• Fourth quarter 2018 net revenue of $288.9 million, an increase of 5.4% from the comparable prior year quarter.

• Fourth quarter 2018 GAAP operating income of $17.4 million, or 6.0% of net revenue, as compared to $5.6 million, or 2.0% of net revenue, in the comparable prior year quarter.

  • Fourth quarter 2018 non-GAAP operating income of $27.1 million, or 9.4% of net revenue, as compared to $12.6 million, or 4.6% of net revenue, in the comparable prior year quarter.

• Fourth quarter 2018 GAAP net income per diluted share from continuing operations of $0.03, as compared to net loss per diluted share from continuing operations of $1.33 in the comparable prior year quarter.

  • Fourth quarter 2018 non-GAAP net income per diluted share from continuing operations of $0.68, as compared to $0.34 in the comparable prior year quarter.

• Fiscal 2018 net revenue of $1.06 billion, an increase of 1.9% from the prior year.

• Fiscal 2018 GAAP operating income of $38.7 million, or 3.7% of net revenue, as compared to $42.6 million, or 4.1% of net revenue in the prior year.

  • Fiscal 2018 non-GAAP operating income of $76.3 million, or 7.2% of net revenue, as compared to $72.4 million, or 7.0% of net revenue, in the prior year.

• Fiscal 2018 GAAP net income per diluted share from continuing operations of $0.57, as compared to net loss per diluted share from continuing operations of $0.35 in 2017.

  • Fiscal 2018 non-GAAP net income per diluted share from continuing operations of $1.94, as compared to $1.68 in 2017.

• The Company distributed its remaining 84.2% ownership of Arlo Technologies, Inc. on December 31, 2018.

• Business outlook1: Company expects first quarter of 2019 net revenue to be in the range of $235 million to $250 million, with GAAP operating margin in the range of 4.5% to 5.5% and non-GAAP operating margin in the range of 8.0% to 9.0%.

SAN JOSE, Calif., Feb. 06, 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 fourth quarter and full year ended December 31, 2018.

Net revenue for the fourth quarter ended December 31, 2018 was $288.9 million, as compared to $274.1 million in the fourth quarter ended December 31, 2017, and $269.4 million in the third quarter ended September 30, 2018. Net income from continuing operations, computed in accordance with GAAP, for the fourth quarter of 2018 was $1.1 million, or $0.03 net income per diluted share from continuing operations. This compared to GAAP net loss from continuing operations of $41.8 million, or $1.33 net loss per diluted share from continuing operations, in the fourth quarter of 2017, and GAAP net income from continuing operations of $16.3 million, or $0.49 net income per diluted share, in the third quarter of 2018. Non-GAAP net income from continuing operations was $0.68 per diluted share in the fourth quarter of 2018, as compared to non-GAAP net income from continuing operations of $0.34 per diluted share in the fourth quarter of 2017 and $0.73 per diluted share in the third quarter of 2018.

Operating margin, computed in accordance with GAAP, for the fourth quarter of 2018 was 6.0%, as compared to 2.0% in the year ago comparable quarter, and 7.4% in the third quarter of 2018. Non-GAAP operating margin was 9.4% in the fourth quarter of 2018, as compared to 4.6% in the fourth quarter of 2017 and 10.5% in the third quarter of 2018.

Net revenue for the full year of 2018 was $1.06 billion, a 1.9% increase as compared to $1.04 billion for 2017. Net income from continuing operations, computed in accordance with GAAP, for the full year 2018 was $19.0 million, or $0.57 per diluted share. This compared to GAAP net loss from continuing operations of $11.1 million, or $0.35 net loss per diluted share, for 2017. Non-GAAP net income from continuing operations was $1.94 per diluted share for the full year of 2018, as compared to non-GAAP net income from continuing operations of $1.68 per diluted share for 2017. Operating margin, computed in accordance with GAAP, for the full year of 2018 was 3.7%, as compared to 4.1% for 2017. Non-GAAP operating margin was 7.2% in the full year of 2018, as compared to 7.0% for 2017.

On December 31, 2018, the Company completed the distribution of 62,500,000 shares of the outstanding common stock of Arlo Technologies, Inc. (“Arlo”) to NETGEAR’s shareholders (the “Distribution”). Prior to the Distribution, NETGEAR owned approximately 84.2% of Arlo common stock. Following the completion of the Distribution, NETGEAR no longer owns any shares of Arlo common stock.

Beginning in the fourth quarter of 2018, Arlo’s historical financial results for periods prior to the Distribution will be reflected in NETGEAR’s consolidated financial statements as discontinued operations. Supplemental financial tables for NETGEAR's prior twelve quarters, excluding Arlo, are provided in this release.

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 fourth quarter of 2018, driven by Orbi, Nighthawk Pro Gaming, cable modems and gateways, and our SMB switching portfolio, in particular the PoE and ProAV switches. Our financial results for the quarter came in at the high end of our guidance range for revenue and operating margin. We delivered a healthy profit in Q4 and saw year-over-year top line growth for both the CHP and SMB segments."

Mr. Lo continued, “We are pleased to report that we reached 9.7 million registered users in Q4, which represents the foundation for building our paid subscriber base. We are also thrilled to report that our number of registered app users reached 1.4 million for the fourth quarter, which is over double the amount that we last shared in September of 2018."

"On the product front, we had two significant product launches during the quarter, which were our industry-leading Wi-Fi 6 router, as well as the world's first millimeter wave 5G device with AT&T. We were also pleased with the reception that Meural, the world's leading smart digital canvas, received during the holiday season and at the Consumer Electronics Show."

Bryan Murray, Chief Financial Officer of NETGEAR, added, "On December 31st, we completed the spin-off of the Arlo business through a distribution of Arlo Technologies common stock to NETGEAR’s shareholders. Upon the completion of the distribution, NETGEAR no longer owns any shares of Arlo common stock. Arlo’s financial results for all historical periods, including the quarter in which the distribution occurred, will now be reclassified into NETGEAR discontinued operations. We’d like to acknowledge all of the hard work from both the NETGEAR and Arlo teams that went into completing the spin.”

Business Outlook

Bryan Murray, Chief Financial Officer of NETGEAR, added, "Looking forward to the first quarter of 2019, in line with the seasonality we described previously, we expect net revenue to be in the range of $235 million to $250 million. GAAP operating margin is expected to be in the range of 4.5% to 5.5%. Non-GAAP operating margin is expected to be in the range of 8.0% to 9.0%. Our GAAP tax rate is expected to be approximately 27.0% and our non-GAAP tax rate is expected to be 24.5% for the first quarter of 2019.”

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

 Three months ending
 March 30, 2019
 Operating Margin
Rate
 Tax Rate
GAAP4.5% - 5.5% 27.0%
Estimated adjustments for1:   
Amortization of intangibles0.9% __
Stock-based compensation expense2.6% __
Tax effects of non-GAAP adjustments__ (2.5)%
Non-GAAP8.0% - 9.0% 24.5%
    

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 relating to tax windfalls or shortfalls from equity awards. 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 2019 today, Wednesday, February 6, 2019 at 5 p.m. ET (2 p.m. PT). The toll free dial-in number for the live audio call is (866) 393-4306. The international dial-in number for the live audio call is (734) 385-2616. The conference ID for the call is 6598729. 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 (Wi-Fi 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 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.

© 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 II - Item 1A. Risk Factors,” in the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2018, filed with the Securities and Exchange Commission on November 2, 2018. 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, gain (loss) on investments, impairment charges to investments, gain on litigation settlements, 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, gain on litigation settlements, gain (loss) 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


 
NETGEAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 As of
 December 31,
2018
 December 31,
2017
ASSETS   
Current assets:   
Cash and cash equivalents$201,047  $202,727 
Short-term investments73,317  126,926 
Accounts receivable, net303,667  255,118 
Inventories243,871  162,942 
Prepaid expenses and other current assets35,997  24,826 
Current assets of discontinued operations  243,125 
Total current assets857,899  1,015,664 
Property and equipment, net20,177  17,349 
Intangibles, net17,146  20,640 
Goodwill80,721  64,314 
Other non-current assets67,433  49,471 
Non-current assets of discontinued operations  41,126 
Total assets$1,043,376  $1,208,564 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable$139,748  $91,205 
Accrued employee compensation31,666  24,520 
Other accrued liabilities199,472  149,821 
Deferred revenue11,086  21,212 
Income taxes payable2,020  7,015 
Current liabilities of discontinued operations  130,663 
Total current liabilities383,992  424,436 
Non-current income taxes payable19,600  31,544 
Other non-current liabilities12,232  8,766 
Non-current liabilities of discontinued operations  13,333 
Total liabilities415,824  478,079 
Stockholders’ equity:   
Common stock32  31 
Additional paid-in capital793,585  603,137 
Accumulated other comprehensive loss(15) (851)
Retained earnings (losses)(166,050) 128,168 
Total stockholders’ equity627,552  730,485 
Total liabilities and stockholders’ equity$1,043,376  $1,208,564 
        



 
NETGEAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and percentage data)
(Unaudited)
 
 Three Months Ended Twelve Months Ended
 December 31,
 2018
 September 30,
 2018
 December 31,
 2017
 December 31,
 2018
 December 31,
 2017
          
Net revenue$288,928  $269,411  $274,149  $1,058,816  $1,039,169 
Cost of revenue198,274  174,966  198,020  717,118  731,453 
Gross profit90,654  94,445  76,129  341,698  307,716 
Gross margin31.4% 35.1% 27.8% 32.3% 29.6%
Operating expenses:         
Research and development19,143  20,136  19,397  82,416  71,893 
Sales and marketing38,251  37,892  36,667  152,569  138,679 
General and administrative14,454  16,184  14,385  64,857  54,346 
Separation expense550  379    929   
Restructuring and other charges830  1  19  2,198  97 
Litigation reserves, net10    108  15  148 
Total operating expenses73,238  74,592  70,576  302,984  265,163 
Income from operations17,416  19,853  5,553  38,714  42,553 
Operating margin6.0% 7.4% 2.0% 3.7% 4.1%
Interest income1,174  985  725  3,980  2,114 
Other income (expense), net85  955  440  510  1,557 
Income before income taxes18,675  21,793  6,718  43,204  46,224 
Provision for income taxes17,548  5,483  48,496  24,216  57,357 
Net income (loss) from continuing operations1,127  16,310  (41,778) 18,988  (11,133)
Net income (loss) from discontinued operations, net of tax(21,861) (7,160) 9,844  (30,212) 30,569 
Net income (loss)(20,734) 9,150  (31,934) (11,224) 19,436 
Net loss attributable to non-controlling interest in discontinued operations(7,786) (799)   (8,585)  
Net income (loss) attributable to NETGEAR, Inc.$(12,948) $9,949  $(31,934) $(2,639) $19,436 
          
Net income (loss) per share - basic:         
Income (loss) from continuing operations attributable to NETGEAR, Inc.$0.04  $0.51  $(1.33) $0.60  $(0.35)
Income (loss) from discontinued operations attributable to NETGEAR,Inc.(0.45) (0.20) 0.31  (0.68) 0.96 
Net income (loss) per share attributable to NETGEAR, Inc.$(0.41) $0.31  $(1.02) $(0.08) $0.61 
          
Net income (loss) per share - diluted:         
Income (loss) from continuing operations attributable to NETGEAR, Inc.$0.03  $0.49  $(1.33) $0.57  $(0.35)
Income (loss) from discontinued operations attributable to NETGEAR,Inc.(0.42) (0.19) 0.31  (0.65) 0.96 
Net income (loss) per share attributable to NETGEAR, Inc.$(0.39) $0.30  $(1.02) $(0.08) $0.61 
          
Weighted average shares used to compute net income (loss) per share - Basic:31,604  31,802  31,379  31,626  32,097 
Weighted average shares used to compute net income (loss) per share - Diluted32,803  32,974  31,379  33,137  32,097 
               



 
NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
(Unaudited)
 
STATEMENT OF OPERATIONS DATA, FISCAL 2018
          
 Three Months Ended Twelve Months
Ended
 December 31,
 2018
 September 30,
 2018
 July 1,
 2018
 April 1,
 2018
 December 31,
 2018
          
GAAP gross profit$90,654  $94,445  $80,280  $76,319  $341,698 
GAAP gross margin31.4% 35.1% 31.4% 31.1% 32.3%
Amortization of intangibles181  116  209  323  829 
Stock-based compensation expense681  619  572  563  2,435 
Non-GAAP gross profit$91,516  $95,180  $81,061  $77,205  $344,962 
Non-GAAP gross margin31.7% 35.3% 31.8% 31.5% 32.6%
          
GAAP research and development$19,143  $20,136  $21,946  $21,191  $82,416 
Stock-based compensation expense(1,112) (1,037) (1,122) (1,012) (4,283)
Non-GAAP research and development$18,031  $19,099  $20,824  $20,179  $78,133 
          
GAAP sales and marketing$38,251  $37,892  $38,552  $37,874  $152,569 
Amortization of intangibles(1,831) (1,806) (1,757) (1,756) (7,150)
Stock-based compensation expense(1,904) (1,970) (2,188) (2,205) (8,267)
Non-GAAP sales and marketing$34,516  $34,116  $34,607  $33,913  $137,152 
          
GAAP general and administrative$14,454  $16,184  $18,458  $15,761  $64,857 
Stock-based compensation expense(2,536) (2,492) (3,364) (3,084) (11,476)
Non-GAAP general and administrative$11,918  $13,692  $15,094  $12,677  $53,381 
          
GAAP total operating expenses$73,238  $74,592  $80,337  $74,817  $302,984 
Amortization of intangibles(1,831) (1,806) (1,757) (1,756) (7,150)
Stock-based compensation expense(5,552) (5,499) (6,674) (6,301) (24,026)
Separation expense(550) (379)   $  (929)
Restructuring and other charges(830) (1) (1,376) 9  (2,198)
Litigation reserves, net(10)   (5)   (15)
Non-GAAP total operating expenses$64,465  $66,907  $70,525  $66,769  $268,666 
                    



 
NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
(Unaudited)
 
STATEMENT OF OPERATIONS DATA, FISCAL 2018
(CONTINUED)
    
 Three Months Ended Twelve Months
Ended
 December 31,
 2018
 September 30,
 2018
 July 1,
 2018
 April 1,
 2018
 December 31,
 2018
          
GAAP operating income$17,416  $19,853  $(57) $1,502  $38,714 
GAAP operating margin6.0% 7.4% 0.0% 0.6% 3.7%
Amortization of intangibles2,012  1,922  1,966  2,079  7,979 
Stock-based compensation expense6,233  6,118  7,246  6,864  26,461 
Separation expense550  379      929 
Restructuring and other charges830  1  1,376  (9) 2,198 
Litigation reserves, net10    5    15 
Non-GAAP operating income$27,051  $28,273  $10,536  $10,436  $76,296 
Non-GAAP operating margin9.4% 10.5% 4.1% 4.3% 7.2%
          
GAAP other income (expense), net$85  $955  $788  $(1,318) $510 
Gain on investments(190) (349)     (539)
Impairment charges to investments      1,400  1,400 
Non-GAAP other income (expense), net$(105) $606  $788  $82  $1,371 
          
GAAP net income from continuing operations$1,127  $16,310  $533  $1,018  $18,988 
Amortization of intangibles2,012  1,922  1,966  2,079  7,979 
Stock-based compensation expense6,233  6,118  7,246  6,864  26,461 
Separation expense550  379      929 
Restructuring and other charges830  1  1,376  (9) 2,198 
Litigation reserves, net10    5    15 
Gain on investments(190) (349)     (539)
Impairment charges to investments      1,400  1,400 
Tax effects of above non-GAAP adjustments11,762  (312) (1,546) (2,886) 7,018 
Non-GAAP net income from continuing operations$22,334  $24,069  $9,580  $8,466  $64,449 
                    



 
NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except per share data)
(Unaudited)
 
STATEMENT OF OPERATIONS DATA, FISCAL 2018
(CONTINUED)
          
 Three Months Ended Twelve Months
Ended
 December 31,
 2018
 September 30,
 2018
 July 1,
 2018
 April 1,
 2018
 December 31,
 2018
NET INCOME PER DILUTED SHARE:         
GAAP net income per diluted share from continuing operations$0.03  $0.49  $0.02  $0.03  $0.57 
Amortization of intangibles0.06  0.06  0.06  0.06  0.24 
Stock-based compensation expense0.19  0.19  0.22  0.21  0.80 
Separation expense0.02  0.01      0.03 
Restructuring and other charges0.03  0.00  0.04  0.00  0.07 
Litigation reserves, net0.00    0.00    0.00 
Gain on investments(0.01) (0.01)     (0.02)
Impairment charges to investments      0.04  0.04 
Tax effects of above non-GAAP adjustments0.36  (0.01) (0.05) (0.08) 0.21 
Non-GAAP net income per diluted share from continuing operations$0.68  $0.73  $0.29  $0.26  $1.94 
                    



 
NETGEAR, INC.
SUPPLEMENTAL FINANCIAL INFORMATION, FISCAL 2018
(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory, headcount and percentage data)
(Unaudited)
 
 Three Months Ended
 December 31,
 2018
 September 30,
 2018
 July 1,
 2018
 April 1,
 2018
        
Cash, cash equivalents and short-term investments$274,364  $341,968  $355,489  $386,032 
Cash, cash equivalents and short-term investments per diluted share$8.36  $10.37  $10.86  $11.82 
        
Accounts receivable, net$303,667  $241,862  $232,770  $214,843 
Days sales outstanding (DSO) 97   82   83   80 
        
Inventories$243,871  $198,037  $168,263  $162,497 
Ending inventory turns 3.3   3.5   4.2   4.2 
                
Weeks of channel inventory:               
U.S. retail channel 7.7   9.8   10.6   8.9 
U.S. distribution channel 5.2   4.1   4.3   4.2 
EMEA distribution channel 4.1   4.3   4.1   4.4 
APAC distribution channel 7.4   6.6   7.9   6.0 
        
Deferred revenue (current and non-current)$11,865  $9,726  $5,577  $6,075 
        
Headcount837  833  901  903 
Non-GAAP diluted shares32,803  32,974  32,742  32,660 
            

NET REVENUE BY GEOGRAPHY

  
 Three Months Ended Twelve Months
Ended
 December 31,
 2018
 September 30,
 2018
 July 1,
 2018
 April 1,
 2018
 December 31,
 2018
Americas$190,335 66%  $175,932 65%  $174,414 68%  $160,012 66%  $700,693 66% 
EMEA58,798 20%  53,158 20%  48,209 19%  47,434 19%  207,599 20% 
APAC39,795 14%  40,321 15%  32,653 13%  37,755 15%  150,524 14% 
Total$288,928 100%  $269,411 100%  $255,276 100%  $245,201 100%  $1,058,816 100% 
                              



 
NETGEAR, INC.
SEGMENT FINANCIAL INFORMATION, FISCAL 2018
(In thousands, except percentage data)
(Unaudited)
 
 Three Months Ended Twelve Months
Ended
 December 31,
 2018
 September 30,
 2018
 July 1,
 2018
 April 1,
 2018
 December 31,
 2018
Net revenue:         
Connected Home$215,638  $194,683  $186,424  $174,315  $771,060 
SMB73,290  74,728  68,852  70,886  287,756 
Total net revenue$288,928  $269,411  $255,276  $245,201  $1,058,816 
Contribution income:         
Connected Home$29,118  $30,071  $20,939  $16,212  $96,340 
Connected Home contribution margin13.5% 15.4% 11.2% 9.3% 12.5%
SMB$18,392  $20,593  $14,635  $16,522  $70,142 
SMB contribution margin25.1% 27.6% 21.3% 23.3% 24.4%
Total segment contribution income$47,510  $50,664  $35,574  $32,734  $166,482 
Corporate and unallocated costs(20,459) (22,391) (25,038) (22,298) (90,186)
Amortization of intangibles (1)(2,012) (1,922) (1,966) (2,079) (7,979)
Stock-based compensation expense(6,233) (6,118) (7,246) (6,864) (26,461)
Separation expense(550) (379)     (929)
Restructuring and other charges(830) (1) (1,376) 9  (2,198)
Litigation reserves, net(10)   (5)   (15)
Interest income1,174  985  1,073  748  3,980 
Other income (expense), net85  955  788  (1,318) 510 
Income before income taxes$18,675  $21,793  $1,804  $932  $43,204 
                    

___________________
(1)  Amount excludes amortization expense related to patents within purchased intangibles in cost of revenue.

SERVICE PROVIDER NET REVENUE

 Three Months Ended Twelve Months
Ended
 December 31,
 2018
 September 30,
 2018
 July 1,
 2018
 April 1,
 2018
 December 31,
 2018
Connected Home$37,772  $30,769  $46,333  $41,797  $156,671 
SMB670  1,191  700  1,063  3,624 
Total service provider net revenue$38,442  $31,960  $47,033  $42,860  $160,295 
                    



 
NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
(Unaudited)
 
STATEMENT OF OPERATIONS DATA, FISCAL 2017
          
 Three Months Ended Twelve Months
Ended
 December 31,
 2017
 October 1,
 2017
 July 2,
 2017
 April 2,
 2017
 December 31,
 2017
          
GAAP gross profit$76,129  $76,096  $75,380  $80,111  $307,716 
GAAP gross margin27.8% 30.2% 30.0% 30.6% 29.6%
Amortization of intangibles323  471  808  2,036  3,638 
Stock-based compensation expense347  331  401  327  1,406 
Non-GAAP gross profit$76,799  $76,898  $76,589  $82,474  $312,760 
Non-GAAP gross margin28.0% 30.5% 30.4% 31.6% 30.1%
          
GAAP research and development$19,397  $17,958  $17,840  $16,698  $71,893 
Stock-based compensation expense(764) (743) (766) (695) (2,968)
Non-GAAP research and development$18,633  $17,215  $17,074  $16,003  $68,925 
          
GAAP sales and marketing$36,667  $34,405  $32,532  $35,075  $138,679 
Amortization of intangibles(1,756) (1,756) (1,757) (1,756) (7,025)
Stock-based compensation expense(1,438) (1,464) (1,374) (1,205) (5,481)
Non-GAAP sales and marketing$33,473  $31,185  $29,401  $32,114  $126,173 
          
GAAP general and administrative$14,385  $14,120  $12,725  $13,116  $54,346 
Stock-based compensation expense(2,339) (2,349) (2,323) (2,103) (9,114)
Non-GAAP general and administrative$12,046  $11,771  $10,402  $11,013  $45,232 
          
GAAP total operating expenses$70,576  $66,517  $63,144  $64,926  $265,163 
Amortization of intangibles(1,756) (1,756) (1,757) (1,756) (7,025)
Stock-based compensation expense(4,541) (4,556) (4,463) (4,003) (17,563)
Restructuring and other charges(19) (19) (22) (37) (97)
Litigation reserves, net(108) (15) (25)   (148)
Non-GAAP total operating expenses$64,152  $60,171  $56,877  $59,130  $240,330 
                    



 
NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
(Unaudited)
 
STATEMENT OF OPERATIONS DATA, FISCAL 2017
(CONTINUED) 
    
 Three Months Ended Twelve Months
Ended
 December 31,
 2017
 October 1,
 2017
 July 2,
 2017
 April 2,
 2017
 December 31,
 2017
          
GAAP operating income$5,553  $9,579  $12,236  $15,185  $42,553 
GAAP operating margin2.0% 3.8% 4.9% 5.8% 4.1%
Amortization of intangibles2,079  2,227  2,565  3,792  10,663 
Stock-based compensation expense4,888  4,887  4,864  4,330  18,969 
Restructuring and other charges19  19  22  37  97 
Litigation reserves, net108  15  25    148 
Non-GAAP operating income$12,647  $16,727  $19,712  $23,344  $72,430 
Non-GAAP operating margin4.6% 6.6% 7.8% 8.9% 7.0%
          
GAAP net income (loss) from continuing operations$(41,778) $9,624  $9,989  $11,032  $(11,133)
Amortization of intangibles2,079  2,227  2,565  3,792  10,663 
Stock-based compensation expense4,888  4,887  4,864  4,330  18,969 
Restructuring and other charges19  19  22  37  97 
Litigation reserves, net108  15  25    148 
Tax effects of above non-GAAP adjustments45,814  (2,321) (3,274) (3,483) 36,736 
Non-GAAP net income from continuing operations$11,130  $14,451  $14,191  $15,708  $55,480 
                    



 
NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
(Unaudited)
 
STATEMENT OF OPERATIONS DATA, FISCAL 2017
 (CONTINUED)
          
 Three Months Ended Twelve Months
Ended
 December 31,
 2017
 October 1,
 2017
 July 2,
 2017
 April 2,
 2017
 December 31,
 2017
NET INCOME (LOSS) PER DILUTED SHARE:         
GAAP net income (loss) per diluted share from continuing operations$(1.33) $0.30  $0.30  $0.32  $(0.35)
Amortization of intangibles0.06  0.07  0.08  0.11  0.32 
Stock-based compensation expense0.15  0.15  0.15  0.13  0.57 
Restructuring and other charges0.00  0.00  0.00  0.00  0.00 
Litigation reserves, net0.00  0.00  0.00    0.00 
Tax effects of above non-GAAP adjustments1.42  (0.07) (0.10) (0.10) 1.11 
Non-GAAP net income per diluted share from continuing operations*$0.34  $0.45  $0.43  $0.46  $1.68 
          
Shares used in computing GAAP net income (loss) per diluted share31,379  32,393  33,116  34,136  32,097 
Shares used in computing non-GAAP net income per diluted share32,270  32,393  33,116  34,136  33,044 
               

* The per share reconciliation of GAAP to non-GAAP may not aggregate due to both calculations utilizing a different share basis. The GAAP net loss per diluted share calculation uses a lower share count as it excludes potentially dilutive shares included in the non-GAAP net income per diluted share calculation.


 
NETGEAR, INC.
SUPPLEMENTAL FINANCIAL INFORMATION, FISCAL 2017
(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory, headcount and percentage data)
(Unaudited)
 
 Three Months Ended
 December 31,
 2017
 October 1,
 2017
 July 2,
 2017
 April 2,
 2017
        
Cash, cash equivalents and short-term investments$329,653  $372,580  $305,455  $361,083 
Cash, cash equivalents and short-term investments per diluted share$10.22  $11.50  $9.22  $10.58 
        
Accounts receivable, net$255,118  $201,458  $227,068  $204,053 
Days sales outstanding (DSO) 85   73   82   72 
        
Inventories$162,942  $173,896  $193,446  $200,530 
Ending inventory turns 4.9   4.0   3.6   3.6 
                
Weeks of channel inventory:               
U.S. retail channel 7.4   10.1   8.2   7.8 
U.S. distribution channel 5.0   6.3   4.3   5.6 
EMEA distribution channel 6.0   5.3   4.7   4.7 
APAC distribution channel 5.0   6.1   7.0   5.8 
        
Deferred revenue (current and non-current)$21,995  $17,750  $14,923  $14,860 
        
Headcount901  884  861  856 
Non-GAAP diluted shares32,270  32,393  33,116  34,136 
            

NET REVENUE BY GEOGRAPHY

 Three Months Ended Twelve Months
Ended
 December 31,
 2017
 October 1,
 2017
 July 2,
 2017
 April 2,
 2017
 December 31,
 2017
Americas$176,880 64%  $160,405 64%  $159,730 64%  $168,074 65%  $665,089 64% 
EMEA59,207 22%  46,491 18%  45,800 18%  45,576 17%  197,074 19% 
APAC38,062 14%  45,054 18%  46,155 18%  47,735 18%  177,006 17% 
Total$274,149 100%  $251,950 100%  $251,685 100%  $261,385 100%  $1,039,169 100% 
                              



 
NETGEAR, INC.
SEGMENT FINANCIAL INFORMATION, FISCAL 2017
(In thousands, except percentage data)
(Unaudited)
 
 Three Months Ended Twelve Months
Ended
 December 31,
 2017
 October 1,
 2017
 July 2,
 2017
 April 2,
 2017
 December 31,
 2017
Net revenue:         
Connected Home$203,548  $187,270  $183,701  $193,742  $768,261 
SMB70,601  64,680  67,984  67,643  270,908 
Total net revenue$274,149  $251,950  $251,685  $261,385  $1,039,169 
Contribution income:         
Connected Home$17,035  $22,087  $19,654  $25,094  $83,870 
Connected Home contribution margin8.4% 11.8% 10.7% 13.0% 10.9%
SMB$15,975  $13,778  $17,435  $16,677  $63,865 
SMB contribution margin22.6% 21.3% 25.6% 24.7% 23.6%
Total segment contribution income$33,010  $35,865  $37,089  $41,771  $147,735 
Corporate and unallocated costs(20,363) (19,138) (17,377) (18,427) (75,305)
Amortization of intangibles (1)(2,079) (2,227) (2,565) (3,792) (10,663)
Stock-based compensation expense(4,888) (4,887) (4,864) (4,330) (18,969)
Restructuring and other charges(19) (19) (22) (37) (97)
Litigation reserves, net(108) (15) (25)   (148)
Interest income725  502  482  405  2,114 
Other income (expense), net440  493  332  292  1,557 
Income before income taxes$6,718  $10,574  $13,050  $15,882  $46,224 
                    

___________________
(1) Amount excludes amortization expense related to patents within purchased intangibles in cost of revenue.

SERVICE PROVIDER NET REVENUE

 Three Months Ended Twelve Months
Ended
 December 31,
 2017
 October 1,
 2017
 July 2,
 2017
 April 2,
 2017
 December 31,
 2017
Connected Home$43,877  $44,631  $48,485  $53,193  $190,186 
SMB776  1,114  588  790  3,268 
Total service provider net revenue$44,653  $45,745  $49,073  $53,983  $193,454 
                    



 
NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
(Unaudited)
 
STATEMENT OF OPERATIONS DATA, FISCAL 2016
          
 Three Months Ended Twelve Months
Ended
 December 31,
 2016
 October 2,
 2016
 July 3,
 2016
 April 3,
 2016
 December 31,
 2016
          
GAAP gross profit$98,398  $92,149  $86,897  $96,458  $373,902 
GAAP gross margin33.6% 31.6% 31.9% 33.7% 32.7%
Amortization of intangibles2,084  2,084  2,084  2,084  8,336 
Stock-based compensation expense316  364  403  390  1,473 
Non-GAAP gross profit$100,798  $94,597  $89,384  $98,932  $383,711 
Non-GAAP gross margin34.4% 32.4% 32.8% 34.6% 33.6%
          
GAAP research and development$18,465  $17,224  $17,171  $18,044  $70,904 
Stock-based compensation expense(712) (750) (735) (529) (2,726)
Non-GAAP research and development$17,753  $16,474  $16,436  $17,515  $68,178 
          
GAAP sales and marketing$35,840  $34,153  $34,195  $35,403  $139,591 
Amortization of intangibles(1,756) (1,756) (1,757) (1,756) (7,025)
Stock-based compensation expense(1,194) (1,263) (1,307) (1,170) (4,934)
Non-GAAP sales and marketing$32,890  $31,134  $31,131  $32,477  $127,632 
          
GAAP general and administrative$14,107  $14,070  $12,989  $12,830  $53,996 
Stock-based compensation expense(1,976) (2,040) (2,095) (1,897) (8,008)
Non-GAAP general and administrative$12,131  $12,030  $10,894  $10,933  $45,988 
          
GAAP total operating expenses$68,448  $65,334  $65,658  $68,965  $268,405 
Amortization of intangibles(1,756) (1,756) (1,757) (1,756) (7,025)
Stock-based compensation expense(3,882) (4,053) (4,137) (3,596) (15,668)
Restructuring and other charges(21) 126  (1,268) (2,678) (3,841)
Litigation reserves, net(15) (13) (35) (10) (73)
Non-GAAP total operating expenses$62,774  $59,638  $58,461  $60,925  $241,798 
                    



 
NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
(Unaudited)
 
STATEMENT OF OPERATIONS DATA, FISCAL 2016
(CONTINUED)
    
 Three Months Ended Twelve Months
Ended
 December 31,
 2016
 October 2,
 2016
 July 3,
 2016
 April 3,
 2016
 December 31,
 2016
          
GAAP operating income$29,950  $26,815  $21,239  $27,493  $105,497 
GAAP operating margin10.2% 9.2% 7.8% 9.6% 9.2%
Amortization of intangibles3,840  3,840  3,841  3,840  15,361 
Stock-based compensation expense4,198  4,417  4,540  3,986  17,141 
Restructuring and other charges21  (126) 1,268  2,678  3,841 
Litigation reserves, net15  13  35  10  73 
Non-GAAP operating income$38,024  $34,959  $30,923  $38,007  $141,913 
Non-GAAP operating margin13.0% 12.0% 11.4% 13.3% 12.4%
          
GAAP other income (expense), net$383  $110  $(338) $(321) $(166)
Gain on litigation settlements      (5) (5)
Loss pertaining to investments  68  479    547 
Non-GAAP other income (expense), net$383  $178  $141  $(326) $376 
          
GAAP net income from continuing operations$20,050  $19,154  $13,277  $17,831  $70,312 
Amortization of intangibles3,840  3,840  3,841  3,840  15,361 
Stock-based compensation expense4,198  4,417  4,540  3,986  17,141 
Restructuring and other charges21  (126) 1,268  2,678  3,841 
Litigation reserves, net15  13  35  10  73 
Gain on litigation settlements      (5) (5)
Loss pertaining to investments  68  479    547 
Tax effects of above non-GAAP adjustments(1,049) (4,014) (2,776) (2,953) (10,792)
Non-GAAP net income from continuing operations$27,075  $23,352  $20,664  $25,387  $96,478 
                    



 
NETGEAR, INC.
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentage data)
(Unaudited)
 
STATEMENT OF OPERATIONS DATA, FISCAL 2016
(CONTINUED):
 Three Months Ended Twelve Months
Ended
 December 31,
 2016
 October 2,
 2016
 July 3,
 2016
 April 3,
 2016
 December 31,
 2016
NET INCOME PER DILUTED SHARE:         
GAAP net income per diluted share from continuing operations$0.59  $0.56  $0.40  $0.54  $2.08 
Amortization of intangibles0.11  0.11  0.11  0.12  0.46 
Stock-based compensation expense0.12  0.13  0.14  0.12  0.51 
Restructuring and other charges0.00  0.00  0.04  0.08  0.11 
Litigation reserves, net0.00  0.00  0.00  0.00  0.00 
Gain on litigation settlements      0.00  0.00 
Loss pertaining to investments  0.00  0.01    0.02 
Tax effects of above non-GAAP adjustments(0.02) (0.11) (0.08) (0.10) (0.32)
Non-GAAP net income per diluted share from continuing operations$0.80  $0.69  $0.62  $0.76  $2.86 
                    



 
NETGEAR, INC.
SUPPLEMENTAL FINANCIAL INFORMATION, FISCAL 2016
(In thousands, except per share data, DSO, inventory turns, weeks of channel inventory, headcount and percentage data)
(Unaudited)
 
 Three Months Ended
 December 31,
 2016
 October 2,
 2016
 July 3,
 2016
 April 3,
 2016
        
Cash, cash equivalents and short-term investments$365,728  $402,991  $352,647  $333,270 
Cash, cash equivalents and short-term investments per diluted share$10.78  $11.88  $10.53  $10.02 
        
Accounts receivable, net$231,997  $196,134  $196,971  $197,222 
Days sales outstanding (DSO) 71   61   66   65 
        
Inventories$200,144  $186,352  $179,538  $182,486 
Ending inventory turns 3.9   4.3   4.1   4.2 
                
Weeks of channel inventory:               
U.S. retail channel 6.3   8.8   9.1   8.6 
U.S. distribution channel 7.2   4.4   5.0   5.5 
EMEA distribution channel 4.9   4.2   3.7   4.5 
APAC distribution channel 7.4   4.4   6.6   6.3 
        
Deferred revenue (current and non-current)$19,554  $14,378  $19,657  $19,487 
        
Headcount877  881  866  877 
Non-GAAP diluted shares33,925  33,913  33,493  33,269 
            

NET REVENUE BY GEOGRAPHY

 Three Months Ended Twelve Months
Ended
 December 31,
 2016
 October 2,
 2016
 July 3,
 2016
 April 3,
 2016
 December 31,
 2016
Americas$190,259 64%  $188,441 64%  $180,021 66%  $176,259 61%  $734,980 64% 
EMEA60,298 21%  51,909 18%  45,806 17%  59,541 21%  217,554 19% 
APAC42,584 15%  51,578 18%  46,378 17%  50,371 18%  190,911 17% 
Total$293,141 100%  $291,928 100%  $272,205 100%  $286,171 100%  $1,143,445 100% 
                              



 
NETGEAR, INC.
SEGMENT FINANCIAL INFORMATION, FISCAL 2016
(In thousands, except percentage data)
(Unaudited)
 
 Three Months Ended Twelve Months
Ended
 December 31,
 2016
 October 2,
 2016
 July 3,
 2016
 April 3,
 2016
 December 31,
 2016
Net revenue:         
Connected Home$215,597  $218,323  $197,293  $215,716  $846,929 
SMB77,544  73,605  74,912  70,455  296,516 
Total net revenue$293,141  $291,928  $272,205  $286,171  $1,143,445 
Contribution income:         
Connected Home$36,670  $34,305  $28,945  $39,077  $138,997 
Connected Home contribution margin17.0% 15.7% 14.7% 18.1% 16.4%
SMB$19,770  $18,444  $18,598  $15,727  $72,539 
SMB contribution margin25.5% 25.1% 24.8% 22.3% 24.5%
Total segment contribution income$56,440  $52,749  $47,543  $54,804  $211,536 
Corporate and unallocated costs(18,416) (17,790) (16,620) (16,797) (69,623)
Amortization of intangibles (1)(3,840) (3,840) (3,841) (3,840) (15,361)
Stock-based compensation expense(4,198) (4,417) (4,540) (3,986) (17,141)
Restructuring and other charges(21) 126  (1,268) (2,678) (3,841)
Litigation reserves, net(15) (13) (35) (10) (73)
Interest income360  291  280  233  1,164 
Other income (expense), net383  110  (338) (321) (166)
Income before income taxes$30,693  $27,216  $21,181  $27,405  $106,495 
                    

___________________
(1) Amount excludes amortization expense related to patents within purchased intangibles in cost of revenue.

SERVICE PROVIDER NET REVENUE

 Three Months Ended Twelve Months
Ended
 December 31,
 2016
 October 2,
 2016
 July 3,
 2016
 April 3,
 2016
 December 31,
 2016
Connected Home$45,730  $66,042  $61,356  $76,852  $249,980 
SMB686  1,295  746  1,448  4,175 
Total service provider net revenue$46,416  $67,337  $62,102  $78,300  $254,155 
                    
Contact:
NETGEAR Investor Relations
Christopher Genualdi