inc.$12,843  $(19,471) $5,590 
      
Net income (loss) per share - basic:     
Income (loss) from continuing operations$0.41  $(0.02) $0.03 
Income (loss) from discontinued operations attributable to NETGEAR, Inc.—  (0.60) 0.15 
Net income (loss) attributable to NETGEAR, Inc.$0.41  $(0.62) $0.18 
      
Net income (loss) per share - Diluted:     
Income (loss) from continuing operations$0.39  $(0.02) $0.03 
Income (loss) from discontinued operations attributable to NETGEAR, Inc.—  (0.60) 0.14 
Net income (loss) attributable to NETGEAR, Inc.$0.39  $(0.62) $0.17 
      
Weighted average shares used to compute net income (loss) per share:     
Basic31,483  31,604  31,427 
Diluted32,874  31,604  32,660 

(1)  Historical results of Arlo Technologies, Inc. are reflected as discontinued operations for the periods presented.


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


STATEMENT OF OPERATIONS DATA:    
      
 Three Months Ended
 March 31,
 2019		 December 31,
 2018		 April 1,
 2018
      
GAAP gross profit$82,008  $90,654  $76,319 
GAAP gross margin32.9% 31.4% 31.1%
Amortization of intangibles179  181  323 
Stock-based compensation expense668  681  563 
Non-GAAP gross profit$82,855  $91,516  $77,205 
Non-GAAP gross margin33.3% 31.7% 31.5%
      
GAAP research and development$18,832  $19,143  $21,191 
Stock-based compensation expense(1,192) (1,112) (1,012)
Non-GAAP research and development$17,640  $18,031  $20,179 
      
GAAP sales and marketing$35,855  $38,251  $37,874 
Amortization of intangibles(1,831) (1,831) (1,756)
Stock-based compensation expense(2,041) (1,904) (2,205)
Non-GAAP sales and marketing$31,983  $34,516  $33,913 
      
GAAP general and administrative$13,117  $14,454  $15,761 
Stock-based compensation expense(2,557) (2,536) (3,084)
Non-GAAP general and administrative$10,560  $11,918  $12,677 
      
GAAP total operating expenses$68,000  $73,238  $74,817 
Amortization of intangibles(1,831) (1,831) (1,756)
Stock-based compensation expense(5,790) (5,552) (6,301)
Separation expense(264) (550) — 
Restructuring and other charges68  (830) 9 
Litigation reserves, net—  (10) — 
Non-GAAP total operating expenses$60,183  $64,465  $66,769 


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


STATEMENT OF OPERATIONS DATA (CONTINUED):  
  
 Three Months Ended
 March 31,
 2019		 December 31,
 2018		 April 1,
 2018
      
GAAP operating income$14,008  $17,416  $1,502 
GAAP operating margin5.6% 6.0% 0.6%
Amortization of intangibles2,010  2,012  2,079 
Stock-based compensation expense6,458  6,233  6,864 
Separation expense264  550  — 
Restructuring and other charges(68) 830  (9)
Litigation reserves, net—  10  — 
Non-GAAP operating income$22,672  $27,051  $10,436 
Non-GAAP operating margin9.1% 9.4% 4.3%
      
GAAP other income (expense), net$341  $85  $(1,318)
Gains on investments—  (190) — 
Impairment charges to investment—  —  1,400 
Non-GAAP other income (expense), net$341  $(105) $82 
      
GAAP net income (loss) from continuing operations$12,843  $(535)  $1,018 
Amortization of intangibles2,010  2,012  2,079 
Stock-based compensation expense6,458  6,233  6,864 
Separation expense264  550  — 
Restructuring and other charges(68) 830  (9)
Litigation reserves, net—  10  — 
Gains on investments—  (190) — 
Impairment charges to investment—  —  1,400 
Tax effects of above non-GAAP adjustments(1,706) 13,424
  (2,886)
Non-GAAP net income from continuing operations$19,801  $22,334  $8,466 


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,
 2019		 December 31,
 2018		 April 1,
 2018
NET INCOME PER DILUTED SHARE:     
GAAP net income (loss) per diluted share from continuing operations$0.39  $(0.02)  $0.03 
Amortization of intangibles0.06  0.06  0.06 
Stock-based compensation expense0.20  0.19  0.21 
Separation expense0.01  0.02  — 
Restructuring and other charges0.00  0.03  0.00 
Litigation reserves, net—  0.00  — 
Gain on investments—  (0.01) — 
Impairment charges to investment—  —  0.04 
Tax effects of above non-GAAP adjustments(0.06) 0.41  (0.08)
Non-GAAP net income per diluted share from continuing operations$0.60  $0.68  $0.26 


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


 Three Months Ended
 March 31,
 2019		 December 31,
 2018		 September 30,
 2018		 July 1,
 2018		 April 1,
 2018
          
Cash, cash equivalents and short-term investments$212,652  $274,364  $341,968  $355,489  $386,032 
Cash, cash equivalents and short-term investments per diluted share$6.47  $8.36  $10.37  $10.86  $11.82 
          
Accounts receivable, net$262,531  $303,667  $241,862  $232,770  $214,843 
Days sales outstanding (DSO) 95   97   82   83   80 
          
Inventories$236,123  $243,871  $198,037  $168,263  $162,497 
Ending inventory turns 2.8   3.3   3.5   4.2   4.2 
          
Weeks of channel inventory:         
U.S. retail channel 10.4   7.7   9.8   10.6   8.9 
U.S. distribution channel 5.7   5.2   4.1   4.3   4.2 
EMEA distribution channel 4.0   4.1   4.3   4.1   4.4 
APAC distribution channel 6.4   7.4   6.6   7.9   6.0 
          
Deferred revenue (current and non-current)$13,598  $11,865  $9,726  $5,577  $6,075 
          
Headcount828  837  833  901  903 
Non-GAAP diluted shares32,874  32,803  32,974  32,742  32,660 

NET REVENUE BY GEOGRAPHY

 Three Months Ended
 March 31,
 2019		 December 31,
 2018		 April 1,
 2018
Americas$148,029 59% $190,335 66% $160,012 66%
EMEA56,963 23% 58,798 20% 47,434 19%
APAC44,090 18% 39,795 14% 37,755 15%
Total$249,082 100% $288,928 100% $245,201 100%


NETGEAR, INC.
SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
(In thousands)
(Unaudited)

NET REVENUE BY SEGMENT

 Three Months Ended
 March 31,
 2019		 December 31,
 2018		 April 1,
 2018
Net revenue:     
Connected Home$169,365  $215,638  $174,315 
SMB79,717  73,290  70,886 
Total net revenue$249,082  $288,928  $245,201 

SERVICE PROVIDER NET REVENUE

 Three Months Ended
 March 31,
 2019		 December 31,
 2018		 April 1,
 2018
Connected Home$36,818  $37,772  $41,797 
SMB1,476  670  1,063 
Total service provider net revenue$38,294  $38,442  $42,860 

 

Contact:
NETGEAR Investor Relations
Christopher Genualdi
netgearIR@netgear.com

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