NETGEAR® Reports Fourth Quarter and Full Year 2015 Results

Feb. 4, 2016 4:05 pm |  More About NETGEAR


  • Fourth quarter 2015 net revenue of $360.9 million, as compared to $353.2 million in the comparable prior year quarter, increase of 2.2%.
  • Fourth quarter 2015 GAAP  net income per diluted share of $0.66, as compared to $1.16 net loss per diluted share in the comparable prior year quarter.
    • Fourth quarter 2015 non-GAAP net income per diluted share of $0.83, as compared to $0.65 in the comparable prior year quarter.
  • 2015 net revenue of $1.30 billion, as compared to $1.39 billion in 2014, decrease of 6.7%.
  • 2015 GAAP net income per diluted share of $1.44, as compared to $0.24 in 2014.
    • 2015 non-GAAP net income per diluted share of $2.23, as compared to $2.54 in 2014.
  • Company expects first quarter 2016 net revenue to be in the range of $290 million to $305 million, with non-GAAP operating margin in the range of 9.5% to 10.5%. Additionally, the Company expects the non-GAAP tax rate to be approximately 34%.

SAN JOSE, Calif., Feb. 04, 2016 (GLOBE NEWSWIRE) -- NETGEAR, Inc. (NASDAQ:NTGR), a global networking company that delivers innovative products to consumers, businesses and service providers, today reported financial results for the fourth quarter and full year ended December 31, 2015.

Net revenue for the fourth quarter ended December 31, 2015 was $360.9 million, as compared to $353.2 million in the fourth quarter ended December 31, 2014, and $341.9 million in the third quarter ended September 27, 2015. Net income, computed in accordance with GAAP, for the fourth quarter of 2015 was $21.8 million, or $0.66 net income per diluted share. This compared to GAAP net loss of $40.4 million, or $1.16 net loss per diluted share, in the fourth quarter of 2014, and GAAP net income of $15.1 million, or $0.47 net income per diluted share, in the third quarter of 2015. Non-GAAP net income was $0.83 per diluted share in the fourth quarter of 2015, as compared to non-GAAP net income of $0.65 per diluted share in the fourth quarter of 2014 and $0.67 per diluted share in the third quarter of 2015.

Operating margin, computed in accordance with GAAP, for the fourth quarter of 2015 was 8.5%, as compared to -13.2% in the year ago comparable quarter, and 7.6% in the third quarter of 2015. Non-GAAP operating margin was 10.8% in the fourth quarter of 2015, as compared to 10.1% in the fourth quarter of 2014 and 10.3% in the third quarter of 2015.

Net revenue for the full year 2015 was $1.30 billion, a 6.7% decrease as compared to $1.39 billion for 2014. Net income, computed in accordance with GAAP, for the full year 2015 was $48.6 million, or $1.44 per diluted share. This compared to GAAP net income of $8.8 million, or $0.24 per diluted share, for 2014. Non-GAAP net income was $2.23 per diluted share in the full year of 2015, as compared to non-GAAP net income of $2.54 per diluted share for 2014.

Operating margin, computed in accordance with GAAP, for the full year of 2015 was 6.6%, as compared to 2.0% for 2014. Non-GAAP operating margin was 9.5% in the full year of 2015, as compared to 10.1% for 2014.

The differences between GAAP and non-GAAP financial measures include adjustments, net of any tax effect, for amortization of intangibles, stock-based compensation expense, restructuring and other charges, acquisition-related expense, losses on inventory commitments due to restructuring, litigation reserves, net, goodwill impairment charges, and gain on litigation settlements. 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, “Our financial results for the fourth quarter of 2015 exceeded expectations, driven by the strength of our retail business during the holiday season. The Retail Business Unit had another all-time record quarter in sales, again led by our Nighthawk and Arlo product lines. Both product lines continue to drive up average selling prices for NETGEAR's retail business, and led to an impressive 33.6% year-over-year increase in revenue for the Retail Business Unit in Q4. Meanwhile, we saw healthy end market demand for our commercial products during Q4. We continued to see lower channel inventory among our distributors as our online presence grows and we believe that CBU is well positioned for success in 2016.”

Mr. Lo continued, “We are also taking definitive steps to realign resources within the Service Provider Business Unit to reflect a previously announced reduced revenue outlook for 2016. Our efforts in the service provider market continue to be focused on delivering premium advanced technology products and driving profitability."

Christine Gorjanc, Chief Financial Officer of NETGEAR, added, "For the full year of 2015, the Company generated $110.4 million in cash flow from operations. During the fourth quarter of 2015, we continued to be opportunistic buyers of NETGEAR equity and repurchased approximately 394,000 shares of common stock, which makes our total repurchase amount since Q4 2013 approximately 8.6 million shares. We continue to believe that stock repurchases are an effective way of returning capital to shareholders, and plan to be opportunistic buyers of our stock in the coming quarters.”

Ms. Gorjanc continued, "Looking forward to the first quarter of 2016, we expect net revenue to be in the range of $290 million to $305 million. Our revenue outlook reflects seasonality for the Retail Business Unit, particularly for home security cameras, and a lower revenue outlook for the Service Provider Business Unit. Non-GAAP operating margin is expected to be in the range of 9.5% to 10.5%. Our non-GAAP tax rate is expected to be approximately 34% for the first quarter of 2016.”

Investor Conference Call / Webcast Details
NETGEAR will review the fourth quarter results and discuss management's expectations for the first quarter of 2016 today, Thursday, February 4, 2016 at 5 p.m. ET (2 p.m. PT). 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 ET (9 p.m. PT) on Thursday, February 11, 2016 by telephone at (858) 384-5517 and via the web at http://investor.netgear.com. The account number to access the phone replay is 13628645.

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 27,000 retail locations around the globe, and through approximately 31,000 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 25 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

© 2016 NETGEAR, Inc. NETGEAR 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.

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: expected net revenue, non-GAAP operating margin and 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  seasonal changes in the Company’s business unit performance; and expectations regarding repurchases of the Company’s common stock. 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 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 II - Item 1A. Risk Factors,” pages 43 through 63, in the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 27, 2015, filed with the Securities and Exchange Commission on October 30, 2015.  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 adjustments, 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.       

Source: NETGEAR-F

-Financial Tables Attached-


NETGEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
    
 December 31,
 2015
 December 31,
 2014
ASSETS   
Current assets:   
Cash and cash equivalents$181,945  $141,234 
Short-term investments96,321  115,895 
Accounts receivable, net290,642  275,689 
Inventories213,118  222,883 
Deferred income taxes  29,039 
Prepaid expenses and other current assets39,117  38,225 
Total current assets821,143  822,965 
Property and equipment, net22,384  29,694 
Intangibles, net48,947  66,230 
Goodwill81,721  81,721 
Other non-current assets76,374  48,077 
Total assets$1,050,569  $1,048,687 
    
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current liabilities:   
Accounts payable$90,546  $106,357 
Accrued employee compensation27,868  21,588 
Other accrued liabilities166,282  143,742 
Deferred revenue29,125  30,023 
Income taxes payable1,951  2,406 
Total current liabilities315,772  304,116 
Non-current income taxes payable14,444  15,252 
Other non-current liabilities11,643  7,754 
Total liabilities341,859  327,122 
Stockholders' equity:   
Common stock33  35 
Additional paid-in capital513,047  454,144 
Accumulated other comprehensive income3  38 
Retained earnings195,627  267,348 
Total stockholders' equity708,710  721,565 
Total liabilities and stockholders' equity$1,050,569  $1,048,687 


NETGEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and percentage data)
(Unaudited)
    
 Three Months Ended Twelve Months Ended
 December 31,
 2015
 September 27,
 2015
 December 31,
 2014
 December 31,
 2015
 December 31,
 2014
          
Net revenue$360,863  $341,893  $353,182  $1,300,695  $1,393,515 
Cost of revenue255,447  245,566  252,708  933,016  995,597 
Gross profit105,416  96,327  100,474  367,679  397,918 
Gross margin29.2% 28.2% 28.4% 28.3% 28.6%
Operating expenses:         
Research and development23,373  21,572  22,908  86,499  90,902 
Sales and marketing39,256  35,923  39,644  146,794  157,017 
General and administrative12,121  11,803  11,557  45,313  46,552 
Restructuring and other charges14  1,016  19  6,398  2,209 
Litigation reserves, net8    (1,265) (2,682) (1,011)
Goodwill impairment charges    74,196    74,196 
Total operating expenses74,772  70,314  147,059  282,322  369,865 
Income (loss) from operations30,644  26,013  (46,585) 85,357  28,053 
Operating margin8.5% 7.6% (13.2)% 6.6% 2.0%
Interest income111  65  79  295  253 
Other income (expense), net(21) (199) 544  (88) 2,455 
Income (loss) before income taxes30,734  25,879  (45,962) 85,564  30,761 
Provision (benefit) for income taxes8,927  10,780  (5,609) 36,980  21,973 
Net income (loss)$21,807  $15,099  $(40,353) $48,584  $8,788 
          
Net income (loss) per share:         
Basic$0.68  $0.47  $(1.16) $1.47  $0.25 
Diluted$0.66  $0.47  $(1.16) $1.44  $0.24 
          
Weighted average shares used to compute net income (loss) per share:         
Basic32,275  31,979  34,726  33,161  35,771 
Diluted33,110  32,335  34,726  33,788  36,445 


NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
(Unaudited)
 
STATEMENT OF OPERATIONS DATA:
    
 Three Months Ended Twelve Months Ended
 December 31,
 2015
 September 27,
 2015
 December 31,
 2014
 December 31,
 2015
 December 31,
 2014
          
GAAP gross profit$105,416  $96,327  $100,474  $367,679  $397,918 
Amortization of intangibles2,394  2,394  2,625  9,884  10,488 
Stock-based compensation expense376  358  504  1,566  2,037 
Losses on inventory commitments due to restructuring      407   
Non-GAAP gross profit$108,186  $99,079  $103,603  $379,536  $410,443 
Non-GAAP gross margin30.0% 29.0% 29.3% 29.2% 29.5%
          
GAAP research and development$23,373  $21,572  $22,908  $86,499  $90,902 
Stock-based compensation expense(956) (877) (1,038) (3,451) (4,916)
Non-GAAP research and development$22,417  $20,695  $21,870  $83,048  $85,986 
          
GAAP sales and marketing$39,256  $35,923  $39,644  $146,794  $157,017 
Amortization of intangibles(1,771) (1,771) (1,771) (7,085) (7,085)
Stock-based compensation expense(1,184) (1,173) (1,409) (5,022) (6,168)
Non-GAAP sales and marketing$36,301  $32,979  $36,464  $134,687  $143,764 
          
GAAP general and administrative$12,121  $11,803  $11,557  $45,313  $46,552 
Stock-based compensation expense(1,792) (1,703) (1,837) (6,786) (6,893)
Acquisition related expense        (8)
Non-GAAP general and administrative$10,329  $10,100  $9,720  $38,527  $39,651 
          
GAAP total operating expenses$74,772  $70,314  $147,059  $282,322  $369,865 
Amortization of intangibles(1,771) (1,771) (1,771) (7,085) (7,085)
Stock-based compensation expense(3,932) (3,753) (4,284) (15,259) (17,977)
Restructuring and other charges(14) (1,016) (19) (6,398) (2,209)
Acquisition related expense        (8)
Litigation reserves, net(8)   1,265  2,682  1,011 
Goodwill impairment charges    (74,196)   (74,196)
Non-GAAP total operating expenses$69,047  $63,774  $68,054  $256,262  $269,401 


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 Twelve Months Ended
 December 31,
 2015
 September 27,
 2015
 December 31,
 2014
 December 31,
 2015
 December 31,
 2014
          
GAAP operating income (loss)$30,644  $26,013  $(46,585) $85,357  $28,053 
Amortization of intangibles4,165  4,165  4,396  16,969  17,573 
Stock-based compensation expense4,308  4,111  4,788  16,825  20,014 
Restructuring and other charges14  1,016  19  6,398  2,209 
Acquisition-related expense        8 
Losses on inventory commitments due to restructuring      407   
Litigation reserves, net8    (1,265) (2,682) (1,011)
Goodwill impairment charges    74,196    74,196 
Non-GAAP operating income$39,139  $35,305  $35,549  $123,274  $141,042 
Non-GAAP operating margin10.8% 10.3% 10.1% 9.5% 10.1%
          
GAAP other income (expense), net$(21) $(199) $544  $(88) $2,455 
Gain on litigation settlements        (2,800)
Non-GAAP other income (expense), net$(21) $(199) $544  $(88) $(345)
          
GAAP net income (loss)$21,807  $15,099  $(40,353) $48,584  $8,788 
Amortization of intangibles4,165  4,165  4,396  16,969  17,573 
Stock-based compensation expense4,308  4,111  4,788  16,825  20,014 
Restructuring and other charges14  1,016  19  6,398  2,209 
Acquisition-related expense        8 
Losses on inventory commitments due to restructuring      407   
Litigation reserves, net8    (1,265) (2,682) (1,011)
Goodwill impairment charges    74,196    74,196 
Gain on litigation settlements        (2,800)
Tax effect and tax related adjustments(2,800) (2,652) (18,898) (11,051) (26,477)
Non-GAAP net income$27,502  $21,739  $22,883  $75,450  $92,500 


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 Twelve Months Ended
 December 31,
 2015
 September 27,
 2015
 December 31,
 2014
 December 31,
 2015
 December 31,
 2014
          
NET INCOME (LOSS) PER DILUTED SHARE:        
GAAP net income (loss) per diluted share$0.66  $0.47  $(1.16) $1.44  $0.24 
Amortization of intangibles0.13  0.13  0.12  0.50  0.48 
Stock-based compensation expense0.13  0.13  0.14  0.50  0.55 
Restructuring and other charges0.00  0.03  0.00  0.19  0.06 
Acquisition-related expense        0.00 
Losses on inventory commitments due to restructuring      0.01   
Litigation reserves, net 0.00    (0.04) (0.08) (0.03)
Goodwill impairment charges    2.10    2.04 
Gain on litigation settlements        (0.08)
Tax effect and tax related adjustments(0.09) (0.09) (0.53) (0.33) (0.72)
Non-GAAP net income per diluted share *$0.83  $0.67  $0.65  $2.23  $2.54 
          
Shares used in computing GAAP net income (loss) per diluted share 33,110   32,335   34,726   33,788   36,445 
Shares used in computing non-GAAP net income per diluted share 33,110   32,335   35,348   33,788   36,445 
          
*The sum of per diluted share impact may not total to non-GAAP net income per diluted share due to different share counts used in calculating GAAP net loss per diluted share and non-GAAP net income per diluted share. The GAAP net loss per diluted share calculation used a lower share count as it excluded potentially dilutive shares which are included in calculating non-GAAP net income per diluted share.


SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory, headcount and percentage data)
(Unaudited)
  
 Three Months Ended
 December 31,
 2015
 September 27,
 2015
 June 28,
 2015
 March 29,
 2015
 December 31,
 2014
          
Cash, cash equivalents and short-term investments$278,266  $263,848  $212,915  $247,405  $257,129 
Cash, cash equivalents and short-term investments per diluted share$8.40  $8.16  $6.21  $7.01  $7.40 
          
Accounts receivable, net$290,642  $274,173  $246,493  $254,745  $275,689 
Days sales outstanding (DSO) 77   73   78   73   73 
          
Inventories$213,118  $170,013  $188,668  $200,948  $222,883 
Ending inventory turns 4.8   5.8   4.5   4.4   4.5 
                    
Weeks of channel inventory:                   
U.S. retail channel 8.4   9.2   7.0   7.7   7.8 
U.S. distribution channel 5.7   7.9   10.1   11.5   12.0 
EMEA distribution channel 4.6   5.3   4.8   4.4   5.4 
APAC distribution channel 7.0   7.3   7.1   7.4   7.2 
          
Deferred revenue (current and non-current)$33,331  $34,154  $31,116  $25,802  $31,621 
          
Headcount963  959  967  979  1,038 
Non-GAAP diluted shares33,110  32,335  34,308  35,285  35,348 


NET REVENUE BY GEOGRAPHY
     
  Three Months Ended Twelve Months Ended
  December 31,
 2015
 September 27,
 2015
 December 31,
 2014
 December 31,
 2015
 December 31,
 2014
Americas $231,765 64% $219,736 64% $194,673 55% $797,746 61% $770,890 56%
EMEA 86,887 24% 77,725 23% 106,237 30% 321,714 25% 421,887 30%
APAC 42,211 12% 44,432 13% 52,272 15% 181,235 14% 200,738 14%
Total $360,863 100% $341,893 100% $353,182 100% $1,300,695 100% $1,393,515 100%


NET REVENUE BY SEGMENT
     
  Three Months Ended Twelve Months Ended
  December 31,
 2015
 September 27,
 2015
 December 31,
 2014
 December 31,
 2015
 December 31,
 2014
Retail $197,520 54% $164,081 48% $147,864 42% $614,367 48% $508,100 36%
Commercial 63,911 18% 65,187 19% 79,393 22% 264,846 20% 305,677 22%
Service Provider 99,432 28% 112,625 33% 125,925 36% 421,482 32% 579,738 42%
Total $360,863 100% $341,893 100% $353,182 100% $1,300,695 100% $1,393,515 100%

 

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

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February 4, 2016 - 4:05 PM EST


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