NETGEAR® Reports Fourth Quarter and Full Year 2019 Results

SAN JOSE, Calif., Feb. 05, 2020 (GLOBE NEWSWIRE) -- NETGEAR, Inc. NTGR, a global networking company that delivers innovative networking and Internet connected products to consumers and businesses, today reported financial results for the fourth quarter and full year ended December 31, 2019.

• Fourth quarter 2019 net revenue of $253.0 million, a decrease of 12.4% from the comparable prior year quarter.
  
• Fourth quarter 2019 GAAP operating loss of $0.2 million, or (0.1)% of net revenue, as compared to operating income of $17.4 million, or 6.0% of net revenue, in the comparable prior year quarter.
  
  • Fourth quarter 2019 non-GAAP operating income of $11.0 million, or 4.4% of net revenue, as compared to $27.1 million, or 9.4% of net revenue in the comparable prior year quarter.
    
• Fourth quarter 2019 GAAP net loss per diluted share from continuing operations of $0.01, as compared to net loss of $0.02 in the comparable prior year quarter.
  
  • Fourth quarter 2019 non-GAAP net income per diluted share from continuing operations of $0.34, as compared to $0.68 in the comparable prior year quarter.
    
• Fiscal 2019 net revenue of $998.8 million, a decrease of 5.7% from the prior year.
  
• Fiscal 2019 GAAP operating income of $26.2 million, or 2.6% of net revenue, as compared to $38.7 million, or 3.7% of net revenue, in the prior year.
  
  • Fiscal 2019 non-GAAP operating income of $64.5 million, or 6.5% of net revenue, as compared to $76.3 million, or 7.2% of net revenue in the prior year.
    
• Fiscal 2019 GAAP net income per diluted share from continuing operations of $0.81, as compared to $0.52 in the prior year.
  
  • Fiscal 2019 non-GAAP net income per diluted share from continuing operations of $1.87, as compared to $1.94 in the prior year.

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, "While we experienced a heavily promotional holiday season, we proceeded as planned by participating competitively in the WiFi 5 market while aggressively shifting our channel to WiFi 6 products. During the promotional period, we took advantage of incremental opportunities to gain share, thus leading to slightly higher revenue and lower non-GAAP operating margin.  We also took initial steps to adjust inventory in the channel to facilitate our continuing shift to WiFi 6 and Power over Ethernet Plus. We will advance the same strategy in the first half of 2020 and expect WiFi 6 and Power over Ethernet Plus to constitute the majority of the markets in which they play in the second half of this year."

Mr. Lo continued, "Despite the competitive environment, our product and channel execution continues to be stellar as we brought two new WiFi 6 mesh systems to market along with three other WiFi 6 products since the beginning of Q4. We also introduced five new Power over Ethernet Plus switches in the same period. We are driving our roadmap to capitalize on these ongoing technology inflections and emerge again as the leader in the next generation of networking technologies - WiFi 6, 5G, and Power over Ethernet Plus. At CES in Las Vegas, we rolled out the industry's first WiFi 6 DOCSIS 3.1 cable gateway, which won a CES innovation honoree award." 

"We are also pleased to report that, in Q4, we drove strong increases in both the number of our registered users, up from 12.0 million to 12.8 million, and our registered app users, up from 3.6 million to 4.4 million total. The growth of these users serves as the foundation for growing our paid subscriber base, which has increased to 177,000 by the end of the fourth quarter. We will continue to execute our strategy and drive initiatives to extend this momentum in 2020."

Bryan Murray, Chief Financial Officer of NETGEAR, added, "We finished the year with strong cash flow, generating almost $50 million in cash from operations in the fourth quarter, and, with the migration from our China manufacturing operations complete, we expect to continue to generate positive cash flow. Additionally, in the quarter, we repurchased approximately 721,000 shares of common stock for $22.0 million. We remain confident in our ability to generate meaningful levels of cash and plan to continue to opportunistically repurchase shares in future quarters."

Business Outlook

Mr. Murray continued, "Due to reduced service provider shipments as carriers are awaiting roll outs of 5G product offerings, and our continued efforts to rebalance the channel inventory mix towards WiFi 6 products, our first quarter net revenue is expected to be in the range of $205 million to $220 million. Given this decline in our topline, our GAAP operating margin for the first quarter is expected to be in the range of (1.8)% to (0.8)%, and non-GAAP operating margin is expected to be in the range of 2.0% to 3.0%. Our GAAP tax rate is expected to be approximately (16.0)%, and our non-GAAP tax rate is expected to be 25.0% for the first quarter of 2020."

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

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; restructuring and other 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 fourth quarter and full year results and discuss management's expectations for the first quarter of 2020 today, Wednesday, February 5, 2020 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 2864226. 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 NTGR has pioneered advanced networking technologies for homes, businesses, and service providers around the world since 1996 and leads the industry with a broad range of award-winning products designed to simplify and improve people's lives. By enabling people to collaborate and connect to a world of information and entertainment, NETGEAR is dedicated to delivering innovative and advanced connected solutions ranging from mobile and cloud-based services for enhanced control and security, to smart networking products, video over Ethernet for Pro AV applications, easy-to-use WiFi solutions and performance gaming routers to enhance online game play. NETGEAR products are sold in approximately 24,000 retail locations around the globe, and through approximately 20,000 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. 

© 2020 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.

Contact:
NETGEAR Investor Relations
Erik Bylin
investors@netgear.com

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 the Company's ability to generate cash and continue its share repurchase program. 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 II - Item 1A. Risk Factors" in the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 29, 2019, filed with the Securities and Exchange Commission on November 1, 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 other operating expenses, net, 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, change in fair value of contingent consideration, restructuring and other charges, litigation reserves, net, gain/loss on investments, net, 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, change in fair value of contingent consideration, restructuring and other charges, litigation reserves, net, and gain/loss on investments, net. 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-