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NETGEAR® Reports Fourth Quarter and Full Year 2015 Results

  • 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

Source:NetGear, Inc.